Louis Welch
Payroll for the year ended December 31, 2014
Calculation
Gross Pay:
Salary
Bonus
Total Gross Pay
Deductions:
Federal Income Tax
State Income Tax
FICAOASDI
FICAMedicare
Charity Fund
Life Insurance
Total Deductions
Net Pay
Annual
$10,200*12
$122
Module 9 Practice Set
One point for each correct answer. Total of 10 points for this practice set.
1.
For Buy Coastal, Inc. compute payback for the following projects.
Year
Cash Flow (A)
Cash Flow (B)
0
-$40,000
-$60,000
1
19,000
14,000
2
25,000
17,000
3
Module 2 Practice Set
1.
Investment X offers to pay you $6,000 per year for nine years, whereas
Investment Y offers to pay you $8,000 per year for six years. Which of these
cash flow streams has the higher present value if the discount rate is 5%? If
the
Module 7 Practice Set
One point for each correct answer. Total of 10 points for this practice set.
1.
From the price data below, compute the percentage holding period returns
for periods 2, 3 and 4. There were no cash payments during any of the
periods.
P
Module 10 Practice Set
One point for each correct answer. Total of 10 points for this practice set.
1.
Brock Florist Company buys a new delivery truck for $29,000, a light truck.
Using MACRS tables for a five-year asset, calculate the book value at the
en
Module 8 Practice Set
One point for each correct answer. Total of 10 points for this practice set.
1.
Calculate expected return based on the following information:
State of Economy
Recession
Normal
Boom
Prob. Of State
.20
.50
.30
11.10%
Expected Return: S
Module 1 Practice Set
1.
For each of the following, compute the future value:
Present
Value
$2,250
$8,752
$76,355
Years
Interest Rate
Future Value
11
7
14
10%
8%
17%
$6,419.51
$14,999.39
$687,764.17
FV
Rate
Nper
Pmt
PV
Type
FV
$
$
$
10.00%
11
(2,250.00)
0
Review Notes for Test 4
1.
What is the investment timing decision in options?
2.
What is the impact of the option to expand?
3.
Why does the option to abandon have value?
4.
What is the firms capital structure?
5.
What does MM Prop 1 without taxes state?
Module 5 Practice Set
1.
You are considering an investment in KC Corp. stock. The dividend next year
(D1) is expected to be $0.50. The dividend is expected to grow at a constant
rate of 7% per year. Your required return to invest in this stock is 15%. Wha
Module 3 Practice Set
1.
Kings Motors bonds have 10 years to maturity. Interest is paid annually. The
par value is $1,000. With a coupon interest of 8% and a yield to maturity
(rate) of 9%, what is the current market price of the bonds?
$935.82
PV
Rate
Np
Requirement 1
Missing Internal
Control Characteristic
a.
Requirement 2
Possible Problem
Requirement 3
Solution
Audit
The applications stopped functioning during maintanance
Have an audit that creates a back up system in order to avoid the lapse
b. Documen
Purchases
Unit
Quantity
Cost
Date
Jan. 1
5
13
18
26
Totals
Total
Cost
Quantity
Cost of Goods Sold
Unit
Total Cost
Cost
Inventory on Hand
Unit
Quantity
Total Cost
Cost
Date
Jan. 1
5
13
18
26
Totals
Purchases
Unit
Quantity
Cost
Total
Cost
Cost of Goods Sold
Date
a. Dec. 31
b. Dec. 31
c. Dec. 31
d. Dec. 31
e. Dec. 31
f. Dec. 31
g. Dec. 31
Accounts and Explanation
Unearned Revenue
Service Revenue
To record service revenue earned that was collected in advance
Rent Expense
Prepaid Rent
To record rent expense
Deb
Date
2014
Jun. 30
Jun. 30
Jun. 30
Jun. 30
Jun. 30
Jun. 30
Accounts and Explanation
Sales Revenue
Income Summary
To close sales revenue to income summary.
Debit
Credit
164,000
164,000
Income Summary
Salaries Expense
Rent Expense
To close expenses into inco
DUNLAP INSURANCE
Bank Reconciliation
December 31, 2015
BANK
Balance, December 31, 2015
ADD:
Deposit in transit
LESS:
Outstanding checks
Check 1420
Check 1421
Check 1422
BOOK
$17,350 Balance, December 31, 2015
ADD:
1,850 EFT collection on rent
19,200 Bank
Calculations:
Apr. 1 Acquisition of land and communication equipment:
Market
Value
Asset
Land
Comm. Equip.
Total
$212,625
70,875
$283,500
Total
Purchase
Percentage of Total Value
Price
$212,625/283,500=75% 270,000
$70,875/283500=25% 270,000
100%
= Assign
Requirement 1
Purchase price to acquire Shipley Wireless
Market value of Shipley Wirelesss assets
Less: Shipley Wirelesss liabilities
Market value of Shipley Wirelesss net assets
Goodwill
$800,000
$1,000,000
-530,000
470,000
$330,000
Accounts to use for j
a.
$400,000
b.
$368,000
c.
$400,000*0.05*12/12=$20,000; semiannual is $20,000*1/2=$10,000
d.
$400,000-(400,000*0.90)=$40,000 Discount/10 years=$4,000 per year
plus $20,000=$24,000 interest expenses per year
Date
2014
Jun. 30
Accounts and Explanation
Inter
Review Notes for Test 3
1.
What are the component parts of the total return?
2.
Compute the standard deviation of stock annual returns.
3.
Compute the geometric average return of stock annual returns.
4.
What are examples of nondiversifiable risks?
5.
Wha
Compounding Cash Flows
Key Concepts and Skills
Be able to explain the difference between simple and
compound interest
Be able to compute the future value of an investment made
today (FV)
Be able to use a computer to solve for FV
1
Methods of Paying Intere
Expected Return
Key Concepts and Skills
Be familiar with probability distributions
Know how to calculate expected returns for both
individual assets and portfolios
Know how to calculate standard deviations for both
individual assets and portfolios
1
What
Holding Period Returns
Key Concepts and Skills
Know how to compute percentage returns
Know how to compute risk premiums
1
Total Dollar Returns
You can make money 2 ways from an investment
Cash flows
Capital gains
E.g., dividends, interest, rental fees
Cha
Types of Market Efficiency
Key Concepts and Skills
Understand the different forms of the Efficient Markets
Hypothesis (EMH)
Understand the implications of the EMH for market
prices
1
Economic Efficiency vs.
Capital Market Efficiency
Economic Efficiency
F
Financial Statement Analysis
Key Concepts and Skills
Be able to compute common-size financial statements
for balance sheets and income statements
Be able to compute ratios, including liquidity, solvency,
turnover, profitability and market value ratios
Be
Option Pricing
Key Concepts and Skills
Understand the upper and lower values of
options
Use the Black-Scholes Model to value European
Options
1
Bounding The Value of a Call
At the minimum, the value of an existing call will be the
current market price les
Stock Values
Key Concepts and Skills
Understand how stock prices depend on
future dividends and dividend growth
Be able to compute stock prices using the
dividend growth model
1
Estimating Dividends: Special Cases
Constant dividend: zero growth
The firm
Growing Annuities and Perpetuities
Key Concepts and Skills
Be able to compute the future value of
growing cash flows
Be able to compute the present value of
growing cash flows
1
Definitions: Perpetuity & Annuity
A growing annuity is a finite series of gr
Return and Risk Statistics
Key Concepts and Skills
Know how to compute arithmetic and geometric mean of
holding period returns
Know how to compute the variance and standard
deviation of holding period returns
1
An Odd Example That Makes a Point
Suppose yo
Problems with IRR and PI
Key Concepts and Skills
Be able to use an NPV profile to understand why there
may be conflicts between NPV, IRR and PI
1
NPV vs. IRR
NPV and IRR will generally give us the
same decision
Exceptions
Nonconventional
cash flows cash