Describe bond pricing as two time-value-of-money problems.
> Lanier Dairy Ltd. leases its milk cooling equipment from Green Finance Corporation. Both companies use IFRS 16. The lease has the following terms. 1. The lease is dated May 30, 2020, with a lease term of eight years. It is non-cancellable and requires e
> Gaming Inc. issued a debenture bond to Karamoutz Bank to finance new technology it developed. The debenture was for $500,000, issued at face value, with a 10-year term and interest payable at 10%. Gaming Inc.'s new technology proved not to be technically
> Under the temporary difference approach, the tax rates used for deferred tax calculations are those enacted at the balance sheet date, and affect how the reversal will be treated for tax purposes. Instructions For each of the following situations, dis
> The consolidated financial statements of Deutsche Lufthansa AG for the year ended December 31, 2017, are available in the company's 2017 annual report on the www.lufthansagroup.com website. Instructions a. What is included in the current liabilities f
> Shikkiah Corp. (which is a private enterprise) tries to attract the most knowledgeable and creative employees it can find. To help accomplish this, the company offers a special group of technology employees the right to a fully paid sabbatical leave afte
> Dubois Steel Corporation, as lessee, signed a lease agreement for equipment for five years, beginning January 31, 2020. Annual rental payments of $41,000 are to be made at the beginning of each lease year (January 31). The insurance and repairs and maint
> Lee Industries Inc. and Lor Inc. enter into an agreement that requires Lor Inc. to build three dieselelectric engines to Lee’s specifications. Both Lee and Lor follow ASPE and have calendar year ends. Upon completion of the engines, Lee has agreed to lea
> At the end of the December 31, 2019 fiscal year, Yin Trucking Corporation, which follows IFRS 16, negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were erected to the com
> Assume the same information as in P20.9. Instructions Answer the following questions, rounding all numbers to the nearest dollar. a. Assuming that Woodhouse Leasing Corporation’s accounting period ends on September 30, answer the fo
> Assume the same information as in P20.9. Instructions Follow the instructions assuming that McKee Electronics follows IFRS 16. From P20.9: The following facts pertain to a non-cancellable lease agreement between Woodhouse Leasing Corporation and McKe
> Interior Design Inc. (ID) is a privately owned business that provides interior decorating options for consumers. ID follows ASPE. The software that it purchased six years ago to present clients with designs that are unique to their offices is no longer s
> Dela Corporation initiated a defined benefit pension plan for its 50 employees on January 1, 2020. The insurance company that administers the pension plan provides the following information for the years 2020, 2021, and 2022: There were no balances as a
> Bouter Corporation Limited (BCL) began operations in 1996 and in 2006 adopted a defined benefit pension plan for its employees. By January 1, 2020, the defined benefit obligation was $510,000. On January 2, 2020, for the first time, BCL agreed to a new u
> Manon Corporation applies ASPE and sponsors a defined benefit pension plan. The following pension plan information is available for 2020 and 2021: The pension fund paid out benefits in each year. There were no actuarial gains or losses incurred on the D
> Access the financial statements for Loblaw Companies Limited for the year ended December 30, 2017 and Empire Company Limited for the year ended May 6, 2017, through SEDAR (www.sedar.com) and then answer the following questions. Instructions a. Calcula
> Brawn Corporation sponsors a defined benefit pension plan for its 100 employees. On January 1, 2020, the company's actuary provided the following information: The actuary calculated that the present value of future benefits earned for employee services
> You are the controller of a newly established technology firm that is offering a new pension plan to its employees. The plan was established on January 1, 2020, with an initial contribution by the employer equal to the actuarial estimate of the past serv
> The following information is available for HTM Corporation's defined benefit pension plan: On January 1, 2020, HTM Corp. amended its pension plan, resulting in past service costs with a present value of $78,000. Instructions a. Calculate the pension
> Eloisa Corporation applies IFRS. Information about Eloisa Corporation's income before income tax of $633,000 for its year ended December 31, 2020, includes the following: 1. CCA reported on the 2020 tax return exceeded depreciation reported on the incom
> Dungannon Enterprises Ltd. sells a specialty part that is used in widescreen televisions and provides the ultimate in screen clarity. To promote sales of its product, Dungannon launched a program with some of its smaller customers. In exchange for making
> The Hwang Candy Corporation (HCC) offers a mini piggy bank as a premium for every five chocolate bar wrappers that customers send in along with $2.00. The chocolate bars are sold by HCC to distributors for $0.30 each. Ignore any cost of goods sold. The p
> Renew Energy Ltd. (REL) manufactures and sells directly to customers a special long-lasting rechargeable battery for use in digital electronic equipment. Each battery sold comes with a guarantee that the company will replace free of charge any battery th
> Smythe Corporation sells televisions at an average price of $850 and they come with a standard one-year warranty. Ignore any cost of goods sold. Smythe also offers each customer a separate three-year extended warranty contract for $90 that requires the c
> Brooks Inc. sells portable computer equipment with a two-year warranty contract that requires the corporation to replace defective parts and provide the necessary repair labour. During 2020, the corporation sells for cash 400 computers at a unit price of
> Newfoundland University recently signed a contract with the bargaining unit that represents full-time professors. The contract agreement starts on April 1, 2019, the start of the university's fiscal year. The following excerpt outlines the portion of the
> Brookfield Asset Management Inc. Access the financial statements and accompanying notes of Brookfield Asset Management Inc. for the year ended December 31, 2017, through SEDAR (www.sedar.com) or on the company's website and then answer the following ques
> Access the annual report for Air Canada for its December 31, 2017 fiscal year end from SEDAR or the company's website (www.aircanada.com). Also, access the annual report for the year ended December 31, 2017, for British Airways plc from the company's par
> Describe risk in finance as up and down movement of return. Does this idea make sense in terms of the variance definition?
> What is the fundamental motivation behind portfolio theory? That is, what are people trying to achieve by investing in portfolios of stocks rather than in a few individual stocks or in debt? What observations prompted this view?
> How is the IPO price of a stock determined? Is that price likely to be the stock’s intrinsic value.
> Do stocks that don't pay dividends have value? Why?
> Discuss the accuracy of stock valuation, and compare it with that of bond valuation.
> Describe the approach to valuing a stock expected to grow at more than one rate in the future. Can there be more than two rates? What two things have to be true of the last rate?
> What is meant by normal growth? Contrast normal and super normal growth. How long can each last? Why?
> Why are growth rate models practical and convenient ways to look at stock valuation?
> Verbally rationalize the validity of a stock valuation model that doesn't contain a selling price as a source of cash flow to the investor. Give two independent arguments.
> Why did securities analysts issue biased reports in the 1990s? In what direction were the reports biased?
> How and why is the U.S. dollar unique among the world's currencies?
> Describe the primary conflict of interest that caused the public accounting industry to fail in its duty to protect the investing public’s interests in the 1990s.
> Describe the feature of financial reporting that made leasing popular before FASB 13.
> Is investing in options really investing or is it more like gambling?
> Options are more exciting than investing in the underlying stocks because they offer leverage. Explain this statement.
> What does the efficient market hypothesis say? What is its implication for stock analysis?
> Compare fundamental analysis and technical analysis. Which makes more sense to you?
> Discuss the relative riskiness of investment in bonds, common stock, and preferred stock.
> Preferred stock is said to be a hybrid of common stock and bonds. Explain fully. Describe the cash flows associated with preferred stock and their valuation.
> What is the relationship between bond prices and interest rates? Verbally describe how this relationship comes about. How can we use this relationship to estimate the value of a bond?
> Discuss the nature of stock as an investment. Do most stockholders play large roles in the management of the firms in which they invest? Why or why not?
> What is a trade deficit, and why does it hurt us to consistently run a deficit with another country?
> Why do bonds have indentures?
> If bonds pay fixed interest rates, how can they be sold year after year on the secondary market? Include the idea of how yields adjust to changing market interest rates.
> Two interest rates are associated with pricing a bond. Name and describe each. How are they used? Describe a third rate not used in pricing.
> What is a call provision? Why do companies put them in bonds? Define: call-protected period and call premium/penalty
> Describe the nature of a bond. Include at least the following ideas. term/maturity face value debt vs. equity "buying" a bond non-amortized one borrower/many lenders risk conflict with stockholders
> How can two knowledgeable people come to different conclusions about the value of the same security? Can this happen if they have access to the same information?
> Contrast real assets and financial (paper) assets. What is the basis for the value of each?
> Corporate executives sometimes abuse their positions by overpaying themselves at the expense of stockholders. When that happens are the executives’ gains dollar for dollar losses to stockholders or can investors lose more or less than the amounts by whi
> How and why do sinking funds enhance the safety of lenders?
> Describe the difference between a floating and a fixed exchange rate system.
> Under what conditions is a bond almost certain to be called at a particular date in the future? How does this condition affect its price?
> The Greenbay Motor Company ordered six German built engines at, €15,000 each when the direct exchange rate was $1.2500 per euro, and elected not to cover the obligation with a forward contract. When the bill was due three months later, the rate was $1.1
> Suppose a car manufactured in Japan in the mid-1980s, when there were 250 yen to the dollar, cost 2 million yen to produce, and was marked up 25% for sale in the United States. Assume the car's cost in yen and markup are the same today, but that the e
> The Cline family made a trip to Europe in 2015. They paid the following amounts in local currency for hotel, entertainment, and transportation. How much did the trip cost once they got to Europe? Use the exchange rates in Table 18.1. England.
> Segwick Petroleum Ltd. has a dividend reinvestment plan in which new stock is issued to participating investors. Segwick's payout ratio is 40%, and 30% of stockholders participate in the plan. The firm's ROE is 10%. What percentage increase in flotati
> Bob and Chris received a grant through their University to travel to Germany to do research. The grant awarded them $2,000 for room and board during their stay. It was paid to them in U.S. dollars on May 31 at which time the dollar was worth €.77980.
> Atkins Company has just issued a series of bonds with 5- through 10-year maturities. The company’s default risk is 0.5% on 5-year bonds, and grows by 0.2% for each year that’s added to the bond’s term. Atkins’ liquidity risk is 1.0% on 5-year bonds, an
> The following direct quote exchange rates are found on the spot market today. a. Euro: $.9347 b. Israeli shekel: $.2586 c. British (U.K.) pound: $1.6544 d. Japanese yen: $0.009423 Calculate the price of a U.S. dollar in terms of each currency, the ind
> Using words only, describe the process of finding a bond's yield at a given selling price.
> Construct an amortization schedule for the last six months of the loan. (Hint: What is the unpaid balance at the end of 29 ½ years?)
> What are the monthly payments on the loan? Construct an amortization table for the first six months of the loan.
> Partridge Inc. sells about $45 million a year on credit. Good credit and collections performance in the industry results in a 35-day ACP. a. What is the maximum receivables balance Partridge can tolerate and still receive a good rating with respect to
> Construct an amortization schedule for a four-year, $10,000 loan at 6% interest compounded annually.
> A $10,000 car loan has payments of $361.52 per month for three years. What is the interest rate? Assume monthly compounding and give the answer in terms of an annual rate.
> Harry Clements would like to buy a new car. He can afford payments of $650 a month. The bank makes four-year car loans at 12% compounded monthly. How much can Harry borrow toward a new car?
> You are a securities salesperson. Many of your clients are elderly people who want very secure investments. They remember the days when interest rates were very stable (before the 1970s) and bond prices hardly fluctuated at all regardless of their term
> Annuities are attractive investment vehicles for retirement savings as many people prefer an income stream in retirement to a lump sum in the bank. It’s easy to trade one for the another by purchasing an annuity for its discounted value from a bank or a
> What would you pay for an annuity of $2,000 paid every six months for 12 years if you could invest your money elsewhere at 10% compounded semiannually?
> The Winthrop Company is constructing a five-year plan. The firm's ACP is currently 90 days, while its inventory turnover ratio is 3 × based on COGS. The company has forecast aggressive revenue growth along with efficiency improvements in man
> What causes maturity risk? In other words, why do long-term bonds respond differently to interest rate changes than short-term bonds? (Hint: Think about how the present value formulas work.)
> Go to a currency exchange site on the internet and look up today's exchange rates for the currencies in problem 1. Resolve the problems using today's rates. Analyze how the rates have changed since May 6, 2015.
> Livetree Ltd. is developing a detailed financial plan for next year, and expects to have the following fixed asset accounts by the end of this year ($000) The capital plan already completed calls for expenditures of $7,042,000 on new equipment next yea
> How many years will it take for $850 per year to amount to $20,000 if the interest rate is 8%?
> Emmons Motors is a distributor of electric motors. The firm projects product demand next year of 25,000 units. It costs $320 to place an order with suppliers. Management has determined that the EOQ is 1,000 units. How much per year does it cost Emmon
> Zuker Distributors handles the warehousing of perishable foods and is considering replacing one of its primary cold storage units. One supplier has offered a unit for $250,000 with an expected life of 10 years. The unit is projected to reduce electrici
> How much will $650 per year be worth in eight years at interest rates of a. 12% b. 8% c. 6%
> The Longenes Company uses a target capital structure when calculating the cost of capital. The target structure and current component costs based on market conditions follow. * The costs of debt and preferred stock are already adjusted for taxes and/o
> Suppose the strategic options available to the Rollins Company in the last problem result in temporarily enhanced growth. Each option can be associated with a super normal growth rate that lasts for some period after which growth returns to the firm's n
> Suppose Hammell of the previous problem needs to issue new stock to raise additional equity capital. What is its cost of new equity if and flotation costs are 12%?
> The Framingham Company expects to grow at 4% indefinitely. Economists are currently asserting that investment opportunities in short term government securities (treasury bills) are readily available at a risk-free rate of 5%. The stock market is returni
> What is interest rate or price risk? Why is it sometimes called maturity risk? Explain fully.
> The Longlife Insurance Company of the preceding problem has several bonds outstanding that are currently selling to yield 9%. What does this imply about the cost of the firm's equity?
> Grandma's Cookies Inc. is considering acquiring Mother's Baked Goods Inc. After consideration of all benefits, synergies and tax effects, Grandma (originally a finance major) has estimated that the incremental cash flows from the acquisition will be abo
> The Longlife Insurance Company has a beta of .8. The average stock currently returns 15% and short-term treasury bills are offering 6%. Estimate Longlife's cost of retained earnings.
> Schoen Industries pays interest of $3 million each year on bonds with an average coupon rate of 7.5%. The firm has 4.5 million shares of stock outstanding and pays out 100% of earnings in dividends. Earnings per share (EPS) is $3.50. Schoen’s cost of
> Klints Inc. paid an annual dividend of $1.45 last year. The firm’s stock sells for $29.50 per share, and the company is expected to grow at about 4% per year into the foreseeable future. Estimate Klints’ cost of retained earnings.
> Assume that Meade Metals Inc of the previous problem is replacing an old truck with a new one instead of replacing an outside delivery service. The old truck was purchased 8 years ago for $120,000. It has been depreciated straight line based on a ten-y
> A few years ago Hendersen Corp issued preferred stock paying 8% of its par value of $50. The issue is currently selling for $38. Preferred stock flotation costs are 15% of the proceeds of the sale. What is Hendersen's cost of preferred stock?
> The York Company has an average receivables balance of $55,000, which turns over once every 30 days. It offers all of its receivables to its bank as collateral for short-term borrowing (pledging). The bank generally accepts 60% of the accounts offered
> Harris Inc.’s preferred stock was issued five years ago to yield 9%. Investors buying those shares on the secondary market today are getting a 14% return. Harris generally pays flotation costs of 12% on new securities issues. What is Harris’s cost of
> Jenkins Appliances has cash flow problems and needs to borrow between $50,000 and $60,000 for approximately sixty (60) days. Because the business is small and relatively new, unsecured loans are very hard to get and are expensive when they are available.
