FINA411 AA Fall2022 Assignment 2 solutions
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John Molson School of Business
FINA 411 AA - Page 1 Usual Copyright Disclaimer applies. ASSIGNMENT 2 FINA 411AA Solution sketch –
Selected Exercises 1. The following data is available on 3 stocks –
A, B, C: •
𝐸(𝑅
?
) = 𝐸(𝑅
?
) = 𝐸(𝑅
?
)
•
𝜎
?
= 𝜎
?
= 𝜎
?
•
𝜌
(?,?)
= +0.9
•
𝜌
(?,?)
= −0.2
•
𝜌
(?,?)
= +0.3
Portfolio of which two stocks will have the lowest standard deviation? Explain and include all steps necessary to arrive at the solution. The portfolio constructed containing stocks B and C would have the lowest standard deviation. Combining assets with equal risk and return but with low positive or negative correlations will reduce the risk level of the portfolio. 2. An analyst in the search for investment opportunities is evaluating the following five portfolios of risky assets, which are well-diversified (assume risk-free rate of 3.75 %): Portfolio Exp. Return St. Dev. A 8.00% 11.00% B 11.00% 14.50% C 5.00% 5.00% D 11.80% 20.00% E 6.40% 8.00%
John Molson School of Business
FINA 411 AA - Page 2 Usual Copyright Disclaimer applies. a.
Estimate the risk premium per unit of risk expected to be received per each portfolio. Estimates of (E(R)-Rf)/std: A 0.386 B 0.500 C 0.250 D 0.403 E 0.331 b.
Which of the five portfolios is most likely to be the market portfolio? Draw the CML (define the numerical values of the intercept and slope next to the graph). The CML slope, [E(R
MKT ) - RFR ]/ σ
MKT , is the ratio of risk premium per unit of risk. Portfolio B has the highest ratio, 0.5000, of these five portfolios, so it is most likely the market portfolio. Thus, the slope of the CML is 0.5 and its intercept is 3.75%, which is the risk-free rate. c.
Suppose the analyst
’s
preference is only for making an investment with 𝜎 = 8%
, and earning a 10% return. Would this be possible? The CML equation, based on the above analysis, is E(R
portfolio ) = 3.75
% + (0.50) σ
portfolio . If the desired standard deviation is 8.0%, then the expected portfolio return is 7.75%: E(R
portfolio ) = 3.75% + (0.50) (8%) = 7.75%
. The answer is no, it is not possible to earn an expected return of 10% with a portfolio with standard deviation of 8%. Risky portfolio
R_f
0%
5%
10%
15%
20%
0%
5%
10%
15%
20%
25%
30%
35%
Expected Return
Standard Deviation
Capital Allocation Line
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Long-Term Solvency Analysis
The following information was taken from Acme Company's balance sheet:
Fixed assets (net)
$1,092,000
Long-term liabilities
280,000
Total liabilities
196,000
Total stockholders' equity
980,000
Determine the company's (a) ratio of fixed assets to long-term liabilities and (b) ratio of liabilities to stockholders' equity. If required, round your answers
to one decimal place.
a. Ratio of fixed assets to long-term liabilities
b. Ratio of liabilities to stockholders' equity
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Lopez Company reported the following current-year data for its only product. The company uses a periodic inventory system, and its
ending inventory consists of 480 units-160 from each of the last three purchases.
1 Beginning inventory
260 units @ $4.40 = $ 1,144
2,940
5,880
5,616
3,640
$ 19,220
Jan.
Mar. 7 Purchase
oints
560 units @ $5.25
1,200 units @ $4.90 =
1,080 units @ $5.20 =
560 units @ $6.50 =
%3D
July 28 Purchase
Oct. 3 Purchase
Skipped
%3D
Dec. 19 Purchase
%3D
Totals
3,660 units
eBook
Hint
Determine the cost assigned to ending inventory and to cost of goods sold for the following. (Do not round intermediate calculations
and round your answers to 2 decimal places.)
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References
Ending
Inventory
Cost of Goods
Sold
(a)…
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Creative Sound Systems sold investments, land, and its own common stock for $40 million, $16 million, and $42 million, respectively.
Creative Sound Systems also purchased treasury stock, equipment, and a patent for $22 million, $26 million, and $13 million,
respectively.
What amount should Creative Sound Systems report as net cash flows from financing activities? (List cash outflows and any decrease
in cash as negative amounts. Enter your answers in millions (i.e., $10,100,000 should be entered as 10.1).)
CREATIVE SOUND SYSTEMS
Statement of Cash Flows (partial)
Cash flows from financing activities
Net cash flows from financing activities
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Ch. 17 - Financial Statement Anal x
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December 31, 2014 and 2013
Dec. 31, 2014
Dec. 31, 2013
Assets
bloe
Current assets:
Cash.
Marketable securities
$ 500,000
$ 400,000
1,000,000
1,010,000
Accounts receivable (net)...
740,000
510,000
Inventories
1,190,000
950,000
000. Prepaid expenses.
250,000
229,000
Total current assets.
$3,690,000
$3,089,000
Long-term investments...
2,350,000
2,300,000
1
Property, plant, and equipment (net)
Total assets
3,740,000
3,366,000
$9,780,000
$8,755,000
Liabilities
Current liabilities
$ 900,000
$ 880,000
Long-term liabilities:
$ 200,000
Mortgage note payable, 8%, due 2019.
Bonds payable, 10%,…
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Question # 22
Revisit
Choose the best option
Suppose that an entity has paid one of its liabilities twice during the year, in error The effects of this
O Assets, liabilities, and equity are understated.
mistake would be
O Assets, net income, and equity are unaffected.
O Assets and liabilities are understated.
O Assets and net profit and equity are understated, and liabilities are overstated.
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Condensed Balance Sheets
December 31, 2020, 2019, 2018
(in millions)
2020
2019
2818
Current assets
$ 764
$ 981
1, 931
$4
24
$ 843
Other assets
2,424
1,730
$2,573
Total assets
$3,188
$2,912
Current liabilities
$ 588
$ 841
1,034
2$
$ 734
Long-term liabilities
Stockholders' equity
1, 582
1, 018
910
1,037
929
Total liabilities and stockholders' equity
$3,188
$2,912
$2,573
ces
WIPER INC.
Selected Income Statement and Other Data
For the year Ended December 31, 2020 and 2019
(in millions)
2020
2019
Income statement data;
Sales
$3,061
$2,924
Operating income
Interest expense
Net income
Other data:
307
321
95
76
224
219
Average number of common shares outstanding
Total dividends paid
42.4
47.8
$ 61.0
$ 53.4
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18. Using the following information, complete the income statement, statement of retained earnings, and balance sheet for RN Painting for the month of March 2018. The business
began operations on March 1, 2018.
E (Click the icon to view the account balances.)
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00
1.
C. Show the impact (with amounts) of each of the following items on the horizontal
equation. For the asset section, name the specific accounts impacted.
i. Record Sales during the year on account of $205,000.
ii. Show the impact of $190,000 cash collected during the year.
iii. Establish an Allowance for Uncollectible Accounts at year-end.
iv. In the following year, an account worth $6,000 is determined to be
uncollectible, what is the entry?
v. A receivable for $3,500 that was previously written off is collected. What is the
2 step entry?
Assets
Liabilities
+ Stockholders'
Revenues
Expenses
Net Income
Cash
Equity
Flow
NA
NA
Increase
NA
Increase Assets
Revenue
in the Form of
in the
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Receivable $
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205000
Revenue $
205000
2.
3.
4.
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Changes in Current Operating Assets and Liabilities
Paneous Corporation's comparative balance sheet for current assets and liabilities was as follows:
Dec. 31, Year 2 Dec. 31, Year 1
Accounts receivable
$39,490
$31,590
Inventory
76,340
65,150
Accounts payable
60,750
45,410
Dividends payable
18,000
24,000
Adjust net income of $351,000 for changes in operating assets and liabilities to arrive at net cash flows from operating activities.
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Journalizing Installment Notes
On the first day of the fiscal year, a company issues $52,000, 11%, five-year installment notes that have annual payments of $14,070. The first note
payment consists of $5,720 of interest and $8,350 of principal repayment.
a. Journalize the entry to record the issuance of the installment notes. If an amount box does not require an entry, leave it blank.
38
b. Journalize the first annual note payment. If an amount box does not require an entry, leave it blank.
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Horizontal Analysis
The comparative accounts payable and long-term debt balances for a company follow.
Current Year
Previous Year
Accounts payable
$30,879
$42,300
Long-term debt
94,046
79,700
Based on this information, what is the amount and percentage of increase or decrease that would be shown on a balance sheet with horizontal analysis?
Enter all answers as positive numbers.
Amount of Change
Increase/Decrease
Percentage
%
Accounts payable
Long-term debt
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3. The following details taken from the books of DiDi Sdn Bhd for the year ending 31
December 2020.
DİDİ Sdn Bhd
Statement Profit or Loss for the year ending 31 December 2020 (extract)
RM
RM
Gross profit
Add : Discount received
44,700
410
Profit on sale of van
620
1.030
45,730
Less: Expenses
Motor expenses
Wages
General expenses
1,940
17,200
830
Bad debts
520
Increase in allowance for doubtful debts
200
Depreciation : van
1.800
22.490
23,240
Statement of Financial Position as at 31 December
2019
2020
RM
RM
RM
RM
Non-current Assets
8,200
(3.100)
5,100
Vans at cost
15,400
(5.300)
10,100
less Depreciation
Current Assets
Inventory
Trade accounts receivables less
18,600
8,200
24,000
6,900
provision*
Bank
410
720
27,210
37,310
31,620
36,720
Financed by :
Capital account :
Opening balance
Add : Net Profit
17,210
21.200…
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Accounting Equation
The total assets and total liabilities for a recent year of Apple (AAPL) and HP (HPQ) formerly Hewlett-Packard are shown below.
Apple
НР
(in millions)
(in millions)
Assets
$290,479
$103,206
Liabilities
171,124
76,475
Determine the stockholders' equity of each company.
Apple
million
НР
million
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Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each is described below. Eastern's fiscal
year ends December 31, and the 2021 financial statements are issued on March 15, 2022.
a. Eastern is involved in a lawsuit resulting from a dispute with a supplier. On February 3, 2022, judgment was rendered against
Eastern in the amount of $116 million plus interest, a total of $131 million. Eastern plans to appeal the judgment and is unable to
predict its outcome though it is not expected to have a material adverse effect on the company.
b. In November 2020, the State of Nevada filed suit against Eastern, seeking civil penalties and injunctive relief for violations of
environmental laws regulating hazardous waste. On January 12, 2022, Eastern reached a settlement…
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Interest
Amounts
X
Following are transactions for Vitalo Company.
November 1 Accepted a $7,000, 180-day, 5% note from Kelly White in granting a time extension on her past-due account
receivable.
December 31 Adjusted the year-end accounts for the accrued interest earned on the White note.
April 30 White honored her note when presented for payment.
General
Journal
Principal
Rate (%)
Time
Total interest
Complete this question by entering your answers in the tabs below.
D2L Ch 7: Assessment - Essent X
Total Through
Maturity
Complete the table to calculate the interest amounts at December 31st and April 30th and use those calculated values to prepare your
journal entries. (Do not round intermediate calculations. Use 360 days a year.)
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Complete the table to calculate the interest amounts at December…
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Multiple Choice
Increase by 250.
Decrease by 250.
Increase by 12,000.
Question 5 - Exa x
Decrease by 8,000.
Forrester Company is considering buying new equipment that would increase monthly fixed costs
from $120,000 to $150,000 and would decrease the current variable costs of $70 by $10 per unit.
The selling price of $100 is not expected to change. Forrester's current break-even sales are
$400,000 and current break-even units are 4,000. If Forrester purchases this new equipment, the
revised break-even point in units would:
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A-E is either going to be:
Account
Accounts receivable
Asset
Classified balance sheet
Creditors
Equality
Ledger
Payable
Three
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Please answer all parts with explanations thx
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Complete requirement 1
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27
Assume that the Accounts receivables, notes receivables, cash balance and inventory of the company is OMR 500, OMR 700,OMR 600 and OMR 700 respectively. The equity and total liabilities are OMR 2000 and OMR7000 respectively. From the following given options identify the fixed assets of the company.
a.
OMR 2500
b.
None of the given options
c.
OMR 9000
d.
OMR 6500
Clear my choice
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- gageNOWv2 | Online teachir X * CengageNOWv2 | Online teachin x om/iln/takeAssignment/takeAssignmentMain.do?invoker=&takeAssignmentSessionLocator=&inprogre.. eBook Show Me How Long-Term Solvency Analysis The following information was taken from Acme Company's balance sheet: Fixed assets (net) $1,092,000 Long-term liabilities 280,000 Total liabilities 196,000 Total stockholders' equity 980,000 Determine the company's (a) ratio of fixed assets to long-term liabilities and (b) ratio of liabilities to stockholders' equity. If required, round your answers to one decimal place. a. Ratio of fixed assets to long-term liabilities b. Ratio of liabilities to stockholders' equity Previous Next Check My Work 11:17 A 67°F Sunny A O E O G 40) 12/3/20 delete ome prt se 84l 144 4+ 6 backscace %Darrow_forward8. Fill in all of the blanksarrow_forward* 00 T 4. File Edit View History Bookmarks Window Help A ezto.mheducation.com Bb Welcome, Aury - Blackb... Close reading assignmen... t Center FEnglish essay - Google D... M MyOpenMath - Gradebook M Question 4 - Chapter 5-.. chapter 5 i Saved Help Save Lopez Company reported the following current-year data for its only product. The company uses a periodic inventory system, and its ending inventory consists of 480 units-160 from each of the last three purchases. 1 Beginning inventory 260 units @ $4.40 = $ 1,144 2,940 5,880 5,616 3,640 $ 19,220 Jan. Mar. 7 Purchase oints 560 units @ $5.25 1,200 units @ $4.90 = 1,080 units @ $5.20 = 560 units @ $6.50 = %3D July 28 Purchase Oct. 3 Purchase Skipped %3D Dec. 19 Purchase %3D Totals 3,660 units eBook Hint Determine the cost assigned to ending inventory and to cost of goods sold for the following. (Do not round intermediate calculations and round your answers to 2 decimal places.) Print References Ending Inventory Cost of Goods Sold (a)…arrow_forward
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