Suppose a home buyer secures a bank loan of A dollars to purchase a house. If the interest rate charged is r/year compounded monthly and the loan is to be amortized in t years, then the principal repayment at the end of i months is given by

$$B= f(A,r,t,i) = A \left[ \dfrac{\left(1 + \dfrac{r}{12} \right)^i -1}{\left(1+ \dfrac{r}{12} \right)^{12t}-1} \right] \quad (0 \le i \le 12t)$$

         Suppose the Blakelys borrow a sum of $280 ,000 from a

bank to help finance the purchase of a house and the bank charges interest at a rate of 6%/year. If the Blakelys agree to repay the loan in equal installments over 30 years, how much will they owe the bank after the 60th payment (5 years)? The 240th payment (20 years)?

Suppose $\$140,000$ is owed on a house. The monthly payment for principal and interest at $8.5\%$ for $30$ years is $140 \cdot \$7.68913 = \$1076.48$. The total interest charged is the total amount paid minus the amount financed. What is the total interest?

A cruise ship with a mass of $1.00 \times 10^{7}\ \mathrm{kg}$ strikes a pier at a speed of 0.750 m/s. It comes to rest 6.00 m later, damaging the ship, the pier, and the tugboat captain's finances. Calculate the average force exerted on the pier using the concept of impulse.

Mark Sexton and Todd Story, the owners of S&S Air, have planned to expand their operations. They instructed their newly hired financial analyst, Chris Guthrie, to enlist an underwriter to help sell $35 million in new 10-year bonds to finance construction. Chris has entered into converstations with Renata Harper, an underwriter from the firm of Raines and Warren, about which bond features S&S Air should consider and what coupon rate the issue will likely have.

 Although Chris is aware of the bond features, he is uncertain about the costs and benefits of some features, so he isn’t sure how each feature would affect the coupon rate of the bond issue. You are Renata’s assistant, and she has asked you to prepare a memo to Chris describing the effect of each of the following bond features on the coupon rate of the bond. She would also like you to list any advantages or disadvantages of he seniority of the bond.

Apolitical action group is planning to interview home owners to assess the impact caused by a recent slump in housing prices. According to a Wall Street Journal/Harris Interactive Personal Finance poll, 26% of individuals aged 18–34, 50% of individuals aged 35–44, and 88% of individuals aged 55 and over are home owners (All Business website, January 23, 2008). a. How many people from the 18–34 age group must be sampled to find an expected number of at least 20 home owners? b. How many people from the 35–44 age group must be sampled to find an expected number of at least 20 home owners? c. How many people from the 55 and over age group must be sampled to find an expected number of at least 20 home owners? d. If the number of 18–34 year olds sampled is equal to the value identified in part (a), what is the standard deviation of the number who will be home owners? e. If the number of 35–44 year olds sampled is equal to the value identified in part (b), what is the standard deviation of the number who will be home owners?

The governmental funds of the City of Westchester report $445,000 in assets and$140,000 in liabilities. The following are some of the assets that the government reports.

• Prepaid items—$7,000
• Cash from a bond issuance that must be spent within the school system according to the bond indenture—$80,000
• Supplies—$5,000
• Investments given by a citizen that will be sold soon with the proceeds used to beautify a public park—$33,000
• Cash that the assistant director of finance designated for use in upgrading the local roads—$40,000
• Cash from a state grant that must be spent to supplement the pay of local kindergarten teachers—$53,000
• Cash that the city council (the highest level of decision-making authority in the government) voted to use in renovating a school gymnasium—$62,000

On a balance sheet for the governmental funds, what fund balance value should the City of Westchester report?

In this activity, you will create a personal budget. You will keep track of your finances for one month and then compute budget variances. Refer to your personal income and expense statement to see income and expense items you have already identified.

Review the personal budget.

Mark Sexton and Todd Story, the owners of S&S Air, have planned to expand their operations. They instructed their newly hired financial analyst, Chris Guthrie, to enlist an underwriter to help sell $35 million in new 10-year bonds to finance construction. Chris has entered into conversations with Renata Harper, an underwriter from the firm of Raines and Warren, about which bond features S&S Air should consider and what coupon rate the issue will likely have.

&emsp: Although Chris is aware of the bond features, he is uncertain about the costs and benefits of some features, so he isn’t sure how each feature would affect the coupon rate of the bond issue. You are Renata’s assistant, and she has asked you to prepare a memo to Chris describing the effect of each of the following bond features on the coupon rate of the bond. She would also like you to list any advantages or disadvantages of each feature.

QUESTION

Any positive covenants. Also, discuss several possible positive covenants S&S Air might consider.

The following data have been provided by the finance director of La Pitch which manufactures high-quality tents for the specialist outdoor market. The marketing director wants to reduce the price of the tents to $\$ 39.99$ (he considers this to be a psychologically attractive price to consumers) to increase sales volume but there are concerns about reducing unit contribution and covering costs. There are also concerns about exceeding La Pitch's factory capacity.

• direct labour per unit $17

• direct materials per unit$\$18$

• fixed costs $\$ 200000$

• current selling price $\$ 45$

• maximum capacity of the factory is $30000$ units

On the basis of La Pitch's financial information construct a fully labelled break-even chart. Calculate the break-even point, the margin of safety and profit from the sale of $25000$ tents.

Refer to the information in the previous question for Vodafone Group Plc. The following price quotes (from Yahoo! Finance Bond Center) relate to its bonds payable as of late 2009. For example, the price quote indicates that the 4.625% bonds have a market price of 98.0 (98.0% of par value), resulting in a yield to maturity of 4.899%.

a. Assuming that the 4.625% bonds were originally issued at par value, what does the market price reveal about interest rate changes since bond issuance? (Assume that Vodafone’s credit rating has remained the same.)
b. Does the change in market rates since the issuance of these bonds affect the amount of interest expense reported on Vodafone’s income statement? Explain.
c. How much cash would Vodafone need to pay to repurchase the 4.625% bonds at the quoted market price of 98.0? (Assume no interest is owed when the bonds are repurchased.)
d. Assuming that the 4.625% bonds remain outstanding until maturity, at what market price will the bonds sell on the due date in 2018?

Directions Read the following questions. On a separate sheet of paper write the best possible answer for each one.

If you want to analyze a company's finances, you would study its balance sheet, profit and loss statement, and $\underline{\phantom{\text{justtext}}}$ statement.

Unilever Group is a global company that markets a wide variety of products, including Lever soap, Breyer’s ice cream, and Hellman’s mayonnaise. The income statement and statement of comprehensive income for the Dutch company, Unilever Group is shown below.

$$\begin{array}{c} \textbf{Unilever Group}\\ \textbf{Consolidated Income Statement}\\ \textbf{For the Year Ended December 31, 2009}\\ \textbf{(in millions of euros)}\\ \end{array}$$

$$\begin{array}{lr} \hline \text{Turnover}&\$39,823\\ \text{Operating profit}&5,020\\ \text{}&\\ \text{After (charging)/crediting:}&\\ \quad\text{Restructuring}&(897)\\ \quad\text{Business disposals, impairments, other}&29\\ \text{}&\\ \text{Net Finance costs:}&(593)\\ \quad\text{Finance income}&75\\ \quad\text{Finance costs}&(504)\\ \quad\text{Pensions and similar obligations}&(164)\\ \text{}&\\ \text{Share of net profit/(loss) of joint ventures}&111\\ \text{Share of net profit/(loss) of associates}&4\\ \text{Other income from non-current investments}&374\\ \text{}&\\ \text{Profit before taxation}&\$4,916\\ \text{Taxation}&(1,257)\\ \text{Net profit}&\$3,659\\ \text{}&\\ \text{Earnings per share—basic}&\$1.21\\ \text{Earnings per share—diluted}&\$1.17\\ \end{array}$$

$$\begin{array}{c} \textbf{Consolidated Statement of Comprehensive Income}\\ \textbf{For the Year Ended December 31, 2009}\\ \end{array}$$

$$\begin{array}{lr} \hline \text{Fair value gains (losses), net of tax}&\$65\\ \text{Actuarial gains (losses) on pensions, net of tax}&18\\ \text{Currency retranslation gains (losses), net of tax}&396\\ \text{Net income (expense) recognized directly into equity}&\$519\\ \text{}&\\ \text{Net profit}&3,659\\ \text{Total comprehensive income}&\$4,178\\ \end{array}$$

a. What do you think is meant by “turnover”?

The proper asset allocation for an investor planning for retirement changes dramatically over time. Investors who do not frequently update their asset allocation could be caught in a tragic investment scenario that significantly delays retirement. This is exactly what occurred in 2008, when many investors planning for retirement realized they had not reallocated their portfolios away from stocks and into fixed-income securities over the years, as they should have. Go to money.cnn.com and under the Personal Finance tab, select Calculators. Then choose the Asset Allocation calculator in the Investing category. Calculate an asset allocation for the following two scenarios: A. Need the money: 20 + years How much risk: As much as possible How flexible: If I miss my goal . . . OK During market sell-offs: See an opportunity to buy B. Need the money: 3–5 years How much risk: Not much at all How flexible: I can’t afford to miss my target During market sell-offs: Do nothing How frequently do you think investors should examine their asset allocation? What else should investors review on a periodic basis in addition to asset allocation?

Interstate Automobiles Corporation leased 40 vans to VIP Transport under a four-year noncancelable lease on January 1, 2018. Information concerning the lease and the vans follows:

a. Equal annual lease payments of $\$ 300,000$ are due on January 1, 2018, and thereafter on December 31 each year. The first payment was made January 1, 2018. Interstate's implicit interest rate is $10 \%$ and known by VIP. b. VIP has the option to purchase all of the vans at the end of the lease for a total of $\$ 290,000$. The vans' estimated residual value is $\$ 300,000$ at the end of the lease term and $\$ 50,000$ at the end of 7 years, the estimated life of each van. c. VIP estimates the fair value of the vans to be $\$ 1,240,000$. Interstate's cost was $\$ 1,050,000$. d. VIP's incremental borrowing rate is $9 \%$. e. VIP will pay the maintenance fees not included in the annual lease payments of $\$ 1,000$ per year. The depreciation method is straight-line. Your instructor will divide the class into two to six groups depending on the size of the class. The mission of your group is to assess the proper recording and reporting of the lease described.

Required:

1. Each group member should deliberate the situation independently and draft a tentative argument prior to the class session for which the case is assigned.
2. In class, each group will meet for 10 to 15 minutes in different areas of the classroom. During that meeting, group members will take turns sharing their suggestions for the purpose of arriving at a single group treatment.
3. After the allotted time, a spokesperson for each group (selected during the group meetings) will share the group's solution with the class. The goal of the class is to incorporate the views of each group into a consensus approach to the situation.

Specifically, you should address: a. Identify potential advantages to VIP of leasing the vans rather than purchasing them. b. How should the lease be classified by VIP? by Interstate? c. Regardless of your response to previous requirements, suppose VIP recorded the lease on January 1,2018 , as a finance lease in the amount of $\$ 1,100,000$. What would be the appropriate journal entries related to the finance lease for the second lease payment on December $31,2018 ?$