purchased a patent on September 1, 2017 for $39,780. At the time of purchase,Pearlestimated that the patent's economic benefits would last until the...
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1)Pearl Ltd. purchased a patent on September 1, 2017 for $39,780. At the time of purchase, Pearl estimated that the patent's economic benefits would last until the end of 2021 fiscal year. Pearl's fiscal year-end is December 31. On April 1, 2020, Pearl sold the patent to another company.

Sale value is 22,000


2) if, however, Taft issued the 6 percent bonds at 102, its March 1 entry would be:

Cash [(800,000 x 1.02) + (800,000 x .06 x 2/12)]              824,000

               Bonds Payable                                                                                 800,000

               Premium on Bonds Payable (800,000 x .02)                                   16,000

           Interest Expense                                                                                  8,000


Taft would amortize the premium from the date of sale (March 1, 2017), not from the date of the bonds (January 1, 2017). That is, the amortization period is 118 months [120 (10 x 12) minus two months since issuance]. As a result, the premium amortization at July 1, 2017, is $542.37 [($16,000 / $118 x 4].



3) both of which reported earnings of $630,000. Without new projects, both firms will

continue to generate earnings of $630,000 in perpetuity. Assume that all earnings are

paid as dividends and that both firms require a return of 11 percent.

a. What is the current PE ratio for each company?

b. Pacific Energy Company has a new project that will generate additional earnings of

$100,000 each year in perpetuity. Calculate the new PE ratio of the company.

c. U.S. Bluechips has a new project that will increase earnings by $200,000 in perpetu

ity. Calculate the new PE ratio of the firm. 


4) You are the Chief Financial Analyst of Faisal Assets Management Company with CFA qualification and one of your regular client Dawood Habib Construction company, which is a famous Construction company in all around Pakistan. They are going to evaluate two Long Term Construction projects in Karachi for this year for which they need your consulting services, Your Financial Analyst team has already calculated their WACC which is 14% they just wanted you to evaluate the projects again as to maintain the legacy of company. Habib's After-Tax Cash flows including depreciation are as follow,

Time period DHA-8 Project DHA-3 Project

0 Initial cost Initial cost

1 $ 2,000 $ 5,600

2 $ 2,000 $ 5,600

3 $ 2,000 $ 5,600

4 $ 2,000 $ 5,600

5 $ 2,000 $ 5,600

DHA-8 project initial cost -2600 (negative value)

DHA-3 project initial cost -11500 (negative value)



what to find:


⦁ Calculate NPV, IRR, Payback and Discounted payback period for two projects.                        

⦁ Assuming the projects are independent, which one would you recommend?

⦁ If the projects are mutually exclusive which would you recommend?


5) Triton Company's copy department, which does almost all of the photocopying for the sales department and the administrative department, budgets the following costs for the year, based on the expected activity of copies:

 Salaries (fixed)$81,500

Employee benefits (fixed) 10,000

Depreciation of copy machines (fixed) 10,000

Utilities (fixed) 5,000

Paper (variable, 1 cent per copy) 50,000

Toner (variable, 1 cent per copy) 50,000

The costs are assigned to two cost pools, one for fixed and one for variable costs. The costs are then assigned to the sales department and the administrative department. Fixed costs are assigned on a lump-sum basis, 40 percent to sales and 60 percent to administration. The variable costs are assigned at a rate of 2 cents per copy.

Assuming the following copies were made during the year, 2,511,750 for sales and 2,534,250 for administration, calculate the copy department costs allocated to sales.

Round to two decimal places.


6) Beijing Bearings is considering purchasing a small firm in the same line of business. The purchase would be financed by the sale of common stock or a bond issue. The financial manager needs to evaluate how the two alternative financing plans will affect the earnings potential of the firm. Total financing required is $4.5 million. The firm currently has $20,000,000 of 12 percent bonds and 600,000 common shares outstanding. The firm can arrange financing of the $4.5 million through a 14 percent bond issue or the sale of 100,000 shares of common stock. The firm has a 40 percent tax rate.

(a) What is the degree of financial leverage for each plan at $7,000,000 of EBIT?

(b) What is the financial breakeven point for each plan?

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