ABC has a P/E ratio of 12 and maintains a dividend payout ratio of 40%.

ABC has a P/E ratio of 12 and maintains a dividend payout ratio of 40%. The stock price of ABC on

 January 1st. is $32. What would be the value of the stock if the dividend payout ratio were 60%?

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Assume the company closes its books on December 31st:

Assume the company closes its books on December 31st:

Arty Co. sells $250,000 of 10% (stated rate) bonds on March 1, 2007. The bonds pay interest

September 1 and March 1. The due date of the bonds is September 1, 2010. The bonds yield 12%

(market rate). Give entries through December 21, 2008.

Instructions:

 Prepare all of the relevant journal entries from the time of the sale until the date indicated.

 Use the effective interest method for discount and premium amortization. Construct the

 relevant amortization tables. Amortize the premium or discount on interest dates and at

 year-end. (assume no reversing entries were made).

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Purchase, cost of goods sold, and cash collection budgets

Purchase, cost of goods sold, and cash collection budgets

The Zel Company operates at local flea markets. It has budgeted the following

 sales for the indicated months.

JUNE JULY August

Sales on account $1,500,000 $1,600,000 $1,700,000

Cash sales 200,000 210,000 220,000

Total sales $1,700,000 $1,810,000 $1,920,000

Zel's success in this specialty market is due in large part to the extension of credit terms and the

 budgeting techniques implemented by the firm's owner Barbara Zel. Ms. Zel is a recycler; that

 is, she collects her merchandise daily at neighborhood garage sales and sells the merchandise

 weekly at regional flea markets. All merchandise is marked up to sell at its invoice cost (as

 purchased at garage sales) plus 25%. Stated differently, cost is 80% of selling price.

 Merchandise inventories at the beginning of each month are 30% of that month's forecasted cost

 of goods sold. With respect to sales on account, 40% of receivables are collected in the month of

 sale, 50% are collected in the month following, and 10% are never collected.

Question:

What is the anticipated cost of goods sold for June, what is the beginning inventory for July

 expected to be, what are July purchases expected to be, and what are the forecasted July cash

 collections?

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The following data for Kitchen Tile Company related to the production of 18,000 tiles during the past month.

The following data for Kitchen Tile Company related to the production of 18,000 tiles during the past month.

The company allocates fixed overhead costs at a standard rate of $19 per direct labor hour.

Direct Labor:

Standard cost is 6 tiles per hour at $24.00 per hour

Actual cost per hour was $24.50

Labor efficiency variance was $6,720 F

Fixed overhead costs:

Estimated = $60,000

Actual = $58,720

Question:

How many actual labor hours were worked to produce the 18,000 tiles, what is the price variance

 for direct labor, and what is the budget variance for fixed cost?

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The product-mix decision.

The product-mix decision. XYZ Company produces Product A, Product B, and Product C. All three

 products require processing on specialized finishing machines. The capacity of these machines is

 1,800 hours per month. XYZ Company wishes to determine the product mix that should be achieved

 to meet the high demand for each product and provide the maximum profit. Following is information

 about each product:

Product A Product B Product C

Selling price..............$150 $120 $38

Variable costs............105 60 30

Machine time per unit..3 hours 2 hours 1 hour

Monthly demand (units) 450 300 750

Required:

Determine how the 1,800 hours of machine time should be allocated to the three products to provide

 the most profitable product mix

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1. Consider a call option for the Intel stock with the exercise price of $20. Today is the expiration date.

1. Consider a call option for the Intel stock with the exercise price of $20. Today is the expiration date.

 If the stock price is $21.50 today, what is the current value of the option?

2. Consider a put option for the Intel stock. The exercise price of the option is $20. If the stock price is

 $21.50 today, the expiration date, what is the current value of the option?

3. Suppose that you bought the Intel stock at $21.50 per share, and that you paid $2 to buy its put

 option with the strike price of $20. It the stock price is $30 on the expiration date, what is the

total profit per share from the investment?

4. ABC Company recently issued two types of bonds. The first issue consisted of 20-year straight debt

 with an 8 percent annual coupon. The second issue consisted of 20-year bonds with a 6 percent annual

 coupon and attached warrants. Both issues sold at their $1,000 par values. What is the implied value

 of the warrants attached to each bond?

5. Consider a company’s 15 year, 9% coupon convertible bond with a $1,000 par value and the

 conversion ratio of 40. Its current price is $950, and its equivalent regular coupon bond yields 12%.

 These bonds are annual bonds. What is the value of the call option embedded in the convertible bond?

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ABC Company recently issued two types of bonds.

ABC Company recently issued two types of bonds. The first issue consisted of 20-year straight debt with an

 8 percent annual coupon. The second issue consisted of 20-year bonds with a 6 percent annual coupon and

 attached warrants. Both issues sold at their $1,000 par values. What is the implied value of the warrants

 attached to each bond? 

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Consider a company’s 15 year, 9% coupon convertible bond with a $1,000 par value and the conversion

Consider a company’s 15 year, 9% coupon convertible bond with a $1,000 par value and the conversion

ratio of 40. Its current price is $950, and its equivalent regular coupon bond yields 12%. These bonds are

 annual bonds. What is the value of the call option embedded in the convertible bond?

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A food processing company is considering adopting a new seafood processing system.

A food processing company is considering adopting a new seafood processing system. The system

 will cost $750,000 plus $23,000 for shipping and installation. It will result in an increase of

 $5,000 in the net working capital at the beginning. No further change in the net working

capital is expected after the system is put into operation.

The expected economic life of the unit is five years. It will be depreciated under the 5-year class

 of MACRS for the tax purpose. At the end of five years, the machine will be expected to

 sell for $80,000 and the accumulated change in the net working capital will be fully recovered.

After the firm adopts the new system, its annual revenues will be expected to increase by

$80,000 and its annual operating costs will be expected to decrease by $25,000.

The company’s tax rate is 40%. The 3-month T-bill yield is 5%, the market return is 15% and the project’s

 beta is 0.7. Should the company take the project? Why? (20 points)

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Bankserv, an IT company specialized in financial IT solutions is considering buying a new data

Bankserv, an IT company specialized in financial IT solutions is considering buying a new data  processing and management information system. The system, including computer hardware and software, will cost $750,000. Delivery and installation of the system is expected to add  $5,000 to this cost. The system will be placed in a small building owned by the company.  The building is currently vacant and would be sold for $90,000 after tax in the absence  of the system. To put the new system in place, the company expects to invest $48,000 in net working capital immediately and increase $12,000 in net working capital at the end of year 1.  Bankserv has spent $27,000 on a feasibility study on the project. The system has an expected economic life of 10 years. It will be depreciated as a 7-year asset under  MACRS rules. Actual salvage value at the end of 10 years is expected to be $50,000 and the  company plans to sell the system for its savage value at that time.  The new data processing system will save the company a fee of $190,000 per year that it currently  pays to a computer time-sharing company. Operating, maintenance, and insurance costs for the  system are estimated to total $50,000 during the first year. These costs are expected to increase at a  rate of 7 percent per year over the 10-year period. Bankserv plans to sell excess computer time to a number of local firms. The demand function for  this service during year 1 is estimated to be: Q = 20,000 - 200P Where Q = number of units of computer time sold P = price per unit of computer time sold An analysis of the local market for computer time makes the company believe that it can charge $14  per unit of computer time. Although Bankserv does not anticipate changing this charge over the 10- year period, it expects the quantity demanded to decline by 5 percent per year after year 1. It is  expected that these outside sales of computer time will cost the company an additional $40,000 per  year in computer operating costs (including the salary of computer service representatives to handle  the new customers). These additional operating costs are expected to increase at rate of 7 percent  annually over the 10-year period. Bankserve has a marginal tax rate of 34 percent. This rate is expected to remain in effect over the  life of the project. The project will be financed 20 percent by debt and 80 percent by equity. The pre -tax required rate of return on debt is 7.58 percent and the pre-tax required rate of return on equity is  15 percent. Inflation rate is assumed to be zero. Based on the information contained in the case and whatever assumptions you feel you need to make, use NPV approach to determine whether Bankserv should acquire the new data processing system. CLICK HERE FOR THE SOLUTION