MAF605 - Accounting and Finance For Managers - Accounting Assignment Help

Assignment Task -      

Question 1 

A. You are offered to buy a 4-year coupon corporate bond in the beginning of its 7th month  on its third year for $963.94. Its face value is $1,000 and its coupon rate is 5.172% p.a.  with coupon paid at the end of each quarter. Government bond rate now is 6.9%.  

(a) Is $963.94 a good price for you to buy it or not? What is the fair price for the bond? 

(b) What is the yield if you buy at the price that you have been offered?

(c) If the government bond rate suddenly goes down to 4.7%, what will be the new fair  value of the bond?  

B. The company just paid a $1.48 annual dividend and announced the plans to pay $1.54  next year. The dividend growth rate is expected to remain constant at the current level for  the following 4 years and then settle at 3 percent per year. If you are planning to buy this  stock in two years’ time, how much would you expect to pay for it if the required rate of  return is 7 percent at the time of your purchase? (Use two decimal rounding)  

Question 2 

Seong Seng Coachbuilders is considering purchasing a new machine to replace an old one. 

Cost of new machine: 

Purchase price $85,000 

Installation & Commissioning $10,000 

The proposed new machine is to be depreciated using the straight line method over its four year useful life with an estimated salvage value of $15,000.  

The proposed new machine is expected to increase sales and operating expenses and the  amount are expected to be constant over the project’s 4 year life. 

Sales $65,000 

Operating expenses $26,000 

Seong Seng operating working capital is also expected to increase as follows: Inventory $12,000 

Accounts receivable $8,000 

Accruals $3,000 

Accounts payable $6,000

Question 3 

Twin City Publishing is considering two financial alternatives for financing a major expansion  program. Under either alternative EBIT is expected to be $15.6 million.  

Currently the firm's capital structure consists of 4 million shares of common stock and $35  million in 11% long-term bonds.  

Under the debt financing alternative $10 million in 12% long-term bonds will be sold and  under the equity financing alternative the firm would sell 500,000 shares of common stock.  

The P/E (Price-earnings ratio) under the debt alternative would be 15 and the P/E under the  equity alternative would be 16. The firm's tax rate is 40%. 

Question 4 

Tong Foong Co. Ltd. has decided that its capital budget during the coming year will be $20  million. Its optimal capital structure is 60 percent equity and 40 percent debt. Its earnings  before interest and taxes (EBIT) are projected to be $34.667 million for the year. The  company has $200 million of assets; its average interest rate on outstanding debt is 10  percent; and its tax rate is 40 percent. 

Question 5 

A. In discussing the operation of her automobile, a doctor once observed that gasoline is a  fixed cost because the cost per gallon is relatively stable. Insurance, on the other hand,  is a variable cost because the cost per mile varies inversely with the number of miles  driven. Comment on the doctor's observation 

B. Manufacturers have established a cost classification called product costs. Define the  term "product cost" and note where these costs appear in the financial statements.

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