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FIFTH QUIZ
FNCE 238/738
November 6, 2013
WRITE ALL ANSWERS ON THE TEST.
IF YOUR ANSWER CONTINUES ON THE BACK,
MAKE A NOTE OF IT ON THE FRONT.
30 PTS / 25 MINUTES
NAME:_____________________________________________
SECTION (12, 1:30 or 3):__________________________________
1.
(8 pts) Olga has a good project she could do, call it project
G
, that would cost $1M, and then pay
either $1.6M or $0.8M, each with probability ½.
She would like to finance this project by issuing
a bond with face value $1M, to be paid from the project’s payoffs.
The problem is, she also has
a not-so-good project, call it project
NSG
, that would also cost $1M, and then pay either $1.8M
or $0.4M, each with probability ½, and she can’t commit to which project she will choose, once
she has issued the bond.
Would it help for her to make the bond convertible into ¾ of the firm’s
equity?
Why or why not?
2.
(7 pts) Nobel-prize winner Daniel Kahneman, as quoted in
The Observer:
Few stock pickers, if any, have the skill needed to beat the market consistently, year after year.
Professional investors, including fund managers, fail a basic test of skill: persistent achievement.
The diagnostic for the existence of any skill is the consistency of individual differences in
achievement. The logic is simple: if individual differences in any one year are due entirely to
luck, the ranking of investors and funds will vary erratically and the year-to-year correlation will
be zero. Where there is skill, however, the rankings will be more stable. The persistence of
individual differences is the measure by which we confirm the existence of skill among car
salespeople, orthodontists or golfers.
Mutual funds are run by highly experienced and hardworking professionals who buy and sell
stocks to achieve the best possible results for their clients. Nevertheless, the evidence from more
than 50 years of research is conclusive: for a large majority of fund managers, the selection of
stocks is more like rolling dice than like playing poker. Typically at least two out of every three
mutual funds underperform the overall market in any given year.
More important, the year-to-year correlation between the outcomes of mutual funds is very small,
barely higher than zero.
Is this logic sound?
What considerations are important?
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3.
(7 pts) Last week, Moody’s rated the latest CarMax auto-loan securitization, which included
securities A1 through A4, B, C and D, and Moody’s awarded a AAA rating to A1 through A4.
Briefly, in words, what structural elements of the deal (assuming this is a typical deal) could
justify such high ratings, given the moderately risky collateral (i.e., used-car loans to borderline
credit risks)? (
bullet points are fine; I’m not looking for paragraphs here)
4.
Consider a stock that is worth 10 today, and in one period will be worth either 14 or 5, each with
probability ½.
The risk-free rate is 5%.
a.
(4 pts) What is the value today of a European put option on this stock, expiring in one
period, with strike price 9?
b.
(4 pts) What is the value today of a European call option on this stock, expiring in one
period, with strike price 9?
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1. In this section we examine three theories of investor preference: The dividend irrelevance
theory. The "bird in the hand" theory, the tax preference theory, which theory is the best?
What is the different of stock dividends, stock splits, and stock repurchase.
2. In the working capital management, we know about cash conversion cycle model. For
problem if average inventories are $3 million and sales are $11 million. If receivables are
S 657.535 and sales are S 11 million. Then, if its cost of goods sold are $9 million per year
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OA. $18,200
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Allowance for Bad Debts had a credit balance of $800. During the year Buddy wrote off uncollectible receivables of
$2,100. Buddy recorded Bad Debts Expense of $2,800. Buddy's year-end balance in Allowance for Bad Debts is
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Fighting Irish Incorporated pays its employees $3,360 every two weeks ($240/day). The current two-week pay period ends on
December 28, 2024, and employees are paid $3,360. The next two-week pay period ends on January 11, 2025, and employees are
paid $3,360.
Required:
1. Record the adjusting entry on December 31, 2024.
2. Calculate the 2024 year-end adjusted balance of Salaries Payable (assuming the balance of Salaries Payable before adjustment in
2024 is $0).
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Concord Industries has equivalent units of 7100 for materials and for conversion costs. Total manufacturing costs are $124370. Total
materials costs are $91000. How much is the conversion cost per unit?
O $17.52.
O $4.70.
$12.82.
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Salma wants to save money to open a tutoring center. She buys an annuity with a monthly payment of $27 that pays 3.7% interest, compounded
monthly. Payments will be made at the end of each month. Find the total value of the annuity in 10 years.
Do not round any intermediate computations, and round your final answer to the nearest cent. If necessary, refer to the list of financial formulas.
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$12345.92
Correct Answer:
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A process with no beginning work in process, completed and transferred out 85200 units during a period and had 50100 units in the
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O 135300 equivalent units.
O 70200 equivalent units.
O 85200 equivalent units.
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joint income tax return with Dena. Dena had $0 gross income. Their earned income credit for the year is:
Oa. $5,763.
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Suppose you invest $120 a month for 5 years into an account earning 8% compounded monthly. After 5
years, you leave the money, without making additional deposits, in the account for another 23 years. How
much will you have in the end?
$
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The following is Green Co.'s Pre-Closing Trial Balance as of December 31, 2017. Green's accounting period is a month,
the month of December 2017. (Note that the accounts are not
thus the balances in the temporary accounts are for
listed in their normal sequence -- rather they are listed in alphabetical sequence.)
Account Name
_Debit_
Credit_
Gradin
Accounts Payable
26,000
Accounts Receivable
28,850
Cash
10,000
Common Stock
12,500
Cost of Goods Sold
68,000
Equipment
73,000
150
Interest Expense
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500
Inventory
45,000
Note Payable
21,000
Retained Earnings
53,000
Sales Revenue
179,000
Supplies Expense
7,000
Wages Expense
60,000
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292,000
292,000
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Your first internship assignment is to prepare two schedules for Windsor Blue Co., a manufacturing company. You have a file that
contains a copy of last year's work for both schedules; you plan to follow the same format as last year, hoping the staff accountant had
it right. You also have access to the full set of financials for Windsor Blue, and you can dig further into any of the accounts via the
accounting system, too.
Here's the information you have pulled, with the same items as last year.
DM Inventory
WIP Inventory
FG Inventory
DM purchases
DL costs
Production supervisor salary
Utility costs in production space
Depreciation on manufacturing facility and equipment
Beginning of Year
End of year
$9,200
$10,000
21,000
13,000
6,300
8,000
153,000
232,000
56,000
14,000
42,000
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Calculate interest using a 360-day year. If required, round your answers to the nearest cent.
Principal Interest Rate
Time
Interest
$2,700
9.6%
30 days
45 days
3,300
6.0%
80 days
3,800
10.5%
120 days
$4
5,300
150 days
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On Chapters 9, 10, and 11:
The YuRaeKa charity was established in 1960. The charity’s aim is to provide support to children from disadvantaged backgrounds who wish to take part in sports such as tennis, badminton, squash, basketball and football.
YuRaeKa has a detailed constitution[1] which explains how the charity’s income can be spent. The constitution also notes that administration expenditure cannot exceed 10% of income in any year.
The charity’s income is derived wholly from voluntary donations. Sources of donations include:
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Table of Contents > Week 9: Operational and legal Considerations > Lecture Notes > 09 Operational and Legal Considerations
09 Operational and Legal Considerations -
>
Calculating Capacity
• How many machines do you need?
• You expect your sales to be
3,000,000 granola bars (20g each)
• How large is your plant?
per month
• How many workers do you need?
The machine:
• How much is the investment?
Capacity: 100 kgs per hour
• What are the operating costs?
Requires 2 people to operate it
Takes 8 ft x 40 ft space
• Cost per machine $15,000
Energy and maintenance: $5 per hour
• Cost of material and packaging:
$0.12 per bar
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What is the Payback Period for the following investment?
Year
1
2
3
4
5
O a. 3.77
Ob. 3.73
Oc. 3.89
Od. 3.96
Cash Out
$ (1,600,000)
(710,000)
Cash In
550,000
580,000
610,000
640,000
670,000
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A company pays its employees $5,600 every two weeks ($400/day). The current two-week pay period ends on December 26, 2024,
and employees are paid $5,600. The next two-week pay period ends on January 9, 2025, and employees will be paid $5,600.
Record the adjusting entry on December 31, 2024. (If no entry is required for a transaction/event, select "No journal entry required"
in the first account field.)
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On September 1, 2021, Middleton Corp. lends cash and accepts a $1,000 note receivable that offers 18
interest revenue wiI Middleton Corp. report during 2022? (Do not round Intermediate calculations.
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