Answer and Explanation:
Serial activities are activities that are performed one after the other. In serial activities, one step in a job is finished before the other step starts. In other words more time may be spent as against concurrent activities whereby the two steps in a job can be performed at the same time such that the second step can start while the first step of the job is in progress. Managers prefer concurrent activities because it saves time as jobs are completed faster when steps can be performed "concurrently"
Concord Corporation has several outdated computers that cost a total of $18000 and could be sold as scrap for $6000. They could be updated for an additional $2900 and sold. If Concord updates the computers and sells them, net income will increase by $9000. What amount would be considered sunk costs?
Answer:
$18,000
Explanation:
Sunk costs refers to a cost that has been expended and cannot be recovered or recouped.
With regards to the above, $18,000 was expended concord by corporations to purchase computers hence cannot be recovered. Therefore, it is a sunk cost.
Mark and James established a partnership to deal in textiles. Both of them contributed equal capital to the partnership. However, two years later James sold his share of the firm to Mike. Which of the following is permissible?
A) Mark can recover damages from James for selling his interest in the partnership
B) Mike can claim nondisclosure and reclaim the money from James.
C) Mark can recover damages from Mike for buying the James' share.
D) James is entitled to keep the money he received from Mike.
Answer: D. James is entitled to keep the money he received from Mike.
Explanation:
From the question, we are informed that Mark and James established a partnership to deal in textiles. Both of them contributed equal capital to the partnership and that two years later James sold his share of the firm to Mike.
The option that is permissible is that James is entitled to keep the money he received from Mike.
Seth Silver had the following items of income during the taxable year: Interest income from a checking account $1,000 Interest income from corporate bonds purchased 5 years ago $2,050 Interest income from a municipal bond he purchased during the current year $250 Interest income from federal bonds (which are not Series EE bonds) purchased 2 years ago $750. On his current year tax return, what amount is taxable income?
a. $3,050
b. $3,300
c. $3,800
d. $4,050
Answer:
c. $3,800
Explanation:
Calculation for the amount of taxable income
Using this formula
Taxable income =Interest income from a checking account+Interest income from corporate bonds +Interest income from federal bonds
Let plug in the formula
Taxable income =$1,000+$2,050+$750
Taxable income=$3,800
Therefore on his current year tax return the amount of his taxable income will be $3,800
Explain how you can use the knowledge of subject matter experts and your peers to enhance your learning in workplace
Explanation:
Remember, a workplace is an environment not just working but for learning.
For example, subject matter experts (SMEs) are individuals inn a workplace who has special skills or experience on a particular job or topic. So, they can provide necessary assistance through this common methods
oral instructionswritten instructionsvideo based instructionsA persons's peers can also assist with information to do one's job using the above methods.
Financial information for Forever 18 includes the following selected data (in millions): ($ in millions) 2018 2017 Net income $ 156 $ 188 Preferred stock dividends $ 23 $ 18 Average shares outstanding (in millions) 300 400 Stock price $ 11.87 $ 10.82 Required: 1-a. Calculate earnings per share in 2017 and 2018
Answer:
$0.4433 and $0.425
Explanation:
The computation of the earning per share is shown below:
Earning per share is
= (Net income - preference dividend) ÷ (average shares outstanding)
For 2017, it is
= ($156 - $23) ÷ (300 shares)
= $0.4433
For 2018, it is
= ($188 - $18) ÷ (400 shares)
= $0.425
We simply applied the above formula so that the earning per share could be come for both the years
Some investment projects require that a company increase its working capital. Under the net present value method, the investment and eventual recovery of working capital should be treated as:
Answer:
Both an initial cash outflow and future cash inflow
Explanation:
Net value cash flow is the different cash flows that happens at different times. It takes into account the initial cash outflow or capital investment and the amount that it would be getting in the future that is the future cash inflow.
The net present value gives us a difference between cash inflows and cash outflows in their present values over a period of time.
Pensacola Inc. exchanged old equipment for new equipment in two exchange transactions. Each transaction has commercial substance.
Old Equipment Cash
Book Value Fair Value Received
Equipment A $ 74,000 $ 81,300 $ 11,300
Equipment B $ 61,600 $ 54,800 $ 10,300
For Equipment B, Pensacola would record a gain/(loss) of:________.
a. $5,300
b. $(6,800)
c. $(7,800)
d. none of these answer choices are correct
Answer:
b. $(6,800)
Explanation:
The computation of the gain or loss for the equipment B is shown below:
= Fair value - book value
where,
Fair value = $54,800
And, the book value = $61,600
Now placing these values to the above formula
So, the gain or loss i.e. to be recorded is
= $54,800 - $61,600
= $6,800 loss
as the fair value is less than the book value so the loss of $6,800 should be recorded
A stock is selling at $40, a 3-month put at $50 is selling for $11, a 3-month call at $50 is selling for $1, and the risk-free rate is 6%.How much, if anything, can be made on an arbitrage?
Answer:
$0.745
Explanation:
GIven that
Current stock price [tex]S_o[/tex] = $40
strike price X = $50
time to expiry of option = 3 - month
put price option [tex]P _o[/tex] = $11
call price option [tex]C_o[/tex] = $1
and the risk-free rate r = 6%
The amount that can be made on the arbitrage can be evaluated as a function of the Put-call parity.
i.e For parity ;
[tex]C_o + (X \times e^{-rt} ) = P_o + S_o[/tex]
[tex]1 + (50 \times e^{-(0.06 \times 0.25} ) = 11 + 40[/tex]
[tex]1 + (50 \times 0.9851 ) = 51[/tex]
[tex]1 + (49.255 ) = 51[/tex]
50.255 = 51
the difference in both values above illustrates that there is no parity taking place and the arbitrage estimation here = 51 - 50.255 = $0.745
You establish a straddle on Fincorp using September call and put options with a strike price of $80. The call premium is $7.00 and the put premium is $8.50. a. What is the most you can lose on this position
Answer: $15.50
Explanation:
From the question, we are informed that someone establish a straddle on Fincorp using September call and put options with a strike price of $80 and that the call premium is $7.00 and the put premium is $8.50.
The most that can be lose on this position will be the addition of the call premium and the put premium. This will be:
= $7.00 + $8.50
= $15.50
Quaker State Inc. offers a new employee a single-sum signing bonus at the date of employment. Alternatively, the employee can receive $8,600 at the date of employment plus $26,000 at the end of each of his first three years of service. Assuming the employee's time value of money is 8% annually, what lump sum at employment date would make him indifferent between the two options
Answer: $75,604.60
Explanation:
The lump sum that would make the employee indifferent between the two option is the one that is equal to the present value of the part payments.
Given a constant payment of $26,000 per year this will be the present value of an annuity.
Present Value of the Annuity = 26,000 * Present Value interest factor of an annuity, 3 years, 8%
= 26,000 * 2.5771
= 67,004.60
Total present Value = 8,600 + 67,004.60
= $75,604.60
If the lump sum offered was $75,604.60, employee would be indifferent.
In 2020, a customer buys 1 GE 10%, $1,000 par debenture, M '35, at 115. The interest payment dates are Jan 1st and Jul 1st. The bond is first callable in 2030 at 102. The yield to call on the bond is
Answer:
8.02%
Explanation:
the yield to call = {coupon + [(call price - market price)/n]} / [(call price + market price)/2]
coupon = $50call price = $1,020market price = $1,150n = 10 x 2 = 20YTC = {50 + [(1,020 - 1,150)/20]} / [(1,020 + 1,150)/2]
YTC = 43.50 / 1,085 = 4.01% x 2 (annual interest) = 8.02%
Suppose marginal cost is constant and equal to 50 and marginal revenue equals 100 - 10Q. A profit-maximizing monopolist will set quantity equal to:
Answer: 5
Explanation:
From the question, we are informed that the marginal cost is constant and equal to 50 and marginal revenue equals 100 - 10Q.
For a profit-maximizing monopolist, we should note that the marginal revenue will be equated to the marginal cost. Therefore:
100 - 10Q = 50
100 - 50 = 10Q
50 = 10Q
Q = 50/10
Q = 5
Therefore, a profit-maximizing monopolist will set quantity equal to 5.
Gilbert City had the following transactions involving resource inflows into its general fund for the year ended June 30, 20X8:
1. The general fund levied $2,200,000 of property taxes in July 20X7. The city estimated that 2 percent of the levy would be uncollectible and that $180,000 of the levy would not be collected until after August 31, 20X8.
2. On April 1, 20X8, the general fund received $50,000 repayment of an advance made to the internal service fund. Interest on the advance of $1,500 also was received.
3. During the year ended June 30, 20X8, the general fund received $2,000,000 of the property taxes levied in transaction (1).
4. The general fund received $265,000 in grant monies from the state to be used solely to acquire computer equipment. During March 20X8, the general fund acquired computer equipment using $240,000 of the grant. The city has not yet determined the use of the remainder of the grant.
5. During the year ended June 30, 20X8, the general fund received $135,000 from the state as its portion of the sales tax. At June 30, 20X8, the state owed the general fund an additional $22,000 of sales taxes. The general fund does not expect to have the $22,000 available until early August 20X8.
6. In July 20X7, the general fund borrowed $810,000 from a local bank using the property tax levy as collateral. The loan was repaid in September 20X7 with the proceeds from property tax collections.
7. In February 20X8, a terminated debt service fund transferred $30,000 to the general fund. The $30,000 represented excess resources left in the debt service fund after a general long-term debt obligation had been paid in full.
8. On July 1, 20X7, the general fund estimated that it would receive $78,000 from the sale of liquor licenses during the fiscal year ended June 30, 20X8. For the year ended June 30, 20X8, $66,000 had been received from liquor license sales.
9. The general fund received $19,000 in October 20X7 from one of the city’s special revenue funds. The amount received represented a reimbursement for an expenditure of the special revenue fund that the city’s general fund paid.
10. In July 20X7, the general fund collected $81,000 of delinquent property taxes that had been classified as delinquent on June 30, 20X7. In the entry to record the property tax levy in July 20X6, the general fund estimated that it would collect all property tax revenues by July 31, 20X7.
Required:
Prepare a schedule showing the amount of revenue that should be reported by Gilbert City’s general fund on the statement of revenues, expenditures, and changes in fund balance for the year ended June 30, 20X8.
Answer:
Gilbert City
A Schedule showing the amount of revenue in the general fund:
1. July 20X7 Property Taxes $2,200,000
2. Apr. 1, 2018 Interest on Advance 1,500
4. 2018 Grant Monies 265,000
5. June 30 Sales Tax 135,000
5. June 30 Additional Sales Taxes 22,000
6. July 20X7 Liquor Licenses 78,000
Total Revenue $2,701,500
Explanation:
Gilbert City, like other government bodies, reports its transactions on the accrual basis. For Gilbert City, this implies that the city will report all revenues receivable, whether actually received or not. And the city only reports the revenues that pertain to the current fiscal period in the current period. Gilbert City's revenues attributed to past and future years do not form part of the revenue for the current period. Gilbert City's reporting basis is in line with the accrual concept and the matching principle of Generally Accepted Accounting Principles.
Which pricing strategy has the advantage of being simple to calculate but has the disadvantage of ignoring demand and competitive conditions
Answer: cost based pricing
Explanation:
Cost-based pricing is when the pricing is based on the production cost, the manufacturing cost and also the distribution cost.
The price of such good or service will be derived when a fraction of the manufacturing costs is added to the selling price. This sum will be required to generate the profit for the product.
Even though it is easy to calculate, it ignores demand and competitive conditions.
Aaker Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $168 Units in beginning inventory 0 Units produced 9,550 Units sold 8,150 Units in ending inventory 1,400 Variable costs per unit: Direct materials $35 Direct labor $66 Variable manufacturing overhead $16 Variable selling and administrative $16 Fixed costs: Fixed manufacturing overhead $229,200 Fixed selling and administrative $138,550 What is the unit product cost for the month under absorption costing
Answer:
Unitary production cost= $141
Explanation:
Giving the following information:
Units produced 9,550
Direct materials $35
Direct labor $66
Variable manufacturing overhead $16
Fixed manufacturing overhead= $229,200
The absorption costing method includes all costs related to production, both fixed and variable. The unit product cost is calculated using direct material, direct labor, and total unitary manufacturing overhead.
First, we need to calculate the unitary fixed manufacturing overhead:
unitary fixed manufacturing overhead= 229,200/9,550
unitary fixed manufacturing overhead= $24
Unitary production cost= 35 + 66 + 16 + 24
Unitary production cost= $141
Refer to the following data: Net sales, first month $13,000 Normal gross profit as a percentage of sales 45% Inventory, start of period $8,000 Net purchases, first month $7,000 Using the gross profit method of inventory estimation, the amount of normal gross profit would be:______.a. $5,850.b. $3,600. c. $6,750. d. $15,000.
Answer:
a. $5,850
Explanation:
Using the gross profit method of inventory estimation, the amount of normal gross profit would be;
= Net sales × Normal gross profit margin percentage
= $13,000 × 45%
= $5,840
A manufacturer of microwaves has discovered that female shoppers have little value for microwaves and attribute almost no extra value to an auto-defrost feature. Male shoppers generally value microwaves more than women do and attribute greater value to the auto-defrost feature. There is little additional cost to incorporating an auto-defrost feature. Since men and women cannot be charged different prices for the same product, the manufacturer is considering introducing two different models. The manufacturer has determined that men value a simple microwave at $82 and one with auto-defrost at $148, while women value a simple microwave at $66 and one with auto-defrost at $82.
Suppose the manufacturer is considering three pricing strategies:
1. Market a single microwave, with auto-defrost, at $69, to both men and women.
2. Market a single microwave, with auto-defrost, at $121, to only women.
3. Market a simple microwave to men, at $52. Market a microwave, with auto-defrost, to women at $103.
For simplicity, assume there is only 1 man and 1 woman and that if the price of a microwave is equal to an individual's willingness to pay, the individual will purchase the microwave.
Use the following table to indicate the revenue from men, the revenue from women, and the total revenue from each strategy.
Strategy Revenue from Revenue from Total Revenue from Strategy
Men Women
1. Auto-Defrost
Microwave only at $82
2. Auto-Defrost Microwave
only at $148
3. Simple Microwave at $66,
Auto-Defrost Microwave at $131
Suppose that, instead of one man and one woman, the market for this microwave consisted entirely of men. For simplicity, you can assume this means that there are two men, and no women. Under these conditions, pricing strategy_____would maximize revenue for the manufacturer.
Answer:
For simplicity, assume there is only 1 man and 1 woman and that if the price of a microwave is equal to an individual's willingness to pay, the individual will purchase the microwave.
If the number of male and female buyers is the same, then the best pricing strategy is to offer 2 different microwaves (option 3). One simple and cheap microwave for women and one with auto-defrost for men.Strategy Revenue Revenue Total Revenue
from men from women from strategy
1. Auto-Defrost $82 $82 $164
Microwave only
at $82
2. Auto-Defrost $148 $0 $148
Microwave only
at $148
3. Simple $131 $66 $197
Microwave at $66,
Auto-Defrost
Microwave at $131
Suppose that, instead of one man and one woman, the market for this microwave consisted entirely of men. For simplicity, you can assume this means that there are two men, and no women. Under these conditions, pricing strategy 2. Auto-Defrost Microwave only at $148 would maximize revenue for the manufacturer.
Bricks and Mortar Manufacturing produces building materials for local construction contractors. BMM has two production departments (Mixing and Baking) and two service departments (Maintenance and Cleaning). Maintenance costs are allocated based on machine hours used. Cleaning costs are allocated based on square feet of floor space.
The following data is available for BMM:
Mixing:
600 square feet of floor space,
200 machine hours used
Baking:
450 square feet of floor space,
500 machine hours used
Maintenance costs incurred: $4,900
Cleaning costs incurred: $2,300
How much of the Cleaning costs should be allocated to the Baking department?
Answer:
Cleaning costs of baking department = $986 (Approx)
Explanation:
Given:
Mixing: department = 600 square feet of floor
Mixing: department = 200 machine hours used
Baking department = 450 square feet of floor
Baking department = 500 machine hours used
Maintenance costs = $4,900
Cleaning costs = $2,300
Find:
Cleaning costs of baking department
Computation:
Cleaning costs of baking department = [Baking department area / Total area]Cleaning costs
Cleaning costs of baking department = [450 / (450 + 600)]2,300
Cleaning costs of baking department = [0.4286]2,300
Cleaning costs of baking department = 985.78
Cleaning costs of baking department = $986 (Approx)
All About Animals has two product lines: Cat food and Dog food. Contribution margin income statement data for the most recent year follow: Total Cat Food Dog Food Sales revenue $85,000 Variable expenses $40,000 Contribution margin $45,000 Fixed expenses $52,000 Operating income (loss) $ $(7,000) Assuming the Dog food is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for per year, how will operating income be affected?
Answer:
Increase in operating income by $12,000
Explanation:
The above is an incomplete question because the value for 'space normally used to produce the rented line' is missing. However, I assumed the value is $26,000 per year as gotten from the internet -Chegg.
Given the above information, the operating income can be affected as calculated below;
Sales revenue $85,000
Add additional revenue $26,000
Total revenue $11,1000
Less: variable expenses ($40,000)
Contribution margin $71,000
Less: fixed expense ($52,000)
New net operating income
$19,000
Less: Original operating income
($7,000)
Increase in operating income
$12,000
During the current year, Orr Company incurred the following costs: Research and development services performed by Key Corp. for Orr $ 150,000 Design, construction, and testing of preproduction prototypes and models 200,000 Testing in search for new products or process alternatives 175,000 In its income statement for the current year, what amount should Orr report as research and development expense
Answer:
$525,000
Explanation:
The amount to be recognized as research and development expense for the year includes the cost of research and development services performed by Key Corp. for Orr, the cost incurred on testing of pre-production prototypes and models as well as the cost of testing in search for new products or process alternatives,
In other words, all costs incurred would be expensed since no of them met the capitalization criteria as per generally acceptable accounting principles
In their business partnership, George has an ownership interest of 55% and Ben has an ownership interest of 45%. In the current year, they purchase equipment for $9900. In order to finance the equipment purchase, George makes a cash contribution of $7400 and Ben makes a cash contribution of $2500 to the partnership. Based on the information provided, which of the following is TRUE regarding the partnership balance sheet?
A) Both George, Capital and Ben, Capital will increase by $9900.
B) George, Capital will increase by $7400 and Ben, Capital will increase by $2500.
C) George, Capital will increase by $9900 and Ben, Capital will remain unchanged.
D) George, Capital will increase by $5445 and Ben, Capital will increase by $4455.
Answer: B) George, Capital will increase by $7400 and Ben, Capital will increase by $2500
Explanation:
The Capital Accounts reflect the investments by the various shareholders in the business. It is based on the worth of what was contributed.
As George made a cash contribution of $7,400, George's capital account must be increased by the same amount of $7,400 to reflect the investment that George has made.
The same goes for Ben.
What is crisis management? What distinguishes crisis management from management during ordinary business conditions? What are some principles for leading companies effectively during a crisis?
Explanation:
Crisis management corresponds to the process that managers will have to seek solutions for an organization to go through a period or a situation where there are negative risks to the business.
Crisis management is different from management during normal business conditions, since this is not a management whose focus is to generate positive results by achieving the objectives and goals, crisis management is the planning of action plans aimed at reduce or eliminate adverse situations in a company.
A good leader in a crisis management situation will have to essentially improve his communication skills and strategies, so that the negative effects of anti-crisis actions do not substantially affect employees and their rights, as it is a fact that many times when managing a crisis, the leader will need to reduce the headcount, or cut costs that can mean reduced wages or benefits. Therefore, in order to go through this difficult phase, it is necessary to plan, direct and assertive communication that encourages employees and motivates them to join forces so that integrated people can make the organization recover from the crisis.
New issues of municipal short term notes are available in which form?
Answer: book entry
Explanation:
A municipal bond, which is commonly referred to as a muni bond, can be defined as a bond that is issued by a particular territory or local government in order to finance public projects like airports, schools, roads, museums, seaports, and infrastructure. It should be noted that new issues of municipal short term notes are available in book entry form.
Ottawa, Inc. provides the following data: 2019 2018 Cash Accounts Receivable, Net Merchandise Inventory Property, Plant, and Equipment, Net Total Assets For the year ending December 31, 2019: Net Credit Sales Cost of Goods Sold () Gross Profit Calculate the days' sales in inventory for 2019. (Use 365 days for any calculations. Round any intermediate calculations and your final answer to two decimal places.)
Answer:
days sales in inventory = 85.88 days
Explanation:
The numbers are missing, so I looked for a similar question:
"Ottawa, Inc. provides the following data: 2019 2018 Cash $23,000 $22,000 Accounts Receivable, Net 37,000 37,000 Merchandise Inventory 55,000 25,000 Property, Plant, and Equipment, Net 127,000 96,000 Total Assets $242,000 $180,000 For the year ending December 31, 2019: Net Credit Sales $300,000 Cost of Goods Sold (170,000) Gross Profit $130,000"
first we must determine the inventory turnover ratio:
inventory turnover ratio = COGS / average inventory
average inventory = ($55,000 + $25,000) / 2 = $40,000
COGS = $170,000
inventory turnover ratio = $170,000 / $40,000 = 4.25
days sales in inventory = 365 / inventory turnover ratio = 365 / 4.25 = 85.88 days
Nexus Industries uses a standard costing system to apply manufacturing costs to its production process. In May, Nexus anticipated producing units with fixed manufacturing overhead costs allocated at per direct labor hour with a standard of direct labor hours per unit. In May, actual production was units and actual fixed manufacturing overhead costs were . What was Nexus' fixed manufacturing overhead volume variance in May?
Answer:
$33,700 (Favorable)
Explanation:
Note: Figures are not inputted. The missing figures have been figured out as below.
"Nexus industries uses a standard costing system to apply manufacturing costs to its production process. In May nexus anticipated 2700 units with fixed manufacturing overhead costs allocated at $8.40 per direct labor hour with a standard of 2.5 direct labor hours per unit. In May, actual production was 3400 units and actual fixed manufacturing overhead cost were $23000. What was nexus fixed manufacturing overhead volume variance in May?"
Solution:
Budgeted fixed overhead costs = Units * Direct labor cost * Standard Direct Labor hours per unit
= 2,700 units * $8.40 * 2.5
= 2,700 units * 21
= $56,700
Fixed manufacturing overhead volume variance = Actual fixed overhead cost - Budgeted fixed manufacturing overhead costs
When Actual fixed overhead = $23,000 , Budgeted fixed overhead costs = $56,700
Fixed manufacturing overhead volume variance = $23,000 - $56,700
= $33,700 (Favorable) .
What is the cost of equity for the TMB Corporation based on the following information? Risk premium = 5% Risk free rate = 4% TMB beta: 1.50
Answer:
11.50%
Explanation:
The computation of the cost of equity is shown below:
In this question, we apply the Capital Asset Pricing Model (CAPM) formula which is shown below
Expected rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)
= 4% + 1.5 × 5%
= 4% + 7.5%
= 11.50%
The Market rate of return - Risk-free rate of return) is also known as the market risk premium and the same is applied.
The Herbertson Company leases machines to clients. Annual rentals are paid each year, with the first payment due on the day the lease begins. A machine with a book value of $12,000 is leased. Unguaranteed salvage value is $1,500. Lease term is six years. Herbertson's interest rate is 5%. What is the approximate annual lease payment? "Coursehero"
Answer:
$2,251.63
Explanation:
Calculation for the approximate annual lease payment
Since we looking for the approximate annual lease payment this means that our annual lease payment will be x and since the interest rate is 5% and we were been told that the first payment occured at the beginning of lease in which balance of 5 payments at the end of each year which means that we would find the PVA factors of (5%,5)
Hence,
x + x × Present value annuity factor (5%,5)
= $12,000
x + x(5.3295) = $12,000
5.3295x = $12,000
Now let divide the PVA of 5.3295 by $12,000 in order to get the approximate annual lease payment
x = $12,000 / 5.3295
x = $2,251.63
Therefore the approximate annual lease payment will be $2,251.63
What effective time management tools should human resources managers use to make effective use of their time when it comes to coping with demands, constraints, and choices confronting them
Answer:
The answer is below
Explanation:
They are various Time Management Tools in which an individual can use to manage his or her time effectively. Thus, human resources managers can use any of the listed time management tools in order to make effective use of their time when it comes to coping with demands, constraints, and choices confronting them:
1. To Do List
2. Calendar
3. Address Book
4. Notebook
Caddie Manufacturing has a target debt-equity ratio of .35. Its cost of equity is 12 percent, and its pretax cost of debt is 6 percent. If the tax rate is 21 percent, what is the company’s WACC?
Answer:
10.12%
Explanation:
The computation of the WACC is shown below:
= Cost of debt × (1 - tax rate) × weight of debt + cost of equity × weight of equity
= 6% × (1 - 0.21) × 0.35 ÷ 1.35 + 12% × 1 ÷ 1.35
= 1.23% + 8.89%
= 10.12%
We simply multiplied the capital structure with each of its weight so that the WACC could come and the same is to be considered
What insight does ROI give into investment performance? Is it acceptable to lose product on one product, if that product is vital to the sale of an extremely profitable product? Please explain why?
Answer:
ROI = net income / investment
Investors will always prefer a higher ROI, as long as the project's risk doesn't increase due to the higher ROI. E.g. a very low risk project might have a discount rate = 5-6%, while a very risky project might have a discount rate of over 20-30%. The same applies to any type of investment, relatively secure projects or investments will relatively higher ROIs are extremely desirable. But as more people want to invest in them, the returns should fall to a more "normal" level.
Sometimes, you can lose when selling one product if that results in higher gains from selling another product. E.g. on my job we sell paper towels and napkins. Paper towels generally yield very high gains, but napkins usually result in a loss or at best a break even situation. But we use paper napkins as an "incentive" to sell paper towels. If we look at total volume of units, we sell much more paper napkins than paper towel, but paper towel sales yield 30 times more profit (on a per $ basis) than napkins. So we offer our clients a combo of a discount on napkins if they purchase a certain amount of paper towels.