Homework Help for Finance

Recommend Several ways a corporation can reduce their borrowingcosts to gain a competitive advantage over a rival

What characteristics in a person would make them a goodday trader? What tools would they need? Where would they set upshop? Would you expand on this point?

Linda's husband has just passed away and she is entitled to$100,000 insurance benefit. She chooses to receive the benefitannually over 15 payments, with the first payment immediately.Suppose the interest rate that her benefit gets is 4%, but theinsurance company can actually invest the money at 5%. How much isthe insurance company making (in terms of present value) by payingout the benefit in installments instead of in a lump sum?

James and Shannon are 25, newly married, and ready to embark onthe journey of life. They both plan to retire 45 years from today.Because their budget seems tight right now, they had been thinkingthat they would wait at least 10 years and then start investing$2400 per year to prepare for retirement. Shannon just told James,that she had heard that they would actually have more money the daythey retire if they put $2400 per year away for the next 10 years -and then simply let that money sit for the next 35 years withoutany additional payments - than they would have if they waited 10years to start investing for retirement and then made yearlypayments for 35 years (as they originally planned to do).

Assume that all payments are made at the end of a year, and thatthe rate of return on all yearly investments will be 7.2%annually.

a) How much money will James and Shannon have in 45 years ifthey do nothing for the next 10 years, then puts $2400 per yearaway for the remaining 35 years?

b) How much money will James and Shannon have in 10 years ifthey put $2400 per year away for the next 10 years?

b2) How much will the amount you just computed grow to if itremains invested for the remaining 35 years, but without anyadditional yearly deposits being made?

c) How much money will James and Shannon have in 45 years ifthey put $2400 per year away for each of the next 45 years?

d) How much money will James and Shannon have in 45 years ifthey put away $200 per MONTH at the end of each month for the next45 years? (Remember to adjust the 9% annual rate to a Rate permonth!) (Round this rate per month to 5 places past the decimal)example of rounding: .062134 = .06213 or 6.213%

e) If James and Shannon wait 25 years (after the kids areraised!) before they put anything away for retirement, how muchwill they have to put away at the end of each year for 20 years inorder to have $8,000,000 saved up on the first day of theirretirement 45 years from today?

The year is 2020. You just got your dream job as a stock brokeron Wall Street. They gave you a nice signing bonus and you aremaking a lot of money. You also have the opportunity to make alarge year-end bonus if you meet your sales quota. But your Bosshas a reputation for firing new employees that don’t reach thosesales goals. Timing could not have been better because your studentloans are thru the roof and your parents were just threatening tokick you out of the basement. You buy yourself a couple new suits,rent your apartment in Manhattan and show up 30 minutes early towork ready to start your career. Your Boss, Mr. Money bags, has youstart cold calling people to get them to buy stock in TEXLAcorporation. He says that TEXLA is a great new company that isworking on a new drug that might cure cancer. He failed to tell youthat the President of Texla is his brother-in-law. You start makingsales calls and find out that the easiest people to convince to buythe stock are senior citizens. The first year you make reach yoursales quota and receive a 1 Million Dollars bonus which youimmediately invest in TEXLA stock because it has been doing sowell. You also invested all of your parent’s retirement savings inTEXLA. Later that year you accidently receive an email that wasaddressed to Mr. Moneybags from his brother-in-law the President ofTEXLA which informed him that the testing shows their new drugactually makes cancer worse. You are the only one who has thisinformation and know that once this information hits the internetthe value of the stock will drop to ZERO but no one will ever findout that you have this inside information. You also remembered fromyour awesome business law class that it is illegal to use “InsideInformation” to benefit yourself or your clients. Your Boss willlose his investment, you will lose your investment, your parent’sretirement savings will be lost along with all of those seniorcitizens that listened to your advice. You only have an hour beforethe news will hit the press which means you can’t call everyone.What do you do????? Identify the ethical dilemma(s) in thissituation. a. Use an ethical decision making model to determine theright course of action to take in this situation.

Explain why a European call on a stock that pays no dividends isnever exercised early. What would you do instead to eliminate thecall option position?

Question 2

To measure how long it takes customers to pay their balances wewould look at the

Question 2 options:

a) Inventory turnover ratio

b) Current ratio

c) Average collection period

d) Receivables turnover

Question 3

A company with a decreasing interest expense would see whatchange to its times interest earned?

Question 3 options:

a) An increase

b) A decrease

c) No change

d) Cannot be determined

Question 4

As we look at how a company’s ratios have changed over time weneed to consider all of these except:

Question 4 options:

a) The company’s industry

b) The direction the values have moved

c) The impact of inflation

d) None of the above

Question 6

Asset utilization ratios include all but which of thefollowing?

Question 6 options:

a) Receivable turnover

b) Inventory turnover

c) Average collection period

d) Return on assets

Question 7

All else staying equal, what impact might we assume if acompany’s debt to total assets increases?

Question 7 options:

a) Times interest earned will increase

b) Times interest earned will decrease

c) Return on equity will decrease

d) Profit margin will increase

Question 8

Higher inflation rates can show ‘false outcomes’ by

Question 8 options:

a) Lowering sales

b) Increasing sales

c) Lowering profits

d) None of the above

Question 9

If a company has a quick ratio very close to its current ratiowhat might we conclude about their inventory?

Question 9 options:

a) Inventory makes up a large portion of their current assets

b) Inventory makes up a small portion of their current assets

c) Inventory makes up all the company’s current assets

d) This does not give us information about inventory

Question 10

A company with an average collection period of 30 days in anindustry where the average collection period is 28 days would besaid to

Question 10 options:

a) Outperform the industry

b) Underperform the industry

c) Have no meaningful difference

d) None of the above

Question 12

What might we conclude about a company with a profit margin of10%?

Question 12 options:

a) It is preforming strongly

b) It is earning a sufficient return on its sales

c) It is outperforming its industry

d) We are limited by not knowing the industry average

Question 15

If a company is becoming less liquid which ratio group would weexpect to be impacted first?

Question 15 options:

a) Profitability ratios

b) Asset utilization ratios

c) Liquidity ratios

d) Debt utilization ratios

A t-shirt company is planning a production run for an eventwhere the attendance (and thus demand for t-shirts) is uncertain.The event planners have indicated that they think the attendancewill be 500, 750 or 1000, with probabilities of 30%, 50% and 20%respectively. The company must pre-order the blank t-shirts(cost=$5 per shirt) and it can sell finished shirts for $12 apiece.Any finished shirts that cannot be sold at the event can be soldfor $2 apiece to a used clothing vendor.

Suppose now that blank t-shirts can only be ordered from thewholesale vendor in batches of 50? How many t-shirts should thecompany order?

An investment in manufacturing equipment yields the followingcash flows for 8 years. At the end of the 8th year the equipmentcan be sold for $15,000. Assuming an interest rate of 14%(compounded annually), how much would you be willing to invest inthis manufacturing equipment?

C: Cost, I: Income,L: Salvage Value

Consider the debt overhang. The analysis studied the possibilityof financing a new project with new equity issuance. Does the sameconclusion hold in case the new project is financed by debtissuance? Consider two cases.

a. The newly issued debt has the same level of seniority ofexisting debt, that is, any cashflows are equally shared among olddebtholders and new debtholders.

b. The newly issued debt is junior to existing debt, that is,old debtholders must be paid in full before new debtholders getanything.

c. Compare a) and b). What does this example tell you about theimportance of seniority clauses in debt covenants?

2. Christopher construction, Inc. has current assets of $20,000and current liabilities of $10,000. If we assume that eachtransaction is independent, what is the effect of each of thefollowing transaction on Christopher Construction Inc.’s currentratio? Compute the current ratio for each case. a) $2000 ofaccounts payable are paid off with cash. b) Inventories of $5000are purchased on credit. c) Additional common stock is sold for$4000 cash. d) A long-term debt of $2,000 is obtained, and theproceeds are used to buy a new machine. e) Account receivable of$1,000 are collected in cash. 2. Christopher construction, Inc. hascurrent assets of $20,000 and current liabilities of $10,000. If weassume that each transaction is independent, what is the effect ofeach of the following transaction on Christopher ConstructionInc.’s current ratio? Compute the current ratio for each case. a)$2000 of accounts payable are paid off with cash. b) Inventories of$5000 are purchased on credit. c) Additional common stock is soldfor $4000 cash. d) A long-term debt of $2,000 is obtained, and theproceeds are used to buy a new machine. e) Account receivable of$1,000 are collected in cash. 2. Christopher construction, Inc. hascurrent assets of $20,000 and current liabilities of $10,000. If weassume that each transaction is independent, what is the effect ofeach of the following transaction on Christopher ConstructionInc.’s current ratio? Compute the current ratio for each case. a)$2000 of accounts payable are paid off with cash. b) Inventories of$5000 are purchased on credit. c) Additional common stock is soldfor $4000 cash. d) A long-term debt of $2,000 is obtained, and theproceeds are used to buy a new machine. e) Account receivable of$1,000 are collected in cash.

Wanda, a calendar year taxpayer, owned a building (adjustedbasis of $250,000) in which she operated a bakery that wasdestroyed by fire in December 2018. She receives insurance proceedsof $290,000 for the building the following March. Wanda isconsidering two options regarding the investment of the insuranceproceeds. First, she could purchase a local building (suitable fora bakery) that is for sale for $275,000. Second, she could buy anew home for $290,000 and go back to college and finish herdegree.

a. To minimize her tax liability, which ofthese alternatives should Wanda choose?
Option 1 results in a recognized gain of $________ and Option 2results in a recognized gain $ ______ Therefore, Wanda shouldselect__________.

Fill in the blanks.

Investments in U.S. Treasury bonds have limited upside since thegovernment is only required to pay interest on the principal itborrowed plus the bond principal when the security matures.Investments in common stocks of companies listed on the NASDAQ andNYSE have no upside limits

discuss the general purpose of a depreciation allowance and themethod of computing the allowance. How does it impact taxesdue?