Sara Lee Corp., maker of food, beverage, and household products, is known mainly for its baked products, marketed under its corporate name. For the five years ending July 1 of each year from 2002 to 2006, their bakery division reported the following profits.

Fiscal Year	Profits ($M)
2002	97
2003	98
2004	156
2005	$-4$
2006	$-197$

c) Think about the exponential smoother. If the parameter were$0.8$would you expect the prediction to be higher or lower? What if it were$0.2$? Describe.

The newest law firm in town paid a total of $\$ 33,860$ to a marketing firm for the research and development of the firm's corporate trade name and trademark. From this budget, a Web-site developer was paid $\$ 9,475$ for her creative work on the project. Her salary was what percentage of the entire amount?

Division When solving problems that involve percents, it is usually a matter of dividing one value by another.

Starting Hints To solve this problem, divide the salary of the Web-site developer by the total amount paid to the marketing firm to determine what percent the developer's salary was of the total.

Consider the growth of the following virus. A new virus has been created and is distributed to 100 computers in a company via a corporate E-mail. From these workstations the virus continues to spread. Let t=0 be the time of the first 100 infections, and at t=17 minutes the population of infected computers grows to 200. Assume the anti-virus companies are not able to identify the virus or slow its progress for 24 hours, allowing the virus to grow exponentially.

What will the population be after 1 hour 30 minutes?

Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $\$ 1.69$ million per year, growing at a rate of $2.6 \%$ per year. Goodyear has an equity cost of capital of $8.5 \%$, a debt cost of capital of $7.1 \%$, a marginal corporate tax rate of $33 \%$, and a debt-equity ratio of $2.4$. If the plant has average risk and Goodyear plans to maintain a constant debt-equity ratio, what after-tax amount must it receive for the plant for the divestiture to be profitable?

Choose a corporate bond listed on the New York Stock Exchange. Visit Moody's website (www.moodys .com) to answer the following quest ions about this bond . (Note: You will have to create a free account on Moody 's website to view ratings .)

a. What is Moody's rating for the bond?

b. What is the purpose of the bond?

c. Does the bond have a call provision?

d. What collateral , if any, has been pledged as security for the bond?

Based on the information studied, would the bond be a good investment for you? Why or why not?

Stave Company invests $10,000,000 in 5% fixed rate corporate bonds on January 1, 2020. All the bonds are classified as available-for-sale and are purchased at par. At year-end, market interest rates have declined, and the fair value of the bonds is now$10,600,000. Interest is paid on January 1. Prepare journal entries for Stave Company to (a) record the transactions related to these bonds in 2020, assuming Stave does not elect the fair option; and (b) record the transactions related to these bonds in 2020, assuming that Stave Company elects the fair value option to account for these bonds.

Maryland Light, a U.S. light fixtures manufacturer, is considering an investment in Japan. The dollar cost of equity for Maryland Light is $13.34 \%$. You are in the corporate treasury department, and you need to know the comparable cost of equity in Japanese yen for a project with free cash flows that are uncorrelated with spot exchange rates. The risk-free interest rates on dollars and yen are $r_{\mathrm{S}}=5.64 \%$ and $r_{\mathrm{Y}}=1.28 \%$, respectively. Maryland Light is willing to assume that capital markets are internationally integrated. What is the yen cost of equity?

You had $\$10,000$ to invest. You put $x$ dollars in a safe, government-insured certificate of deposit paying $5\%$ per year. You invested the remainder of the money in noninsured corporate bonds paying $12\%$ per year. Your total interest earned at the end of the year is given by the algebraic expression

$$0.05x + 0.12(10,000 - x).$$

a. Simplify the algebraic expression. b. Use each form of the algebraic expression to determine your total interest earned at the end of the year if you invested $\$6000$ in the safe, government-insured certificate of deposit.

The exchange rate as a self-stabilizing mechanism: Think about an economy that experiences a decline in corporate confidence (which tends to reduce investment). The uncovered interest parity requirement is denoted by UIP. Instead, imagine a set exchange rate for the economy. Show how the economy reacts to the decline in company confidence in an IS-LM-UIP diagram. What must happen to the money supply if the exchange rate is to remain fixed? How does the impact on output in this economy of fixed exchange rates compare to the impact on output in the economy of flexible exchange rates that you discovered in the previous section?

Suspect Company issued $600,000 of 9 percent first mortgage bonds on January 1, 20X1, at 103. The bonds mature in 20 years and pay interest semiannually on January 1 and July 1 . Prime Corporation purchased$400,000 of Suspect's bonds from the original purchaser on January 1, 20X5, for $396,800. Prime owns 60 percent of Suspect's voting common stock.

Required

Prepare the worksheet consolidation entry or entries needed to remove the effects of the inter-corporate bond ownership in preparing consolidated financial statements for$20 $\mathrm{X}$ 5$.

You had $10,000 to invest. You put x dollars in a safe, government-insured certificate of deposit paying 5$ $0.05 x + 0.12 ( 10,000 - x ).$ $a. Simplify the algebraic expression. b. Use each form of the algebraic expression to determine your total interest earned at the end of the year if you invested$6000 in the safe, government-insured certificate of deposit.

Given the data in the accompanying table, would you say that this economy is heading for a boom or for a recession? Explain your choice.

$$\begin{array}{l} &\text{3-month}&\text{10-year}&\text{ Baa corporate}\\ &\text{Treasury-bill}&\text{Treasury bond}&\text{10-year bond}\\ \hline \text{January}&1.00\%&3.0\%&7.0\%\\ \text{February}& 1.05&3.5&7.2\\ \text{March}&1.10&4.0&7.6 \\ \text{April}& 1.20 &4.6&8.0 \\ \text{May}&1.25 &5.0 &8.2\\ \end{array}$$

Klon Corporation owns 70 percent of Brant Company's stock and 60 percent of Torkel Company's stock. During 20X8, Klon sold inventory purchased in 20X7 for $100,000 to Brant for$150,000. Brant then sold the inventory at its cost of $150,000 to Torkel. Prior to December 31, 20X8, Torkel sold$90,000 of inventory to a non-affiliate for $120,000 and held$60,000 in inventory at December 31, 20X8.

Required

Give the journal entries recorded by Klon, Brant, and Torkel during 20X8 relating to the inter-corporate sale and resale of inventory.

The exchange rate as a self-stabilizing mechanism: Think about an economy that experiences a decline in corporate confidence (which tends to reduce investment). The uncovered interest parity requirement is denoted by UIP. Consider a variable exchange rate for the economy. Show the short-term impact of the decline in business confidence on output, the interest rate, and the exchange rate in an IS-LM-UIP diagram. What tends to happen to output when the exchange rate changes on its own? The impact of the decline in business confidence on output is it dampened (made smaller) or amplified (made greater) by the change in the exchange rate?