Investment Bankers Association (IBA) has an agreement with Northern Airlinesto underwrite an equity issue with a market value equal to $11 million.a. If IBA’s underwriting fee is 5 percent and its out-of-pocket expenses associatedwith the issue are $125,000, what is the net amount that IBA will receiveunder its agreement with Northern?b. Assuming that the information in part (a) does not change and Northernincurs out-of-pocket expenses equal to $240,000 for items such asprinting, legal fees, and so on, what will be the net proceeds from theequity issue for Northern?

BILDA S. A., a hypothetical company, borrows €1,000,000 at an interest rate of 10 percent per year on 1 January 2010 to finance the construction of a factory that will have auseful life of 40 years. Construction is completed after two years, during which time thecompany earns €20,000 by temporarily investing the loan proceeds.1. What is the amount of interest that will be capitalized under IFRS, and how wouldthat amount diff er from the amount that would be capitalized under U.S. GAAP?2. Where will the capitalized borrowing cost appear on the company’s financialstatements?

Velcro Saddles is contemplating the acquisition of Skiers’ Airbags Inc. The values of the two companies as separate entities are $50 million and $11 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $515,000 per year in perpetuity. Velcro Saddles can either pay $15 million cash for Skiers’ or offer Skiers’ a 48% holding in Velcro Saddles. The opportunity cost of capital is 10%.  Required: What is the gain from merger? (Enter your answer in millions rounded to 2 decimal places.) What is the cost of the cash offer? (Enter your answer in millions.) What is the cost of the stock alternative? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) What is the NPV of the acquisition under the cash offer? (Enter your answer in millions rounded to 2 decimal places.) What is its NPV under the stock offer? (Do not round intermediate calculations. A negative answer…

Archie company lends C1,000 to prosperity Co for five years, and it measures the assets at amortized costs. The loan carries no interest. Instead, Archi company expects other future economic benefits, such as an implicit right to receive goods or services at favourable prices. This right does not qualify the criteria of asset under PSAK 19 “intangible asset”. On initial recognition, the market rate of interest, for a similar five-year loan with payment of interest at maturity, is 10% per year. How should Archie company account this transaction?

Lease versus Buy Sadik Industries must install $1 million of new machinery in its Texas plant. It can obtain a 6-year bank loan for 100% of the cost at a 14% interest rate with equal payments at the end of each year. Sadik’s tax rate is 25%. The equipment falls in the MACRS 3-year class. (The depreciation rates for Year 1 through Year 4 are equal to 0.3333, 0.4445, 0.1481, and 0.0741.) Alternatively, a Texas investment banking firm that represents a group of investors can arrange a guideline lease calling for payments of $320,000 at the end of each year for 3 years. Under the proposed lease terms, the Sadik must pay for insurance, property taxes, and maintenance. Sadik must use the equipment if it is to continue in business, so it will almost certainly want to acquire the property at the end of the lease. If it does, then under the lease terms, it can purchase the machinery at its fair market value at Year 3. The best estimate of this market value is $200,000, but it could be much…

Lease versus Buy Sadik Industries must install $1 million of new machinery in its Texas plant. It can obtain a 6-year bank loan for 100% of the cost at a 15% interest rate with equal payments at the end of each year. Sadik’s tax rate is 25%. The equipment falls in the MACRS 3-year class. (The depreciation rates for Year 1 through Year 4 are equal to 0.3333, 0.4445, 0.1481, and 0.0741.) Alternatively, a Texas investment banking firm that represents a group of investors can arrange a guideline lease calling for payments of $320,000 at the end of each year for 3 years. Under the proposed lease terms, the Sadik must pay for insurance, property taxes, and maintenance. Sadik must use the equipment if it is to continue in business, so it will almost certainly want to acquire the property at the end of the lease. If it does, then under the lease terms it can purchase the machinery at its fair market value at Year 3. The best estimate of this market value is $170,000, but it could be much…

Tourmalet sold an item of plant for $50 million on 1 April 20X4. The plant had a carrying amount of $40 million at the date of sale, which was charged to cost of sales. On the same date, Tourmalet entered into an agreement to lease back the plant for the next five years (being the estimated remaining life of the plant) at a cost of $14 million per annum payable annually in arrears. An arrangement of this type is normally deemed to have a financing cost of 10% per annum. What amount will be shown as income from this transaction in the statement of profit or loss for the year ended 30 September 20X4?

Databank holds ¢460million T-Bill but it needs cash to settle an investor whose investment has matured and is expected to be paid ¢400 million. You have been asked to approach Ecobank to sell the T-Bill for ¢415 million on the morning of 19th May, 2008 with agreement to repurchase the bill on the evening of 23rd May, 2008. (a) What is the cedi cost of this transaction to Databank? (b) What is the Repo Rate on this transaction?

NUBD Co. purchase a machine for P180,000, which will be depreciated on the straight-line basis over a five year period with no salvage value. The related cash flow from operations, net of income taxes, is expected to be P45,000, a year. Assume that NUBD’s effective income tax rate is 40% for all years.What is the accounting rate of return on the initial increase in required investment?