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a) In 2013, McDowell Enterprises negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were constructed on land owned by the company. On January 1, 2014, McDowell took possession of the leased property. The 20-year lease is effective for the period January 1, 2014, through December 31, 2033. Advance rental payments of $801,000 are payable to the lessor (owner of facilities) on January 1 of each of the first 10 years of the lease term. Advance payments of $408,000 are due on January 1 for each of the last 10 years of the lease term. McDowell has an option to purchase all the leased facilities for $1 on December 31, 2033. At the time the lease was negotiated, the fair value of the truck terminals and freight storage facilities was approximately $7,216,800. If the company had borrowed the money to purchase the facilities, it would have had to pay 9% interest. Compute the present value of lease value and purchase value.
b) Last year the company exchanged a piece of land for a non-interest-bearing note. The note is to be paid at the rate of $15,250 per year for 9 years, beginning one year from the date of disposal of the land. An appropriate rate of interest for the note was 11%. At the time the land was originally purchased, it cost $90,490. What is the fair value of the note?
Different companies have different financial ratios. So Return on Equity for any one company is the product of three ratios which may be quite different in value than the same three ratios for a different company.
Genetic Insights Co. purchases an asset for $19,193. This asset qualifies as a seven-year recovery asset under MACRS. The seven-year fixed depreciation percentages for years 1, 2, 3, 4, 5, and 6 are 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, and 8.93%, r..
As the newly appointed Director of Finance at the GeKay Company, Chris Doyle is about to analyze a proposal that the firm has been considering for developing guano as a garden fertilizer – the “guano project”.
Portfolio Returns and Deviations Consider the following information about three stocks: Rate of Return if State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .30 .20 .25 .60 Normal .45 .15 .11 .05 Bust .25 .01 −..
A woman purchased a piece of real estate last year for $82,500. The real estate is now worth $102,900. If she needs to have a total return of 0.20 during the year, then what is the dollar amount of income that she needed to have to reach her objectiv..
The current 3-month Treasury bill has an YTM of 3%. By carefully picking stocks and their weights in the portfolio, Connor managed to form a portfolio that gives him a guarantee return in 3 months. How much should this guarantee return be? Why?
A frequent criticism of the management of publicly-owned American companies is that they are too short-term oriented, too focused on fast returns, and that this negatively impacts their long term capital budgeting.
Riskless profit on the Swiss franc. The following exchange rates are avaliable to you.(you can buy or ssell at the started rates.) Australian-euro arbitrage. A corporate treasury with operations in Sydney simultaneously calls Westpac Bank in Sydney a..
The operating cost of a new machine is $500 for the first year. Starting the second year, the operating cost increases by $200 per year for the next 10 years. Calculate the equivalent annual operating cost of the machine. What will be the present and..
Your grandfather invested $1,000 in a stock 31 years ago. Currently the value of his account is $319,000. What is his geometric return over this period?
Tim Dye, the CFO of Blackwell Automotive, Inc., is putting together this year's financial statements. He has gathered the following balance sheet information: The firm had a cash balance of $23,015, accounts payable of $163,257, common stock of $314,..
Fiberia Accessories, a clothing retailer, is planning to introduce a new line of sweaters as part of the winter collection for $65 with an inventory of 1500. The main selling season is 60 days between November and December.
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