Videos
a.
To evaluate: The reason behind small firms having relatively high loadings on the SMB factor.
Introduction:
SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.
HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.
b.
To evaluate: The stock market behavior of the merged firm to differ from that of a portfolio of two previously independent firms.
Introduction:
SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.
HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.
c.
To evaluate: The effect on merger after market capitalization.
Introduction:
SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.
HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.
d.
To evaluate: The prediction of the FAMA-French model for the risk premium on the merged firm compared to the weighted average of two-component companies.
Introduction:
SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.
HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.
e.
To evaluate: The problems faced by the application of the FF model in case of a merger.
Introduction:
SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.
HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.
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Chapter 10 Solutions
INVESTMENTS(LL)W/CONNECT
- Assume that Timberline Corporation has 2024 taxable income of $240,000 for purposes of computing the §179 expense. It acquired the following assets in 2024: (Use MACRS Table 1, Table 2, Table 3, Table 4, and Table 5.) Asset Purchase Date Basis Furniture (7-year) December 1 $ 550,000 Computer equipment (5-year) February 28 90,000 Copier (5-year) July 15 30,000 Machinery (7-year) May 22 580,000 Total $ 1,250,000 b. What would Timberline's maximum depreciation deduction be for 2024 assuming no bonus depreciation?arrow_forwardConvers Corporation (calendar-year-end) acquired the following assets during the current tax year: (ignore §179 expense and bonus depreciation for this problem): (Use MACRS Table 1, Table 2, and Table 5.) Asset Date Placed in Service Original Basis Machinery October 25 $ 70,000 Computer equipment February 3 10,000 Delivery truck*Footnote asterisk March 17 23,000 Furniture April 22 150,000 Total $ 253,000 *Footnote asteriskThe delivery truck is not a luxury automobile. In addition to these assets, Convers installed qualified real property (MACRS, 15 year, 150% DB) on May 12 at a cost of $300,000. a. What is the allowable MACRS depreciation on Convers's property in the current year assuming Convers does not elect §179 expense and elects out of bonus depreciation?arrow_forwardLast Chance Mine (LCM) purchased a coal deposit for $750,000. It estimated it would extract 12,000 tons of coal from the deposit. LCM mined the coal and sold it, reporting gross receipts of $1 million, $3 million, and $2 million for years 1 through 3, respectively. During years 1–3, LCM reported net income (loss) from the coal deposit activity in the amount of ($20,000), $500,000, and $450,000, respectively. In years 1–3, LCM extracted 13,000 tons of coal as follows: (1) Tons of Coal (2) Basis Depletion (2) ÷ (1) Rate Tons Extracted per Year Year 1 Year 2 Year 3 12,000 $ 750,000 $ 62.50 2,000 7,200 3,800 Using the cost and percentage depletion computations from parts (a) and (b), what is LCM's actual depletion expense for each year?arrow_forward
- Assume that ACW Corporation has 2024 taxable income of $1,500,000 for purposes of computing the §179 expense. The company acquired the following assets during 2024 (assume no bonus depreciation): (Use MACRS Table 1, Table 2, and Table 5.) Asset Placed in Service Basis Machinery September 12 $ 470,000 Computer equipment February 10 70,000 Delivery truck August 21 93,000 Qualified real property (MACRS, 15 year, 150% DB) April 2 1,380,000 Total $ 2,013,000 What is the maximum amount of §179 expense ACW may deduct for 2024? What is the maximum total depreciation that ACW may deduct in 2024 on the assets it placed in service in 2024?arrow_forwardWoolard Supplies (a sole proprietorship) has taxable income in 2024 of $240,000 before any depreciation deductions (§179, bonus, or MACRS) and placed some office furniture into service during the year. The furniture does not qualify for bonus depreciation. (Use MACRS Table 1, Table 2, Table 3, Table 4, and Table 5.) Asset Placed In Service Basis Office furniture (used) March 20 $ 1,400,000 If Woolard elects the maximum amount of §179 for the year, what is the amount of deductible §179 expense for the year? What is the total depreciation that Woolard may deduct in 2024? What is Woolard's §179 carryforward amount to next year, if any?arrow_forwardNina (age 40) contributes 10 percent of her $100,000 annual salary to her 401(k) account. She expects to earn a 7 percent before-tax rate of return. Assuming she leaves this (and any employer contributions) in the account until the full account balance is distributed when she retires in 25 years, what is Nina's after-tax accumulation from her current year contribution to her 401(k) account? Assuming Nina's marginal tax rate at retirement is 20 percent, what are her after tax proceeds from distribution?arrow_forward
- No ai dislike...????arrow_forwardJackson and Ashley Turner (both 45 years old) are married and want to contribute to a Roth IRA for Ashley. For the current year, their AGI is $235,000. Jackson and Ashley each earned half of the income. Note: Leave no answers blank. Enter zero if applicable. b. How much can Ashley contribute if she files a separate return?arrow_forwardDesmond is 25 years old, and he participates in his employer's 401(k) plan. During the year, he contributed $3,000 to his 401(k) account. What is Desmond's saver's credit in each of the following alternative scenarios? (Use Exhibit 13-8) Note: Leave no answer blank. Enter zero if applicable. b. Desmond is not married and has no dependents. His AGI after deducting his 401(k) contribution is $17,500.arrow_forward
- eticia and Stephanie Sims purchased a home in Spokane, Washington, for $400,000. They moved into the home on February 1 of year 1. They lived in the home as their primary residence until June 30 of year 5, when they sold the home for $700,000. Note: Leave no answer blank. Enter zero if applicable. a. What amount of gain on the sale of the home are the Simses required to include in taxable income?arrow_forwardWhat is the time value of money concept based on?A) A dollar today is worth more than a dollar tomorrowB) A dollar tomorrow is worth more than a dollar todayC) Money has no value over timeD) A dollar today is worth the same as a dollar tomorrowarrow_forwardWhich financial statement shows a company's financial position at a specific point in time?A) Income statementB) Statement of cash flowsC) Balance sheetD) Statement of retained earningsarrow_forward
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT