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MINI CASE: SOLVING FOR THE OPTIMAL INTERNATIONAL PORTFOLIO   Suppose you are a financial advisor and your client, who is currently investing only in the U.S. stock market, is considering diversifying into the U.K. stock market. At the moment, there are neither particular barriers nor restrictions on investing in the U.K. stock market. Your client […]

MINI CASE: ECONOMIC EXPOSURE OF ALBION COMPUTERS PLC   Consider Case 3 of Albion Computers PLC discussed in the chapter. Now, assume that the pound  is expected to depreciate to $1.50 from the current  level of $1.60 per pound. This implies that the pound  cost of the imported part, i.e., Intel’s microprocessors, is £341 (=$512/$1.50). […]

Kohers Inc. is considering a leasing arrangement to finance some manufacturing tools that it needs for the next 3 years. The tools will be obsolete and worthless after 3 years. The firm will depreciate the cost of the tools on a straight-line basis over their 3-year life. It can borrow $4,800,000, the purchase price, at […]

1.  Develop a different arrangement of interest payments among the counterparties and the swap bank in Example 10.1 that still leaves each counterparty with an all-in cost 1/2 percent below each’s best rate and the swap bank with a 1/4 percent inflow. 2.  Alpha and Beta Companies can borrow at the following rates.             Alpha               […]

1. Cray Research sold a super computer to the Max Planck Institute in Germany on credit and invoiced DM 10 million payable in six months. Currently, the six-month forward exchange rate is $1.50/DM and the foreign exchange advisor for Cray Research predicts that the spot rate is likely to be $1.43 in six  months. (a) […]

PROBLEMS    1. Assume that FASB 8 is still in effect instead of FASB 52.  Construct a consolidated balance sheet for Centralia Corporation and its affiliates after a depreciation of the Spanish peseta from Ptas140.00/$1.00 to Ptas150.00/$1.00 that is the counterpart to Exhibit 14.8 in the text.  Centralia and its affiliates carry inventory and fixed […]

         1.    Future Value (Year 5) = $10,000 (1.05)5 = $12,762.82 New Balance (Year 5) = $12,762.82 – $7,500 = $5,262.85 Future Value (Year 8) = $5,262.82 (1.05)3 = $6,092.37    2.  PV of $10,000 = $10,000 x 0.3855 = $3,855 PV of Annuity of $400 = $400 x 12.4622 = $4,984.88 Value of Bond […]

Accounting for a troubled debt settlement. Elton, Inc., which owes Boston Co. $900,000 in notes payable, is in financial difficulty. To eliminate the debt, Boston agrees to accept from Elton land having a fair market value of $680,000 and a recorded cost of $510,000.   Instructions (a)  Compute the amount of gain or loss to […]

1) Hahn Company uses the percentage of sales method for recording bad debts expense. For the year, cash sales are $300,000 and credit sales are $1,200,000. Management estimates that 1% is the sales percentage to use. What adjusting entry will Hahn Company make to record the bad debts expense?    2) Using the percentage of […]

1.  Suppose that you hold a piece of land in the City of London that you may want to sell in one year. As a U.S. resident, we are concerned with the dollar value of the land. Assume that, if the British economy booms in the future, the land will be worth £2,000 and one […]