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< BUSA-202 Test 2 (2015)>

Question 1                                                                                                                                          1.5 out of 1.5 points

 Use the following information for Equitable, Inc., for the year ended December 31, Year 2.  Assume no new common stock was issued during the year.

Revenue for the year ended, December 31, Year 2          $39,000

Expenses for the year ended, December 31, Year 2         15,000

Total Assets at December 31, Year 1        35,000

Total Assets at December 31, Year 2        60,000

Total Shareholders’ Equity at December 31, Year 1            25,000

Dividends for the year ended December 31, Year 2          7,000

What is total Shareholders’ Equity at December 31, Year 2?

Question 2                                                                                                                          1.5 out of 1.5 points

 Sew Chic, Inc., purchased $500 of supplies on account during May. Sew Chic paid $200 of the $500 it owed for its supplies. At May 31, Sew Chic only had $50 of supplies left. Which of the following statements is true about the May financial statements?

Cash Paid for Supplies on the ______.                                  

Question 3                                                                                                                                          1.5 out of 1.5 points

Record the transaction below.

 Assets  Liabilities

                                                Shareholders’ Equity

February 1: Wursthaus, Inc., paid $600 cash for three months of insurance coverage that begins February 1.        $______                $______              $______

TO RECEIVE FULL CREDIT FOR THE QUESTION, AN ANSWER MUST BE SELECTED FOR EACH COLUMN (ASSETS, LIABILITIES, COMMON STOCK, & RETAINED EARNINGS) EVEN IF THERE IS NO EFFECT. IF THERE IS NO EFFECT, SELECT “0 NO EFFECT.”                                               

Question 4                                                                                                                                          1.5 out of 1.5 points

 When a business makes a sale on account, the asset created is a(n) ______?                                   

Question 5                                                                                                                                          1.5 out of 1.5 points       

During the year, A Salt & Buttery, Inc., had revenue of $89,000 of which $17,000 was collected from customers. It also had expenses of $32,000 of which $3,000 was paid. The owners were paid $20,000 in dividends. Net income for the year equals ______.

Question 6                                                                                                                                          1.5 out of 1.5 points

Match each description with the appropriate financial statement.                                           

Question 7                                                                                                                                          1.5 out of 1.5 points

 During November, Florist Grump, Inc. performed $32,000 of services on account and sent bills to its customers. In November, Florist Grump collected $9,000 from these credit customers. How much revenue should Florist Grump record in November?

Question 8                                                                                                                                          1.5 out of 1.5 points

 On January 1 of its first month of business, Bags Bunny, Inc., paid $62,000 for eight months rent beginning in January. How much will be reported as Prepaid Rent on its balance sheet at January 31?

Question 9                                                                                                                                          1.5 out of 1.5 points

 On January 1 of its first month of business, Bags Bunny, Inc., paid $75,000 for eight months rent beginning in January. How much will be reported as Rent Expense on its income statement for the month ended January 31?

Question 10                                                                                                                                       1.5 out of 1.5 points

 In its first month of business, Sea World Cruises, Inc., collected $36,000 from customers in advance during May. At May 31, it had a balance in its Unearned Revenue of $11,000. What is the amount of Revenue earned that had been collected in advance?

Question 11                                                                                                                                       1.5 out of 1.5 points

 Indicate the financial statement where you would expect to find each line item:                                             

Question 12                                                                                                                                       1.5 out of 1.5 points

 Indicate the financial statement where you would expect to find each line item:                             

Question 13                                                                                                                       0.75 out of 1.5 points

Indicate the financial statement where you would expect to find each line item:                                              

Question 14                                                                                                                                       1.5 out of 1.5 points       

 Jim’s Jungle Gyms reported the following information in its year ended December 31 financials:

Net Income        $ 13,000

Sales Revenue  76,000

Retained Earnings – beginning balance   20,000

Dividends            3,000

What were the company’s total Expenses for the current year?

Question 15                                                                                                                                       1.5 out of 1.5 points

 Wok On Water, Inc.’s employees had worked during the first month of May and earned $8,000. Wok on Water had paid $2,000 of the amount owed. How much will be reported as Wages Payable on its May 31 balance sheet?                                             

Question 16                                                                                                                                       1.5 out of 1.5 points

 During its first month of business, Dig the Dogs, Inc. purchased $900 of hotdogs of which it paid $500 and owes the rest. During the month, it sold two thirds of its inventory. What is the amount of Cost of Goods Sold for the month ended?                                  

Question 17                                                                                                                                       1.5 out of 1.5 points

 Thistle Do Nicely had $100 of supplies on May 1. During May, it purchased $500 of supplies on account. It paid $150 of the $500 it owed for its supplies. At May 31, Thistle Do Nicely only had $55 of supplies left. Supplies Expense on the income statement equals ______.                                         

Question 18                                                                                                                                       1.5 out of 1.5 points

 Accruing a revenue or expense means that the amount ______.

Question 19                                                                                                                                       1.5 out of 1.5 points

 In March, Florist Gump, Inc., collected $6,000 of its accounts receivable from February sales. Show the effect on the accounting equation below:

TO RECEIVE FULL CREDIT FOR THE QUESTION, AN ANSWER MUST BE SELECTED FOR EACH (ASSETS, LIABILITIES, SHAREHOLDERS’ EQUITY) EVEN IF THERE IS NO EFFECT. IF THERE IS NO EFFECT, SELECT “0 NO EFFECT.”                                   

Question 20                                                                                                                                       1.5 out of 1.5 points

                Florist Gump, Inc. purchased land at a cost of $6,000 on February 2, 2000. At December 31, 2014, the land is worth $27,000 according to an appraiser. At what amount should the land be reported on Florist Gump’s balance sheet at December 31, 2014? DO NOT INCLUDE $ IN ANSWER                                      

This Is To Test Computational And Anylitical Ability With Respect To The Various Methods Of Capital.

Collect the annual income statement of any company you know well for last four fiscal years. The selected company must be in process of expanding its business and plan to invest in new investment project. As a newly hired MBA in the capital budgeting division, you have bem asked to evaluate a new project using the Weighted Average Cost of Capital (WACC), Adjusted Present Value (APV), and Flow to Equity (FTE) methods. You will need to compute the appropriate cost of capital and the net present values with each method. Because this is the first assignment with the company, they want you to demonstrate your ability to apply the different methods of project evaluation. You must seek required information necessary to determine the free cash flows. Create spreadsheet in Excel to do all your calculations.

Note: Any information is not availabe you can assum and provide the relevant informations for asignmnet.

Questions

A)     Determine the WACC for the company. Compute the NPV of the new project based on the free cash flows you calculated using WACC( 40 Marks)

B)      Determin the NPV using the APV and FTE method. In both cases , assume the company maintained the target leverage ratio you computed in WACC ( 40 Marks)

C)      Compare the results under the three methods and explain how the resulting NPV’s are achieved under each three different methods ( 20 Marks) 

HOMEWORK, FINANCE

Question 1

The Rustic Welt Company is proposing to replace its old welt-making  machinery with more modern equipment. The new equipment costs $9 million  (the existing equipment has zero salvage value). The attraction of the  new machinery is that it is expected to cut manufacturing costs from  their current level of $8 a welt to $4. However, as the following table  shows, there is some uncertainty both about future sales and about the  performance of the new machinery:

Calculate the annual cost savings of the expected scenario under the  three states of nature. Assume a discount rate of 12%. RW does not pay  taxes.

Question 2

You are the judge in a settlement case. You need to compute the value  of a piece of land in Denver Co. The valuation is subject to the  following conditions 

  1. The settlement will take place at the end of      2019 
  2. The current appraised value of the land on 1/1/2018      is $500.000 
  3. The piece of land has a building on it that is uninhabitable.       It takes one year to bring the building down at a cost of $100,000.  That      money must be paid now. 
  4. The land can be rented in 2019 at a net proceeds of      40,000 
  5. While rented the land cost $20,000 in property      taxes 
  6. Your real estate adviser notes that selling prices of       comparable lands in Denver have declined, in real terms, at an  average      rate of 3% per year over the last 5 years. 
  7. The cost of capital is 10% 
  8. The sale of the land at the end of 2019 is subject to      a 10 % commission. 

What should someone pay today for this land if given the choice?