Poulsbo Manufacturing, Inc., is currently an all-equity firm that pays no taxes Answer

Poulsbo Manufacturing, Inc., is currently an all-equity firm that pays no taxes Answer

 

Poulsbo Manufacturing, Inc., is currently an all-equity firm that pays no taxes. The market value of the firm’s equity is $3 million. The cost of this unlevered equity is 15% per annum. Poulsbo plans to issue 600,000 in debt and use the proceeds to repurchase stock  The cost of debt is 4% semi annually.

a. After Poulsbo repurchases the stock, what will the firm’s weighted average cost of capital be?

  1. After the repurchase, what will the cost of equity be? Explain.    
  2. Using MM-Proposition 2, what will be the weighted average cost of capital after the repurchase?          

Prancer Company’s investment in Saltez Company answer

Prancer Company’s investment in Saltez Company answer

  1. Prepare in general journal form the workpaper entries to eliminate Prancer Company’s investment in Saltez Company in the preparation of a consolidated balance sheet at the date of acquisition for each of the following independent cases:

    Saltez Company Equity Balances

    Cash     Percent of Stock Owned     Investment Cost     Common Stock     Other Contributed Capital     Retained Earnings
    a.     100%     $351,000     $160,000     $92,000     $43,000
    b.     90     232,000     190,000     75,000     (29,000)
    c.     80     159,000     180,000     40,000     (4,000)

    Any difference between book value of net assets and the value implied by the purchase price relates to subsidiary property plant and equipment except for case (c). In case (c) assume that all book values and fair values are the same.

    2.     On January 1, 2008 Polo Company purchased 100% of the common stock of Save Company by issuing 40,000 shares of its (Polo’s) $10 par value common stock with a market price of $17.50 per share. Polo incurred cash expenses of $20,000 for registering and issuing the common stock. The stockholder’s equity section of the two companies balance sheets on December 31, 2007, were:

    _________________________________________________Polo________________Save
    Common stock, $10 par value                    $350,000          $320,000
    Other contributed capital                    $590,000          $175,000
    Retained earnings                         $380,000          $205,000

    a.     Prepare the journal entry on the books of Polo Company to record the purchase of the common stock of Save Company and related expenses
    b.     Prepare the elimination entry required for the preparation of a consolidated balance sheet workpaper on the date acquisition

    3.     On January 2, 2008, Prunce Company acquired 90% of the outstanding common stock of Sun Company for $192,000 cash. Just before the acquisition, the balance sheets of the two companies were as follows:

    ______________________________________________Prunce_____________Sun
    Cash&nb sp;                                  $260,000     $64,000
    Accounts receivable (net)                    $142,000     $23,000
    Inventory              &nb sp;                    $117,000     $54,000
    Plant and equipment (net)                    $386,000     $98,000
    Land              &nb sp;                    $63,000     $32,000
    Total assets                         $968,000     $271,000
    Accounts payable                         $104,000     $47,000
    Mortgage payable                         $72,000     $39,000
    Common stock, $2 par value                    $400,000     $70,000
    Other contributed capital                    $208,000     $20,000
    Retained earnings                         $184,000     $95,000
    Total Equities                         $968,000     $271,000

    The fair values of Sun Company’s assets and liabilities are equal to their book values with the exception of land.

    a.     Prepare a journal entry to record the purchase of Sun Company’s common stock
    b.     Prepare a consolidated balance sheet at the date of acquisition

    4.     On January 1, 2007, Peach Company issued 1,500 of its $20 par value common shares with a fair value of $60 per share in exchange for the 2,000 outstanding common shares of Swartz Company in a purchase transaction. Registration costs amounted to $1,700, paid in cash. Just prior to the acquisition, the balance sheets of the two companies were as follows:

    _____________________________________________Peach Company     Swartz Company
    Cash       &n bsp;                           $73,000     $13,000
    Accounts receivable (net)                    $95,000     $19,000
    Inventory                ;                    $58,000     $25,000
    Plant and equipment (net)                    $95,000     $43,000
    Land              & nbsp;                    $26,000     $22,000
    Total assets                         $347,000     $122,000

    Accounts payable                         $66,000     $18,000
    Notes payable                              $82,000     $21,000
    Common stock, $20 par value                    $100,000     $40,000
    Other contributed capital                    $60,000     $24,000
    Retained earnings                         $39,000     $19,000
    Total equities                         $347,000     $122,000

    Any difference between the book value of equity and the value implied by the purchase price relates to goodwill.

    a.     Prepare the journal entry on Peach Company’s books to record the exchange of stock
    b.     Prepare a Computation and Allocation Schedule for the difference between book value and value implied by the purchase price
    c.     Prepare a consolidated balance sheet at the date of acquisition

    5.     Pool Company purchased 90% of the outstanding common stock of Spruce Company on December 31, 2008, for cash. At that time the balance sheet of Spruce Company was as follows:

    Current assets                                   $1,050,000
    Plant and equipment                              $990,000
    Land                                        $170,000
    Total assets                              $2,210,000
    Liabilities                                         $820,000
    Common stock, $20 par value                         $900,000
    Other contributed capital                         $440,000
    Retained earnings                              $150,000
    Total  &nbs p;                                $2,310,000
    Less treasury stock at cost, 5,000 shares                    $100,000
    Total equities                              $2,210,000

    Prepare the elimination entry required for the preparation of a consolidated balance sheet workpaper on December 31, 2008, assuming:

    (1)     The purchase price of the stock was $1,400,000. Assume that any difference between the book value of net assets and the value implied by the purchase price relates to subsidiary land.
    (2)     The purchase price of the stock was $1,160,000. Assume that the subsidiary land has a fair value of $180,000, and the other assets and liabilities are fairly valued.

    6.     On December 31, 2007, Price Company purchased a controlling interest in Shipley Company. The balance sheet of Price Company and the consolidated balance sheet on December 31, 2007, were as follows:

    ___________________________________________Price Company______Consolifated_______
    Cash                    ;                $22,000     $37,900
    Accounts Receivable                         $35,000     $57,000
    Inventory                 &nbs p;                 $127,000     $161,000
    Investment in Shipley Company                    $212,000     0
    Plant and equipment (net)                    $190,000     $337,000
    Land& nbsp;                                  $120,000     $218,400
    Total   &nbs p;                          $706,000     $811,900

    Accounts Payable                         $42,000     $112,500
    Note payable                              $100,000     $100,000
    Noncontrolling interest in Shipley Company          0          $35,400
    Common stock                              $300,000     $300,000
    Other contributed capital                    $164,000     $164,000
    Retained earnings                         $100,000     $100,000
    Total   &nbs p;                          $706,000     $811,900

    On the date of acquisition, the stockholder’s equity section of Shipley Company’s balance sheet was as follows:
    Common stock               $90,000
    Other contributed capital          $90,000
    Retained earnings               $56,000
    Total                         $236,000

    a.     Prepare the investment elimination entry made to complete a consolidated balance sheet workpaper. Any difference between book value and the value implied by the purchase price relates to subsidiary land.
    b.     Prepare Shipley Company’s balance sheet as it appeared on December 31, 2007.

    7.     Polychromasia, Inc. had a number of receivables from subsidiaries at the balance sheet date, as well as several payables to subsidiaries. Of its five subsidiaries, four are consolidated in the financial statements (Green Company, Black Inc., White & Sons, and Silver Co.). Only the Brown Company is not consolidated with Polychromasia and the other affiliates. The following list of receivables and payables shows balances at 12/31/10.

    Interest receivable from the Brown Company          $50,000
    Interest payable to Black Inc.                    $75,000
    Intercompany payable to Silver Co.               $105,000
    Long-term advance to Green Company          $150,000
    Long-term payable to Silver Co.               $450,000
    Long-term receivable from Brown Company          $500,000

    a.     Show the classification and amount (s) that should be reported in the consolidated balance sheet of Polychromasia, Inc. and Subsidiaries at 12/31/10 as receivable from subsidiaries.
    b.     Show the classification and amount (s) that should be reported in the consolidated balance sheet of Polychromasia, Inc. and Subsidiaries at 12/31/10 as payable to subsidiaries.

    8.     Peep Inc. acquired 100% of the outstanding common stock of Shy Inc. for $2,500,000 cash and 15,000 shares of it’s common stock ($2 par value). The stock’s market value was $40 on the acquisition date.

    a.     Prepare the journal entry to record the acquisition.

    9.     Assume the same information from #8. In addition, Peep Inc. incurred the following direct costs:
    Accounting fees for the purchase          $15,000
    Legal fees for registering the common stock     $30,000
    Other legal fees for the acquisition          $45,000
    Travel expenses to meet with Shy managers     $5,000
    SEC filing fees                    $2,000
    $97,000
    Before the acquisition consummation date, $90,000 of the direct costs was charged to a deferred charges account pending the completion of the acquisition. The remaining $7,000 has not been accrued or paid.

    a.     Prepare the journal entry to record both the acquisition and the direct costs. 

 

Ellen Green Company made the following acquisition On January 1, 2009ANSWER

Ellen Green Company made the following acquisition On January 1, 2009ANSWER

 

 

On January 1, 2009, Ellen Green Company made the following acquisition:     Purchased land having a fair market value of $200,000 by issuing a 5-year, non-interest bearing note in the face amount of $275,000. the company normally pays 11% for funds it borrows from its bank. a   Prepare the journal entry to record the purchase the land and the issuance of the note and prepare the journal entry to record the interest expense for 2009

 

A firm has sales of $10 million, variable costs of $5 million, EBIT of $2 million ANSWER

A firm has sales of $10 million, variable costs of $5 million, EBIT of $2 million, and a degree of combined leverage of 3.0.(a) If the firm has no preferred stock, what are its annual interst charges?(b) If the firm wishes to lower its degree of combined leverage to 2.5 by reducing interest charges, what will be the new level of annual interest?

 

 

 

A firm has sales of $10 million, variable costs of $5 million, EBIT of $2 million, and a degree of total leverage of 3.0.

 

  1. If the firm has not preferred stock, what are its annual interest charges?
  2. If the firm wishes to reduce its degree of total leverage to 2.5 by reducing interest charges, what will be the new level of annual interest charges?

Which of the following is considered to be a spontaneous source of financing ANSWER

Which of the following is considered to be a spontaneous source of financing?

  1. Inventory
  2. Operating leases
  3. Accounts receivable
  4. Accounts payable

 

26) Which of the following is NOT considered a permanent source of financing?

  1. Preferred stock
  2. Corporate bonds
  3. Common stock
  4. Commercial paper

 

27) A toy manufacturer following the hedging principle will generally finance seasonal inventory build-up prior to the Christmas season with:

  1. trade credit.
  2. common stock.
  3. selling equipment.
  4. preferred stock.

 

28) For the NPV criteria, a project is acceptable if the NPV is __________, while for the profitability index, a project is acceptable if the profitability index is __________.

  1. greater than one, greater than zero
  2. less than zero, greater than the required return
  3. greater than zero, greater than one
  4. greater than zero, less than one

 

29) Compute the payback period for a project with the following cash flows, if the company’s discount rate is 12%. Initial outlay = $450 Cash flows: Year 1 = $325 Year 2 = $ 65 Year 3 = $100

  1. 2.88 years
  2. 3.43 years
  3. 3.17 years
  4. 2.6 years

 

30) We compute the profitability index of a capital-budgeting proposal by:

  1. dividing the present value of the annual after-tax cash flows by the cost of the project.
  2. multiplying the IRR by the cost of capital.
  3. dividing the present value of the annual after-tax cash flows by the cost of capital.
  4. multiplying the cash inflow by the IRR.

 

31) Which of the following statements about the MIRR is false?

  1. The MIRR has the same reinvestment assumption as the NPV.
  2. The MIRR has the same reinvestment assumption as the IRR.
  3. If a project’s MIRR exceeds the firm’s discount rate, the project is acceptable.
  4. A project’s MIRR could be lower than a project’s IRR.

 

32) Many firms today continue to use the payback method but employ the NPV or IRR methods as secondary decision methods of control for risk.

  1. True
  2. False

 

33) You have been asked to analyze a capital investment proposal. The project’s cost is $2,775,000. Cash inflows are projected to be $925,000 in Year 1; $1,000,000 in Year 2; $1,000,000 in Year 3; $1,000,000 in Year 4; and $1,225,000 in Year 5. Assume that your firm discounts capital projects at 15.5%. What is the project’s MIRR?

  1. 16.73%
  2. 12.62%
  3. 10.44%
  4. 19.99%

 

34) ABC Service can purchase a new assembler for $15,052 that will provide an annual net cash flow of $6,000 per year for five years. Calculate the NPV of the assembler if the required rate of return is 12%. (Round your answer to the nearest $1.)

  1. $6,577
  2. $4,568
  3. $7,621
  4. $1,056

 

35) The NPV assumes cash flows are reinvested at the:

  1. cost of capital.
  2. NPV.
  3. real rate of return.
  4. IRR.

 

36) The firm should accept independent projects if:

  1. the NPV is greater than the discounted payback.
  2. the profitability index is greater than 1.0.
  3. the IRR is positive.
  4. the payback is less than the IRR.

 

Kifer Company had 500,000 shares of common stock outstanding answer

Kifer Company had 500,000 shares of common stock outstanding answer

 

At December 31, 2010, Kifer Company had 500,000 shares of common stock outstanding. On October 1, 2011, an additional 100,000 shares of common stock were issued. In addition, Kifer had $10,000,000 of 6% convertible bonds outstanding at December 31, 2010, which are convertible into 225,000 shares of common stock. No bonds were converted into common stock in 2011. The net income for the year ended December 31, 2011, was $3,000,000. Assuming the income tax rate was 30%, the diluted earnings per share for the year ended December 31, 2011, should be (rounded to the nearest penny)

Barrel corporation had service and interest cost of $ 50,000 related to its defined pension plan ANSWER

Barrel corporation had service and interest cost of $ 50,000 related to its defined pension plan  ANSWER

 

Barrel corporation had service and interest cost of $ 50,000 related to its defined pension plan for the year ended Dec 31, year 7. the company’s for unrecognized prior service cost was $ 200,000 at Dec 31, year 6 an the average remaining service life of the company’s employee was 20 years plan assets earned an expected and actual return of 10% during year 7. the company made contribution to the plan of $ 25,000 and paid benefit of $ 30,000 during the year. the pension plan had plan assets with a fair value of $300,000 at Dec 31, year 6. the PBO was $ 400,000 at Dec 31 year 6 and $420,000 at Dec 31 year 7. barrel’s expected tax rate is 30 %. What should barrel corporation report in accumulated other comprehensive income for this pension plan?

  • 133,000
  • 140,000
  • 190,000
  • 200,000

Week 4 DQ 1 Quasi-Experimental Research Answer

Week 4 DQ 1 A social scientist was hired by a local police department to evaluate the effectiveness of a program aimed at reducing juvenile delinquency in the community Quasi-Experimental Research Answer

Research Project: Quasi-Experimental Method Design
Design a research study utilizing experimental research methods for the issue that you selected for your Research Project: Literature Review. Address the following items:
Describe your sample population.
Describe the experimental method(s) that you selected to utilize in your research study and explain why you selected these methods.
Speculate on your expected outcome (s) of the study.

Quasi-Experimental Research

Description:

A social scientist was hired by a local police department to evaluate the effectiveness of a program aimed at reducing juvenile delinquency in the community. When the psychologist arrived, the program had already begun. It included a three-pronged educational campaign directed at parents, community residents, and adolescents attending local schools. Public service messages appeared on television and radio; police officers and social workers made personal appearances in school classrooms; and police officers went door to door in the highest crime areas to help educate residents about community resources for troubled teens. The program lasted six weeks.

  1. Discuss the major threats to internal validity associated with the design that you haveoutlined.
  2. Describe how a quasi-experimental design, specifically a simple time-series design,might be used by the scientist as part of the program evaluation.  Be sure to provide details regarding relevant procedures and measures for this type of design.
  3. What typeof program evaluation has the social scientist been asked to conduct?
  4. The internal validity of a simple time-series design can be strengthened by including a nonequivalent control group.
  5. Suggest a possible control group that the social scientist might considerin this situation.
  6. Identify what measures must be obtained from the control group.