Answer:
See below
Explanation:
Given the above information, margin is computed as;
Margin = Net operating income / Sales
Sales = $37,880,000
Net operating income = $3,508,960
Then,
Margin = $3,508,960 / $37,880,000
Margin = 9.26%
Therefore, the division's margin used to compute ROI is closest to 9.26% approximately
A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that $22,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a credit balance of $445. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense
Answer:
The appropriate answer is "$22,305".
Explanation:
The given values are:
Estimated uncollectible,
= $22,750
Credit balance in allowance,
= $445
Now,
The bad debt expense will be:
= [tex]Estimated \ uncollectible-Credit \ balance \ in \ allowance[/tex]
By substituting the values, we get
= [tex]22750-445[/tex]
= [tex]22305[/tex] ($)
Richards Corporation uses the FIFO method of process costing. The following information is available for October in it's fabricating department: Units: Beginning inventory: 80,000 units, 60% complete as to materials and 20% complete as to conversion. Units started and completed: 250,000 Units completed and transferred out: 330,000 Ending inventory: 30,000 units, 40% complete as to materials and 10% complete as to conversion Costs: Costs in beginning Work in Process - direct materials: $37,200 Costs in beginning Work in process - conversion: $79,700 Costs incurred in October - Direct materials: $646,800 Costs incurred in October: Conversion: $919,300 Calculate the equivalent units of conversion. A. 250,000 B. 317,000 C. 294,000 D. 333,000 E. 342,000
Answer:
B. 317,000
Explanation:
Statement of Equivalent production
Particulars Conversion % Completion Equivalent Conversion
Opening WIP 80,000 80% 64,000
Units started & 250,000 100% 250,000
completed
Ending WIP 30,000 10% 3,000
Equivalent Units 317,000
Why is developing a reputation as a subject matter expert important for a leader if leadership deals so heavily with interpersonal skills
Answer:
Reputation is very important for a leader. If a leader has god interpersonal skills but lacks in good reputation people might hesitate to associate with him and support his activities.
Explanation:
Reputation is most valuable asset for any leader. A leader may have good knowledge of everything, he may have good interpersonal skills but reputation overcomes all of these qualities. Strong reputation of a leader will make it easy for him to earn popularity and respect among people. Reputation is the main quality which leads to success to a leader.
A manufacturing shop is designed to operate most efficiently at an output of 950 units per day. In the past month the plant produced 750 units. What was their capacity utilization rate last month? (Round your answer to 1 decimal place.) Capacity utilization rate %
Answer:
78.95%
Explanation:
Capacity utilization rate = Capacity used / Best operating level
Capacity utilization rate = 750 units / 950 units
Capacity utilization rate = 0.789473684
Capacity utilization rate = 78.95%
So, their capacity utilization rate last month is 78.95%
A project with an initial investment of $461,300 will generate equal annual cash flows over its 10-year life. The project has a required return of 8.1 percent. What is the minimum annual cash flow required to accept the project
Answer:
The minimum annual cash flow required to accept the project is:
= $63,883.17
Explanation:
a) Data and Calculations:
Initial investment cost of the project = $461,300
Project's estimated life = 10 years
Project's required return rate = 8.1%
The minimum annual cash flow required to accept the project is derived from an online financial calculator as follows:
N (# of periods) 10
I/Y (Interest per year) 8.1
PV (Present Value) 461300
FV (Future Value) 0
Results:
PMT = $63,883.17
Sum of all periodic payments = $638,831.69
Total Interest = $177,531.69
SpyingEyes, Inc., a large data intelligence company, has storage technology at multiple sites that store redundant data from its servers at the main office. What risk management strategies has the company primarily implemented?
Answer:
Avoid it risk management strategies
Explanation:
As the name suggests, In Avoid it risk management strategies the organisation takes every feasible step to stop any mismanagement from happening altogether. In other words, this strategy is based on strict monitoring and preparedness in advance.
Thus, from the above we can conclude that the above case illustrates avoid it risk management strategy.
Suppose there is a simple one good economy that only produces spinning rims. In 2015, the economy was able to produce 1 million sets of spinning rims at an amazing price of $500 per set. In 2016, the economy was able to produce 1 million sets of spinning rims at a price of $1,000 per set. By what amount did real GDP increase between 2015 and 2016 in the simple one good economy
Answer: 0
Explanation:
Firstly, we will calculate the nominal value in 2015 which will be:
= $500 x 1 million
= $500 million
The nominal value in 2016 will be:
= $1000 x 1 million
= $1 billion
Real GDP will be the price of the base year multiplied by the quantity of the current year which will be:
= $500 million x 1 million sets
= $500 million
Therefore, the increase in real GDP is zero.
MC Qu. 98 Peterson Company estimates that overhead... Peterson Company estimates that overhead costs for the next year will be $6,920,000 for indirect labor and $840,000 for factory utilities. The company uses machine hours as its overhead allocation base. If 80,000 machine hours are planned for this next year, what is the company's plantwide overhead rate
Answer:
Predetermined manufacturing overhead rate= $97 per machine hour
Explanation:
To calculate the predetermined manufacturing overhead rate we need to use the following formula:
Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Predetermined manufacturing overhead rate= (6,920,000 + 840,000) / 80,000
Predetermined manufacturing overhead rate= $97 per machine hour
Vextra Corporation is considering the purchase of new equipment costing $38,000.The projected annual cash inflow is $11,600, to be received at the end of each year.The machine has a useful life of 4 years and no salvage value.Vextra requires a 12% return on its investments.The present value of an annuity of $1 for different periods follows:Periods 12 Percent1 0.89292 1.69013 2.40184 3.0373What is the net present value of the machine (rounded to the nearest whole dollar)?a. $(35,233).b. $(2,767).c. $38,000.d. $(3,700).e. $5,233.
Answer:
b. $(2,767).
Explanation:
The computation of the net present value is shown below:
= Present cash flows - initial investment
= ($11,600 × 3.0373) - $38,000
= $35,232.68 - $38,000
= -$2,767.32
= -$2,767
Hence, the option b is correct
We simply applied the above formula to determine the net present value
Suppose that the reason the jewelry was brand new and at such a bargain price online was because the seller actually stole the jewelry. If the jewelry were stolen, what type of title would Hugo hold when he purchased the jewelry
Answer: d. Void.
Explanation:
The seller stole the jewelry and so does not hold any legal title to the jewelry in the first place. The seller cannot therefore pass something that they do not possess which means that Hugo did not get a title.
Hugo's supposed title is therefore void which means that should the real owner of the jewelry ever find out that he has it, they can simply come back and claim it without needing to pay Hugo for it.
This morning you purchased one share of stock for $14. The stock pays $.20 per share each quarter as a dividend. What must the stock price be one year from now if you want to earn a total return of 12 percent for the year
Answer:
$14.88
Explanation:
The computation of the stock price is given below:
A total return of 12% means that
= 0.12 × 14
= $1.68 in a year.
Now
The total dividend payments for 4 quarters is
= 0.2 × 4
= $0.8.
Now the price of the stock should increase by
= 1.68 - 0.8
= 0.88
So the stock price one year from now is
= 14 + 0.88
= $14.88
Jack asked Jill to marry him, and she has accepted under one condition: Jack must buy her a new $ Rolls-Royce Phantom. Jack currently has $ that he may invest. He has found a mutual fund with an expected annual return of % in which he will place the money. How long will it take Jack to win Jill's hand in marriage?
Answer: 47.8 years
Explanation:
Jack is trying to make up to $330,000 from $50,680 at a rate of 4%.
The relevant formula is the future value formula as Jack is trying to get to a certain amount in future:
330,000 = 50,680 * ( 1 + 4%) ^ number of years
1.04 ^ number of years = 330,000 / 50,680
1.04 ^ N = 6.51144435674822
Use the natural logarithm:
N * In (1.04) = In (6.51144435674822)
N * 0.039220713153281 = 1.873561299007586979
N = 1.873561299007586979 / 0.039220713153281
= 47.8 years
MC Qu. 120 Dallas Company uses a job order... Dallas Company uses a job order costing system. The company's executives estimated that direct labor would be $4,160,000 (260,000 hours at $16/hour) and that factory overhead would be $1,560,000 for the current period. At the end of the period, the records show that there had been 240,000 hours of direct labor and $1,260,000 of actual overhead costs. Using direct labor hours as a base, what was the predetermined overhead rate
Answer:
See below
Explanation:
Per the given details, predetermined overhead is be calculated as seen below
Predetermined overhead = (Estimated factory overhead / Estimated direct labor hour) × 100
Estimated factory overhead = $1,560,000
Estimated direct labor hour = 260,000
Predetermined overhead = )$1,560,000 / 260,000) × 100
Predetermined overhead rate = 600%
In a closed economy, saving and investment must be equal, but this is not the case in an open economy. In the following problem, you will explore how saving and investment are connected to the international flow of capital and goods in an economy. Before delving into the relationship between these various components of an economy, you will be asked to recall some relationships between aggregate variables that will be useful in your analysis.
Recall the components that make up GDP. National income (Y) equals total expenditure on the economy's output of goods and services. Thus, where C = consumption, I = investment, G = government purchases, X = exports, M = imports, and NX = net exports:
Y =
Also, national saving is the income of the nation that is left after paying for Therefore, national saving (S) is defined as: S =
Rearranging the previous equation and solving for Y yields Y = . Plugging this into the original equation showing the various components of GDP results in the following relationship:
S =
This is equivalent to S =, since net exports must equal net capital outflow (NCO, also known as net foreign investment).
Now suppose that a country is experiencing a trade surplus. Determine the relationships between the entries in the following table, and enter these relationships using the following symbols: > (greater than), < (less than), or = (equal to).
Answer:
a. Y = C + I + G + NX
b. National saving is the income of the nation that is left after paying for current consumption (C) and government purchases (G).
c. S = Y - C - G
d. Y = S + C + G
e. S = I + NX
f. S = I + NCO
g. Outcomes of a Trade Surplus
Exports > Imports
Net Exports > 0
C + I + G < Y
Saving > Investment
Net Capital Outflow > 0
Explanation:
a. Y = C + I + G + X - M …………………. (1)
If we assumed X is greater than M, we have:
NX = X - M
Substituting NX = X - M into equation (1), we have:
Y = C + I + G + NX
b. Also, national saving is the income of the nation that is left after paying for current consumption (C) and government purchases (G).
c. Therefore, national saving (S) is defined as: S = Y - C - G.
d. Rearranging the previous equation and solving for Y yields Y = S + C + G.
e. Plugging this into the original equation showing the various components of GDP results in the following relationship:
S + C + G = C + I + G + NX
S = C + I + G + NX - C - G
S = I + NX
f. This is equivalent to S = I + NCO, since net exports must equal net capital outflow (NCO, also known as net foreign investment).
g. Now suppose that a country is experiencing a trade surplus. Determine the relationships between the entries in the following table, and enter these relationships using the following symbols: > (greater than), < (less than), or = (equal to).
Note: The omitted table in the question given as follows:
Outcomes of a Trade Surplus
Exports ____ Imports
Net Exports _____ 0
C + I + G _____ Y
Saving ____ Investment
Net Capital Outflow ___ 0
Therefore, the answer is given as follows:
Outcomes of a Trade Surplus
Exports > Imports
Net Exports > 0
C + I + G < Y
Saving > Investment
Net Capital Outflow > 0
For Sanborn Co., sales is $1,000,000, fixed expenses are $300,000, and the contribution margin per unit is $60. What is the break-even point? g
Answer:
Break-even point in units= 5,000
Explanation:
Giving the following information:
Sales= $1,000,000
Fixed expenses= $300,000
Contribution margin per unit= $60
To calculate the break-even point in units, we need to use the following formula:
Break-even point in units= fixed costs/ contribution margin per unit
Break-even point in units= 300,000 / 60
Break-even point in units= 5,000
The budget director of Feathered Friends Inc., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for December 2016:
Estimated sales for December:
Bird house 3,200 units at $50 per unit
Bird feeder 3,000 units at $70 per unit
Estimated inventories at December 1:
Direct materials:
Wood 200 ft.
Plastic 240 lbs.
Finished products:
Bird house 320 units at $27 per unit
Bird feeder 270 units at $40 per unit
Desired inventories at December 31:
Direct materials:
Wood 220 ft.
Plastic 200 lbs.
Finished products:
Bird house 290 units at $27 per unit
Bird feeder 250 units at $41 per unit
Direct materials used in production:
In manufacture of Bird House:
Wood 0.80 ft. per unit of product
Plastic 0.50 lb. per unit of product
In manufacture of Bird Feeder:
Wood 1.20 ft. per unit of product
Plastic 0.75 lb. per unit of product
Anticipated cost of purchases and beginning and ending inventory of direct materials:
Wood $7.00 per ft.
Plastic $1.00 per lb.
Direct labor requirements:
Bird House:
Fabrication Department 0.20 hr. at $16 per hr.
Assembly Department 0.30 hr. at $12 per hr.
Bird Feeder:
Fabrication Department 0.40 hr. at $16 per hr.
Assembly Department 0.35 hr. at $12 per hr.
Estimated factory overhead costs for December:
Indirect factory wages $75,000
Depreciation of plant and equipment 23,000
Power and light $6,000
Insurance and property tax 5,000
Estimated operating expenses for December:
Sales salaries expense $70,000
Advertising expense 18,000
Office salaries expense 21,000
Depreciation expense—office equipment 600
Telephone expense—selling 550
Telephone expense—administrative 250
Travel expense—selling 4,000
Office supplies expense 200
Miscellaneous administrative expense 400
Estimated other income and expense for December:
Interest revenue $200
Interest expense 122
Estimated tax rate: 30%
1. Prepare asales budget for December.
2. Prepare a production budget for December.
Answer:
1. Sales Budget:
Bird House 3,200 units * $50 per unit = $160,000
Bird feeder 3,000 units * $70 per unit = $210,000
Total Revenue = $370,000
Explanation:
2. Production Budget:
Bird House
Expected units to be sold = 3,200
Less: Desired ending finished goods = 290
Total Units to be produced = 3,490
Less: Beginning Units = 320
Units to be produced = 3,170
Bird Feeder
Expected units to be sold = 3,000
Less: Desired ending finished goods = 250
Total Units to be produced = 3,250
Less: Beginning Units = 270
Units to be produced = 2,980
Profit margin is calculated by dividing Group of answer choices sales by cost of goods sold. gross profit by net sales. net income by stockholders' equity. net income by net sales. Flag question: Question 19
Answer:
net income by net sales.
Explanation:
Price can be defined as the amount of money that is required to be paid by a buyer (customer) to a seller (producer) in order to acquire goods and services. Thus, it refers to the amount of money a customer or consumer buying goods and services are willing to pay for the goods and services being offered. Also, the price of goods and services are primarily being set by the seller or service provider and it eventually determines the profit margin of a business firm.
In Financial accounting, profit margin can be defined as a measure of the profitability of a business over a specific period of time. Thus, it is simply the amount of money by which revenue generated through sales exceed the costs of a product.
Hence, profit margin is calculated by dividing net income by net sales or net profits by net sales over a specific period of time.
Fern invested $6400 into a continuously compounded account with an interest rate of 1.5%. After 10 years, how much is the account worth
Answer:
FV= $7,435.74
Explanation:
Giving the following information:
Initial investment= $6,400
Interest rate= 1.5%
Number of periods= 10 years
To calculate the value of the account in ten years, we need to use the following formula:
FV= PV*e^(i*n)
FV= 6,400*e^(0.015*10)
FV= $7,435.74
Sebastian received a raise this year so his income climbed from $45,000 to $52,000. Last year Sebastian purchased 2 sunglasses. This year he has purchased 7 sunglasses. Assuming that all of the other things remain constant, what type of a good are sunglasses and what type of income elasticity of demand does Sebastian have
Answer:
normal good
elastic demand
Explanation:
Income elasticity of demand measures the responsiveness of quantity demanded to changes in income.
Income elasticity = percentage change in quantity demanded / percentage change in income
percentage change in quantity demanded = (7/2) - 1 = 250%
percentage change in income = (52,000 / 45,000) - 1 = 15.6%
250 / 15.6 = 16.07
If the absolute value of income elasticity of demand is greater than one, it means demand is elastic.
Normal goods are goods that are goods whose demand increases when income increases and falls when income falls
Inferior goods are goods whose demand falls when income rises and increases when income falls.
The contribution margin ratio is interpreted as the percent of: Multiple choice question. each variable cost dollar that remains after deducting fixed costs each sales dollar that remains after deducting fixed costs each sales dollar that remains after deducting unit variable cost
Answer: each sales dollar that remains after deducting unit variable cost
Explanation:
The contribution margin ratio is interpreted as the percent of each sales dollar that remains after the deduction of unit variable cost.
The contribution margin ratio refers to the difference between the sales that a company makes and its variable costs which is expressed as a percentage. The ratio simply indicates the amount of money that is available to cover the fixed costs.
Two years ago, Kuley invested $20,900. She has earned and will earn compound interest of 7.8 percent per year. In 3 years from today, Nabax can make an investment and earn simple interest of 5.3 percent per year. If Nabax wants to have as much in 7 years from today as Kuley will have in 7 years from today, then how much should Nabax invest in 3 years from today
Answer:
$73306.46
Explanation:
Compound interest = Principal(1+rate/n)^nt
If Kuley invested $20900 and compound interest rate of 7.8% per year for 7 years then,
Compound interest in 7 years =$20900(1+7.8/12)^12×7
=$20900×1.7233= $36016.97
After 3 years, Nabax would have 4 years left to make what kuley made in 7 years
Kuley made compound interest of $36016.97-$20900= $15116.97
Nabax will invest for 4 years at simple interest rate of 5.3%
Simple interest = principal×time×rate/100
We substitute to get his needed amount(principal)
$15116.97=Principal×4×5.3/100
$15116.97= 21.2Principal/100
Cross multiply to make principal subject of the formula:
Principal= 1511697/21.2
Principal = $73306.46
Therefore Nabax needs to invest $73306.46 to get the same amount of return that kuley got in 7 years
Nadal Inc. had two temporary differences at the end of 2013. The first difference stems from installment sales, and the second one results from the accrual of a loss contingency. Nadal's accounting department has developed a schedule of future taxable and deductible amounts related to these temporary differences as follows:
Taxable amounts:
2014 $40,000
2015 $50,000
2016 $60,000
2017 $80,000
Deductible amounts:
2014 $0
2015 $(15,000)
2016 $(19,000)
2017 $0
As of the beginning of 2013, the enacted tax rate is 34% for 2013 and 2014, and 38% for 2015-2018. At the beginning of 2013, the company had no deferred income taxes on its balance sheet. Taxable income is expected in all future years.
A. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2013.
B. Indicate how deferred income taxes would be classified on the balance sheet at the end of 2013.
Answer:
72,880
Explanation:
Given:
Taxable amounts are as follows,
2014$40,000
2015$50,000
2016$60,000
2017$80,000
Deducible amounts are as folllows,
2014$0
2015$(15,000)
2016$(19,000)
2017$0
Solution:
Taxable amount is as follows,
2014$40,000-34%-13,600
2015$35,000-38%-13,300
2016$41,000-38%-15,580
2017$80,000-38%-30,400
Therefore the deferred liability 72,880
To income tax provision 72,880
This would be shown as deferred tax liability under the long term liabilities head with amount of $72,880
Poe Company is considering the purchase of new equipment costing $81,500. The projected net cash flows are $36,500 for the first two years and $31,500 for years three and four. The revenue is to be received at the end of each year. The machine has a useful life of 4 years and no salvage value. Poe requires a 10% return on its investments. The present value of an annuity of 1 and present value of an annuity for different periods is presented below. Compute the net present value of the machine.
Answer:
$27,028.45
Explanation:
Net present value is the present value of after-tax cash flows from an investment less the amount invested.
NPV can be calculated using a financial calculator
Only projects with a positive NPV should be accepted. A project with a negative NPV should not be chosen because it isn't profitable.
When choosing between positive NPV projects, choose the project with the highest NPV first because it is the most profitable.
Cash flow in year 0 = $-81,500
Cash flow in year 1 and 2 = $36,500
Cash flow in year 3 and 4 = $31,500
I - = 10%
NPV = $27,028.45
To find the NPV 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 NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
A 5-year treasury bond with a coupon rate of 8% (paid semiannually) has a face value of $1,000. What is the semiannual coupon payment
Answer:
$40
Explanation:
Coupon payment = Face value * Coupon rate * 1/2
Coupon payment = $1,000 * 8% * 1/2
Coupon payment = $1,000 * 0.08 * 1/2
Coupon payment = $40
So, the semiannual coupon payment is $40.
A local distributor for a national tire company expects to sell approximately 10,160 tires of a certain size and tread design next year. Annual carrying cost is $14 per tire and ordering cost is $76. The distributor operates 287 days a year.
a. What is the EOQ
b. How many times per year does the store reorder?
c. What is the length of an order cycle?
d. What is the total annual cost if the EOQ quantity is ordered?
Answer:
Following are the solution to the given points:
Explanation:
Given:
[tex](D) = 10,160\ tires / year\\\\(H) = \$14 / tire\\\\(S) = \$76\\\\work\ days\ number = 287 \ \frac{days}{year}[/tex]
For point a:
[tex]EOQ = \sqrt{(\frac{2DS}{H})}[/tex]
[tex]=\sqrt{(\frac{2\times 10,160\times 14 }{14})}\\\\=\sqrt{({2\times 10,160})}\\\\=\sqrt{20320}\\\\=142.548[/tex]
For point b:
Calculating the order of number of per year [tex]= \frac{D}{EOQ}[/tex]
[tex]=\frac{10,160}{142.548}\\\\=71.27\approx 71[/tex]
therefore, the reorded store 71 times per year
For point c:
Calculating the order cycle length [tex]= (\frac{EOQ}{D}) \times \text{work days number in a year}[/tex]
[tex]= (\frac{142.548}{10,160}) \times287\\\\= 0.0140\times287\\\\=4.018[/tex]
For point d:
[tex]\text{Total annual cost = carrying cost + ordering cost}[/tex]
Carrying cost:
[tex]= (\frac{EOQ}{2}) \times H \\\\= (\frac{142.548}{2}) \times 14 \\\\= 71.274 \times 14 \\\\= \$997.836 \approx 998\\\\\[/tex]
Ordering cost:
[tex]= (\frac{D}{EOQ}) \times S \\\\ = (\frac{10160}{142.548}) \times 76 \\\\ = 71.274\times 76\\\\ = \$5416.824\\\\[/tex]
[tex]\therefore\\\\\text{Total annual cost = Carrying cost + Holding cost}[/tex]
[tex]=998+5416.824\\\\=6414.824[/tex]
A sole proprietorship is: Select one: A. the easiest type of business to set up B. the least profitable type of business to set up C. the most expensive type of business to set up D. the most difficult type of business to set up.
Answer:
it is an easiest type of business to set up because it requires small capital to start but has many disadvantages such as bearing all the risks alone.etc
Implement a table and re-organize your page contents so that it is displayed within the table (you can organize the table's content as you like).
2) Add one external CSS file and apply it to your 2 pages (the style sheet should have at least Fonts, Color, sizing and background). The CSS should provide a uniform look/feel between the 2 pages.
Answer:
just here for points
Explanation:
iskksns
Microhard has issued a bond with the following
Par
Time to maturity
Coupon rate
Semiannual payments
g An increase in the interest rate: has no effect on investment. may be caused by a drop in investment demand. increases planned investment because people who make money from interest have more money to invest. reduces planned investment because the interest rate is the cost of borrowing to finance investment projects.
Answer:
reduces planned investment because the interest rate is the cost of borrowing to finance investment projects.
Explanation:
There is an inverse relationship between interest rate and planned investment.
The higher interest rate is, the lower planned investment. This is because interest rate is the cost of borrowing. An higher interest rate means the cost of borrowing would increase.
On the other hand, a lower interest rate increases planned investment. This is because a lower interest rate means that the cost of borrowing would reduce.
The cost of preferred stock
Preferred stock is a hybrid security, because it has some characteristics typical of debt and others typical of equity. The following table lists various characteristics of preferred stock. Determine which of these characteristics is consistent with debt and which is consistent with equity.
Characteristics Debt Equity
Dividends are fixed
Usually has no specified maturity date
Consider the case of Tamin Enterprises:
At the present time, Tamin Enterprises does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure in the future. Tamin has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $11 per share. If the investors pay $97.95 per share for their investment, then Tamin's cost of preferred stock (rounded to four decimal places) will be:_____.
Answer:
Dividends are fixed ⇒ Debt
Preferred dividends are fixed much like the interest payments made on debt which makes this a characteristic of debt.
Usually have no specified maturity date ⇒ Equity
Equity does not have an expiration or maturity date and preferred shares share this same characteristic.
Cost of preferred stock.
The value of a Preferred stock is calculated by the formula:
Price = Dividend / Cost of preferred stock
97.95 = 11 / Cp
97.95 * Cp = 11
Cp = 11/ 97.95
= 11.23%