Question: Mr. Franklin is interested in the sensitivity

> IceCap Hotels operates a series of northern European hotels and reports under IFRS. On June 30, 2016, IceCap purchased a hotel for €2,100,000. IceCap reports hotel values on the balance sheet under property, plant, and equipment. The estimated useful lif

> IceCap Hotels operates a series of northern European hotels and reports under IFRS. On June 30, 2016, IceCap purchased land for €3,000,000. IceCap reports land values on the balance sheet under Property, plant, and equipment. The appraisal value for the

> Zeff Company purchases a delivery van on January 1, Year 1, at a cost of $15,849. It has a useful life of four years and no estimated salvage value. When making the purchase decision, the company anticipated that the use of the van would generate a reven

> Required: 1. Contrast the economic sacrifice and expected benefit approaches to long-lived asset valuation. 2. GAAP requires firms to use historical cost (in most cases) to report the value of long-lived assets. As a statement reader, do you think that f

> As a senior partner at one of the nation’s largest public accounting firms, you serve as chairperson of the firm’s financial reporting policy committee. You are also the firm’s chief spokesperson on financial reporting matters that come before the FASB a

> Prescott Co. management has committed to a plan to dispose of a group of assets associated with the manufacture of railroad cars. This group of assets qualifies as a component of an entity for financial reporting purposes. As of December 31, 2017, manage

> Coyote Co. is building a waste landfill in the desert between Arizona and California. Coyote estimates that this landfill will be in operation for five years, will cost $250 million to build, and will generate $800 million in revenues during its useful l

> Gardenia Co. and Lantana Co. both operate in the same industry. Gardenia began its operations in 2017 with a $20 million initial investment in plant and equipment with an expected life of 10 years. Lantana’s net asset base is also $20 million, but its as

> The 2016 income statement and other information for Mallard Corporation, which is about to purchase a new machine at a cost of $500 and a new computer system at a cost of $300, follows. Sales ……………………………... $1,000 Cost of goods sold …………………………….600 Gros

> Assume that Major Motors Corporation, a large automobile manufacturer, reported in a recent annual report to shareholders that its buildings had an original cost of $4,694,000,000. 1. Major Motors uses the straight-line depreciation method to depreciate

> Consider the following two scenarios: Scenario I: Over the 2014–2018 period, Micro Systems, Inc., spends $10 million a year to develop patents on new computer hardware manufacturing technology. While some of its projects failed, the firm did develop sev

> To meet the increasing demand for its microprocessors, Intelligent Micro Devices began construction of a new manufacturing facility on January 1, 2017. Construction costs were incurred uniformly throughout 2017 and were recorded in the firm’s Constructio

> National Sweetener Company owns the patent to the artificial sweetener known as Supersweet. Assume that National Sweetener acquired the patent on January 1, 2011, at a cost of $300 million dollars, expected the patent to have an economic useful life of 1

> In its Year 2 balance sheet, IBM reported the following account: In the notes to its financial statements, IBM reported that it spent $2,997 million on computer software–related activities. Assume that these expenditures were relate

> Refer to the facts in Problem 10-8. Repeat requirements 2 through 5 using the cost model (as opposed to the revaluation model) under IFRS. Problem 10-8: Yachting in Paradise, Inc., was founded late in 2010 by retired Admiral Andy Willits to provide ex

> Presented below are excerpts from the 2012 annual report of Marston’s PLC, a UK-based company that operates pubs. Required: Property, plant and equipment Freehold and leasehold properties are initially stated at cost and subsequently

> Refer to the ExxonMobil information in Case 14-3. Explain how pension expense and OCI would change if ExxonMobil were using IAS 19. Case 14-3: At December 31, 2015, ExxonMobil had 4,156 million shares of outstanding common stock. The closing market pric

> Suppose you buy one SPX call option contract with a strike of 2200. At maturity, the S&P 500 Index is at 2218. What is your net gain or loss if the premium you paid was $14?

> A homeowner took out a 30-year fixed-rate mortgage of $120,000. The mortgage was taken out 15 years ago at a rate of 7.95 percent. If the homeowner refinances, the charges will be $2,000. What is the highest interest rate at which it would be beneficial

> A homeowner took out a 30-year fixed-rate mortgage of $220,000. The mortgage was taken out 10 years ago at a rate of 7.20 percent. If the homeowner refinances, the charges will be $3,500. What is the highest interest rate at which it would be beneficial

> A put option is currently selling for $8.30. It has a strike price of $80 and seven months to maturity. The current stock price is $83. The risk-free rate is 5 percent and the stock will pay a $1.40 dividend in two months. What is the price of a call opt

> A call option is currently selling for $4.60. It has a strike price of $60 and three months to maturity. A put option with the same strike price sells for $7.20. The risk-free rate is 6 percent and the stock will pay a dividend of $2.10 in three months.

> A call option is currently selling for $3.90. It has a strike price of $45 and five months to maturity. The current stock price is $47 and the risk-free rate is 4 percent. The stock will pay a dividend of $1.45 in two months. What is the price of a put o

> An analyst gathered the following year-end price level data for an economy: 2010 ………………………………174.0 2014 ………………………………190.3 2015 ………………………………196.8 What is the economy’s annual inflation rate for 2015?

> Suppose you are a U.S. investor who is planning to invest $785,000 in Mexico. Your Mexican investment gains 10 percent. If the exchange rate moves from 12.2 pesos per dollar to 12.5 pesos per dollar over the period, what is your total return on this inve

> Suppose you are a U.S. investor who is planning to invest $125,000 in Japan. You do so at a starting exchange rate of 84.28¥/$. Your Japanese investment gains 7 percent, and the ending exchange rate is 82.56¥/$. What is your total return on this investme

> Suppose you want to convert U.S. dollars into Indian rupees. If you have $1,500,000 and the exchange rate is $0.0245 per rupee, how many rupees will you receive in the conversion?

> Which of the following statements about VirtualCon’s securitization of receivables is least accurate? a. Accelerates operating cash flow into the current period. b. Enables the firm to reclassify financing cash flow as operating cash flow. c. Could allow

> A Treasury issue is quoted at 102.28125 bid and 102.375 ask. What is the least you could pay to acquire a bond?

> At what price could you sell the Treasury bill referred to in Problem 16? What is the dollar spread for this bill? (Note: You may need to review material from an earlier chapter for the relevant formula.)

> A stock has a price of $32 and an annual return volatility of 45 percent. The risk-free rate is 3.0 percent. Using a computer spreadsheet program, calculate the call and put option prices with a strike price of $31.50 and a 90-day expiration. Also calcul

> Calculate the following: a. The current market conversion price for the Sands convertible bond. b. The expected one-year rate of return for the Sands convertible bond. c. The expected one-year rate of return for the Sands common equity. Data for Problem

> A Treasury bill has a bid yield of 2.75 and an ask yield of 2.73. The bill matures in 152 days. What is the least you could pay to acquire a bill? (Note: You may need to review material from an earlier chapter for the relevant formula.)

> Steven Long, a bond analyst, is analyzing a convertible bond. The characteristics of the bond are given below. Convertible Bond Characteristics Par value…………………………………………………….$1,000 Annual coupon rate (annual pay) ……………………7.2% Conversion ratio …………………………

> A Treasury bond with the longest maturity (30 years) has an ask price quoted at 99.4375. The coupon rate is 4.6 percent, paid semiannually. What is the yield to maturity of this bond?

> Thorpe Mfg., Inc., is currently operating at only 75 percent of fixed asset capacity. Current sales are $480,000. How fast can sales grow before any new fixed assets are needed?

> In its 10Q dated February 4, 2016, LLL, Inc., had outstanding employee stock options representing over 272 million shares of its stock. LLL accountants estimated the value of these options using the Black-Scholes-Merton formula and the following assumpti

> A stock is currently priced at $55. A call option with an expiration of one year has an exercise price of $60. The risk-free rate is 12 percent per year, compounded continuously, and the standard deviation of the stock’s return is infinitely large. What

> Ignoring interest, what is the effect on VirtualCon’s total cash flow and cash flow from financing (CFF) from its financing arrangement for its accounts payable at the time of payment to the supplier? To

> A call option has an exercise price of $60 and matures in six months. The current stock price is $68 and the risk-free rate is 5 percent per year, compounded continuously. What is the price of the call if the standard deviation of the stock is 0 percent

> A call option matures in six months. The underlying stock price is $70 and the stock’s return has a standard deviation of 20 percent per year. The risk-free rate is 4 percent per year, compounded continuously. If the exercise price is $0, what is the pri

> Calculate ROA and ROE for Kiwi Fruit and interpret these ratios. Kiwi Fruit Company Balance Sheet Cash and equivalents ……………………………………$  570 Operating assets ………………………………………………..650 Property, plant, and equipment. …………………….2,700  Other assets    …………………

> Calculate the gross and operating margins for Kiwi Fruit. Data for Problem 12: Kiwi Fruit Company Balance Sheet Cash and equivalents ……………………………………$  570 Operating assets ………………………………………………..650 Property, plant, and equipment. …………………….2,700  Other ass

> Real vs. Nominal (LO2, CFA3) Using the information from Problem 10, calculate the inflation rates and approximate real GDP growth rates for 2014 and 2015. Data from Problem 10: Consider the following information on GDP and CPI for an economy over the l

> Consider the following information on GDP and CPI for an economy over the last three years: Calculate nominal GDP growth for 2014 and 2015. GDP ($ billions) CPI 2013 125.4 105.3 2014 136.1 106.1 2015 138.2 106.4

> A call option currently sells for $8. It has a strike price of $80 and five months to maturity. A put with the same strike and expiration date sells for $6. If the risk-free interest rate is 4 percent, what is the current stock price?

> A stock with an annual standard deviation of 30 percent currently sells for $67. The risk-free rate is 3 percent. What is the value of a put option with a strike price of $80 and 60 days to expiration?

> What is the value of a put option if the underlying stock price is $42, the strike price is $35, the underlying stock volatility is 47 percent, and the risk-free rate is 5 percent? Assume the option has 140 days to expiration.

> Suppose you buy 30 March 100 put option contracts. What is your maximum gain? On the expiration date, Hendreeks is selling for $84.60 per share. How much is your options investment worth? What is your net gain? Calls Puts Strike Price Close Expirati

> In Problem 4, suppose that Hendreeks stock is selling for $105.70 per share on the expiration date. How much is your options investment worth? What if the stock price is $101.60 on the expiration date? Data from Problem 4: Suppose you buy 50 April 100

> Suppose you buy 50 April 100 call option contracts. How much will you pay, ignoring commissions? Calls Puts Strike Price Close Expiration Vol. Last Vol. Last Hendreeks 103 100 Feb 72 5.20 50 2.40 103 100 Mar 41 8.40 29 4.90 103 100 Apr 16 10.68 10 6

> What is the value of a call option if the underlying stock price is $73, the strike price is $75, the underlying stock volatility is 37 percent, and the risk-free rate is 5 percent? Assume the option has 100 days to expiration.

> Alphonse Inc. has a return on equity of 12 percent, 28,000 shares of stock outstanding, and a net income of $98,000. What are earnings per share?

> Weston Corporation had earnings per share of $1.64, depreciation expense of $310,000, and 140,000 shares outstanding. What was the operating cash flow per share? If the share price was $43, what was the price-cash flow ratio?

> Given the following information for Smashville, Inc., construct a balance sheet: Current liabilities: ……………………………………………….$42,000 Cash: ………………………………………………………………….$21,000 Long-term debt: ………………………………………………..$102,000 Other assets: ………………………………………………………$36,

> Suppose you purchase five put contracts on Testaburger Co. The strike price is $45 and the premium is $3. If, at expiration, the stock is selling for $39 per share, what are your put options worth? What is your net profit?

> Given the following information for Hetrich, Inc., calculate the operating cash flow, investment cash flow, financing cash flow, and net cash flow: Net income: ………………………………………$175 Depreciation: ………………………………………$52 Issuance of new stock: ………………………….$7 Rep

> You are managing a pension fund with a value of $300 million and a beta of 1.07. You are concerned about a market decline and wish to hedge the portfolio. You have decided to use SPX calls. How many contracts do you need if the delta of the call option i

> A stock is currently priced at $74 and will move up by a factor of 1.20 or down by a factor of 0.80 over the next period. The risk-free rate of interest is 4.2 percent. What is the value of a call option with a strike price of $75?

> Mr. Franklin wants to compute the value of the put option that corresponds to the call value calculated in the previous question. Which of the following is the closest to his answer? a. $4.78 b. $5.55 c. $11.54

> A stock is currently selling for $45. In one period, the stock will move up by a factor of 1.15 or down by a factor of 0.87. A call option with a strike price of $50 is available. If the risk-free rate of interest is 2.5 percent for this period, what is

> A put option with a strike price of $50 sells for $3.20. The option expires in two months and the current stock price is $51. If the risk-free interest rate is 5 percent, what is the price of a call option with the same strike price?

> Suppose you purchase eight call contracts on Macron Technology stock. The strike price is $60 and the premium is $3. If, at expiration, the stock is selling for $64 per share, what are your call options worth? What is your net profit?

> A homeowner takes a 15-year fixed-rate mortgage for $140,000 at 7.6 percent. After seven years, the homeowner sells the house and pays off the remaining principal. How much is the principal payment?

> A $100,000 GNMA pass through bond issue has a value of $107,680. The value of the interest-only payments is $52,973. What is the value of the principal only payment?

> What is the conditional prepayment rate if the single monthly mortality is 0.426 percent?

> What is the single monthly mortality assuming the conditional prepayment rate is 7 percent?

> You have decided to buy a house. You can get a mortgage rate of 5.25 percent, and you want your payments to be $1,500 or less. How much can you borrow on a 30-year fixed-rate mortgage?

> A homeowner takes out a $417,000, 30-year fixed-rate mortgage at a rate of 5.2 percent. What are the monthly mortgage payments?

> If a mortgage has monthly payments of $1,240, a life of 30 years, and a rate of 4.5 percent per year, what is the mortgage amount?

> Mr. Franklin wants to compute the value of the call option using the information in Exhibit 1. Which of the following is closest to his answer? a. $4.78 b. $5.55 c. $11.54

> Consider a 30-year, $145,000 mortgage with a 6.1 percent interest rate. After eight years, the borrower (the mortgage issuer) pays it off. How much will the lender receive?

> What is the monthly payment on a 30-year fixed-rate mortgage if the original balance is $315,000 and the rate is 4.9 percent?

> Assume there are 300 million people in the United States, 155 million of whom make up the labor force. If 10 million people are unemployed, what is the unemployment rate?

> If nominal GDP was reported at $1,425.68 billion and inflation was 4.3 percent, what is the level of real GDP for the period?

> If nominal GDP was reported at $124.9 billion and real GDP was reported at $122.8 billion, what was the inflation rate for the period?

> If wages grew 3.2 percent, but inflation was 2.8 percent, what was the approximate real increase in wages?

> The CPI for this year was reported at 154.65. If inflation was 2.2 percent, what must the CPI have been last year?

> Assume the CPI increases from 123.9 to 125.6 over the period. What is the inflation rate implied by this CPI change over this period? What does this value indicate?

> Assume that the Federal Reserve injects $60 billion into the financial system. If the money supply increases by a maximum of $300 billion, what must the reserve requirement be?

> Assume that the Federal Reserve injects $2 billion into the financial system. If the reserve requirement is 18 percent, what is the maximum increase in money supply? Why might the maximum increase not be achieved?

> Mr. Franklin wants to know how the put option in Exhibit 1 behaves when all the parameters are held constant except delta. Which of the following is the best estimate of the change in the put option’s price when the underlying equity increases by $1? a.

> A STRIPS with nine years until maturity and a face value of $10,000 is trading for $7,693. What is the yield to maturity?

> What is the price of a STRIPS with a maturity of 12 years, a face value of $10,000, and a yield to maturity of 5.2 percent?

> You own a convertible bond with a conversion ratio of 20. The stock is currently selling for $72 per share. The issuer of the bond has announced a call; the call price is 108. What are your options here? What should you do?

> You own a bond with a 6 percent coupon rate and a yield to call of 6.90 percent. The bond currently sells for $1,070. If the bond is callable in five years, what is the call premium of the bond?

> A bond matures in 25 years but is callable in 10 years at 120. The call premium decreases by 2 percent of par per year. If the bond is called in 14 years, how much will you receive?

> A convertible bond has a $1,000 face value and a conversion ratio of 36. If the stock price is $42, what is the conversion value?

> A company just sold a convertible bond at a par value of $1,000. If the conversion price is $58, what is the conversion ratio?

> A taxable issue yields 6.4 percent, and a similar municipal issue yields 4.7 percent. What is the critical marginal tax rate?

> A taxable corporate issue yields 6.5 percent. For an investor in a 35 percent tax bracket, what is the equivalent after tax yield?

> Assume a municipal bond has 18 years until maturity and sells for $5,640. It has a coupon rate of 5.70 percent and it can be called in 10 years. What is the yield to call if the call price is 110 percent of par?

> She would like to compute the value of the corresponding put option for Option 2. Which of the following is closest to Ms. Barlow’s answer? a. $0.98 b. $1.41 c. $4.84

> A municipal bond with a coupon rate of 6.2 percent sells for $4,920 and has seven years until maturity. What is the yield to maturity of the bond?

> A municipal bond with a coupon rate of 2.7 percent has a yield to maturity of 3.9 percent. If the bond has 10 years to maturity, what is the price of the bond?

> A convertible bond has a $1,000 face value and a conversion ratio of 45. What is the conversion price?

> Lemon Co. has net income of $520,000 and 75,000 shares of stock. If the company pays a dividend of $1.28 per share, what are the additions to retained earnings?

> A STRIPS traded on November 1, 2016, matures in 12 years on November 1, 2028. The quoted STRIPS price is 62.75. What is its yield to maturity?

> A STRIPS traded on May 1, 2016, matures in 18 years on May 1, 2034. Assuming a 4.1 percent yield to maturity, what is the STRIPS price?

> At the end of the year, Smashville stock sold for $48 per share. Calculate the price-book ratio, price-earnings ratio, and price-cash flow ratio.