Since the 4.5 million is just an expected amount of fuel, J&L cannot achieve a perfect hedge in the future. They should estimate the accurate demand for fuel next year. 2. What are the pros and cons of using NYMEX contracts versus using the risk-management products offered by Continental Bank? Is the use of a monthly average price a net advantage or disadvantage to J & L?
Joanna used the current yield on the 20-year Treasury bond as her risk-free rate. According to exhibit #4, this was at 5.74%. We felt that this was too aggressive and believe that a more conservative estimate was in order. We did some searching on the Internet and found that a 90-Day Treasury Bill is most often used. “ Risk-free Return: The risk-free rate is a theoretical interest rate at which an investment may earn interest without incurring any risk.
Explain. c. Should the nominal cost of debt or the effective annual rate be used? Explain. d. How valid is an estimate of the cost of debt based on the yield to maturity of Ace’s debt (ignore the call provision in 3 years) if the firm plans to issue 20-year long-term debt? e. What other methods could be used to estimate the cost of debt if, for example, Ace’s outstanding debt had not been traded recently?
As per this method, intangible asset with indefinite life is not amortized. They are subject to impairment test. Use of SFAS-142 result in more volatility in reported income as impairment losses may occur irregularly and in varying amounts. Company Stock Analysis: No. of common shares outstanding has increased from 54,271 thousand to 56,295 thousand in 2003, a rise of 3.73%.
e. If interest rates increase after a company has issued bonds with a sinking fund, the company will be less likely to buy bonds on the open market to meet its sinking fund obligation and more likely to call them in at the sinking fund call price. Answer: a 3. Amram Inc. can issue a 20-year bond with a 6% annual coupon at par. This bond is not convertible, not callable, and has no sinking fund. Alternatively, Amram could issue a 20-year bond that is convertible into common equity, may be called, and has a sinking fund.
His AMT basis restriction) when your rights in the tax. This is because the property may in the stock at the end of 2009 is acquired stock first become have a different adjusted basis for the $200,000. transferable or when these rights are AMT. Use this line to report any AMT
C else equal, the break-even point for a taxpayer paying points on an original mortgage is longer All . when the taxpayer's marginal income tax rate increases in the years subsequent to the original financing compared to a taxpayer whose marginal tax rate does not change in the years subsequent to the year in which the loan is executed. D. None of the above statements is correct. 72. On March 31, 2011, Mary borrowed $200,000 to refinance the original mortgage on her principal residence.
The payback period is the number of years needed to recover the initial cash outlay of the capital budgeting project (Keown, Martin, Petty, & Scott, 2005, p. 292). By calculating this out it will give Caledonia key information as to which project will payout the quickest. This information is important because the investors are going to want the quickest return on their investment and this shows how many years it will take to get this return and which project will yield first. In order to calculate the payback period we use the following formula: For Caledonia we use: Project A: = 3.125 Years Project B: = 4.5 Years By looking at the above calculations we can see that project A will have a quicker payback period at 3.125 years while project B has a payback period of 4.5 years. It is easy to see that project A would be the best decision as it will have the ability to recoup the initial investment quicker than Project B.
Legal or contractual obligations can also help determine the useful life of an intangible asset. A patent has a 20 year term. When the useful life of the patent is determined for accounting treatment, it will be the lesser of 20 years or the amount of time the patent is expected to generate cash flows for the company. Costs associated with the patent may be capitalized over the useful life determined. Research and development costs incurred related to the patent are not eligible to be capitalized.
Problem 3.2 A – How does the income statement differ from the one presented in Exhibit 3.1 The largest difference between income statement for this question in compared to Exhibit 3.1 B – Did Best Care spend $367,000 on new fixed assets during the fiscal year 2011? If not, what is the economic rationale behind its reported depreciation expense? No, they were not new fixed assets for 2011. In accordance with GAAP, Best Care would derive by taking the historical cost, less the salvage value and dividing by the life expectancy in years. In addition it is considered a non-cash expense since the actual payment could have occurred many years before the expense is calculated.