Answer: c) there is no correlation, but there is some risk reduction when the projects are combined.
Explanation:
The correlation coefficient measures the relationship between the movement of two assets. If they are positively correlated, the assets will move in the same direction. If they are negatively correlated, the assets will move in opposite directions.
When the correlation is zero though then there will be no correlation. That does not mean that there will be no risk attached however because investing in both can still lead to a loss if both assets are affected by the same event.
The only riskless investment would be those that are perfectly negatively correlated because then you would be sure that when one makes a loss in one, a gain will definitely be made in the other.
Nori files a suit against Mica to enforce an oral contract that would otherwise be unenforceable under the Statute of Frauds.The court could enforce such a contract if:________
A) Nori foreseeably and justifiably relied on Mica's promise to her detriment.
B) Mica denies the existence of any contract.
C) neither party has begun to perform.
D) the deal does not involve customized goods.
Answer: A. Nori foreseeably and justifiably relied on Mica's promise to her detriment.
Explanation:
From the question, we are informed that Nori files a suit against Mica to enforce an oral contract that would otherwise be unenforceable under the Statute of Frauds.
The court could enforce such a contract if Nori foreseeably and justifiably relied on Mica's promise to her detriment.
If your 60-year-old customer purchases a nonqualified variable annuity and withdraws some of her funds before the contract is annuitized, what are the consequences of this action?
Answer: Ordinary income tax on earnings exceeding basis.
Explanation:
From the question, we are informed that a 60-year-old customer purchases a nonqualified variable annuity and withdraws some of her funds before the contract is annuitized.
The consequences of this action is that Ordinary income tax on earnings exceeding basis. It should be note that the distributions from a nonqualified plan had to do with return on original investment and income from the investment. Since there's defer of the income, it'll be taxable as an ordinary income.
Jenna decides to purchase a U.S. Treasury Bill for 95,000. The Treasury Bill matures in 180 days for 100,000. Let QR be the quoted rate on this U.S. Treasury Bill. Let j be the annual effective yield on this U.S. Treasury Bill assuming a 365 day year. Calculate j−QR.
Answer:
J-QR =0.96
Explanation:
Quoted interest rate(QR) is nominal interest rate that does not take compounding into consideration
Effective interest rate(J) is real interest rate that accounts for compounding
face value of tbill = 100,000
price = 95,000
time remaining for maturity, n = 180
QR T-Bill = [(Face Value - Price)/(Face Value)] *(360/n) = [(100,000-95,000)/100,000]*(360/180) = (5000/100,000)*2 = 0.10 or 10%
j = (1+ ((Face Value - Price)/price))(365/n) -1 = (1+((100,000-95,000)/95,000))(365/180) -1 = (1+(5000/95000))2.027778 -1 = 0.1096131
j = 0.1096131 or 10.96131% or 10.96%
Therefore j-QR = 10.96-10 = 0.96%
Vicky Robb is considering purchasing the common stock of Hawaii Industries, a rapidly growing boat manufacturer. She finds that the firm’s most recent (2020) annual dividend payment was $2.50 per share. Vicky estimates that these dividends will increase at a 20% annual rate, g1, over the next 3 years (2021, 2022, and 2023) because of the introduction of a hot new boat. At the end of the 3 years (the end of 2023), she expects the firm’s mature product line to result in a slowing of the dividend growth rate to 8% per year, g2, for the foreseeable future. Vicky’s required return, rs, is 15%. Required: What is the current (end-of-2020) value of Hawaii’s common stock, P0 = P2020.
Answer:
P0 = $51.9956 rounded off to $52.00
Explanation:
The two stage growth model of DDM will be used to calculate the price of a stock whose dividends are expected to grow over time with two different growth rates. The DDM values a stock based on the present value of the expected future dividends from the stock.
The formula for price of the stock today under this model is,
P0 = D0 * (1+g1) / (1+r) + D0 * (1+g1)^2 / (1+r)^2 + ... + D0 * (1+g1)^n / (1+r)^n +
[ (D0 * (1+g1)^n * (1+g2) / (r - g2)) / (1+r)^n ]
Where,
D0 is the dividend today or most recently paid dividendg1 is the initial growth rate which is 20%g2 is the constant growth rate which is 8%r is the required rate of returnP0 = 2.5 * (1+0.2) / (1+0.15) + 2.5 * (1+0.2)^2 / (1+0.15)^2 +
2.5 * (1+0.2)^3 / (1+0.15)^3 +
[(2.5 * (1+0.2)^3 * (1+0.08) / (0.15 - 0.08) / (1+0.15)^3)
P0 = $51.9956 rounded off to $52.00
Which of the following statements is true of sales as a career?
The full question reads;
Which of the following statements is true of sales as a career?
The demand for sales professionals is expected to decrease in the next few years.
Sales as a profession does not offer much job security, as salespeople are the revenue producers for an organization.
Salespeople cannot switch industries easily, as different industries need specialized salespeople.
Salespeople can ultimately move to higher management positions.
Salespeople receive indirect feedback from their customers
Answer:
Salespeople receive indirect feedback from their customers
Explanation:
The fact is that it is not accurate to say sales as a profession does not offer much job security, as salespeople are the revenue producers for an organization because other professions may experience the same.
However, it is possible for salespeople to receive indirect feedback from their customers who may be surprised by a product's features or price.
If a worker takes 50 hours to perform a task the first time he/she does it, and the learning percentage is 80%
a. How long does it take the worker to do the task the third time it is performed?
b. How long does it take the worker to do all three tasks?
c. How much longer would it take the worker to complete two additional tasks (beyond the first three)?
Answer:
Requirement a. 35.11 Hrs
Requirement b. 125.105 Hrs
Requirement c. 61.782 Hrs
Explanation:
The formula to calculate the learning curve is as under:
Y = aX^2
Here
X is cumulative number of units
Y is cumulative time required for X number of units
a is the time taken for first unit which is 50 hours
b = Log of Learning Curve Percentage / Log 2
Learning Curve Percentage is 80%
This means
b = log 0.8 / log 2 = – 0.322
Requirement A: How long does it take the worker to do the task the third time it is performed?
Now in this case, X is 3 units, Y is unknown, a is 50 hours and b is 80%. By putting the values in the above formula, we have:
Y = 50 Hrs * 3 Units ^-0.322 = 125.105 Hours
Now this Y is cumulative time for unit 1, 2 and 3.
We
Time required for 3rd unit = Y for 3 cumulative units - 50 Hrs for first Unit - Time required for second Unit
Time required for 3rd unit = 125.105 Hours - 50 Hours - 50 Hrs * 2 Units ^-0.322 = 35.11 Hrs
Requirement B:
125.105 Hours are required to work for 3 Units (Calculated above).
Requirement C:
Cumulative time taken for 5 Units = Y = 50 Hrs * 5 Units ^-0.322 = 186.887
Now
Time taken for 4th and 5th units = Cumulative time for 5 Units - Cumulative time taken for 3 Units
By putting values, we have:
Time taken for 4th and 5th units = 186.887 Hrs - 125.105 Hrs = 61.782 Hrs
Lauren has one dependent child and will file as head of household. In addition to income from wages, she has a $1,000 capital gain from the sale of stock that she owned for eight months. Her taxable income is $72,000, so her marginal tax rate is 22%. Lauren's tax on her capital gain is:_________. a) $0 b) $150 c) $220 d) $280
Answer: c) $220
Explanation:
Capital Gains from assets that were held for less than a year attract the same tax rate that a person would pay based on their federal tax brackets.
As Lauren held the stock for only 8 months before she sold it and as her marginal tax rate is 22%, she is to pay a 22% tax on the capital gain;
= 22% * 1,000
= $220
The following data have been extracted from the financial statements of Prentiss, Inc., a calendar-year merchandising corporation:
December 31,
Balance Sheet Data 2017 2018
Trade accounts receivable-net 84,000 78,000
Inventory 150,000 140,000
Accounts payable-merchandise (credit) (95,000) (98,000)
Total sales for 2018 were $1,200,000 and for 2017 were $1,100,000.
Cash sales were 20 % of total sales each year
Cost of goods sold was $840,000 for 2018.
Variable general and administrative (G&A) expenses for 2018 were $120,000.
These expenses are the same proportion of sales every year and have been paid at the rate of 50% in the year incurred and 50% the following year. Unpaid G&A expenses are not included in accounts payable. Fixed G&A expenses, including $35,000 depreciation and $5,000 bad debt expense, totaled $100,000 each year. The amount of such expenses involving cash payments was paid at the rate of 80% in the year incurred and 20% the following year. In each year, there was a $5,000 bad debt estimate and a $5,000 write-off. Unpaid G&A expenses are not included in accounts payable.
Required: Compute the following:
1. The amount of cash collected during 2018 that resulted from total sales 2017 and 2018.
2. The amount of cash disbursed during 2018 for purchases of merchandise.
3. The amount of cash disbursed during 2018 for variable and fixed G&A expenses
Answer:
Prentiss, Inc.
Computation of:
1. The amount of cash collected during 2018 that resulted from total sales 2017 and 2018:
2018
Beginning Trade accounts receivable 84,000
Credit Sales 960,000
Ending Trade accounts receivable-net (78,000)
Cash received from customers 966,000
Cash sales (20% of Sales) 240,000
Total cash collected $1,206,000
2. The amount of cash disbursed during 2018 for purchases of merchandise:
2018
Beginning Accounts payable-merchandise 95,000
add Purchases (Cost of goods sold) 840,000
less Ending Accounts payable-merchandise 98,000
Cash disbursed for purchases of merchandise $837,000
3. The amount of cash disbursed during 2018 for variable and fixed G&A expenses:
Fixed:
80% of $60,000 paid in the year = $48,000
20% of $60,000 for last year's = 12,000
Cash disbursed for Fixed G&A = $60,000
Variable:
80% of $120,000 paid in the year = $96,000
20% of $110,000 for last year's = 22,000 $118,000
Total G&A paid during 2018 = $178,000
Explanation:
a) Data and Calculations:
1. December 31,
Balance Sheet Data 2017 2018
Trade accounts receivable-net 84,000 78,000
Inventory 150,000 140,000
Accounts payable-merchandise (credit) (95,000) (98,000)
Total sales $1,100,000 $1,200,000
Cash sales were 20 % of total sales each year
Cost of goods sold was $840,000 for 2018
Cost of goods sold for 2017 = $770,000 ($840,000/1,200,000 x $1,1,00,000)
Variable general and administrative (G&A) expenses for 2018 were $120,000
Variable general and administrative (G&A) expenses for 2017 $110,000 ($120,000/$1,200,000 x $1,100,000)
Fixed general and administration (G&A) expenses for each year = $100,000
Cash paid for Fixed general and administration:
Total amount = $100,000
less depreciation 35,000
less bad debts 5,000
Cash paid for fixed $60,000
In a case where two projects are not mutually exclusive and have returns exceeding the cost of capital, the firm should
Answer:
That two projects are not mutually exclusive means the firm can implement both projects. They should run both because they both have returns exceeding the cost of capital.
Explanation:
For Sunland Company, sales is $2600000, fixed expenses are $780000, and the contribution margin ratio is 36%. What are the total variable expenses? $499200 $2600000 $1664000 $936000
Answer:
$1,664,000
Explanation:
Given the following;
Sales = $2,600,000
Since we are given contribution margin ratio to be 36%,
We will use the formula for contribution margin ratio as depicted below to arrive at the total variable expenses.
Contribution margin ratio = Sales - Variable ) ÷ sales
36% = ( $2,600,000 - Variable expenses ) ÷ $2,600,000
Cross multiply
36% × $2,600,000 = $2,600,000 - Variable expenses
$936,000 = $2,600,000 - Variable expenses.
Collect like terms
Variable expenses = $2,600,000 - $936,000
Variable expenses = $1,664,000
Which of the following is one of the three arguments in favor of narrow corporate social responsibility discussed in this chapter?
a. let-government-do-it
b. visible-hand
c. society-lacks-the-expertise
d. business-can-handle-i
Answer: let-government-do-it
Explanation:
The narrow corporate social responsibility has to do with the fact that corporations and businesses already contribute a positive quota to tye economy by generating revenue when they make profit, which they use in supporting the wages of employees, provision of employment, investments opportunities, and payment of taxes.
The argument believes that government should be allowed to do some other things.
Mannix Corporation stock currently sells for $57 per share. The market requires a return of 11 percent on the firm’s stock. If the company maintains a constant 3.75 percent growth rate in dividends, what was the most recent dividend per share paid on the stock?
Answer:
$3.98 per share
Explanation:
Calculation for what was the most recent dividend per share paid on the stock
First step is to find the price of stock
Using this formula
Price of stock = Next Expected Dividend/(Required Return - Growth Rate)
Let plug in the formula
$57 = D1/(11%-3.75%)
D1=$57×0.0725
D1 = 4.1325
Second step is to find the most recent dividend per share paid on the stock
Using this formula
Most recent dividend = Next Expected Dividend/(1+growth Rate)
Let plug in the formula
Most recent dividend= 4.1325/(1.0375)
Most recent dividend=$3.98 per share
Therefore the most recent dividend per share paid on the stock will be $3.98 per share
Camel Company sells a segment of its operations at a loss. Camel has not previously experienced such an event and does not expect to again. The loss from the disposal of the segment should be reported in the income statement as:
Answer: a separate amount in a discontinued operations section
Explanation:
From the question, we are informed that Camel Company sells a segment of its operations at a loss and that Camel has not previously experienced such an event and does not expect to again.
The loss from the disposal of the segment should be reported in the income statement as a separate amount in a discontinued operations section. This is because Camel is not interested in experiencing such event anymore as it's going to b discontinued.
Social media allow marketers to build or tap into online communities, inviting participation from consumers and creating a long-term marketing asset in the process. Tru eor False
Answer:
True.
Explanation:
Digital marketing is growing substantially worldwide, as the internet has revolutionized the way people communicate and shop.
Social networks are social interaction platforms where there are several possibilities for business exploration for marketers. Through social networks it is possible to capture new customers, collect important market data and information, build relationships with consumers and build online communities where it is possible to create long-term marketing assets that will generate positive returns for a company.
There are several paths in digital marketing, it is necessary for marketers to choose those most aligned with the company's business and thus outline essential marketing strategies for attracting and retaining customers who interact on social networks and from there develop a marketing asset for generating revenue and profits.
Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. Jasper's entry to record the transaction should be
Answer:
Date Journal Entry Debit Credit
Cash $25,437.50
Interest Revenue $437.50
Note Receivable $25,000
Workings
Interest = $25,000 * 7% * 90/360 = $437.50
Cash received = $25437.50
(a) Complete the following cost and revenue schedules for a perfectly competitive firm:
Quantity Price ( $Total Revenue ($) Total Cost ($) Profit ($) Marginal Cost ($)
0 60 50 ---
1 60 60
2 60 90
3 60 140
4 60 200
5 60 280
(b) Graph MC and price.
(c) What rate of output maximizes profit?
(d) What is MC at that rate of output?
Answer:
(a) See the attached excel file
(b) See the attached photo
(c) Quantity 4
(d) MC = $60
Explanation:
Note: The data in the question are merged but they are first sorted appropriately before answering the question in the attached excel file.
(a) Complete the following cost and revenue schedules for a perfectly competitive firm
Note: See the attached excel file for the schedule
The following formula are used in the table:
Total revenue = Quantity * Price
Profit = Total revenue - Total cost
Marginal cost = New unit total cost - Previous unit total cost
(b) Graph MC and price.
Note: See the attached photo for the graph
(c) What rate of output maximizes profit?
The rate of output that maximizes profit occurs where MC = Price. This occurs at quantity 4 on the attached excel file and point A in the attached graph where MC = Price = $60
(d) What is MC at that rate of output?
From part (c), MC at that rate of output is $60.
On March 1, a business paid $3,840 for a twelve-month liability insurance policy. On April 1, the business entered into a two-year rental contract for equipment at a total cost of $23,160.
A) Determine the insurance expense for the month of March.
B) Determine the balance in prepaid insurance as of March 31.
C) Determine the equipment rent expense for the month of April.
D) Determine the balance in prepaid equipment rental as of April 30.
Answer:
a. Insurance expense for the month of march
= ($3,840 / 12 months) * 1 month
= $320 per month
b. Balance in prepaid insurance as of March 31
= ($3,840 / 12 months) *11 months remaining
= $3,520
c. Equipment rent expense for the month of April
= ($23,160 / 24 months) * 1 month
= $965
d. Balance in prepaid equipment rental as of April 30
= Nil ($0) as it is not mentioned that payment has been made, it is only mentioned that two year rental contract has been entered into.
Josh was a mechanic. One day when he attempted to weld a car's gasoline tank, it exploded and he was hurt. He filed to collect workers' compensation. His employer resisted on grounds that Josh had been negligent and had also violated the express regulations of the company when he attempted to weld a gasoline tank. Which statement is correct
Answer:
Josh can recover even if he was negligent and violated the employer's rules.
Explanation:
Worker's compensation is a type of insurance that covers wage and medical costs of an employee that was injured in the course of working for the employer.
Accidents can happen during the course of doing official duty, so worker's compensation provides a cover from financial burden when the employee becomes unproductive as a result of the accident.
Generally the issue of negligence on the part of the employee is not considered.
So Jos will be able to recover worker compensation when he was injured from the car gas tank explosion.
Waterway Industries produces 1000 units of a necessary component with the following costs: Direct Materials $42000 Direct Labor 23000 Variable Overhead 8000 Fixed Overhead 10000 Waterway Industries could avoid $6000 in fixed overhead costs if it acquires the components externally. If cost minimization is the major consideration and the company would prefer to buy the components, what is the maximum external price that Waterway Industries would accept to acquire the 1000 units externally? $73000 $79000 $77000 $75000
Answer:
The maximum external price that Waterway Industries would accept to acquire the 1000 units externally is $77000.
Explanation:
The maximum external price must be equal to the cost of making the components internally taking into account thee avoidable fixed costs of getting an outside supplier.
Determination of the maximum external price :
Direct Materials $42,000
Direct Labor $23,000
Variable Overhead $8,000
Fixed Overhead ($10,000 - $6,000) $4,000
Maximum external price $77000
Provide two examples of goods/services that are classified as private goods/services even though they are provided by a federal government.
Answer: Post office; toll roads
Explanation:
Private goods are goods that have two main features which are rivalry and excludability. Private goods have to be bought before they can be used.
The goods/services that are classified as private goods/services even though they are provided by a federal government are post offices and toll roads.
Even though they're both provided by the government, individuals have to pay to use toll roads and also had to pay for stamps and other things before their delivery are made at the post office.
The trend analysis report of Marswell, Inc. is given below (in millions)
2019 2018 2017 2016 2015
Net income $690 $604 $470 $404 $398
Trend percentages 173% 152% 118% 102% 100%
Which of the following is a correct conclusion from the above analysis?
A) Net income for 2017 has decreased by 1 18% over that for 2015.
B) Net income for 2017 has increased by 1 18% over that for 2015
C) Net income for 2017 has decreased by 18% over that for 2015.
D) Net income for 2017 has increased by 18% over that for 2015
Answer: D) Net income for 2017 has increased by 18% over that for 2015
Explanation:
Trend Analysis shows the difference in the value of a variable overtime. In the analysis below, the base year is 2015 and so has a trend percentage of 100%.
The increases or decrease in Net Income in subsequent years can be inferred by the different in the trend percentages of the various years. For instance, the increase (decrease) in net income in 2019 over 2015 is;
= 173 - 100
= 73%
This means that income in 2019 is 73% higher than it was in 2015.
The same goes for 2017 and 2015;
= 118 - 100
= 18%
Income in 2017 has increased by 18% since 2015.
Copa Corporation is considering the purchase of a new machine costing $150,000. The machine would generate net cash inflows of $43,690 per year for 5 years. At the end of 5 years, the machine would have no salvage value. Copa’s cost of capital is 12 percent. Copa uses straight-line depreciation. The present value factors of annuity of $1.00 for different rates of return are as follows:
Period 12% 14% 16% 18%
4 3.0373 2.91371 2.79818 2.69006
5 3.60478 3.43308 3.27429 3.12717
6 4.1141 3.88867 3.68474 3.49760
The proposal's internal rate of return (rounded to the nearest percent) is:__________
A. 14 percent.
B. 16 percent.
C. 18 percent.
D. 12 percent.
Answer:
A
Explanation:
Internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested
IRR can be calculated with a financial calculator
Cash flow in year 0 = $-150,000
Cash flow each year from year 1 to 5 = $43,690
IRR = 14%
To find the IRR using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. After inputting all the cash flows, press the IRR button and then press the compute button.
The Benesch Company expects sales in 2018 of 205,000 units of serving trays. Benesch's beginning inventory for 2018 is 18,000 trays, and its target ending inventory is 27,000 trays. Compute the number of trays budgeted for production in 2018.
Answer:
214,000 trays
Explanation:
The computation of the number of trays produced is shown below:
= ending inventory units + expected sales units - beginning inventory units
= 27,000 + 205,000 - 18,000
= 214,000 trays
We simply applied the above formula so that the number of trays budgeted for production could come
Hence, the 214,000 trays is the answer
OceanGate sells external hard drives for $200 each. Its total fixed costs are $30 million, and its variable costs per unit are $140. The corporate ta rate is 30%. If the economy is strong, the firm will sell 2 million drives, but if there is a recession, it will sell only half as many.a. What is the firms' degree of operating leverage?b. If the economy enters a recession, what will be the firm's after tax cost of profit?
Answer:
a. 1.33
b. $337,000,000
Explanation:
Degree of operating leverage = Contribution ÷ Earnings Before Interest and Tax
= 2,000,000 × ($200 - $140) ÷ ($120,000,000 - $30,000,000)
= 1.33
Recession : After tax Cost of Profit
Sales (2,000,000 × $200) $400,000,000
Less Variable Costs (2,000,000 × $140) ($280,000,000)
Contribution $120,000,000
Fixed Cost ($30,000,000)
Profit Before Tax $90,000,000
Taxation ($27,000,000)
Profit After tax $63,000,000
After tax Cost of Profit = Sales - Profit After tax \
= $400,000,000 - $63,000,000
= $337,000,000
Find the duration of a bond with settlement date June 11, 2018, and maturity date December 15, 2027. The coupon rate of the bond is 4%, and the bond pays coupons semiannually. The bond is selling at a yield to maturity of 5%.
Answer:
The duration of a bond is 7 years and 7 months.
Explanation:
The settlement date is the date that the bond transaction is concluded, the date that the buyer must pay for the bond and the seller must deliver the asset.
The maturity date is the date where the seller will receive an amount equal to the principle or nominal amount of the bond.
Thus, the duration of the bond is the period between the settlement date (June 11, 2018) and the maturity date (December 15, 2027).
The period is 7 years and 7 months
alley Spa purchased $10,800 in plumbing components from Tubman Co. Valley Spa signed a 60-day, 10% promissory note for $10,800. If the note is dishonored, but Tubman intends to continue collection efforts, what is the journal entry to record the dishonored note
Answer: PLease find the answer below
Explanation:
journal entry to record the dishonored note
Account title Debit Credit
Accounts Receivable—Valley Spa $10,980
Interest Revenue $180
Notes Receivable $10,800.
Interest Revenue = Principal x rate x period
= 10,800 x 10% x 60/360( using 360 days =1 year)
=$180
At the break-even point of 1000 units, variable costs are $60000, and fixed costs are $35000. How much is the selling price per unit?
Answer:
the selling price per unit is $95
Explanation:
The computation of the selling price per unit is shown below:
Selling price per unit is
= Total cost ÷ break even points
where,
Total cost is
= Variable cost + fixed cost
= $60,000 + $35,000
= $95,000
And, the break even point is 1,000 units
So, the selling price per unit is
= $95,000 ÷ 1,000 units
= $95
Therefore, the selling price per unit is $95
A machine costing $212,600 with a four-year life and an estimated $17,000 salvage value is installed in Luther Company's factory on January 1. The factory manager estimates the machine will produce 489,000 units of product during its life. It actually produces the following units: 122,800 in Year 1, 122,900 in Year 2, 120,500 in Year 3, 132,800 in Year 4. The total number of units produced by the end of Year 4 exceeds the original estimate-this difference was not predicted. (The machine cannot be depreciated below its estimated salvage value.)
Required:
Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method. (Round your per unit depreciation to 2 decimal places. Round your answers to the nearest whole dollar.)
Answer:
Luther Company
Depreciation expense for each year:
a1) Straight line method:
= $195,600/4
= $48,900
a2) Total Depreciation = $195,600 ($48,900 x 4)
b1) Production unit method:
Depreciation rate = $195,600/ 489,000
= $0.40 per unit
Year 1 = 122,800 x $0.40 = $49,120
Year 2 = 122,900 x $0.40 = $49,160
Year 3 = 120,500 x $0.40 = $48,200
Year 4 = 132,800 x $0.40 = $53,120 but cannot exceed $49,120, so it equal to $49,120
a2) Total Depreciation = $195,600 ($49,120 + 49,160 + 48,200 + 49,120)
Explanation:
a) Data and Calculations:
Cost of machine = $212,600
Salvage value 17,000
Depreciable value $195,600
Useful life = 4 years
Estimated production unit = 489,000 units
b) Using the straight-line method, Luther Company depreciates the asset with the same amount of calculated depreciation. This is calculated by dividing the depreciable amount of the asset by the number of years the asset will be put to use. The production unit method uses an estimate of the total production units to divide the depreciable amount. The depreciation rate obtained is applied to the number of units produced each year to ascertain the year's depreciation expense.
From the question, we have:
Depreciable amount = Machine cost – Salvage value = $212,600 - $17,000 = $195,600
We use 2 relevant depreciation methods as follows:
1. Straight line depreciation method
Straight line depreciation rate = 1 / Estimated useful life = 1 / 4 = 0.25 or 25%
Depreciation for each year = Depreciable amount * Straight line depreciation rate ………. (1)
Using equation (1), we have:
Depreciation for Year 1 = N195,600 * 25% = $48,900
Depreciation for Year 2 = N195,600 * 25% = $48,900
Depreciation for Year 3 = N195,600 * 25% = $48,900
Depreciation for Year 4 = N195,600 * 25% = $48,900
Therefore, we have:
Total depreciation of all years combined = Depreciation for Year 1 + Depreciation for Year 2 + Depreciation for Year 3 + Depreciation for Year 4 = $48,900 + $48,900 + $48,900 + $48,900 = $195,600
2. Units-of-production method
Expected unit of production = 489,000 units
Depreciation rate = Depreciable amount / Expected unit of production = $195,600/ 489,000 = $0.40
Depreciation for each year = Unit produced for the year * Depreciation rate ………..(2)
Using equation (1), we have:
Depreciation for Year 1 = 122,800 * $0.40 = $49,120
Depreciation for Year 2 = 122,900 * $0.40 = $49,160
Depreciation for Year 3 = 120,500 * $0.40 = $48,200
Since it is stated in the question that the machine cannot be depreciated below its estimated salvage value, this therefore implies that:
Depreciation for Year 4 = Depreciable amount - Depreciation for Year 1 - Depreciation for Year 2 - Depreciation for Year 3 = $195,600 - $49,120 - $49,160 - $48,200 = $49,120
Therefore, we have:
Total depreciation of all years combined = Depreciation for Year 1 + Depreciation for Year 2 + Depreciation for Year 3 + Depreciation for Year 4 = $49,120 + $49,160 + $48,200 + $49,120 = $195,600
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Honeycutt Co. is comparing two different capital structures. Plan I would result in 12,700 shares of stock and $109,250 in debt. Plan II would result in 9,800 shares of stock and $247,000 in debt. The interest rate on the debt is 10 percent. The all-equity plan would result in 15,000 shares of stock outstanding. Ignore taxes for this problem. a. What is the price per share of equity under Plan I
Answer: $47.50
Explanation:
The price pr share given debt and the number of shares if the company had both an all equity structure and a mixed structure can be expressed as;
Price per Share = Debt Value / (Number of Shares under All-equity plan - Number of shares under mixed plan)
Price per share = 109,250 / (15,000 - 12,700)
= 109,250 / 2,300
= $47.50
An investor purchases a TIPS bond with a 3% coupon. During the first year, if the inflation rate is 8%, the principal value of the security at the end of that year will be closest to:_________
Answer:
assuming that the cost of the bond was originally $1,000, its principal will be adjusted to $1,000 x (1 + 8%) = $1,080 at the end of the year.
Explanation:
TIPS stand for Treasury Inflation-Protected Securities, which means that the principal value of the security will be adjusted to inflation. The coupon rate is not adjusted, but since the principal is, if inflation rises, you will receive a higher coupon rate and the maturity value of the security will also increase.
Here we are assuming that the value of the principal amount of bond investment is $4000, so the principal value of security at the end of the year will be $4320.
The calculation is done by taking the inflation rate into consideration which is 8% as compared to coupon rate 3%. The rate of Interest is taken as 8% as the inflation rate is greater than the coupon rate.
The TIPS bonds are also referred to as the Treasury-Inflation Protected Security bonds and as the name suggests if the inflation rate beats the coupon rate of such bonds it is applied to the appreciation.The coupon rate over these bonds is generally lower than the average inflation rate every year as it makes the investors secured that their money is at least at par with the rate of inflation.The calculation of principal value of such bonds at the maturity of one year can be calculated using the following formula,[tex]\rm Principal\ Value= Amount\ Invested\ x\ (1+\ Inflation\ Rate)[/tex]
Putting the values in the formula we get,
[tex]\rm Principal\ value= 4000\ x\ (1+0.08)[/tex]
[tex]\rm Principal\ value= 4000\ x\ 1.08[/tex]
Therefore the principal value of the bond is obtained as $4320.
Hence, the correct value of the TIPS bond in which an investor invests his money will grow to a value of $4320.
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