Bangor Ltd operates under ideal conditions of uncertainty. On January 1, 2022, the company acquired an asset to be used in its operations. Its
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In 2022, the market conditions are favourable. The market conditions for 2023 and 2024 are not yet known. Prepare a
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- The following is a four-year forecast for Torino Marine. Year Free cash flow ($ millions) 2022 -63 a. Fair market value b. Fair market value per share 2023 84 2024 101 a. Estimate the fair market value of Torino Marine at the end of 2021. Assume that after 2025, earnings before interest and tax will remain constant at $200 million, depreciation will equal capital expenditures in each year, and working capital will not change. Torino Marine's weighted-average cost of capital is 9 percent and its tax rate is 20 percent. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 1 decimal place. million 2025 123 b. Estimate the fair market value per share of Torino Marine's equity at the end of 2021 if the company has 48 million shares outstanding and the market value of its interest-bearing liabilities on the valuation date equals $380 million. Note: Do not round intermediate calculations. Round your answer to 2 decimal places.arrow_forwardAc.arrow_forwardKlingon Widgets, Inc., purchased new cloaking machinery four years ago for $8 million. The machinery can be sold to the Romulans today for $7.4 million. Klingon's balance sheet shows net fixed assets of $6 million and current assets of $900,000. If all of the firm's current assets were sold today, the company would receive $1.2 million cash. The book value of Klingon's assets is and their market value is .Enter your answers in millions with one decimal place.arrow_forward
- Protection Company develops a patent on a new fingerprint security technology. On January 1, 2018, this patent is registered for a cost of $30,000,000 for a period of 10 years. The company does not expect this technology to be obsolete over at least the next 15 years and intends to use it over this period. At the end of 2020, the fair value of the patent is $15,000,000. The discounted value of future cash flows (value-in-use) is $16,000,000. The Company adopts the cost model. 1. What will the cost of patent be? 2. What will the useful life be? Justify your answer. 3. Prepare the entries for 2018, 2019 and 2020. Please show the workings. Dont provide handwritten or image based answers thank youarrow_forwardOn August 1, Rantoul Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $1,000,000 of 4% U.S. Treasury bonds that mature in 15 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $1,000,000 Life of store equipment 15 years Estimated residual value of store equipment $50,000 Yearly costs to operate the store, excluding depreciation of store equipment $200,000 Yearly expected revenues—years 1–6 $300,000 Yearly expected revenues—years 7–15 $400,000 1. Prepare a differential analysis as of August 1 presenting the proposed operation of the store for the 15 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". Differential AnalysisOperate Retail (Alt. 1) or Invest in Bonds (Alt. 2)August 1…arrow_forwardD1.arrow_forward
- Giggins Limited is planning to expand its business. The expansion will cost £350,000 initially to purchase new premises and a further £150,000 to purchase equipment. Net cash inflows from the next seven years ofthe project are as follows:Year Net cash inflows1 60,0002 80,0003 130,0004 150,0005 175,0006 250,0007 275,000In which year would Giggins' investment be fully recovered?arrow_forwardOn January 1, 2021, Gringo Company had capitalized cost of P5,000,000 for a new computer software product with an economic life of 5 years. Sales for 2021 amounted to P3,000,000. The total sales of software over its economic life are expected to be P10,000,000. The pattern of future sales cannot be measured reliably. On December 31, 2021, the software had a net realizable value of P4,500,000. What is the carrying amount of the computer software on December 31, 2021?arrow_forwardPinson&. Co. are considering buying a mobile drilling rig to expand the range of services they provide for the water, gas and oil industries. The rig would cost GH 620.000 and last for four at the end of which it would be sold for GHc20.000. The estimated profits for each at the four years are shown below. The company uses the straight-line method of calculating depreciation. Its latest set of accounts showed its return on capital employed to be 11.1 %. Year Profit (loss) 1 (50,000) 2 50,000 3 150,000 4 50,000 Required: 1. Calculate the accounting rate of return (using the initial investment). 2. Calculate the payback period. 3. Calculate the net present value if Finson & Co. cost of capital is 10.0%.arrow_forward
- On August 1, Rantoul Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $900,000 of 3% U.S. Treasury bonds that mature in 15 years. The bonds could be purchased at face value. The following data have been assembled: Revenues/costs Amount Cost of store equipment $900,000 Life of store equipment 15 years Estimated residual value of equipment $45,000 Annual store operating costs less depreciation 200,000 Annual expected revenues in years 1-6 250,000 Annual expected revenues in years 7-15 300,000 Prepare a differential analysis as of August 1 presenting the proposed operation of the store for the 15 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). Based on the results disclosed by the differential analysis, should the proposal be accepted? If the proposal…arrow_forwardDEF Corporation is considering a business opportunity that would require an investment of P1,800,000 with an expected life of 10 years. Estimated annual cash inflows for 10 years, net of tax, amounts to P500,000. The salvage value is expected to be P700,000 at the end of the 1st year, P550,000 at the end of the 2nd year, P450,000 at the end of the 3rd year, P400,000 at the end of the 4th year, and will decrease by P50,000 every year starting the end of the fifth year. Compute the bailout period.arrow_forward
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