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4. JAM is an apparel retailer that is listed in the Sun City Stock Exchange. JAM aims to be a design-driven, creative and responsible global fashion company with a passion for fashion and an ambition to always exceed customer expectations. Its business concept is to offer fashion and quality at the best price. The company has branded stores and franchises around the world and sells through concessions in third-party stores as well. The company also has licensing agreements globally, leveraging on the local and technical expertise of its license partners.JAM has a financial year which ends on 31 December and is subject to an income tax rate of 20%.

Watch YouTube video (Supply and Demand: Crash Course Economics) #4

What were the 3 important distinctions that you learned from the video.

3-5 paragraphs or 150-300 words

Problem 1

Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed €30 million which is payable in one year. The current spot exchange rate is $1.05/€ and the annual inter- bank interest rate is 6.0% in the U.S. and 5.0% in France. Boeing is concerned with the volatile exchange rate between the dollar and the euro and wants to hedge its exposure through a forward hedge.

a) What kind of forward contract should they enter, and what is the fair price of that forward contract?

b) Suppose the actual one-year forward rate is $1.06/€. Describe the forward hedge including all related cash-flows.

c) A month passes, the spot rate is now $1.08/€. What is the value of the forward position Boeing entered in b)?

One of Boeing’s consultants suggests thinking about a money market hedge instead. Boeing can borrow at 50bps above the inter-bank interest rate in the U.S. and also in France, while the interest on deposits that they get is 50bps below the inter-bank rates.

d) Describe the money market hedge including all related cash-flows. Should Boeing prefer the money market hedge to the forward hedge?

e) Other things being equal, at what forward exchange rate would Boeing be indifferent between the two hedging methods?

Boeing just signed a contract to sell a 787 Dreamliner aircraft to KLM and KLM will be billed €117,187,500 which is payable in one year. The current spot exchange rate is quoted at $1.28/€ and the one-year forward exchange rate is quoted at $1.29/€. Currently, one-year money market rates are 3% in the U.S and 2% in the euro zone. A one-year put option on euros with a strike or exercise price of $1.30/€ is selling at a premium of $0.02 per euro. Boeing is considering three hedging alternatives: forward hedge, money market hedge and option hedge

A. Compute the expected dollar proceeds if Boeing decides to hedge using a forward contract.

B. What transactions would Boeing need to carry out a money market hedge? Compute the guaranteed dollar proceeds if Boeing decides to use a money market hedge.

C. At what forward exchange rate will Boeing be indifferent between the forward hedge and the money market hedge?

D. Compute the expected dollar proceeds if Boeing decides to hedge using put options on euros. Assume that Boeing regards the current forward exchange rate as an unbiased predictor of the future spot exchange rate one year from now.

E. At what future spot exchange rate do you think Boeing will be indifferent between the option hedge and forward hedge?

find the Probability of (~A)

find the probability of (A u B)

Teradene Corporation purchased land as a factory site andcontracted with Maxtor Construction to construct a factory.Teradene made the following expenditures related to the acquisitionof the land, building, and machinery to equip the factory (FV of$1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)(Use appropriate factor(s) from the tablesprovided.):

The answers with responses are correct. I cannot figure out theanswers to the blank ones.

Rothschild Chair Company, Inc.,was indebted to First Lincoln Bank under a $25 million, 10%unsecured note. The note was signed January 1, 2008, and was dueDecember 31, 2019. Annual interest was last paid on December 31,2014. At January 1, 2016, Rothschild Chair Company was experiencingsevere financial difficulties and negotiated a restructuring of theterms of the debt agreement. (FV of $1, PV of $1, FVA of $1, PVA of$1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from thetables provided.) Required: Prepare the journal entry by FirstLincoln Bank to record the restructuring under each of theindependent circumstances below:

Rothschild Chair Company, Inc., was indebted to First Lincoln Bank under a $32 million, 10% unsecured note. The note was signed January 1, 2008, and was due December 31, 2021. Annual interest was last paid on December 31, 2016. At January 1, 2018, Rothschild Chair Company was experiencing severe financial difficulties and negotiated a restructuring of the terms of the debt agreement. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required: Prepare all journal entries by First Lincoln Bank to record the restructuring and any remaining transactions, for current and future years, relating to the debt under each of the independent circumstances below

1. First Lincoln Bank agreed to settle the debt in exchange for land having a fair value of $28 million but carried on Rothschild Chair Company’s books at $25 million.

2. First Lincoln Bank agreed to (a) forgive the interest accrued from last year, (b) reduce the remaining four interest payments to $1.7 million each, and (c) reduce the principal to $27 million.

3. First Lincoln Bank agreed to defer all payments (including accrued interest) until the maturity date and accept $39,000,000 at that time in settlement of the debt.

At January 1, 2013, Rothschild Chair Company, Inc., was indebtedto First Lincoln Bank under a $20 million, 10% unsecured note. Thenote was signed January 1, 2010, and was due December 31, 2016.Annual interest was last paid on December 31, 2011. RothschildChair Company was experiencing severe financial difficulties andnegotiated a restructuring of the terms of the debt agreement.

Prepare all journal entries by Rothschild Chair Company, Inc.,to record the restructuring and any remaining transactions relatingto the debt under each of the independent circumstances below:

1. First Lincoln Bank agreed to settle the debt in exchange forland having a fair value of $16 million but carried on RothschildChair Company’s books at $13 million.

2. a. First Lincoln Bank agreed to forgive the interest accruedfrom last year.

2. b. First Lincoln Bank agreed to reduce the remaining fourinterest payments to $1 million each.

2. c. First Lincoln Bank agreed to reduce the principal to $15million.

3. First Lincoln Bank agreed to defer all payments (includingaccrued interest) until the maturity date and accept $27,775,000 atthat time in settlement of the debt.

At January 1, 2003, Rothschild Chair Company, Inc., was indebtedto First Lincoln Bank under a $20 million, 10% unsecured note. Thenote was signed January 1, 1997, and was due December 31, 2006.Annual interest was last paid on December 31, 2001. RothschildChair Company was experiencing severe financial difficulties andnegotiated a restructuring of the terms of the debt agreement.

Required: Prepare all journal entries by Rothschild ChairCompany, Inc., to record the restructuring and any remainingtransactions relating to the debt under each of the independentcircumstances below:

1. First Lincoln Bank agreed to settle the debt in exchange forland having a fair value of $16 million but carried on RothschildChair Company’s books at $13 million.

2. First Lincoln Bank agreed to (a) forgive the interest accruedfrom last year, (b) reduce the remaining four interest payments to$1 million each, and (c) reduce the principal to $15 million.

3. First Lincoln Bank agreed to defer all payments (includingaccrued interest) until the maturity date and accept $27,775,000 atthat time in settlement of the debt.

Rothschild Chair Company, Inc., was indebted to First Lincoln Bank under a $20 million, 10% unsecured note. The note was signed January 1, 2008, and was due December 31, 2021. Annual interest was last paid on December 31, 2016. At January 1, 2018, Rothschild Chair Company was experiencing severe financial difficulties and negotiated a restructuring of the terms of the debt agreement. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
Prepare all journal entries by First Lincoln Bank to record the restructuring and any remaining transactions, for current and future years, relating to the debt under each of the independent circumstances below:

1. First Lincoln Bank agreed to settle the debt in exchange for land having a fair value of $16 million but carried on Rothschild Chair Company’s books at $13 million.
2. First Lincoln Bank agreed to (a) forgive the interest accrued from last year, (b) reduce the remaining four interest payments to $1 million each, and (c) reduce the principal to $15 million.
3. First Lincoln Bank agreed to defer all payments (including accrued interest) until the maturity date and accept $27,775,000 at that time in settlement of the debt.

Print Item 2 Item 2 10 points At January 1, 2018, Rothschild Chair Company, Inc., was indebted to First Lincoln Bank under a $31 million, 10% unsecured note. The note was signed January 1, 2015, and was due December 31, 2021. Annual interest was last paid on December 31, 2016. Rothschild Chair Company was experiencing severe financial difficulties and negotiated a restructuring of the terms of the debt agreement. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: Prepare all journal entries by Rothschild Chair Company, Inc., to record the restructuring and any remaining transactions relating to the debt under each of the independent circumstances below: 1. First Lincoln Bank agreed to settle the debt in exchange for land having a fair value of $27 million but carried on Rothschild Chair Company’s books at $22.9 million. 2. First Lincoln Bank agreed to (a) forgive the interest accrued from last year, (b) reduce the remaining four interest payments to $1 million each, and (c) reduce the principal to $24.9 million. 3. First Lincoln Bank agreed to defer all payments (including accrued interest) until the maturity date and accept $43,051,000 at that time in settlement of the debt.

At January 1, 2018, Rothschild Chair Company, Inc., was indebted to First Lincoln Bank under a $28 million, 10% unsecured note. The note was signed January 1, 2015, and was due December 31, 2021. Annual interest was last paid on December 31, 2016. Rothschild Chair Company was experiencing severe financial difficulties and negotiated a restructuring of the terms of the debt agreement. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required: Prepare all journal entries by Rothschild Chair Company, Inc., to record the restructuring and any remaining transactions relating to the debt under each of the independent circumstances below:

1. First Lincoln Bank agreed to settle the debt in exchange for land having a fair value of $24 million but carried on Rothschild Chair Company’s books at $20.2 million. 2. First Lincoln Bank agreed to (a) forgive the interest accrued from last year, (b) reduce the remaining four interest payments to $1 million each, and (c) reduce the principal to $22.2 million.

3. First Lincoln Bank agreed to defer all payments (including accrued interest) until the maturity date and accept $41,903,000 at that time in settlement of the debt.

Rothschild Chair Company, Inc., was indebted to First Lincoln Bank under a $20 million, 10% unsecured note. The note was signed January 1, 2008, and was due December 31, 2021. Annual interest was last paid on December 31, 2016. At January 1, 2018, Rothschild Chair Company was experiencing severe financial difficulties and negotiated a restructuring of the terms of the debt agreement.

Required:
Prepare all journal entries by First Lincoln Bank to record the restructuring and any remaining transactions, for current and future years, relating to the debt under each of the independent circumstances below:

1. First Lincoln Bank agreed to settle the debt in exchange for land having a fair value of $16 million but carried on Rothschild Chair Company’s books at $13 million.
2. First Lincoln Bank agreed to (a) forgive the interest accrued from last year, (b) reduce the remaining four interest payments to $1 million each, and (c) reduce the principal to $15 million.
3. First Lincoln Bank agreed to defer all payments (including accrued interest) until the maturity date and accept $27,775,000 at that time in settlement of the debt.

Show Work.

Ebco has an unpaid bank loan for $40,000 on January 1, 2010. Theoriginal interest rate was 7% annual. There is also $4,000 ofunpaid, accrued interest. The bank agrees to have Ebco transfer apiece of land with an agreed market value of $10,000 in partialsatisfaction of the loan. Ebco paid $12,000 for the land last year.The bank then agrees to 4 annual payments of $9,100 due each Dec.31, starting Dec. 31, 2010.

Ebco has an unpaid bank loan for $40,000 on January 1, 2010. Theoriginal interest rate was 7% annual. There is also $4,000 ofunpaid, accrued interest. The bank agrees to have Ebco transfer apiece of land with an agreed market value of $10,000 in partialsatisfaction of the loan. Ebco paid $12,000 for the land last year.The bank then agrees to 4 annual payments of $9,100 due each Dec.31, starting Dec. 31, 2010.

Record all the entries concerning the land transfer and therestructuring on the books of Ebco on Jan. 1, 2010

Record the entry made by Ebco for the first payment on Dec. 31,2010.

Record the entry by the bank to record the troubled debtrestructuring.

B. Troubled Debt Restructuring Ebco has an unpaid bank loan for$40,000 on January 1, 2010. The original interest rate was 7%annual. There is also $4,000 of unpaid, accrued interest. The bankagrees to have Ebco transfer a piece of land with an agreed marketvalue of $10,000 in partial satisfaction of the loan. Ebco paid$12,000 for the land last year. The bank then agrees to 4 annualpayments of $9,100 due each Dec. 31, starting Dec. 31, 2010. 1.Record all the entries concerning the land transfer and therestructuring on the books of Ebco on Jan. 1, 2010 2. Record theentry made by Ebco for the first payment on Dec. 31, 2010. 3.Record the entry by the bank to record the troubled debtrestructuring.

Trouble debt c Company C has an unpaid note for $50,000 onJanuary 1, 2011. The note was written at 12% annual interest. Thereis also accrued unpaid interest of $6,000. Company c transfers apiece of a land to the bank in partial satisfaction of the note.The land has a cost of $16,000 and a market value of $18,000 Thebank reduces the loan by the value of the land and agrees toforgive the accrued interest. The bank than requires four annualfuture payments of $10,536.50 due each December 31, starting onDecember 31, 2011 For the debtor make entries on the date ofrestructure January 1,2011 prepare an amortization table and makethe entry on December 31, 2011. For the debtor, make entries on thedate of restructure prepare an amortization table and make theentry on December 31, 2011