yearly​ after-tax cash outflow

1. Lease cash flows   Given the lease payment and term shown in the following​ table, determine the yearly​ after-tax cash outflow for the​ firm, assuming that the lease payment is made at the end of each year and that the firm is in the

15​%

tax bracket. Assume that no purchase option exists.

Annual lease payment	Term of lease
​$160,000	10 years

The yearly​ after-tax cash outflow for the firm is

​$……………………..

​(Round to the nearest​ dollar.)

2. Capitalized lease value   Given the lease​ payment, term remaining until the lease​ expires, and the discount rate shown in the following​ table, calculate the capitalized value of the​ lease, assuming that the lease payment is made annually at the end of each year.

Lease payment	Remaining term	Discount rate
​$63,000	13 years	13%

The capitalized value of the lease is

​$…………………………….

​(Round to the nearest​ cent.)

3. Conversion​ (or stock) value   What is the conversion​ (or stock) value of the following convertible​ bond? A $1,000​-par-value bond that is convertible into 45 shares of common stock. The common stock is currently selling for $47.92 per share. The conversion​ (or stock) value is $………………

​(Round to the nearest​ dollar.)

4. Straight bond value   Calculate the straight bond value for the bond shown in the table below.

Bond	Par value	Coupon interest rate ​(paid annually)	Interest rate on​ equal-risk straight bond	Years to maturity
A	​$1,000	10​%	14​%	20
B	800	12	15	14
C	1,000	13	16	30
D	1,000	14	17	25

The straight value of bond A is $……… B is $………C is $….and D is $………….

​(Round to the nearest​ cent.)

5. ​Toni’s Typesetters is analyzing a possible merger with​ Pete’s Print Shop. ​ Toni’s has a tax loss carryforward of $450,000​, which it could apply to​ Pete’s expected earnings before taxes of $225,000 per year for the next 5 years. Using a 40​% tax​ rate, compare the earnings after taxes for​ Pete’s over the next 5 years both without and with the merger. Without the​ merger, Pete’s Print​ Shop’s earnings after taxes in years 1 through 5 is $………………………

​ (Round to the nearest​ dollar.)

Assets			Liabilities and​ Stockholders’ Equity
Scully Corporation
Common stock holdings			​Long-term debt	$38,000
Company A	$38,000		Preferred stock	24,000
Company B	56,000		Common stock equity	32,000
Total	$94,000		Total	$94,000
Company A
Current assets	$96,000		Current liabilities	$96,000
Fixed assets	401,000		​Long-term debt	203,000
Total	$497,000		Common stock equity	198,000
			Total	$497,000
Company B
Current assets	$183,000		Current liabilities	$102,000
Fixed assets	717,000		​Long-term debt	499,000
Total	$900,000		Common stock equity	299,000
			Total	$900,000

6. Considering the table above,

a.  What percentage of the total assets controlled by Scully Corporation does its common stock equity​ represent?

b. If another company owns 15.9 %15.9% of the common stock of Scully Corporation​ and, by virtue of this​ fact, has voting​ control, what percentage of the total assets controlled does the outside​company’s equity​ represent?

c. How does a holding company effectively provide a great deal of control for a small dollar​ investment?

d.  Answer parts a and b in light of the following additional facts.

​(1) Company​ A’s fixed assets consist of $20,000 of common stock in company C. This level of ownership provides voting control.

​(2) Company​ C’s total assets of $405,000 include​ $15,000 of stock in Company​ D, which gives Company C voting control over company​ D’s $$49,000 of total assets.

​(3) Company​ B’s fixed assets consist of $56,000 of stock in both company E and company F. In both​ cases, this level of ownership gives it voting control. Companies E and F have total assets of $299,000

and $398,000​, respectively.

A. The percentage of the total assets controlled by Scully Corporation as its common stock equity represents is ………………….%.

​(Round to two decimal​ places.)

7. Voluntary settlements  Classify each of the following voluntary settlements as an​ extension, a​ composition, or a combination of the two.

a.  Paying all creditors 30 cents on the dollar in exchange for complete discharge of the debt.

b.  Paying all creditors in full in three periodic installments.

c.  Paying a group of creditors with claims of $10,000 in full over 2 years and immediately paying the remaining creditors 75 cents on the dollar.

a.  Paying all creditors 30 cents on the dollar in exchange for complete discharge of the debt.  ​(Select the best answer​ below.)

The settlement​ is:

A. an extension.

B.a combination.

C.a composition.

8. Tax credits   A​ U.S.-based MNC has a foreign subsidiary that earns $244,000

before local​ taxes, with all the​ after-tax funds to be available to the parent in the form of dividends. The applicable taxes consist of a 36% foreign income tax​ rate, a foreign dividend withholding tax rate of

9.6%​, and a U.S. tax rate of 32%. Calculate the net funds available to the parent MNC​ if:

a.  Foreign taxes can be applied as a credit against the​ MNC’s U.S. tax liability.

b.  No tax credits are allowed.

a.  If foreign taxes can be applied as a credit against the​ MNC’s U.S. tax​ liability, the net funds available to the U.S. company is

​$……………….(Round to the nearest​ dollar.)

9.

Translation of Income Statement
	December​ 31, 2015				December​ 31, 2016
	Euro		​US$		​US$
Sales	30,000.00
Cost of goods sold	27,300.00
Operating profits	2,700.00

Translation of Balance Sheet
	December​ 31, 2015					December​ 31, 2016
Assets	Euro			​US$			​US$
Cash	96.00
Inventory	660.00
Plant and equipment​ (net)	444.00
Total	1,200.00
Liabilities and​ Stockholders’ equity
Debt	624.00
​Paid-in capital	180.00
Retained Earnings	396.00
Total	1,200.00

Translation of financial statements   A​ U.S.-based MNC has a subsidiary in France​ (local currency, ​ euro, euro€​). The balance sheet and income statement of the subsidiary​ follow:

.

On December​ 31, 2015, the exchange rate is $1.26/€. Assume that the local​ (euro) figures for the statements remain the same on December​ 31, 2016. Calculate the U.S.​ dollar-translated figures for the two ending time​ periods, assuming that between December​ 31, 2015 and December​ 31, 2016, the euro has appreciated against the U.S. dollar by 99​%.

​ (​Hint: When calculating the exchange rate for December​ 31, 2016​ values, round the rate to four decimal​ places.) The sales on December​ 31, 2015 are $………………….(Round to the nearest​ cent.)

10.

	Currency
Item	US​ $	MP	yen¥
Spot exchange rates		MP11.60​/US$	​¥108.25​/US$
Forecast percentage change		−3.00%	+1.50%
Interest rates
Nominal
Euromarket	4.00%	6.20%	2.00%
Domestic	3.75%	5.90%	2.15%
Effective
Euromarket
Domestic	………….	……………	………………….

Euromarket investment and fund raising   A​ U.S.-based multinational company has two​ subsidiaries, one in Mexico​ (local currency, Mexican​ peso, MP) and one in Japan​ (local currency, ​yen, ¥). Forecasts of business operations indicate the following​ short-term financing position for each subsidiary​ (in equivalent U.S.​ dollars): Mexico: $80 million excess cash to be invested​ (lent)

​Japan: $60 million funds to be raised​ (borrowed)

The management gathered the following​ data:

.

Determine the effective interest rates for all three currencies in both the Euromarket and the domestic​ market; then indicate where the funds should be invested and raised.  (​Note: Assume that because of local​ regulations, a subsidiary is not permitted to use the domestic market of any other​ subsidiary.)

The effective interest rate in the Euromarket for the​ US$ is ………….%.

​(Round to two decimal​ places.)

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