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. IRC issues a note with no stated interest rate in exchange for a machine. In accounting for the transaction, which of the following statements is true? A. Both the note and machine are recorded at the face amount of the note or the fair value of the machine, whichever is more clearly determinable. B. The machine should be depreciated over the note's term to maturity. C. The note is recorded at its face amount unless the fair value of the machine is readily available. D. If fair values of the note and machine are unavailable, the note should be recorded at its present value and discounted at the market rate of interest. 17. Lithium Inc. sells computer systems. Lithium leases computers to Evergreen Company on January 1, 2018. The manufacturing cost of the computers was $12 million. This noncancelable lease had the following terms: • Lease payments: $2,466,754 semiannually; first payment at January 1, 2018; remaining payments at June 30 and December 31 each year through June 30, 2022 • Lease term: five years (10 semiannual payments) • No residual value; no purchase option • Economic life of equipment: five years • Implicit interest rate and lessee's incremental borrowing rate: 5% semiannually • Fair value of the computers at January 1, 2018: $20 million Lithium would account for this as a/an A. finance lease. B. operating lease. C. sales-type lease without selling profit. D. sales-type lease with selling profit. 6. Blue Industries purchased a machine from Rust Corporation on October 1, 2018. In payment for the $144,000 purchase, Blue issued a one-year installment note to be paid in equal monthly payments at the end of each month. The payments include interest at the rate of 12%. Monthly installment payments are closest to A. $12,000. B. $12,445. C. $12,794. D. $12,668. 10. We classify a lease as a finance lease if the A. present value of lease payments is less than the asset's fair value. B. lessee obtains control of the use of the asset. C. usual risks and rewards are retained by the lessor. D. present value of lease payments is less than the asset's book value

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DATA: Year Region Species Pond Value 2006 4 - Grants Pass Unit Douglas-fir 680 2008 1 - Northwest Oregon & Willamette Douglas-fir 650 2006 5 - Klamath Unit Douglas-fir 440 2005 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 1,200.00 2006 1 - Northwest Oregon & Willamette Douglas-fir 850 2006 1 - Northwest Oregon & Willamette Douglas-fir 595 2015 4 - Grants Pass Unit Douglas-fir 620 2015 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 595 2007 4 - Grants Pass Unit Douglas-fir 735 2012 1 - Northwest Oregon & Willamette Douglas-fir 605 2008 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 430 2005 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 640 2012 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 635 2012 4 - Grants Pass Unit Douglas-fir 545 2014 4 - Grants Pass Unit Douglas-fir 655 2011 1 - Northwest Oregon & Willamette Douglas-fir 595 2010 1 - Northwest Oregon & Willamette Douglas-fir 445 2012 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 590 2013 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 640 2015 5 - Klamath Unit Douglas-fir 480 2001 1 - Northwest Oregon & Willamette Douglas-fir 760 2010 1 - Northwest Oregon & Willamette Douglas-fir 600 2007 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 615 2002 1 - Northwest Oregon & Willamette Douglas-fir 530 2015 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 650 2014 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 625 2008 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 480 2000 1 - Northwest Oregon & Willamette Douglas-fir 550 2011 4 - Grants Pass Unit Douglas-fir 570 2011 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 520 2008 5 - Klamath Unit Douglas-fir 370 2002 1 - Northwest Oregon & Willamette Douglas-fir 690 2000 1 - Northwest Oregon & Willamette Douglas-fir 1,085.00 2001 1 - Northwest Oregon & Willamette Douglas-fir 905 2004 5 - Klamath Unit Douglas-fir 505 2011 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 620 2010 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 555 2005 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 370 2011 5 - Klamath Unit Douglas-fir 360 2012 1 - Northwest Oregon & Willamette Douglas-fir 600 2016 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 650 2014 4 - Grants Pass Unit Douglas-fir 780 2003 1 - Northwest Oregon & Willamette Douglas-fir 515 2015 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 640 2009 4 - Grants Pass Unit Douglas-fir 180 2015 4 - Grants Pass Unit Douglas-fir 635 2008 1 - Northwest Oregon & Willamette Douglas-fir 545 2000 5 - Klamath Unit Douglas-fir 460 2012 1 - Northwest Oregon & Willamette Douglas-fir 500 2016 4 - Grants Pass Unit Douglas-fir 700 2005 1 - Northwest Oregon & Willamette Douglas-fir 575 2001 5 - Klamath Unit Douglas-fir 415 2014 5 - Klamath Unit Douglas-fir 450 2012 4 - Grants Pass Unit Douglas-fir 635 2010 4 - Grants Pass Unit Douglas-fir 270 2011 1 - Northwest Oregon & Willamette Douglas-fir 625 2002 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 680 2002 5 - Klamath Unit Douglas-fir 400 2005 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 1,060.00 2010 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 645 2011 1 - Northwest Oregon & Willamette Douglas-fir 530 2008 1 - Northwest Oregon & Willamette Douglas-fir 315 2001 1 - Northwest Oregon & Willamette Douglas-fir 800 2010 4 - Grants Pass Unit Douglas-fir 505 2004 4 - Grants Pass Unit Douglas-fir 670 2006 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 570 2013 1 - Northwest Oregon & Willamette Douglas-fir 570 2016 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 670 2010 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 370 2015 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 650 2003 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 490 2003 4 - Grants Pass Unit Douglas-fir 575 2005 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 595 2008 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 420 2016 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 635 2015 1 - Northwest Oregon & Willamette Douglas-fir 540 2002 4 - Grants Pass Unit Douglas-fir 500 2008 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 245 2010 1 - Northwest Oregon & Willamette Douglas-fir 450 2012 1 - Northwest Oregon & Willamette Douglas-fir 540 2012 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 330 2013 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 610 2004 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 780 2013 4 - Grants Pass Unit Douglas-fir 780 2014 5 - Klamath Unit Douglas-fir 565 2016 4 - Grants Pass Unit Douglas-fir 300 2006 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 545 2006 2 & 3 - Coos, Douglas Counties & Roseburg Douglas-fir 745 2004 1 - Northwest Oregon & Willamette Douglas-fir 695 2016 1 - Northwest Oregon & Willamette Douglas-fir 665 2005 5 - Klamath Unit Douglas-fir 540 2012 4 - Grants Pass Unit Douglas-fir 575 2000 1 - Northwest Oregon & Willamette Douglas-fir 560 2016 4 - Grants Pass Unit Douglas-fir 615 2004 5 - Klamath Unit Douglas-fir 485 2011 4 - Grants Pass Unit Douglas-fir 200 2007 1 - Northwest Oregon & Willamette Douglas-fir 470 2005 5 - Klamath Unit Douglas-fir 505 2008 1 - Northwest Oregon & Willamette Douglas-fir 340 2012 5 - Klamath Unit Douglas-fir 375 2005 4 - Grants Pass Unit Douglas-fir 715 Part 2: Describing the Sample Introduction In this part, we will look more closely at the sample of pond values. You will use the same data set as Part. The data file can be found by following the link below. It is named Sample of Pond Values. This includes an SRS of 101 Oregon pond values for similar (usable) grades of Douglas-fir from 2000-2016. Note that you can not edit the file, so you will need to make a copy of it to your Drive in order to use it. Sample of Pond Values

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Wally Wilson is a commercial artist who makes a good living by doing freelance work— mostly layouts and illustrations—for local ad agencies and major institutional clients (such as large department stores). Wally has been investing in the stock market for some time, buying mostly high-quality growth stocks as a way to achieve long-term growth and capital appreciation. He feels that with the limited time he has to devote to his security holdings, highquality issues are his best bet. He has become a bit perplexed lately with the market, disturbed that some of his growth stocks aren’t doing even as well as many good-grade income shares. He therefore decides to have a chat with his broker, Al Fried.During their conversation, it becomes clear that both Al and Wally are thinking along the same lines. Al points out that dividend yields on income shares are indeed way up and that, because of the state of the economy, the outlook for growth stocks is not particularly bright. He suggests that Wally seriously consider putting some of his money into income shares to capture the high dividend yields that are available. After all, as Al says, “The bottom line is not so much where the payoff comes from as how much it amounts to!” hey then talk about a high-yield public utility stock, Hydro-Electric Light and Power. Al digs up some forecast information about Hydro-Electric and presents it to Wally for his consideration: The stock currently trades at $60 per share. Al thinks that within five years it should be trading at $75 to $80 a share. Wally realizes that to buy the Hydro-Electric stock, he will have to sell his holdings of CapCo Industries—a highly regarded growth stock that Wally is disenchanted with because of recent substandard performance. Questions a. How would you describe Wally’s present investment program? How do you think it fits him and his investment objectives? b. Consider the Hydro-Electric stock.1. Determine the amount of annual dividends Hydro-Electric can be expected to pay over the years 2020 to 2024.2. Compute the total dollar return that Wally will make from Hydro-Electric if he invests $6,000 in the stock and all the dividend and price expectations are realized.3. If Wally participates in the company’s dividend reinvestment plan, how many shares of stock will he have by the end of 2024? What will they be worth if the stock trades at $80 on December 31, 2024? Assume that the stock can be purchased through the dividend reinvestment plan at a net price of $50 a share in 2020, $55 in 2021, $60 in 2022, $65 in 2023, and $70 in 2024. Use fractional shares, to 2 decimals, in your computations. Also, assume that, as in part b, Wally starts with 100 shares of stock and all dividend expectations are realized.c. Would Wally be going to a different investment strategy if he decided to buy shares in Hydro-Electric? If the switch is made, how would you describe his new investment program?What do you think of this new approach? Is it likely to lead to more trading on Wally’s behalf? If so, can you reconcile that with the limited amount of time he has to devote to his portfolio? Year 2020 2021 2022 2023 2024 Expected EPS ($) $3.25 $3.40 $3.90 $4.40 $5.00 Expected Dividend Payout Ratio (%) 40% 40% 45% 45% 45%

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Assume you wish to evaluate the risk and return behaviors associated with various combinations of two stocks, Alpha Software and Beta Electronics, under three possible degrees of correlation: perfect positive, uncorrelated, and perfect negative. The average return and standard deviation for each stock appears below. a. If the returns of assets Alpha and Beta are perfectly positively correlated (correlation coefficient = +1), over what range would the average return on portfolios of these stocks vary? In other words, what is the highest and lowest average return that different combinations of these stocks could achieve? What is the minimum and maximum standard deviation that portfolios of Alpha and Beta could achieve? b. If the returns of assets Alpha and Beta are uncorrelated (correlation coefficient = 0), over what range would the average return on portfolios of these stocks vary? Using Equation 5.2, what is the standard deviation of a portfolio that invests 75% in Alpha and 25% in Beta? How does this compare to the standard deviations of Alpha and Beta alone? c. If the returns of assets Alpha and Beta are perfectly negatively correlated (correlation coefficient = -1), over what range would the average return on portfolios of these stocks vary? Over what range would the portfolio standard deviation vary? Use Equation 5.2 to calculate the standard deviation of a portfolio that invests 62.5% in Alpha and 37.5% in Beta. Asset Alpha Beta Average Return, T 6% 11% Risk (Standard Asset Deviation), s 30% 50%

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