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Paul and Judy Vance’s 2012 federal income tax return

Question
	
TAX RETURN PROBLEM*
• Use the following information to complete Paul and Judy Vance's 2012 federal income tax return. If information is missing, use reasonable assumptions to fill in the gaps.
• You may need the following forms and schedules to complete the project: Form 1040, Schedule A, Schedule B, Schedule C, Schedule D, Schedule E, Schedule SE, Form 2106-EZ, Form 4562 (for the dental practice), Form 4562 (for the rental property), Form 4797, and Form 8863. The forms, schedules, and instructions can be found at the IRS Web site (). The instructions can be helpful in completing the forms.

FACTS:
1. Paul J. and Judy L. Vance are married and file a joint return. Paul is self-employed as a dentist, and Judy is a college professor. Paul and Judy have three children. The oldest is Vince who lives at home. Vince is a law student at the University of Cincinnati and worked part-time during the year, earning $1,500, which he spent for his own support. Paul and Judy provided $6,000 toward Vince's support (including $4,000 for Vince's fall tuition). They also provided over half the support of their daughter, Joan, who is a full-time student at Edgecliff College in Cincinnati. Joan worked part-time as an independent contractor during the year, earning $3,200. Joan lived at home until she was married in December 2012. She filed a joint return with her husband, Patrick, who earned $20,000 during the year. Jennifer is the youngest and lived in the Vances' home for the entire year. The Vances provide you with the following additional information:

o Paul and Judy would like to take advantage on their return of any educational expenses paid for their children.
o The Vances do not want to contribute to the presidential election campaign.
o The Vances live atXXXXX Cincinnati, OH 45211.
o Paul's birthday is XXXXX and his Social Security number isNNN-NN-NNNN
o Judy's birthday is XXXXX and her Social Security number isNNN-NN-NNNN
o Vince's birthday is XXXXX and his Social Security number isNNN-NN-NNNN
o Joan's birthday is XXXXX and her Social Security number isNNN-NN-NNNN
o Jennifer's birthday is XXXXX and her Social Security number isNNN-NN-NNNN
o The Vances do not have any foreign bank accounts or trusts.

2. Judy is a lecturer at Xavier University in Cincinnati, where she earned $30,000. The university withheld federal income tax of $3,375, state income tax of $900, Cincinnati city income tax of $375, $1,260 of Social Security tax and $435 of Medicare tax. She also worked part of the year for Delta Airlines. Delta paid her $10,000 in salary, and withheld federal income tax of $1,125, state income tax of $300, Cincinnati city income tax of $125, Social Security tax of $420, and Medicare tax of $145.
3. The Vances received $800 of interest from State Savings Bank on a joint account. They received interest of $1,000 on City of Cincinnati bonds they bought in January with the proceeds of a loan from Third National Bank of Cincinnati. They paid interest of $1,100 on the loan. Paul received a dividend of $540 on General Bicycle Corporation stock he owns. Judy received a dividend of $390 on Acme Clothing Corporation stock she owns. Paul and Judy received a dividend of $865 on jointly owned stock in Maple Company. All of the dividends received in 2012 are qualified dividends.
4. Paul practices under the name “Paul J. Vance, DDS.” His business is located atXXXXX Cincinnati, OH 45211, and his employer identification number is XXXXX Paul's gross receipts during the year were $111,000. Paul uses the cash method of accounting for his business. Paul's business expenses are as follows: 
Advertising $??? 1,200
Professional dues 490
Professional journals 360
Contributions to employee benefit plans 2,000
Malpractice insuranc e 3,200
Fine for overbilling State of Ohio for work performed on welfare patient 5,000
Insurance on office contents 720
Interest on money borrowed to refurbish office 600
Accounting services 2,100
Miscellaneous office expense 388
Office rent 12,000
Dental supplies 7,672
Utilities and telephone 3,360
Wages 30,000
Payroll taxes 2,400

In June, Paul decided to refurbish his office. This project was completed and the assets placed in service on July 1. Paul's expenditures included $8,000 for new office furniture, $6,000 for new dental equipment (seven-year recovery period), and $2,000 for a new computer. Paul elected to compute his cost recovery allowance using MACRS. He did not elect to use §179 immediate expensing, and he chose to not claim any bonus depreciation.

5. Judy's mother, Sarah, died on July 2, 2007, leaving Judy her entire estate. Included in the estate was Sarah's residence (325 Oak Street, Cincinnati, OH 45211). Sarah's basis in the residence was $30,000. The fair market value of the residence on July 2, 2007, was $155,000. The property was distributed to Judy on January 1, 2008. The Vances have held the property as rental property and have managed it themselves. From 2008 until June 30, 2012, they rented the house to the same tenant. The tenant was transferred to a branch office in California and moved out at the end of June. Since they did not want to bother finding a new tenant, Paul and Judy sold the house on June 30, 2012. They received $140,000 for the house and land ($15,000 for the land and $125,000 for the house), less a 6 percent commission charged by the broker. They had depreciated the house using the MACRS rules and conventions applicable to residential real estate. To compute depreciation on the house, the Vances had allocated $15,000 of the property's basis to the land on which the house is located. The Vances collected rent of $1,000 a month during the six months the house was occupied during the year. They incurred the following related expenses during this period:
Property insurance $500
Property taxes800
Maintenance 465

Depreciation (to be computed)?

6. The Vances sold 200 shares of Capp Corporation stock on September 3, 2012, for $42 a share (minus a $50 commission). The Vances received the stock from Paul's father on June 25, 1980, as a wedding present. Paul's father originally purchased the stock for $10 per share in 1967. The stock was valued at $14.50 per share on the date of the gift. No gift tax was paid on the gift.

7. Judy is required by Xavier University to visit several high schools in the Cincinnati area to evaluate Xavier University students who are doing their practice teaching. However, she is not reimbursed for the expenses she incurs in doing this. During the spring semester (January through April 2012), she drove her personal automobile 6,800 miles in fulfilling this obligation. Judy drove an additional 6,700 personal miles during 2012. She has been using the car since June 30, 2011. Judy uses the standard mileage method to calculate her car expenses.

8. Paul and Judy have given you a file containing the following receipts for expenditures during the year:
Prescription medicine and drugs (net of insurance reimbursement)$???376

Doctor and hospital bills (net of insurance reimbursement)2,468
Penalty for underpayment of last year's state income tax 15
Real estate taxes on personal residence 4,762
Interest on home mortgage (paid to Home State Savings & Loan) 8,250
Interest on credit cards (consumer purchases) 595

Cash contribution to St. Matthew's church 3,080
Payroll deductions for Judy's contributions to the United Way 150
Professional dues (Judy) 325
Professional subscriptions (Judy)245
Fee for preparation of 2011 tax return paid April 12, 2012 500

9. The Vances filed their 2011 federal, state, and local returns on April 12, 2012. They paid the following additional 2011 taxes with their returns: federal income taxes of $630, state income taxes of $250, and city income taxes of $75.

10. The Vances made timely estimated federal income tax payments of $1,500 each quarter during 2012. They also made estimated state income tax payments of $300 each quarter and estimated city income tax payments of $160 each quarter. The Vances made all fourth-quarter payments on December 31, 2012. They would like to receive a refund for any overpayments.
	

A trucking company wants to predict the yearly maintenance expense

Question
	13. A trucking company wants to predict the yearly maintenance expense (Y) for a truck using the number of miles driven during the year (X1) and the age of the truck (X2, in years) at the beginning of the year. The company has gathered the data given in the file P14_13.xlsx. Note that each observation corresponds to a particular truck. Estimate a multiple regression equation using the given data. Interpret each of the estimated regression coefficients. Also, interpret the standard error of estimate and the R-square value for these data.	

Question_MID2_10Dec

Question
	
 

1. Which of the following
factors would be most likely to lead to an increase in nominal interest rates?



a. Households reduce their consumption and
increase their savings.

b. A new technology like the Internet has just
been introduced, and it increases investment opportunities.

c. There is a decrease in expected inflation.

d. The economy falls into a recession.

e. The Federal Reserve decides to try to stimulate
the economy.



 

2. The real risk-free
rate is 3.05%, inflation is expected to be 2.75% this year, and the maturity
risk premium is zero. Ignoring any
cross-product terms, what is the equilibrium rate of return on a 1-year
Treasury bond? 



a. 5.51%

b. 5.80%

c. 6.09%

d. 6.39%

e. 6.71%

 

3. Kelly Inc's 5-year
bonds yield 7.50% and 5-year T-bonds yield 4.90%. The real risk-free rate is r* = 2.5%, the
default risk premium for Kelly's bonds is DRP = 0.40%, the liquidity premium on
Kelly's bonds is LP = 2.2%versus zero on T-bonds, and the
inflation premium (IP) is 1.5%. What is
the maturity risk premium (MRP) on all 5-year bonds?



a. 0.73%

b. 0.81%

c. 0.90%

d. 0.99%

e. 1.09%



 

4. Kop Corporation's
5-year bonds yield 6.50%, and T-bonds with the same maturity yield
4.40%. The default risk premium for
Kop's bonds is DRP = 0.40%, the liquidity premium on Kop's bonds is LP = 1.70%
versus zero on T-bonds, the inflation premium (IP) is 1.50%, and the
maturity risk premium (MRP) on 5-year bonds is 0.40%. What is the real risk-free rate, r*?



a. 2.04%

b. 2.14%

c. 2.26%

d. 2.38%

e. 2.50%

 Answer: b 

5. Under normal conditions, which of the
following would be most likely to increase the coupon rate required for
a bond to be issued at par?



a. Adding additional
restrictive covenants that limit management's actions.

b. Adding a call
provision.

c. The rating agencies
change the bond's rating from Baa to Aaa.

d. Making the bond
a first mortgage bond rather than a debenture.

e. Adding a sinking
fund.

 

6. Bond A has a 9% annual coupon, while Bond B has a 7% annual coupon. Both bonds have the same maturity, a face
value of $1,000, an 8% yield to maturity, and are noncallable. Which of the following statements is CORRECT?



a. Bond A’s capital gains yield is greater than Bond B’s capital gains yield.

b. Bond A trades at a discount, whereas Bond B trades at a premium.

c. If the yield to maturity for both bonds remains
at 8%, Bond A’s price one year from now will be higher than it is today, but
Bond B’s price one year from now will be lower than it is today.

d. If the yield to maturity for both bonds immediately
decreases to 6%, Bond A’s bond will have a larger percentage increase in value.

e. Bond A’s current yield is greater than that of
Bond B.

 

7. Ryngaert Inc. recently issued noncallable
bonds that mature in 15 years. They have
a par value of $1,000 and an annual
coupon of 5.7%. If the current market
interest rate is 7.0%, at what price should the bonds sell?



a. $817.12

b. $838.07

c. $859.56

d. $881.60

e. $903.64



 

8. Adams Enterprises’ noncallable bonds
currently sell for $1,120. They have a
15-year maturity, an annual coupon of
$85, and a par value of $1,000. What is
their yield to maturity? 



a. 5.84%

b. 6.15%

c. 6.47%

d. 6.81%

e. 7.17%

 

9. Moerdyk Corporation's bonds have a 15-year
maturity, a 7.25% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is
6.20%, based on semiannual compounding.
What is the bond’s price?



a. $1,047.19

b. $1,074.05

c. $1,101.58

d. $1,129.12

e. $1,157.35:
d 

10. Sadik Inc.'s bonds currently sell for $1,180
and have a par value of $1,000. They pay
a $105 annual coupon and have a
15-year maturity, but they can be called in 5 years at $1,100. What is their yield to call (YTC)?



a. 6.63%

b. 6.98%

c. 7.35%

d. 7.74%

e. 8.12%

 

11. Bonds A, B, and C all have a maturity of 10
years and a yield to maturity of 7%.
Bond A’s price exceeds its par value, Bond B’s price equals its par
value, and Bond C’s price is less than its par value. None of the bonds can be called. Which of the following statements is CORRECT?



a. If the yield to maturity on each bond decreases to 6%, Bond A will have the
largest percentage increase in its price.

b. Bond A has the most interest rate risk.

c. If the yield to maturity on the three bonds remains constant, the prices of the
three bonds will remain the same over the next year.

d. If the yield to maturity on each bond increases to 8%, the prices of all three
bonds will decline.

e. Bond C sells at a premium over its par value.

 

12. An investor is considering buying one of two
10-year, $1,000 face value, noncallable bonds: Bond A has a 7% annual coupon, while Bond B has a 9% annual
coupon. Both bonds have a yield to
maturity of 8%, and the YTM is expected to remain constant for the next 10
years. Which of the following statements
is CORRECT?



a. Bond B has
a higher price than Bond A today, but one year from now the bonds will have the
same price.

b. One year from now, Bond A’s price will be
higher than it is today.

c. Bond A’s current
yield is greater than 8%.

d. Bond A has
a higher price than Bond B today, but one year from now the bonds will have the
same price.

e. Both bonds
have the same price today, and the price of each bond is expected to remain
constant until the bonds mature.

 

13. Bill Dukes has $100,000 invested in a 2-stock
portfolio. $35,000 is invested in Stock
X and the remainder is invested in Stock Y.
X's beta is 1.50 and Y’s beta is0.70. What is the portfolio's beta?



a. 0.65

b. 0.72

c. 0.80

d. 0.89

e. 0.98



 

14. Tom O'Brien has a 2-stock portfolio with a
total value of $100,000. $37,500is
invested in Stock A with a beta of
0.75 and the remainder is invested in Stock B with a beta of 1.42. What is his portfolio’s beta?



a. 1.17

b. 1.23

c. 1.29

d. 1.35

e. 1.42

 

15. Porter Inc's stock has an expected return of
12.25%, a beta of 1.25, and is in
equilibrium. If the risk-free rate is
5.00%, what is the market risk premium?



a. 5.80%

b. 5.95%

c. 6.09%

d. 6.25%

e. 6.40%





 

16. Company A has a beta of 0.70, while Company
B's beta is 1.20. The required return on
the stock market is 11.00%, and the risk-free rate is 4.25%. What is the difference between A's and B's
required rates of return? (Hint: First
find the market risk premium, then find the required returns on the stocks.)



a. 2.75%

b. 2.89%

c. 3.05%

d. 3.21%

e. 3.38%

 

17. Carson Inc.'s manager believes that economic
conditions during the next year will be strong, normal, or weak, and she thinks
that the firm's returns will have the probability distribution shown
below. What's
the standard deviation of the estimated returns? 



 Economic

 Conditions Prob. Return

 Strong 30% 32.0%

 Normal 40% 10.0%

 Weak 30% -16.0%



a. 17.69%

b. 18.62%

c. 19.55%

d. 20.52%

e. 21.55%

 

18. Other things held constant, if the expected
inflation rate decreases and investors also become more risk
averse, the Security Market Line
would be affected as follows:



a. The y-axis intercept would decline, and the
slope would increase.

b. The x-axis intercept would decline, and the
slope would increase.

c. The y-axis intercept would increase, and the
slope would decline.

d. The SML would be affected only if betas
changed.

e. Both the y-axis intercept and the slope would
increase, leading to higher required returns.



 

19. Assume that the risk-free rate remains constant, but the market risk premium
declines. Which of the following is most
likely to occur?



a. The required return on a stock with beta = 1.0
will not change.

b. The required return on a stock with beta > 1.0 will increase.

c. The return on "the market" will remain constant.

d. The return on "the market" will increase.

e. The required return on a stock with beta < 1.0 will decline.



 

20. Stock HB has a beta of 1.5 and Stock LB has a
beta of 0.5. The market is in
equilibrium, with required returns equaling expected
returns. Which of the following
statements is CORRECT?



a. If expected inflation remains constant but the
market risk premium (rM ? rRF) declines, the required
return of Stock LB will decline but the required return of Stock HB will
increase.

b. If both expected inflation and the market risk premium (rM ? rRF)
increase, the required return on Stock HB will increase by more than that on
Stock LB.

c. If both expected inflation and the market risk premium (rM ? rRF)
increase, the required returns of both stocks will increase by the same amount.

d. Since the market is in equilibrium, the required returns of the two stocks should
be the same.

 e. If expected inflation remains constant
but the market risk premium (rM
? rRF) declines, the required return of Stock HB will decline but
the required return of Stock LB will increase.

 

21. Over the past 75 years, we have observed that
investments with the highest average annual returns also tend to have the highest standard deviations of annual
returns. This observation supports the
notion that there is a positive correlation between risk and return. Which of the following answers correctly
ranks investments from highest to lowest risk (and return), where the
security with the highest risk is shown first, the one with the lowest risk
last?



a. Small-company stocks, long-term corporate
bonds, large-company stocks,
long-term government bonds, U.S. Treasury bills.

b. Large-company stocks, small-company stocks,
long-term corporate bonds, U.S.
Treasury bills, long-term government bonds.

c. Small-company stocks, large-company stocks,
long-term corporate bonds, long-term
government bonds, U.S. Treasury bills.

d. U.S. Treasury bills, long-term government
bonds, long-term corporate bonds, small-company stocks, large-company stocks.

e. Large-company stocks, small-company stocks, long-term corporate bonds, long-term
government bonds, U.S. Treasury bills.

( 

22. Stocks A and B each have an expected return
of 15%, a standard deviation of 20%, and a beta of 1.2. The returns on the two stocks have a correlation coefficient of
+0.6. You have a portfolio that consists
of 50% A and 50% B. Which of the
following statements is CORRECT?



a. The portfolio's beta is less than 1.2.

b. The portfolio's expected return is 15%.

c. The portfolio's standard deviation is greater
than 20%.

d. The portfolio's beta is greater than 1.2.

e. The portfolio's standard deviation is 20%.

 

23. Your portfolio consists of $50,000 invested
in Stock X and $50,000 invested in Stock Y.
Both stocks have an expected return of 15%, betas of 1.6, and standard
deviations of 30%. The returns of the
two stocks are independent, so the correlation coefficient between them, rXY, is zero. Which of the following statements best
describes the characteristics of your 2-stock portfolio?



a. Your portfolio has a standard deviation of 30%,
and its expected return is 15%.

b. Your portfolio has a standard deviation less
than 30%, and its beta is greater than 1.6.

c. Your portfolio has a beta equal to 1.6, and its expected return is 15%.

d. Your portfolio has a beta greater than 1.6, and
its expected return is greater than 15%.

e. Your portfolio has a standard deviation greater than 30% and a beta equal to 1.6.



 

24. Stocks A and B have the following data. Assuming the stock market is efficient and
the stocks are in equilibrium, which of the following statements is CORRECT?



  A  B 

Price $25 $40

Expected growth 7% 9%

Expected return 10% 12%



a. The two stocks should have the same expected dividend.

b. The two stocks could not be in equilibrium with
the numbers given in the question.

c. A's expected dividend
is $0.50.

d. B's expected dividend
is $0.75.

e. A's expected dividend
is $0.75 and B's expected dividend is $1.20.

 

25. A stock is expected to pay a year-end dividend of $2.00, i.e., D1 =
$2.00. The dividend is expected to
decline at a rate of 5% a year forever (g = -5%). If the company is in equilibrium and its
expected and required rate of return is 15%, which of the following statements
is CORRECT?



a. The company’s current stock price is $20.

b. The company’s dividend yield 5 years from now is expected to be 10%.

c. The constant growth model cannot be used because the growth rate is negative.

d. The company’s expected capital gains yield is 5%.

e. The company’s expected stock price at the beginning of next year is $9.50.

 

26. Which of the following statements is NOT CORRECT?



a. The corporate valuation
model can be used both for companies that pay dividends and those that do not
pay dividends.

b. The corporate valuation
model discounts free cash flows by the required return on equity.

c. The corporate valuation
model can be used to find the value of a division.

d. An important step
in applying the corporate valuation model is forecasting the firm's pro forma
financial statements.

e. Free cash flows are assumed to grow at a
constant rate beyond a specified date in order to find the horizon, or
terminal, value.



 

27. Gupta Corporation is undergoing a
restructuring, and its free cash flows are expected to vary considerably during
the next few years. However, the FCF is
expected to be $65.00 million in Year 5, and the FCF growth rate is expected to
be a constant 6.5% beyond that point.
The weighted average cost of capital is 12.0%. What is the horizon (or terminal) value (in
millions) at t = 5?



a. $1,025

b. $1,079

c. $1,136

d. $1,196

e. $1,259



 

28. Misra Inc. forecasts a free cash flow of $35
million in Year 3, i.e., at t = 3, and it expects FCF to grow at a constant
rate of 5.5% thereafter. If the weighted
average cost of capital (WACC) is 10.0% and the cost of equity is 15.0%, what
is the horizon, or terminal, value in millions at t = 3?



a. $821

b. $862

c. $905

d. $950

e. $997

 

29. Rebello's preferred stock pays a dividend of
$1.00 per quarter, and it sells for $55.00 per share. What is its effective annual (not
nominal) rate of return?



a. 6.62%

b. 6.82%

c. 7.03%

d. 7.25%

e. 7.47%

 

30. Goode Inc.'s stock has a required rate of
return of 11.50%, and it sells for $25.00 per share. Goode's dividend is expected to grow at a
constant rate of 7.00%. What was the last
dividend, D0?



a. $0.95

b. $1.05

c. $1.16

d. $1.27

e. $1.40

 

30. If D0 = $1.75, g (which is
constant) = 3.6%, and P0 = $32.00, what is the stock’s expected
total return for the coming year?



a. 8.37%

b. 8.59%

c. 8.81%

d. 9.03%

e. 9.27%
	

Remember to show all work for the problem sets below. The work may be submitted either in a Microsoft Word…

Question
	
Remember to show all work for the problem sets below. The work may be submitted either in a Microsoft Word or Excel document. The answers must be legible.
Income statement preparation
On December 31, 2009, Cathy Chen, a self-employed certified public accountant (CPA), completed her first full year in business. During the year, she billed $360,000 for her accounting services. She had two employees: a bookkeeper and a clerical assistant. In addition to her monthly salary of $8,000, Ms. Chen paid annual salaries of $48,000 and $36,000 to the bookkeeper and the clerical assistant, respectively. Employment taxes and benefit costs for Ms. Chen and her employees totaled $34,600 for the year.
Expenses for office supplies, including postage, totaled $10,400 for the year. In addition, Ms. Chen spent $17,000 during the year on tax-deductible travel and entertainment associated with client visits and new business development.
Lease payments for the office space rented (a tax-deductible expense) were $2,700 per month. Depreciation expense on the office furniture and fixtures was $15,600 for the year. During the year, Ms. Chen paid interest of $15,000 on the $120,000borrowed to start the business. She paid an average tax rate of 30% during 2009.
a. Prepare an income statement for Cathy Chen, CPA, for the year ended December 31, 2009.
Impact of net income on a firm’s balance sheet
Conrad Air, Inc., reported net income of $1,365,000 for the year ended December 31, 2009. Show the effect of these funds on the firm’s balance sheet for the previous year (below) in each of the scenarios following the balance sheet.
Conrad Air, Inc.
Balance Sheet (as of December 31, 2009)
Assets Liabilities and Stockholders’ Equity Cash $ 120,000 Accounts payable $70,000 Marketable securities 35,000 Short-term notes 55,000 Accounts receivable 45,000 Current liabilities $ 125,000 Inventories 130,000 Long-term debt 55,000
Current assets 330,000 Total liabilities 2,825,000
Equipment $2,970,000 Common stock $ 500,000 Buildings 1,600,000 Retained earnings 1,575,000 Fixed assets 4,457,000 Stockholders’ equity 2,075,000
Total assets $4,900,000 Total liabilities and equity $4,900,000
a. Conrad paid no dividends during the year and invested the funds in marketable securities.
b. Conrad paid dividends totaling $500,000 and used the balance of the net income to retire (pay off) long-term debt.
c. Conrad paid dividends totaling $500,000 and invested the balance of the net income in building a new hangar.
d. Conrad paid out all $1,365,000 as dividends to its stockholders.
Balance sheet preparation
Adam and Arin Adams have collected their personal asset and liability information and have asked you to put together a balance sheet as of December 31, 2009. The following information is received from the Adams family.
Cash $ 300 Retirement funds, IRA $ 2,000 Checking 3,000 2008 Sebring 15,000 Savings 1,200 2007 Jeep 8,000 IBM stock 2,000 Money market funds 1,200 Auto loan 8,000 Jewelry & artwork 3,000 Mortgage 100,000 Net worth 76,500 Medical bills payable 250 Household furnishings 4,200 Utility bills payable 150 Credit card balance 2,000 Real estate 150,000 Personal loan 3,000
a. Create a personal balance sheet as of December 31, 2009. It should be similar to a corporate balance sheet.
b. What must the total assets of the Adams family be equal to by December 31, 2009?
c. What was their net working capital (NWC) for the year? (Hint: NWC is the difference between total liquid assets and total current liabilities.)
	

Can you assist me with finance?

Question
	ntroduction

You will assume that you still work as a financial analyst for AirJet Best Parts, Inc. The company is considering a capital investment in a new machine and you are in charge of making a recommendation on the purchase based on (1) a given rate of return of 15% (Task 4) and (2) the firm’s cost of capital (Task 5).

Task 4. Capital Budgeting for a New Machine

A few months have now passed and AirJet Best Parts, Inc. is considering the purchase on a new machine that will increase the production of a special component significantly. The anticipated cash flows for the project are as follows:

Year 1	 $1,100,000

Year 2	 $1,450,000

Year 3	 $1,300,000

Year 4	 $950,000

You have now been tasked with providing a recommendation for the project based on the results of a Net Present Value Analysis. Assuming that the required rate of return is 15% and the initial cost of the machine is $3,000,000.

•	What is the project’s IRR? (10 pts)?

•	What is the project’s NPV? (15 pts) ?

•	Should the company accept this project and why (or why not)? (5 pts) ?

•	Explain how depreciation will affect the present value of the project. (10 pts) ?

•	Provide examples of at least one of the following as it relates to the project: (5 pts each)

•	Sunk Cost

•	Opportunity cost

•	Erosion ?

•	Explain how you would conduct a scenario and sensitivity analysis of the project. What would be some project-specific risks and market risks related to this project? (20 pts)

Task 5: Cost of Capital

AirJet Best Parts Inc. is now considering that the appropriate discount rate for the new machine should be the cost of capital and would like to determine it. You will assist in the process of obtaining this rate.

•	Compute the cost of debt. Assume AirJet Best Parts Inc. is considering issuing new bonds. Select current bonds from one of the main competitors as a benchmark. Key competitors include Raytheon, Boeing, Lockheed Martin, and the Northrop Grumman Corporation. ?

•	What is the YTM of the competitor’s bond? You may use a number of sources, but we recommend Morningstar. Find the YTM of one 15 or 20 year bond with the highest possible creditworthiness. You may assume that new bonds issued by AirJet Best Parts, Inc. are of similar risk and will require the same return. (5 pts) ?

•	What is the after-tax cost of debt if the tax rate is 34%? (5 pts) ?

•	Explain what other methods you could have used to find the cost of debt for AirJet Best Parts Inc.(10 pts) ?

•	Explain why you should use the YTM and not the coupon rate as the required return for debt. (5 pts) ?

•	Compute the cost of common equity using the CAPM model. For beta, use the average beta of three selected competitors. You may obtain the betas from Yahoo Finance. Assume the risk free rate to be 3% and the market risk premium to be 4%. ?

•	What is the cost of common equity? (5 pts) ?

•	Explain the advantages and disadvantages to use the CAPM model as the method to compute the cost of common equity. Compare and contrast this method with the dividend growth model approach. (10 pts) ?

•	Compute the cost of preferred equity assuming the dividend paid for preferred stock is $2.93 and the current value of the stock is $50 per share.?

•	What is the cost of preferred equity? (5 pts) ?

•	Is there any other method to compute this cost? Explain. (5 pts) ?

•	Assuming that the market value weights of these capital sources are 30% bonds, 60% common equity and 10% preferred equity, what is the weighted cost of capital of the firm? (10 pts) ?

•	Should the firm use this WACC for all projects? Explain and provide examples as appropriate. (10 pts)?

•	Recompute the net present value of the project based on the cost of capital you found. Do you still believe that your earlier recommendation for accepting or rejecting the project was adequate? Why or why not? (5 pts)	

PEER REVIEW ARTICLE

PEER REVIEW ARTICLE

What is the article and author your classmate is analyzing? What is the argument from the article? What is your classmate’s assessment of that article? Does the classmate feel the article supports its argument? What additional information would you like to see included to assist your understanding? Identify the paragraph where you think this material should be added. Is each paragraph on a single topic?Identify which ones have unity and which ones lack unity. Does each paragraph support the main idea of rhetorical analysis? Does your classmate use quotations and/or summary to begin the analysis of the claims? Could you understand their analysis without reading the original article? Does your classmate identify the type of argument being used? Does your classmate explore in depth the use of ethos, pathos, and logos? What suggestions for improvement might you offer that passage?

bus 308 week 5 problem set

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	I need help with the week five problem set.  set is attached	
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Money & Banking

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1. Go to the Web site of the Federal Reserve Board at www.federalreserve.gov and find the section describing monetary policy tools. Which unconventional tools employed during the financial crisis of 2007-2009 has the Fed stopped using? What do you think determined the order in which various facilities were shut down? Which, if any, of the tools still remain in operation?
2. Explain why both the Federal Reserve and the ECB use an overnight interest rate rather than a longer-term interest rate as their policy tool?
3. Explain the mechanics of a speculative attack on the currency of a country with a fixed exchange-rate regime.
4. Explain why a well-capitalized domestic banking system might be important for the successful maintenance of a fixed exchange-rate regime.
5. Why is inflation higher than money growth in high inflation countries and lower than money growth in low inflation countries?
6. Describe the impact of financial innovations on the demand for money and velocity.
	

Final Exam BSOP-206 Operations Strategy

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	Can someone take my final exam on my  online final exam?	

Marci has two jobs and both employers withheld FICA tax

Question
	
1. Marci has two jobs and both employers withheld FICA tax. From her first job, she earned $98,600 and from her second job she earned $13,700. How much can Marci claim on her Form 1040 as excess social security tax paid in 2012? (Points : 1) 
$0.
$44.94.
$74.40.
$92.40.

Question 2. 2. In order to obtain and retain qualified status, a pension or profit-sharing plan must not discriminate in favor of highly compensated employees which include: (Points : 1) 
Employees who own more than 5% of the corporation's stock.
Employees who received over $85,000 compensation in the previous year.
Employees who were in the top 25% of employees based on compensation.
None of the above.

Question 3. 3. Which of the following statements is not true regarding the credit for the elderly or the disabled? (Points : 1) 
Taxpayer may not have earned income.
Taxpayer may receive social security benefits.
Taxpayer must be over age 65.
Taxpayer must be retired or on permanent and total disability.

Question 4. 4. Which of the following statements is correct? (Points : 1) 
In part, Congress established pension plan rules to encourage individuals to save for retirement.
Retirement plans are generally not tax-free, only tax-deferred.
Individuals or companies usually establish a pension plan with a trustee.
All of the statements are correct.

Question 5. 5. Employees claim withholding allowances on Form W-4. For each withholding allowance claimed, their withholding base is reduced by what amount for calendar year 2012? (Points : 1) 
$3,650.
$3,700.
$3,750.
$3,800.

Question 6. 6. Joseph paid $1,750 in qualifying expenses for his daughter who attended a community college. How much is Joseph's lifetime learning credit without regard to AGI limitations or other credits? (Points : 1) 
$250.
$350.
$825.
$1,750.
Question 7. 7. Which of the following statements is not true with regard to the child and dependent care expense credit? (Points : 1) 
The maximum amount of expenses for one dependent is $3,000.
Married taxpayers must file joint returns.
A non-working spouse attending school full-time is deemed to have earned income of $250 per month for one qualifying person.
The maximum amount of expenses for two or more dependents is $6,000.

Question 8. 8. Ladaris has two jobs. She earned $112,000 from her first job and $10,000 from her second job. How much total FICA taxes will Ladaris have withheld from her wages from working two jobs? (Points : 1) 
$6,248.20
$6,785.65.
$6,813.20.
$6,893.00.

Question 9. 9. In a large food or beverage establishment, on what form or schedule is any tip shortfall from a directly tipped employee recorded? (Points : 1) 
Form 4070.
Form 8027.
Form 8109.
Schedule C.

Question 10. 10. What are some tax consequences related to a qualified pension plan? (Points : 1) 
Employer contributions are deductible when made.
Earnings on the contributions are taxable to the employee.
Employees are not taxed until distributions are received from the plan.
Only a. and c.