Tharp and Kostrivas is a law firm that is initiating an activity-based costing system

E4-16 Tharp and Kostrivas is a law firm that is initiating an activity-based costing system. Ben Tharp, the senior partner and strong supporter of ABC, has prepared the following list of activities performed by a typical attorney in a day at the firm. Classify each of the activities listed by Ben Tharp as value-added or non-value-added and defend your classification. How much was value-added and how much was non-value-added?

Activities Hours
Writing contracts and letters 1.0
Attending staff meetings 0.5
Taking depositions 1.0
Doing research 1.0
Traveling to/from court 1.0
Contemplating legal strategy 1.0
Eating lunch 1.0
Litigating a case in course 2.5
Entertaining a prospective client 2.0

Click here for the solution: Tharp and Kostrivas is a law firm that is initiating an activity-based costing system

A stockholder is interested in the ability of a firm to

1. A stockholder is interested in the ability of a firm to (Points: 2)

2. Horizontal analysis is also called (Points: 2)

3. Vertical analysis is also known as (Points: 2)

4. Assume the following cost of goods sold data for a company:
2009 $1,500,000
2008 1,200,000
2007 900,000
If 2007 is the base year, what is the percentage increase in cost of goods sold from 2007 to 2009? (Points: 2)

5. Walker Clothing Store had a balance in the Accounts Receivable account of $780,000 at the beginning of the year and a balance of $820,000 at the end of the year. Net credit sales during the year amounted to $8,000,000. The average collection period of the receivables in terms of days was (Points: 2)

6. Waters Department Store had net credit sales of $12,000,000 and cost of goods sold of $9,000,000 for the year. The average inventory for the year amounted to $2,000,000.
The average number of days in inventory during the year was (Points: 2)

7. Which of the following is not a profitability ratio? (Points: 2)

8. Times interest earned is also called the (Points: 2)

9. The ratio that uses weighted average common shares outstanding in the denominator is the (Points: 2)

10. Each of the following is an extraordinary item except the (Points: 2)

Click here for the solution: A stockholder is interested in the ability of a firm to

Brenda McCoy, the managing partner of McCoy, Brennan, and Cable, a public accounting firm, is considering the desirability of tracing more costs

13-52 Choice of Cost-Allocation Bases in Accounting Firm

Brenda McCoy, the managing partner of McCoy, Brennan, and Cable, a public accounting firm, is considering the desirability of tracing more costs to jobs than just direct labor. In this way, the firm will be able to justify billings to clients.

Last year’s costs were
Direct-professional labor $ 5,000,000
Overhead 10,000,000
Total costs $15,000,000

The following costs were included in overhead:
Computer time $ 750,000
Secretarial cost 700,000
Photocopying 250,000
Fringe benefits to direct labor 800,000
Phone call time with clients (estimated but not tabulated) 500,000
Total $3,000,000

The firm’s data processing techniques now make it feasible to document and trace these costs to individual jobs. As an experiment, in December Brenda McCoy arranged to trace these costs to six audit engagements.

Two job records showed the following:
Engagement
Eagledale Company First Valley Bank
Direct-professional labor $15,000 $15,000
Fringe benefits to direct labor 3,000 3,000
Phone call time with clients 1,500 500
Computer time 3,000 700
Secretarial costs 2,000 1,500
Photocopying 500 300
Total direct costs $25,000 $21,000

1. Compute the overhead application rate based on last year’s costs.
2. Suppose last year’s costs were reclassified so that $3 million would be regarded as direct costs instead of overhead. Compute the overhead application rate as a percentage of direct labor and as a percentage of total direct costs.
3. Using the three rates computed in numbers 1 and 2, compute the total costs of engagements for Eagledale Company and First Valley Bank.
4. Suppose that client billing was based on a 30% markup of total job costs. Compute the billings that would be forthcoming in number 3.
5. Which method of costing and overhead application do you favor? Explain.

Click here for the solution: Brenda McCoy, the managing partner of McCoy, Brennan, and Cable, a public accounting firm, is considering the desirability of tracing more costs

An analysis of the transactions made by S. Moses & Co., a certified public accounting firm, for the month of August is shown below

ACC 557 Week 1 Assignment

E1-8 An analysis of the transactions made by S. Moses & Co., a certified public accounting firm, for the month of August is shown below. Each increase and decrease in stockholders’ equity is explained.

Cash Accounts Office Accounts Stockholders’ _ Receivable _ Supplies _ Equipment _ Payable _ Equity
1. _$15,000 _$15,000 Investment
2. _2,000 _$5,000 _$3,000
3. _750 _$750
4. _4,600 _$3,700 _8,300 Service Revenue
5. _1,500 _1,500
6. _2,000 _2,000 Dividends
7. _650 −650 Rent Expense
8. _450 _450
9. _4,900 _4,900 Salaries Expense
10. _500 −500 Utilities Expense

Instructions
(a) Describe each transaction that occurred for the month.
(b) Determine how much stockholders’ equity increased for the month.
(c) Compute the amount of net income for the month.

Click here for the solution: An analysis of the transactions made by S. Moses & Co., a certified public accounting firm, for the month of August is shown below

Dewey and Cheatam is a law firm that is initiating an activity-based costing system

ACC 560 Week 3 Assignment

E4-16 Dewey and Cheatam is a law firm that is initiating an activity-based costing system. Jim Dewey, the senior partner and strong supporter of ABC, has prepared the following list of activities performed by a typical attorney in a day at the firm.

Classify each activity as either value-added or non-value-added.

Activity Hours
Writing contracts and letters 1.0
Attending staff meetings 0.5
Taking depositions 1.0
Doing research 1.0
Traveling to/from court 1.0
Contemplating legal strategy 1.0
Eating lunch 1.0
Litigating a case in court 2.5
Entertaining a prospective client 2.0

Instructions:
a) How much was value-added time
b) How much was non-value-added time

Click here for the solution: Dewey and Cheatam is a law firm that is initiating an activity-based costing system

Hy and Lowe is a public firm that offers two primary services, auditing and tax return preparation

ACC 560 Week 3 Assignment

P4-5A Hy and Lowe is a public firm that offers two primary services, auditing and tax return preparation. A controversy has developed between the partners of the two service lines as to who is contributing the greater amount to the bottom line. The area of contention is the assignment of overhead. The tax partners argue for assigning overhead on the basis of 40% of direct labor dollars, while the audit partners argue for implementing activity-based costing. The partners agree to use next year's budgeted data for purposes of analysis and comparison. The following overhead data are collected to develop the comparison.

Activity Cost Pool Cost Driver Estimated Overhead Expected Use of Cost Drivers Expected Use of Cost Drivers per Service Audit Tax
Employee training Direct labor dollars $216,000 $1,800,000 $1,000,000 $800,000
Typing and secretarial Number of reports/forms 76,200 2,500 600 1,900
Computing Number of minutes 204,000 60,000 25,000 35,000
Facility rental Number of employees 142,500 40 22 18
Travel Per expense reports 81,300 Direct 56,000 25,300 $720,000

Instructions:
a. Using traditional product costing as proposed by the tax partners, compute the total overhead cost assigned to both services (audit and tax) of Hy and Lowe.
b. 1. Using activity-based costing, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver).
2. Prepare a schedule assigning each activity's overhead cost pool to each service based on the use of the cost drivers.
c. Classify each of the activities as a value-added activity or a non-value added activity.
d. Comment on the comparative overhead cost for the two services under both traditional costing and ABC.

Click here for the solution: Hy and Lowe is a public firm that offers two primary services, auditing and tax return preparation

Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division

P 12-7 Securities held-to-maturity, securities available for sale, and trading securities

Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division. From time to time the company buys and sells securities intending to earn profits on short-term differences in price. The following selected transactions relate to Amalgamated's investment activities during the last quarter of 2011 and the first month of 2012. The only securities held by Amalgamated at October 1 were $30 million of 10% bonds of Kansas Abstractors, Inc., purchased on May 1 at face value. The company's fiscal year ends on December 31.

2011
Oct. 18 Purchased 2 million preferred shares of Millwork Ventures Company for $58 million as a speculative investment to be sold under suitable circumstances.
31 Received semiannual interest of $1.5 million from the Kansas Abstractors bonds.
Nov. 1 Purchased 10% bonds of Holistic Entertainment Enterprises at their $18 million face value, to be held until they mature in 2018. Semiannual interest is payable April 30 and October 31.
1 Sold the Kansas Abstractors bonds for $28 million because rising interest rates are expected to cause their fair value to continue to fall.
Dec. 1 Purchased 12% bonds of Household Plastics Corporation at their $60 million face value, to be held until they mature in 2028. Semiannual interest rate is payable May 31 and November 30.
20 Purchased U.S. Treasury bonds for $5.6 million as trading securities, hoping to earn profits on short-term differences in prices.
21 Purchased 4 million common shares of NXS Corporation for $44 million as trading securities, hoping to earn profits on short-term differences in prices.
23 Sold the Treasury bonds for $5.7 million.
29 Received cash dividends of $3 million from the Millwork Ventures Company preferred shares.
31 Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The market share of the Millwork Ventures Company preferred stock was up $27.50 per share and $11.50 per share for the NXS Corporation common. The fair values of the bond investments were $58.7 million for Household Plastics Corporation and $16.7 million for Holistic Entertainment Enterprises.

2012
Jan. 7 Sold the NXS Corporation common shares for $43 million.

Required:
Prepare the appropriate journal entry for each transaction or event.

Click here for the solution: Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division

Selected transactions for D. Reyes, Inc., an interior decorating firm, in its first month of business, are as follows

E2-2 Selected transactions for D. Reyes, Inc., an interior decorating firm, in its first month of business, are as follows.

Jan. 2 Invested $10,000 cash in the business in exchange for common stock.
3 Purchased used car for $4,000 cash for use in business.
9 Purchased supplies on account for $500.
11 Billed customers $1,800 for services performed.
16 Paid $200 cash for advertising.
20 Received $700 cash from customers billed on January 11.
23 Paid creditor $300 cash on balance owed.
28 Declared and paid a $1,000 cash dividend.

Instructions
For each transaction indicate the following.
(a) The basic type of account debited and credited (asset, liability, stockholders’ equity).
(b) The specific account debited and credited (cash, rent expense, service revenue, etc.).
(c) Whether the specific account is increased or decreased.
(d) The normal balance of the specific account.

Post journal entries to standard form of account.

Use the following format, in which the January 2 transaction is given as an example.
Account Debited Account Credited
(a) (b) (c) (d) (a) (b) (c) (d)
Basic Specific Normal Basic Specific Normal
Date Type Account Effect Balance Type Account Effect Balance
Jan. 2 Asset Cash Increase Debit Stockholders' Stock Common Increase Credit

Click here for the solution: Selected transactions for D. Reyes, Inc., an interior decorating firm, in its first month of business, are as follows

Gil Vogel started his own consulting firm, Vogel Consulting, on June 1, 2012

P4-2A Gil Vogel started his own consulting firm, Vogel Consulting, on June 1, 2012. The trial balance at June 30 is as follows.

VOGEL CONSULTING
Trial Balance
June 30, 2012
Debit Credit
Cash $ 6,850
Accounts Receivable 7,000
Prepaid Insurance 2,880
Supplies 2,000
Equipment 15,000
Accounts Payable $ 4,230
Unearned Service Revenue 5,200
Common Stock 22,000
Service Revenue 8,300
Salaries and Wages Expense 4,000
Rent Expense 2,000
$39,730 $39,730

In addition to those accounts listed on the trial balance, the chart of accounts for Vogel also contains the following accounts: Accumulated Depreciation—Equipment, Utilities Payable, Salaries and Wages Payable, Depreciation Expense, Insurance Expense, Utilities Expense, and Supplies Expense.

Other data:
1. Supplies on hand at June 30 total $720.
2. A utility bill for $180 has not been recorded and will not be paid until next month.
3. The insurance policy is for a year.
4. $4,100 of unearned service revenue has been earned at the end of the month.
5. Salaries of $1,250 are accrued at June 30.
6. The equipment has a 5-year life with no salvage value and is being depreciated at $250 per month for 60 months.
7. Invoices representing $3,900 of services performed during the month have not been recorded as of June 30.

Instructions
(a) Prepare the adjusting entries for the month of June.
(b) Post the adjusting entries to the ledger accounts. Enter the totals from the trial balance as beginning account balances. Use T accounts.
(c) Prepare an adjusted trial balance at June 30, 2012.

Click here for the solution: Gil Vogel started his own consulting firm, Vogel Consulting, on June 1, 2012

Ethics Case 20-5 Softening the blow

Ethics Case 20-5 Softening the blow

Late one Thursday afternoon, Joy Martin, a veteran audit manager with a regional CPA firm, was reviewing documents for a long-time client of the firm, AMT Transport. The year-end audit was scheduled to begin Monday.

For three months, the economy had been in a down cycle and the transportation industry was particularly hard hit. As a result, Joy expected AMT's financial results would not be pleasant news to shareholders. However, what Joy saw in the preliminary statements made her sigh aloud. Results were much worse than she feared.

"Larry (the company president) already is in the doghouse with shareholders," Joy thought to herself. "When they see these numbers, they'll hang him out to dry."

"I wonder if he's considered some strategic accounting changes," she thought, after reflecting on the situation. "The bad news could be softened quite a bit by changing inventory methods from LIFO to FIFO or reconsidering some of the estimates used in other areas."

Required:
1. How would the actions contemplated contribute toward "softening" the bad news?
2. Do you perceive an ethical dilemma? What would be the likely impact of following up on Joy's thoughts? Who would benefit? Who would be injured?

Click here for the solution: Ethics Case 20-5 Softening the blow

For each of the following costs incurred in a manufacturing firm, indicate whether the costs are most likely fixed (f) or variable (v)

2-19 Basic Concepts

For each of the following costs incurred in a manufacturing firm, indicate whether the costs are most likely fixed (f) or variable (v) and whether they are most likely period costs (p) or product cost (m) and under full absorption costing.

1. Energy to run machines producing units of output in the factory.
2. Depreciation on the building for administrative staff offices.
3. Bonuses of top executives in the company.
4. Overtime pay for assembly workers.
5. Transportation-in costs on materials purchased.
6. Assembly line workers’ wages.
7. Sales commissions for sales personnel.
8. Administrative support for sales supervisors.
9. Controller’s office rental.
10. Cafeteria costs for the factory.


Click here for the solution: For each of the following costs incurred in a manufacturing firm, indicate whether the costs are most likely fixed (f) or variable (v)

Linda Ace started her own consulting firm, Modine Consulting, Inc. on May 1, 2008

P3-1B Linda Ace started her own consulting firm, Modine Consulting, Inc. on May 1, 2008. The trial balance at May 31 is as follows.

MODINE CONSULTING, INC.
Trial Balance
May 31, 2008
Account
Number Debit Credit
101 Cash $ 7,700
112 Accounts Receivable 4,000
126 Supplies 1,500
130 Prepaid Insurance 4,800
149 Office Furniture 9,600
201 Accounts Payable $ 3,500
209 Unearned Service Revenue 3,000
311 Common Stock 19,100
400 Service Revenue 6,000
726 Salaries Expense 3,000
729 Rent Expense 1,000
$31,600 $31,600

In addition to those accounts listed on the trial balance, the chart of accounts for Modine Consulting also contains the following accounts and account numbers: No. 150 Accumulated Depreciation—Office Furniture, No. 212 Salaries Payable, No. 229 Travel Payable, No. 631 Supplies Expense,No. 717 Depreciation Expense,No. 722 Insurance Expense, and No. 736 Travel Expense.

Other data:
1. $500 of supplies have been used during the month.
2. Travel expense incurred but not paid on May 31, 2008, $200.
3. The insurance policy is for 2 years.
4. $1,000 of the balance in the unearned service revenue account remains unearned at the end of the month.
5. May 31 is a Wednesday, and employees are paid on Fridays. Modine Consulting has two employees, who are paid $700 each for a 5-day work week.
6. The office furniture has a 5-year life with no salvage value. It is being depreciated at $160 per month for 60 months.
7. Invoices representing $1,000 of services performed during the month have not been recorded as of May 31.

Instructions
(a) Prepare the adjusting entries for the month of May. Use J4 as the page number for your journal.
(b) Post the adjusting entries to the ledger accounts. Enter the totals from the trial balance as beginning account balances and place a check mark in the posting reference column.
(c) Prepare an adjusted trial balance at May 31, 2008.

Check: (c) Adj. trial balance $33,800


Click here for the solution: Linda Ace started her own consulting firm, Modine Consulting, Inc. on May 1, 2008

The CPA firm of Bigelow, Barton, and Brown was expanding rapidly

Auditing P 5-19
The CPA firm of Bigelow, Barton, and Brown was expanding rapidly. Consequently it hired several junior accountants, including a man named Small. The partners of the firm eventually became dissatisfied with Small's production and warned him they would be forced to discharge him unless his output increased significantly.

At that time, Small was engaged in audits of several clients. He decided that to avoid being fired, he would reduce or omit some to the standard auditing procedures listed in audit programs prepared by the partners. One of the CPA firm's clients, Newell Corporation, was in serious financial difficulty and had adjusted several of the accounts being audited by Small to appear financially sound. Small prepared fictitious audit documentation in his home at night to support purported completion of auditing procedures assigned to him, although he in fact did not examine the adjusting entries. The CPA firm rendered an unqualified opinion on Newell's financial statements, which were grossly misstated. Several creditors, relying on the audited financial statements, subsequently extended large sums of money to Newell Corporation.

Will the CPA firm be liable to the creditors who extended the money because of their reliance on the erroneous financial statements if Newell Corporation should fail to pay them? Explain.


Click here for the solution: The CPA firm of Bigelow, Barton, and Brown was expanding rapidly

Consider a firm that has decided to make, but has not yet announced, a large “bonus” cash dividend amounting in the aggregate to $5 million

B3. (Cash dividend versus share repurchase) Consider a firm that has decided to make, but has not yet announced, a large “bonus” cash dividend amounting in the aggregate to $5 million. The firm has 1 million shares outstanding that sell for $20 each. The firm has no debt; there are no taxes; and all transactions take place in a perfect capital market. Using calculations like those in the illustration of dividend irrelevance in a perfect capital market, show that shareholders will be indifferent between whether the firm pays out the “bonus” as a dividend or uses the money to buy back $5 million of its shares.


Click here for the solution: Consider a firm that has decided to make, but has not yet announced

Whitlow & Company is a brokerage firm registered under the Securities Exchange Act of 1934

Auditing P 5-28 (ALL PARTS)

Part 1
Whitlow & Company is a brokerage firm registered under the Securities Exchange Act of 1934. The act requires such a brokerage firm to file audited financial statements with the SEC annually. Mitchell & Moss, Whitlow’s CPAs performed the annual audit for the year ended December 31, 2009, and rendered an unqualified opinion, which was filed with the SEC along with Whitlow’s financial statements. During 2009, Charles, the president of Whitlow & Company, engaged in a huge embezzlement scheme that eventually bankrupted the firm. As a result, substantial losses were suffered by customers and shareholders of Whitlow & Company, including Thaxton, who had recently purchased several shares of stock of Whitlow & Company after reviewing the company’s 2009 audit report. Mitchell & Moss’s audit was deficient; if they had complied with auditing standards, the embezzlement, nor can their conduct. However, Mitchell & Moss had no knowledge of the embezzlement, nor can their conduct be categorized as reckless.

Required: Answer the following questions setting forth reasons for any conclusions stated.
a. What liability to Thaxton if any, does Mitchell & Moss have under the Securities Exchange Act of 1934?
b. What theory or theories of liability, if any, are available to Whitlow & Company’s customers and shareholders under common law?

Part 2
Jackson is a sophisticated investor. As such, she was initially a member of a small group that was going to participate in a private placement of $1 million of common stock of Clarion Corporation. Numerous meetings were held between management and the investor group. Detailed financial and other information was supplied to the participants. Upon the eve of completion of the placement, it was aborted when one major investor withdrew. Clarion than decided to offer $2.5 million of Clarion common stock to the public pursuant to the registration requirements of the Securities Act of 1933. Jackson subscribed to $300,000 of the Clarion public stock offering. Nine months later, Clarion’s earnings dropped significantly and as a result, the stock dropped 20% beneath the offering price. In addition, the Dow Jones Industrial Average was down 10% from the time of the offering.

Jackson sold her shares as a loss of $60,000 and seeks to hold all parties liable who participated in the public offering, including Clarion’s CPA firm of Allen, Dunn, and Rose. Although the audit was performed to conformity with auditing standards, there were some relatively minor misstatements. The financial statements of Clarion Corporation, which were part of the registration statement, contained minor misleading facts. It is believed by Clarion and Allen, Dunn, and Rose that Jackson’s asserted claim is without merit.

Required: Answer the following questions setting forth reasons for any conclusions stated.
a. If Jackson sues under the Securities Act of 1933, what will be the basis of her claim?
b. What are the probable defenses that might be asserted by Allen, Dunn, and Rose in light of these facts?


Click here for the solution: Whitlow & Company is a brokerage firm registered under the Securities Exchange Act of 1934

Gordon & Groton, CPA's were the auditors of Bank & Company, a brokerage firm and member of a national stock exchange

Auditing P 5-26 Gordon & Groton, CPA's were the auditors of Bank & Company, a brokerage firm and member of a national stock exchange. Gordon & Groton audited and reported on the financial statements of Bank, which were filed with the Securities and Exchange Commission.
Several of Bank's customers were swindled by a fraudulent scheme perpetrated by Bank's president, who owned 90% of the voting stock of the company. The facts establish that Gordon & Groton were negligent but not reckless or grossly negligent in conduct of the audit, and neither participated in the fraudulent scheme or knew of its existence.

The customers are suing Gordon & Groton under the antifraud provisions of Section10b and Rule 10b-5 of the securities Exchange Act of 1934 for aiding and abetting the fraudulent scheme of the president. The customer’s suit for fraud is predicated exclusively on the nonfeasance of the auditors in failing to conduct a proper audit, thereby failing to discover the fraudulent scheme.

Required:
Answer the following questions, setting forth reasons for any conclusions stated:
a. What is the probable outcome of the lawsuit?
b. What other theory of liability might the customers have asserted?


Click here for the solution: Gordon & Groton, CPA's were the auditors of Bank & Company, a brokerage firm and member of a national stock exchange

Elise, CPA, owns a public accounting firm and wishes to establish a separate partnership to offer data processing services

MULTIPLE CHOICE

1. Elise, CPA, owns a public accounting firm and wishes to establish a separate partnership to offer data processing services to the public and other public accountants.

2. In some situations, the interpretations of the Rules of Conduct permit former partners to have relationships with a client of the firm without affecting the firm’s independence. Which of the following situations would not cause a loss of independence?

3. Anna Greer, a CPA in public practice, contacts Blake Sawyers, an employee of Jackson & Jackson, LLP, and makes him an offer of employment without first notifying Jackson & Jackson, LLP. According to the AICPA’s Code of Professional Conduct, Anna’s behavior:

4. When the question arises whether a CPA firm may do both bookkeeping and auditing services for the same public company client, the Interpretations of the AICPA’s Code of Professional Conduct:

5. A member in public practice may perform for a contingent fee any professional services for a client for whom the member or member’s firm performs:

6. “Independence” in auditing means:

7. Interpretations of the rules regarding independence allow an auditor to serve as:

8. Which of the following statements is true? The CPA firm will lose its independence if:

9. Which of the following statements is not true with respect to audit committees?

10. According to the Principles section of the Code of Professional Conduct, all members:


Click here for the solution: Elise, CPA, owns a public accounting firm and wishes to establish a separate partnership to offer data processing services

Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc

Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle Dellatorre, a professional tennis player who has just come to the United States from Chile. Dellatorre is a highly ranked tennis player who would like to start a company to produce and market apparel that she designs. She also expects to invest substantial amounts of money through Balik and Kiefer. Dellatorre is also very bright, and, therefore, she would like to understand, in general terms, what will happen to her money. Your boss has developed the following set of questions which you must ask and answer to explain the U.S. financial system to Dellatorre.

a.Why is corporate finance important to all managers?
b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form.
c. How do corporations go public and continue to grow?
d.What should be the primary objective of managers?
e.What three aspects of cash flows affect the value of any investment?
f. What are free cash flows
g. What is the weighted average cost of capital?

AND SO ON


p. Briefly explain mortgage securitization and how it contributed to the global economic crisis.


Click here for the solution: Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc

Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following information in each case

16.13 (Ratio analysis) Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following information in each case.
a. The firm has sales of $600,000, a gross profit margin of 10 percent, and an inventory turnover ratio of 6.
b. The firm has a cost-of-goods-sold figure of $480,000 and an average age of inventory of 40 days.
c. The firm has a cost-of-goods-sold figure of $1.15 million and an inventory turnover rate of 5.
d. The firm has a sales figure of $25 million, a gross profit margin of 14 percent, and an average age inventory of 45 days.


Click here for the solution: Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following information in each case

Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000

16.9. (Interest rate risk) Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000. The coupon rate on this security is 8 percent. Interest payments are made to bond holders once a year. Currently, bonds of this particular risk class are yielding investors 9 percent. A cash shortage has forced you to instruct your treasurer to liquidate the bond.

a. At what price will your bond be sold? Assume annual compounding.
b. What will be the amount of your gain or loss over the original purchase price?
c. What would be the amount of your gain or loss had the treasurer originally purchased a bond with a 4-year rather than a 20-year maturity?(Assume all the characteristics of the bonds are identical except their maturity periods.)
d. What do we call this type of risk assumed by your corporate treasurer?


Click here for the solution: Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000