C1. A. Should the yield of a corporate bond be higher or lower than a Treasury which has the same maturity date but a lower coupon? Why? [2 points]

C1. B. Suppose the yield of the Treasury is 2%, the likelihood of default in the next year of the corporate is 1.5%, and the expected recovery rate conditional on default is 40%. Ignoring liquidity issues, what is your best estimate of the yield of a bond issued by this corporate? [4 points]

C2. A Treasury bond has a coupon rate of 9%, a face value of 100$ and matures 10 years from now. For a treasury bond, the interest on the bond is a paid in semiannual installments. The current risk interest rate is 12%.

a) What is the current price of the bond? [3 points]

b) If you buy the bond at this price, under what circumstances do you make money? [2 points]

c) Let's suppose you buy the Treasury Bond described above. Just after you buy, the riskless interest rate decreases to 9%. What would be the new market price? [2 points]

Project 2

John Levitt owns a popular burger stand on a trendy section of Melrose Boulevard. Following the success of his first burger stand, "Johnny's Burgers," which has been in operations for five years, John is now considering opening a second burger stand in another trendy location, on Sunset Boulevard in the Silver Lake area. John's market research shows that the clientele in both areas is similar: young professionals, typically without children, who like the traditional aspect of eating burgers, but also relish his gourmet, specially manufactured low-fat burgers and the healthy side dishes his stand also sells. John's overall plan is to get the second stand up and running for four years, and then sell both stands off to a new owner and retire to Santa Barbara.

John estimates that the cost of starting up a second stand will be as follows:

Purchase of retail kiosk (mobile retail food outlet) $750,000

Specialized kitchen equipment $60,000

Installation of the kitchen equipment $20,000

Furniture and fittings $50,000

John estimates that annual operating costs of the new location would be identical to those of his current stand:

Labor costs, inclusive of all overhead costs:

Kitchen and service staff (5 people) $200,000

License and rent costs $150,000

Raw materials:

Burgers (275 per day x 7 days x 52 weeks), see burgers' cost below

Drinks $38,400

Other food supplies $145,800

Nonfood supplies $50,200

The revenues at his current location are as follows:

Sales of burgers $6 per burger Price per unit

Average daily sales 275 burgers

Other food items $270,000

Drinks $190,000

In addition to contributing profits, John expects that opening a second stand will decrease the cost of purchasing gourmet burgers from $1.5 cents to $1.35 cents in both locations. This is due to economies of scale. John also expects that he will be able to manage both locations himself, avoiding hiring a manager for the new location.

Assume that:

Increase in the receivables (AR) is expected to be equal to 12% of gross sales; the project will require additional cash (for giving change to the stand's customers paying cash) in the amount of 5% of gross sales. There will be no considerable investment in inventory as John implements "just-in-time" inventory system to keep the products fresh. Increase in payables associated with the new stand is estimated to be equal to 15% of the cost of raw products

Net working capital is fully recovered (i.e., reduced to zero) at the end of year 4

The marginal tax rate is 34 percent.

Cost of Capital is 10 percent.

Cost of the stand (kiosk), together with the cost of the equipment and the installation, is depreciated over five years according to the straight-line method.

Note: The definition of an asset's cost is all costs that are necessary to get an asset in place and ready for use. Therefore, the cost of the installation labor (wages and related fringe benefits) is part of the cost of the asset (and not an immediate expense of the accounting period).

The stand (together with the kitchen equipment) is expected to be worth $300,000 after four years of service.

1. Construct a model in Excel to evaluate the project.

You may use "Home Net" spreadsheet for inspiration. DO NOT follow it literally though as this is a different project with its own unique features.

2. What is the NPV of this investment?

3. Consider several values of cost of capital (for example, check values between 7% and 13% with 1% step) and compute NPV for each of these values. Use "Data Table" Construct NPV profile: Let cost of capital be your X-variable and NPV be your Y-variable.

4. Set some goal value for NPV (choose a value yourself) and use "goal seek" to find number of burgers that the new stand must sell annually to achieve the goal. To learn how to use "goal seek" please see tutorial video (my own tutorial video is available with the project)

5. Suppose that you are unsure about the price John would be able to charge. John would like to generate at least $200,000 in NPV with the new kiosk. Using "goal seek" find price per burger necessary to achieve this goal

Questions 25 thru 20 refer to Theresa Kearney Corporation whose Income Statement showed Net Income [for book purposes] Before Taxes of $20,000. The tax rate is 25%. [Consider each question as a stand-alone scenario] 25] 25] 27] 29] If Depreciation Expense for tax purposes is $4,000 higher than what was used for book purposes, the entry to record taxes is : A] Income Tax Expense...4,000 Income Tax Payable......4,000 B] Income Tax Expense ..... 4,000 Deferred Tax Asset.......1,000 Income Tax Payable ...... 5,000 C] Di Income Tax Expense ..... 5,000 Income Tax Payable.........5,000 Income Tax Expense ..... 5,000 Deferred Tax Liability.......1,000 Income Tax Payable.........4,000 If book Revenues [correctly] excluded $4,000 of cash collected related to ng year, the entry to record taxes is: Revenue that will be earned in a followi A] Income Tax Expense...5,000 Income Tax Payable......5,000 0] Income Tax Expense ..... 5,000 Income Tax Payable.........6,000 B] Income Tax Expense ..... 5,000 Deferred Tax Asset.......1,000 Income Tax Payable ...... B, 000 Di Income Tax Expense ..... 5,000 Deferred Tax Liability.......2,000 Income Tax Payable.........4,000 If book Revenues included 84,000 that will not be taxable until a following year, the entry to record taxes is: A] Income Tax Expense...4,000 Income Tax Payable ..... 4,000 0] Income Tax Expense ..... 5,000 Income Tax Payable.........5,000 B] Income Tax Expense....4,000 Deferred Tax Asset......1,000 Income Tax Payable ...... 5,000 D] Income Tax Expense ..... 5,000 Deferred Tax Liability.......1,000 Income Tax Payable.........4,000 If the Expenses include 54,000 of items that are permanently deductible for tax purposes, the entry to record taxes Is : A] Income Tax Expense...4,000 0] Income Tax Expense ..... 5,000 Income Tax Payable ..... 4,000 Income Tax Payable.........5,000 B] Income Tax Expense....4,000 D] Income Tax Expense ..... 5,000 Deferred Tax Asset......1,000 Income Tax Payable ...... 5,000 Deferred Tax Liability ..... 1,000 Income Tax Payable.........4,000 Question 3 Some researchers who utilise Legitimacy Theory posit that organisations will attempt to operate within the terms of their 'social contract". What is a social contract? Question 4 In 2006 the Australian Government established an inquiry into corporate social responsibilities with the aim of deciding whether the Corporations Act should be amended so as to specifically include particular social and environmental responsibilities within the Act. At the completion of the inquiry it was decided that no specific regulations would be added to the legislation, and that instead, 'market forces' would be relied upon to encourage companies to do the 'right thing' (that is, the view was expressed that if companies did not look after the environment, or did not act in a socially responsible manner, then people would not want to consume the organisations' products, and people would not want to invest in the organisation, work for them, and so forth. Because companies were aware of such market forces they would do the 'right thing' even in the absence of legislation). You are required to explain the decision of the government that no specific regulation be introduced from the perspective of: 1. Public Interest Theory 2. Capture Theory 3. Economic Interest Group Theory of regulation.Please provide the best answer to the following questions regarding Contracts. Question 31 (3 points) . Saved contract? What are the primary grounds on which the Contractor can typically terminate the O when the schedule update delays are more than 30 days O when there is an accident on the jobsite O when there is lack of communication between subcontractors and the Owner O when the Owner fails to make payments to the contractor that have been earned and are due Question 32 (4 points) What types of projects tend to be scheduled in terms of working days? O residential and community projects industrial construction projects O building construction projects O) engineering projects such as highways, bridges, dams, airport runways, canals, and utility installations Question 33 (3 points) To the contractor, the significance of an unavoidable delay is one for which | the contractor can have some confidence of receiving a time extension and possibly monetary compensation O True False Question 34 (2 points) The primary concern of General Contractors is that they will want to know if the float is owned by the Contractor or by the Owner. True False Question 35 (5 points) When the ownership of float rests with the Owner, Owner delays and Owner changes often do not include compensation in the form of time extension when only noncritical activities are impacted. True FalseIn general, individuals in the lowest two quintiles of the income distribution (Include all that apply) Question 24 options: pay no social security taxes are subsidied in terms of the personal income tax pay modest positive average personal income tax rates C pay high personal income tax rates. C pay no personal income taxes SaveQuestion 4 Which of the following paycheck withholdings puts money into a retirement investment fund the you will manage? Social Security O Medicare 401(k) contribution Federal income taxes Question 5