Bluebird Ltd has provided the following forecasted items for the months

Bluebird Ltd has provided the following forecasted items for the months of July through to September 2020. July August September $ $ $ Sales 13,000 14,000 15,000 Purchases 9,400 8,000 10,000 Operating expenses 3,600 6,400 5,000   Other Information: 35% of Sales are cash sales, the remaining 65% of credit sales which are collected as follows: 30% in the month of the sale 50% in the month after the sale 28% in the 2nd month after the sale 2% are never collected due to the customer going bankrupt Sales in the months of May and June were $11,000 and $10,000 respectively. Operating expenses include depreciation expense. Depreciation expense each month is $900. All expenses and purchases are paid for in the…

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Redcliff Ltd acquired the entire share capital

Question 1 Redcliff Ltd acquired the entire share capital of ABC Ltd for $18,000 cash on 31 December 20X4. The balance sheets of the two companies as at that date were as follows: Redcliff ltd.                                                   ABC. Ltd $                       $                                                      $ Current assets                                                                                 240,000                                           28,800 Non-current assets: Investments in ABC at cost                          18,000 Other assets                                                  96,000               114,000                                        9,600 Total assets                                                                                         354,000                                       38,400 Current liabilities                                                                               198,000                                        20,400 Net assets                                                                                            156,000                                       18,000 paid up capital                                                                                     120,000                                       12,000 retained profits                                                                                     36,000                                           6,000 owners. Equity                                                                                     156,000                                          18,000 Prepare the consolidated balance sheet of Redcliff Ltd and its subsidiary as at 31 December 20X4.     Question 2 Based on the information provided below, prepare appropriate consolidation journal entries for possible account adjustment or elimination. Parent paid…

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Victoria Corp acquired 80 per cent of the share capital of Whitehorse Corp

Victoria Corp acquired 80 per cent of the share capital of Whitehorse Corp on 1 July 2019. As at the date of acquisition, Whitehorse’s retained earnings was $40,000. On this date, the fair value of the 20% non-controlling interest in Whitehorse was $25,000. Ignore the tax rate. The statements of the financial position of Victoria Corp and Whitehorse Corp as at 30 June 2020 are as follows: Victoria Corp ($) Whitehorse Corp ($) Current assets 320,000 168,000 Non-current assets: Property, plant and equipment 190,000 36,000 Investment (in Whitehorse) 100,000 – 290,000 36,000 610,000 204,000 Current liabilities 270,000 94,000 Shareholders’ equity: Share capital 200,000 60,000 Retained earnings 140,000 50,000 610,000 204,000 Required: (a) Calculate the amount of goodwill arising from the acquisition…

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Ms Janet Jackson is the proprietor of Janet’s Sewing Services

Ms Janet Jackson is the proprietor of Janet’s Sewing Services. Janet prepares her accounts on a monthly basis. The Unadjusted Trial Balance at 31 March 2018 is shown below: Janet’s Sewing Services Unadjusted Trial Balance 31 March 2018 Accounts Debit Credit   $ $ Cash at bank 8,500   Accounts receivable 5,200   Supplies 1,500   Prepaid rent 1,200   Equipment 8,000   Accumulated depreciation – equipment   333 Accounts payable   1,520 Bank loan (due 2020)   8,000 Capital, Janet Jackson (1/3/18)   9,797 Drawings, Janet Jackson 3,000   Service revenue   11,200 Utilities expense 300   Wages expense 3,150         Totals 30,850 30,850     Additional information for adjusting entries: A physical stock-take has determined supplies…

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You import and sell surgical gloves. Recently, prices have changed dramatically

Surgical Gloves You import and sell surgical gloves. Recently, prices have changed dramatically. Below is a record of purchases and sales of boxes of gloves for the most recent three months of this year. Date     Purchase/sale price per box (£) 4 February Received 15,000 boxes £8 15 February Sold 17,000 boxes £10 3 March Received 30,000 boxes £11 7 March Sold 35,000 boxes £13 24 March Sold 6,000 boxes £15 3 April Received 30,000 boxes £13 10 April Sold 35,000 boxes £17   You had 20,000 boxes of gloves in stock at the beginning of February, which are valued at £7.50 per box. Other business expenses amount to £7,800 per calendar month, which you pay as they arise. Required:…

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Pearson Ltd is financed through the following sources

Pearson Ltd is financed through the following sources:

  • Ordinary share: 100 million shares outstanding, with current market price of one share at $2.2
  • Bank loan: $100 million borrowed from ANZ bank with an interest rate of 6%  Corporate bond: Pearson’s corporate bond is currently trading at 80% of its face value. The bonds pay coupons once per annum and have a total book value of $100 million. The current yield to maturity on the bond is 8% per annum.

The risk-free rate is 3% and the market risk premium is 6%. It is estimated that Pearson has an equity beta of 1.5. Assume corporate tax rate is 30%, calculate the WACC for Pearson Ltd.


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There are two stocks in your portfolio

There are two stocks in your portfolio.

Stock Weight E(r) Variance
A 1/3 9% 0.0036
B 2/3 15% 0.0081

 

  1. Assume stock A and B are perfectly positively correlated, calculate the risk and return for your portfolio.
  2. Repeat (a), assume the correlation is 0. Why is the risk now lower than in (a)?

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Dell Ltd has no debt outstanding, and currently has a market value

Dell Ltd has no debt outstanding, and currently has a market value of $125 million. There are three possible scenarios for the next year:

Economic condition Earnings before interest and tax (EBIT)
Strong $15 million
Normal $10 million
Weak $5 million

 

The company is considering issuing $50m of debt with 5% interest rate. Dell will use the money raised through the debt issuance to repurchase the ordinary shares. There are currently 10 million shares outstanding.

  1. Assume no tax, what are the possible outcomes for earnings per share (EPS) next year before the debt is issued?
  2. Assume Dell has issued the debt and repurchased the shares, calculate (a) again. What do you observe?

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There is an opportunity to expand the existing business by purchasing a new machinery for production

Part A There is an opportunity to expand the existing business by purchasing a new machinery for production. The machinery costs $500,000 and will be depreciated on straight-line basis to zero over 5 years. If the machinery will increase the operating profit before depreciation by $150,000, $160,000, $170,000, $180,000, and $200,000 over these 5 years. What is the average accounting rate of return for the new machinery? Assume the machine is purchased with all equity and the tax rate is 30%.   Part B There are two mutually exclusive investment opportunities. The initial investment for both projects are $100,000. The first investment will generate $20,000 per year in perpetuity. The second project is expected to generate $15,000 for the first year…


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Assume you want to borrow $6,000 for a period of four years

Part A Assume you want to borrow $6,000 for a period of four years. You have two choices. ANZ bank is offering to lend you the amount at 7.25% p.a.. You can also borrow from Westpac bank and will have to repay a total of $8,162.93 at the end of four years. Which bank should you go with, and what is the interest rate if you borrow from Westpac bank?   Part B Wilson Ltd has borrowed from a bank to invest in a project. The loan requires a payment of $20,000 every year for five years. The lender quoted Wilson Ltd a rate of 8.50% p.a.. How much did the bank lend to Wilson Ltd?   Part C Sarah is…


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FINM7409 – Financial Management for Decision Makers

Question 1 Part A Assume you want to borrow $6,000 for a period of four years. You have two choices. ANZ bank is offering to lend you the amount at 7.25% p.a.. You can also borrow from Westpac bank and will have to repay a total of $8,162.93 at the end of four years. Which bank should you go with, and what is the interest rate if you borrow from Westpac bank?   Part B Wilson Ltd has borrowed from a bank to invest in a project. The loan requires a payment of $20,000 every year for five years. The lender quoted Wilson Ltd a rate of 8.50% p.a.. How much did the bank lend to Wilson Ltd?   Part C…


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Fiona Sporty uses a purchases journal, a cash payments journal

Question 1  Fiona Sporty uses a purchases journal, a cash payments journal, a sales journal, a cash receipts journal and a general journal. Indicate in which journals the following transactions are most likely to be recorded. Purchased inventories on credit. Sales of inventory on credit. Received payment of a customer’s account. Payment of monthly rent by cheque. End of period closing entries   Question 2 Below is information about Lisa Ltd’s cash position for the month of June 2019. The general ledger Cash at Bank account had a balance of $21,200 on 31 May. The cash receipts journal showed total cash receipts of $292,704 for June. The cash payments journal showed total cash payments of $265,074 for June. The June bank…


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