Answer:
Particulars Amount
Retained earnings January 1,2016 $39,000
as originally posted
Prior period adjustment $6,000
Retained earnings as adjusted $33,000
Net Income for the year $72,000
$105,000
Dividends declared $23,000
Retained earnings December 31, 2016 $82,000
NU YU announced today that it will begin paying annual dividends. The first dividend will be paid next year in the amount of $.33 a share. The following dividends will be $.38, $.53, and $.83 a share annually for the following three years, respectively. After that, dividends are projected to increase by 2.6 percent per year. How much are you willing to pay today to buy one share of this stock if your desired rate of return is 9 percent?
Answer:
$11.05
Explanation:
Calculation for how much are you willing to pay today to buy one share of this stock
First step is to find the value after year 4
Using this formula
Value after year 4=(D4*Growth rate)/(Required rate-Growth rate)
Let plug in the formula
Value after year 4=(0.83×1.026)/(0.09-0.026)
Value after year 4=0.85158/0.064
Value after year 4=13.3058375
Second step is to calculate for the current value
Using this formula
Current value=Future dividend and value×Present value of discounting factor(rate percentage ,time period)
Let plug in the formula
Current value=0.33/1.09+0.38/1.09^2+0.53/1.09^3+0.83/1.09^4+13.3058375/1.09^4
Current value=0.30275+0.31983+0.40925+0.58799+9.42619
Current value=$11.05
Therefore How much you are willing to pay today to buy one share of this stock if your desired rate of return is 9 percent will be $11.05
The difference between a perfectly competitive firm and a monopolistically competitive firm is that a monopolistically competitive firm faces a
Answer:
Downward sloping MR curve
Explanation:
A monopolistically firm faces a downward-sloping marginal revenue curve while a perfectly competitive has the horizontal MR curve that is parallel to the x-axis. Moreover, the price is determined by the market forces in the industry for a perfectly competitive firm. But in the case of monopolistically competitive firm, the price is determined by the seller or monopolist.
Rodriguez Corporation issues 10,000 shares of its common stock for $211,600 cash on February 20. Prepare journal entries to record this event under each of the following separate situations.
1. The stock has a $18 par value.
2. The stock has neither par nor stated value.
3. The stock has a $9 stated value.
Record the issue of 10,000 shares of $8 par value common stock for $122,200 cash.
Answer: Please find answers in the explanation column
Explanation:
1.Journal To record issue of common stock at $18 par value
Date Accounts & explanation Debit Credit
Feb 20 Cash $211,600
Common stock at $18 par value (10000 X 18) $180,000
Paid in capital in excess of par value-common stock $31,600
( $211,600 - $180,000 )
2. Journal entry To record issue of common stock at neither par nor stated value.
Date Accounts & explanation Debit Credit
Feb 20 Cash $211, 600
Common stock $211, 600
3. Journal To record issue of common stock at $9 stated value
Date Accounts & explanation Debit Credit
Feb 20 Cash $211, 600
Common stock (10,000 X 9) $90,000
Paid in capital in excess of stated value-common stock $121,600
( $211,600 - $90,000 )
4 . Journal To record issue of common stock at $8 par value
Date Accounts & explanation Debit Credit
Feb 20 Cash $211, 600
Common stock (10,000 X 8) $80,000
Paid in capital in excess of par value-common stock $131,600
( $211,600 - $80,000 )
Companies are doing less ________ and more ________ as a result of an explosion of more focused media that better match today’s targeting strategies. Group of answer choices
Answer: broadcasting; narrowcasting
Explanation:
With technological advancements in the marketing landscape especially on the internet, companies are now able to target individuals better based in their preferences and patterns of trade.
Search engines and websites for instance are able to save our data as we browse and so are able to infer what products we might be looking for and then recommend a place to get it. Companies are capitilizing on this to engage in more narrow methods of advertising that appeal to the individual consumer as opposed to broadcasting on a large scale and hoping that those who like the message will respond.
On April 12, Hong Company agrees to accept a 60-day, 8%, $5,700 note from Indigo Company to extend the due date on an overdue account. What is the journal entry that Indigo Company would make, when it records payment of the note on the maturity date
Answer:
Interest = Principal Amount × Rate × Number of days / 365
Interest = $5,700 * 10% * 60/365
Interest = $96.70
Cash to be paid = Principal Amount + Interest
Cash to be paid = $5,700 + $96.70
Cash to be paid = $5796.70
On the date of maturity, journal entry to make the payment of note payable is given below
Date Account Title & Explanation Debit Credit
Note Payable $5,700
Interest Expense $96.70
Cash $5796.70
A project that will last for 10 years is expected to have equal annual cash flows of $103,900. If the required return is 8.4 percent, what maximum initial investment would make the project acceptable
Answer:
Maximum amount will be present value of future cash flow is $684,772.10
Explanation:
Present Value of annual cash flow = Annual Cash flows * Present value of annuity of 1
Present Value of annual cash flow = $103,900 * 6.590684
Present Value of annual cash flow = $684,772.0676
Present Value of annual cash flow = $684,772.10
Workings
Present value of annuity of 1 = (1-(1+i)^-n)/i
i = 8.40%, n = 10 years
Present value of annuity of 1 = (1-(1+0.084)^-10)/0.084
Present value of annuity of 1 = 6.590684306
Boston Recyclers Company uses the indirect method to prepare its statement of cash flows. Refer to the following information for 2019:
1. Retained Earnings, beginning balance, $139,000
2. Retained Earnings, ending balance, $120,000
3. There is a net loss of $15,000 for the year.
What is the amount of dividends declared during the year?
Answer:
$4,000
Explanation:
We will use the formulae below to get the amount of dividend the declared during the year
Ending retained earnings = Beginning retained earnings - Net loss - Dividends declared
$120,000 = $139,000 - $15,000 - Dividends declared
$120,000 = $124,000 - Dividend declared
Dividend declared = $124,000 - $120,000
Dividend declared = $4,000
Assume the required reserve ratio is 12 percent and that the commercial banking system has $110 million in excess reserves. The maximum amount of money which the banking system could create is: (round to the nearest number) g
Answer: $917 million
Explanation:
From the question, we are informed that the required reserve ratio is 12 percent and that the commercial banking system has $110 million in excess reserves.
Based on the above analysis, the maximum amount of money which the banking system could create will be:
= $110,000,000/12%
= $110,000,000/0.12
= $ 917,000,000
= $917 million
Risingstar Corporation currently has shares outstanding of par value common stock. The stock was originally issued for per share. On March 15, the board of directors declares a % stock dividend when the stock is selling for per share. Which of the following is the correct journal entry to record this transaction? (Do not round intermediate calculations.)
a. debit Paid-In Capital in Excess of Par-Common $368,940 and credit Retained Earnings $368,940
b. debit Stock Dividends $368,940, credit Common Stock Dividend Distributable $50,310 and credit Paid-In Capital in Excess of Par—Common $318,630
c. debit Stock Dividends $368,940 and credit Common Stock Dividend Distributable $368,940
d. debit Common Stock Dividend Distributable $50,310, debit Paid-In Capital in Excess of Par—Common for $318,630 and credit Retained Earnings $368,940
Answer:
b. debit Stock Dividends $368,940, credit Common Stock Dividend Distributable $50,310 and credit Paid-In Capital in Excess of Par—Common $318,630
Explanation:
the numbers are missing in the question:
129,000 shares at $3 par value sold at $1413% stock dividend when price is $22 per stocksince this is a small stock dividend, we must record the transaction using the market value:
total stock dividend = 129,000 x 13% = 16,770 stocks
total transaction = 16,770 x $22 = 368,940
Dr Stock dividends 368,940
Cr Common stock dividends distributable 50,310
Cr Additional paid in capital: common stock 318,630
Common stock dividends distributable = 16,770 x $3 = $50,310
additional paid in capital = $368,940 - $50,310 = $318,630
"A customer has an existing short margin account and wants to write five covered puts against 500 shares of stock that are short in the account. The margin requirement to write the puts is:"
Answer: 0
Explanation:
From the question, we are informed that a customer has an existing short margin account and wants to write five covered puts against 500 shares of stock that are short in the account.
Based on the above scenario, the margin requirement to write the puts will be zero. This is due to the fact that there is no risk that is attached to the short calls.
Publisher problem: Full court press inc buts slick paper in 1525 pound rolls for textbook paper. Annual demand is 1800 rolls. The cost per roll is $900, and the annual holding cost is 15 percent of the cost. The ordering costs are $225 per order. What is the time between orders in WEEKS in a 52 week year?
a. 0.033.
b. 2.638.
c. 2.253.
d. 1.167.
e. 0.167.
Answer:
C. 2.253
Explanation:
The time between orders in WEEKS in a 52 week year can be calculated as follows
DATA
Annual Demand (D) = 1800 rolls
Cost per roll = $900
Annual holding cost (Ch) = 15% of $900 = $135
Ordering cost (Co) =$225
Solution
EOQ = [tex]\sqrt{\frac{2CoD}{Ch} }[/tex]
EOQ = [tex]\sqrt{\frac{2x225x1800}{135} }[/tex]
EOQ = 78 rolls
Number of orders = 1800/78
Number of orders = 23.077
The time between orders = 52/23.077
The time between orders = 2.253
_______________________ propose(s) giving an industry a short-term indirect subsidy to support it until such time that it matures and turns into a vibrant, healthy industry.
a. Price- and profit-maintenance policies
b. Protection against dumping
c. The infant industry argument
d. Self-sufficiency policies
Answer:
c. The infant industry argument
Explanation:
Infant industry argument is a mechanism for trade protectionism. It argues that a new industry does not have the economies of scale enjoyed by older competitors.
So they will need to be protected and funded till they develop and match up with economies of scale of other competitors.
Infant industries need to be supported as they are not able compete favourably with other companies from abroad.
Their protection will lead to a more vibrant economy where multiple players compete favourably.
Price leadership is legal in the United States, whereas price-fixing is not. This is because price leadership is not an agreement, whereas price-fixing is. a registered arrangement subject to oversight, whereas price-fixing is not. an agreement, whereas price-fixing is not. not a registered arrangement subject to oversight, whereas price-fixing is.
Answer:
This is because price leadership is not an agreement, whereas price-fixing is.
Explanation:
Price fixing is a type of collusion (and yes, collusion is illegal). Price fixing is an illegal business practice where competing firms agree upon increasing, decreasing or maintaining the price of certain goods or services. In the US, competing firms must establish their prices by themselves without consulting or agreeing with their competition.
Which of the following items will not appear in the operating section of patnode's 2005 indirect method cash flow statement?
A. Deduct: increase in accounts receivable $3,000.
B. Add: decrease in accounts payable $1,000.
C. Add: increase in taxes payable $2,400.
D. Add: decrease inventories $6,000.
Answer:
B. Add: decrease in accounts payable $1,000.
Explanation:
Operating Cash Flow (OCF) can be described as the cash that comes from the normal operating activities a company during a particular period.
The operating cash flow section starts with net income and other items that appear under it include change in current assets and current liabilities.
The following are 4 rules that employed to determine the nature of an adjustment to a current asset or current liability under the operating cash flow section of the cash flow statement:
Rule 1: When a current asset increases, you deduct.
Rule 2: But when a current asset reduces, you add.
Rule 3: When a current a liability increases, you add.
Rule 4: But when a current liability reduces, you deduct.
The 4 rules are now applied to this question as follows:
A. Deduct: increase in accounts receivable $3,000.
Account receivable is a current asset and there is an increase in it. Based on Rule 1, we deduct. Therefore, what is done is correct and will appear in the operating section of the cash flow.
B. Add: decrease in accounts payable $1,000.
Accounts payable is a current liability and there is a decrease in it. Based on Rule 4, we should deduct. Therefore, what is done is wrong and will not appear in the operating section of the cash flow.
C. Add: increase in taxes payable $2,400.
Taxes payable is a current liability and there is an increase in it. Based on Rule 3 above, we add. Therefore, what is done for this is correct and will appear in the operating section of the cash flow.
D. Add: decrease inventories $6,000.
Inventory is a current asset and there is a decrease in it. Based on Rule 2 above, we add. Therefore, what is done is correct and will appear in the operating section of the cash flow.
Conclusion
Based on the analysis above, only option B is wrong and will not appear in the the operating section of the cash flow. Therefore, the answer is B. Add: decrease in accounts payable $1,000.
A commercial bank will loan you $20,000 for four years to buy a car. The loan must be repaid in 48 equal monthly payments. The annual interest rate on the loan is 6.00 percent of the unpaid balance. How large are the monthly payments?
Answer:
Monthly payment = $469.701
Explanation:
Loan Amortization: A loan repayment method structured such that a series of equal periodic installments will be paid for certain number of periods to offset both the loan principal amount and the accrued interest.
The monthly equal installment is calculated as follows:
Monthly equal installment= Loan amount/Monthly annuity factor
Loan amount = 20,000
Monthly annuity factor =
=( 1-(1+r)^(-n))/r
r- Monthly interest rate (r)
= 6/12= 0.5%
n- Number of months ( n) = 20 × 4 = 48
Annuity factor
= ( 1- (1.005)^(-48)/0.005= 42.5803
Monthly installment= 20,000 /42.5803 = $469.701
Monthly installment = $469.701
Monthly payment = $469.701
A hotel guest goes down to the snack shop in the hotel lobby and purchases a candy bar and a soda. The guest has purchased what from the snack shop?
Answer:
Candy Bar
Explanation:
The hotels have snack shops available in the lobby so that when guests want to eat something light they can have it right from the lobby snack bar. The soda are usually available at the soda shops which are separate than the snack shops. The guest can purchase candy bar from snack shop and he can have soda from soda shop.
Golden Enterprises started the year with the following: Assets $125.000: Liabilities $42,500: Common Stock $73,000, Retained Earnings $11,000 During the year, the company earned revenue of $6,700, all of which was received in cash, and incurred expenses of $3,850, all of which were unpaid as of the end of the year. In addition, the cominy paid dividends of $2700 to owners. Assume no other activities occurred during the year The amount of Golden's retained earnings at the end of the year is:_________
Answer:
$11,150
Explanation:
The amount of Golden's retained earnings at the end of the year is calculated below
Ending retained earnings = Beginning retained earnings + Net income - Dividends
= $11,000 + ($6,700 - $3,850) - $2,700
= $11,150
2. Many large department and specialty stores are changing their salespeople’s reward system from a salary to a commission-based system. What problems can commission-based systems cause? How can department managers avoid these problems?
Answer:
Some of the problems of a commission-based system can lead to are:
Aggressive sales tactics by sales personnel: People can be very driven when money is involved. When a company's compensation plan puts a heavyweight on commissions, salespeople, know that their depends on same resort all sort of manoeuvers in order meet their targets. Some times they push too much and this repels customers leading to negative brand equity which in turn stimulates the opposite effect that the compensation plan was installed to attain. Department managers in consultation with the HR department can work out a compensation system that is not so reliant on commissions so as to create a balance. It is also important to keep a feedback system in place that allows the company to monitor its brand equity.2. Budget/Compensation Disequilibrium
When a company relies on a sales system that is heavily dependent on a commission-based reward system, sometimes, they could find themselves in a spot where they have to pay out commissions even though the monies have not come in.
This could lead to cash flow problems.
One way out of this is to use policies to manage the amount of days goods can be held in credit by the debtor. That is, if usually, such a company had a credit policy of 60 days, they could shorten it to 45 or 30 days. It can also elect to put an interest rate on the credit. This will discourage customers from holding on to their payment for too long.
Policies can also be used to manage the sales personnel date of payment for goods sold on credit. The policy can state that "commissions for cash sales will be paid as at when due. However, the commission on credit sales will be paid when the company recieves payment for same".
Cheers!
Which of the following is true of taxes and subsidies? Group of answer choices Politicians like to levy taxes, but they are reluctant to subsidize activities. Both taxes and subsidies increase the incentive to work and use resources efficiently. If you tax something, you will get less of it; if you subsidize an activity, you will get more of it. If you tax something, you will get more of it; if you subsidize an activity, you will get less of it.
Answer: If you tax something, you will get less of it; if you subsidize an activity, you will get more of it
Explanation:
Taxes are the levy that governments impose on people or firms. Subsidies are financial aid to companies in order to boost production and reduce price.
It should be noted that if you tax something, you will get less of it; if you subsidize an activity, you will get more of it. For example of an income is taxed, the owner of the income will geta lesser amount as tax will be removed.
The manager of a crew that installs carpeting has tracked the crew's output over the past several weeks, obtaining these figures:
Answer and Explanation:
a. The computation of labor productivity for each of the weeks is shown below:-
Week Crew size Yards installed labor productivity
1 4 97 24.25
2 3 71 23.67
3 4 98 24.5
4 2 54 27
5 3 63 21
6 2 52 26
Therefore for computing the labor productivity for each week we simply divide the yards installed by crew size.
b. Perhaps even-sized crews are better than uncommon sizes and a crew of 2 seems to be performing best among the others
In the top left-hand corner of the screen, under the question number, it says “Part 1 of 2”. This indicates that:
Answer:
This indicates that:
the question continues on the next screen or page.
Explanation:
"Part 1 of 2" is an indication that what the reader or viewer is currently viewing is the first page or screen of the indicated information. This fact implies that there a continuation of the question or information on the next screen or page. If the reader or viewer stops on the part 1 without looking at the part 2, he or she will be omitting some issues, thus, leaving them unattended to.
A minimum wage that is set above a market's equilibrium wage will result in an excess:________.
a. demand for labor, that is, unemployment.
b. supply of labor, that is, a shortage of workers.
c. demand for labor, that is, a shortage of workers.
d. supply of labor, that is, unemployment.
Answer:
D
Explanation:
A minimum wage set above market's equilibrium wage increases the cost of hiring labour. so the demand of labour falls.
A minimum wage that is set above a market's equilibrium wage increases the income that would be earned by labour, so the supply of labour increases.
Because the increased supply for labour would not be matched with a corresponding increase in demand, there would be unemployment
Following a peso appreciation relative to the dollar, which of the following results is expected to occur?
a. U.S. consumers would benefit, and Mexican producers would benefit.
b. U.S. consumers would be hurt, and Mexican producers would benefit.
c. U.S. consumers would benefit, and Mexican producers would be hurt.
d. U.S. consumers would be hurt, and Mexican producers would be hurt.
Answer:
B
Explanation:
A currency appreciates when its value increases.
For example if $1 was exchanged for 50 pesos. After appreciation of the pesos, $1 would buy $25 pesos.
So more $2 would be needed to buy 50 peso after the appreciation when before the appreciation $1 was buying 50 pesos.
As a result Mexican goods would become more expensive to US consumers and the revenue earned by Mexican producers would increase
Security F has an expected return of 11.6 percent and a standard deviation of 44.6 percent per year. Security G has an expected return of 16.6 percent and a standard deviation of 63.6 percent per year. a. What is the expected return on a portfolio composed of 24 percent of Security F and 76 percent of Security G? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return 15.40 15.40 Correct % b. If the correlation between the returns of Security F and Security G is .19, what is the standard deviation of the portfolio described in part (a)? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Standard deviation 51.45 51.45 Correct %
Answer:
A.Expected return on a portfolio = 15.40%
B.Standard deviation of the portfolio=51.45%
Explanation:
A.Calculation for the expected return on a portfolio
Using this formula
Expected return on a portfolio = Weight of Security F × Expected return of Security F+ Weight of Security G × Expected return of Security G
Let plug in the formula
Expected return on a portfolio = 24%×11.60 + 76%×16.60
Expected return on a portfolio =2.784+12.616
Expected return on a portfolio = 15.40%
Therefore the Expected return will be 15.40%
b. Calculation for the standard deviation of the portfolio described in part (a)
Using this formula
Standard deviation of the portfolio = (Weight of Security F^2×Standard Deviation of Security F^2 + Weight of Security G^2 × Standard Deviation of Security G^2 + 2×Weight of Security F×Weight of Security G×Standard Deviation of Security F×Standatd Deviation of Security G*correlation)^(1/2)
Let plug in the formula
Standard deviation of the portfolio = (24%^2×44.60%^2 + 76%^2×63.60%^2 + 2×24%×76%×44.60%×63.60%×0.19)^(1/2)
Standard deviation of the portfolio = (0.0576×0.198916+0.5776×0.404496+0.0196607)^(1/2)
Standard deviation of the portfolio =
(0.0114575+0.2336368+0.0196607)^(1/2)
Standard deviation of the portfolio=(0.264755)^(1/2)
Standard deviation of the portfolio=0.5145×100
Standard deviation of the portfolio=51.45%
Therefore Standard deviation of the portfolio will be 51.45%
Which function of the management process requires a manager to establish goals and standards and to develop rules and procedures?
Answer:
The planning function of management includes establishing goals and standards, developing rules and procedures, and developing plans and forecasting
Explanation:
Planning is the function of management that involves setting objectives and determining a course of action for achieving those objectives.
If the residual value of a leased asset is guaranteed by a third party:________.
A. it is treated by the lessee as no residual value.
B. the third party is also liable for any lease payments not paid by the lessee.
C. the net investment to be recovered by the lessor is reduced.
D. it is treated by the lessee as an additional payment and by the lessor as realized at the end of the lease term.
Answer:
A. it is treated by the lessee as no residual value.
Explanation:
If the expected residual value is in assurance or unguaranteed, that's the economic and accounting product of the lesses
Furthermore, the guaranteed residual value also affects the computation of the minimum lease payment and the capitalised amount for an asset i.e. leased, lease obligation for the lessee
The promised residual value is an extra lease payment that can be paid in real estate or in cash, or both
Although the unguaranteed residual value, on the other hand, stays the same because no residual value will be impacted with respect to the estimation of the total lease payment and the capitalised amount for an asset, i.e. rented, lease contract.
Suppose you have been hired as a financial consultant to Defense Electronics, Inc. (DEI), a large, publicly traded firm that is the market share leader in radar detection systems (RDSs). The company is looking at setting up a manufacturing plant overseas to produce a new line of RDSs. This will be a five-year project. The company bought some land three years ago for $7.2 million in anticipation of using it as a toxic dump site for waste chemicals, but it built a piping system to safely discard the chemicals instead. If the land were sold today, the net proceeds would be $7.68 million after taxes. In five years, the land will be worth $7.98 million after taxes. The company wants to build its new manufacturing plant on this land; the plant will cost $13.32 million to build. The following market data on DEI’s securities are current:
Answer:
Initial Cash Flow at Time 0 = -(Appraised Value of Land + Cost of Building Plant and Equipment + Net Working Capital)
Substituting values in the above formula, we get,
Initial Cash Flow at Time 0 = -(6,000,000 + 32,600,000 + 1,475,000) = -$40,075,000 (answer for Part a)
_____
Part b)
Step 1: Calculate Weights of Different Sources of Finance
Market Value of Debt = Number of Bonds*Par Value*Current Selling Price Percentage = 245,000*1,000*105% = $257,250,000
Market Value of Common Stock = Number of Shares*Current Selling Price = 9,500,000*73.10 = $694,450,000
Market Value of Preferred Stock = Number of Shares*Current Selling Price = 465,000*83 = $38,595,000
Total Market Value of Firm = Market Value of Debt + Market Value of Common Stock + Market Value of Preferred Stock = 257,250,000 + 694,450,000 + 38,595,000 = $990,295,000
Now, we can calculate weights as follows:
Weight of Debt = Market Value of Debt/Total Market Value of Firm = 257,250,000/990,295,000
Weight of Equity = Market Value of Equity/Total Market Value of Firm = 694,450,000/990,295,000
Weight of Preferred Stock = Market Value of Preferred Stock/Total Market Value of Firm = 38,595,000/990,295,000
_____
Step 2: Calculate After-Tax Cost of Debt
The after-tax cost of debt can be calculated with the use of Rate function/formula of EXCEL/Financial Calculator. The function/formula for Rate is Rate(Nper,PMT,-PV,FV) where Nper = Period, PMT = Payment (here, Coupon Payment), PV = Present Value (here, Current Selling Price) and FV = Future Value (here, Face Value of Bonds).
Here, Nper = 23*2 = 46, PMT = 1,000*6%*1/2 = $30, PV = 1,000*105% = $1,050 and FV = $1,000
Using these values in the above function/formula for Rate, we get,
Pre-Tax Cost of Debt = Rate(46,30,-1050,1000)*2 = 5.61%
After-Tax Cost of Debt = Pre-Tax Cost of Debt*(1-Tax Rate) = 5.61%*(1-22%) = 4.38%
______
Step 3: Calculate Cost of Preferred Stock
The cost of preferred stock is determined as below:
Cost of Preferred Stock = Annual Dividend/Current Stock Price*100 = (3.8%*100)/83*100 = 4.58%
______
Step 4: Calculate Cost of Equity
The cost of equity is arrived as below:
Cost of Equity = Risk Free Rate + Beta*(Market Risk Premium) = 2.9% + 1.2*(6%) = 10.10%
Calculate Discount Rate
The value of discount rate is calculated as follows:
Discount Rate = (Weight of Debt*After-Tax Cost of Debt + Weight of Preferred Stock*Cost of Preferred Stock + Weight of Equity*Cost of Equity) + Appropriate Risk Adjustment Factor
Substituting values in the above formula, we get,
Discount Rate = (257,250,000/990,295,000*4.38% + 38,595,000/990,295,000*4.58% + 694, 450,000/990,295,000*10.10%) + 1.5% = 9.90% (answer for Part b)
The after-tax salvage value of the plant is arrived as below:
Annual Depreciation = Cost of Plant and Equipment/Useful Life = 32,600,000/8 = $4,075,000
Book Value of Plant and Equipment After 5 Years = Cost of Plant and Equipment - Annual Depreciation*5 = 32,600,000 - 4,075,000*5 = $12,225,000
Loss on Sale of Plant and Equipment = Book Value of Plant and Equipment After 5 Years - Salvage Value = 12,225,000 - 5,200,000 = $7,025,000
After-Tax Salvage Value = Salvage Value + Loss on Sale of Plant and Equipment*Tax Rate = 5,200,000 + 7,025,000*22% = $6,745,500 (answer for Part c)
The annual operating cash flow (OCF) is determined as follows:
Sales Value (19,550*11,070) 216,418,500
Less Variable Costs (19,550*9,700) 189,635,000
Fixed Costs 7,500,000
Depreciation 4,075,000
EBT 15,208,500
Less Taxes 3,345,870
EAT 11,862,630
Add Depreciation 4,075,000
Operating Cash Flow $15,937,630
Answer for Part d) is $15,937,630.
The accounting break-even quantity is calculated as follows:
Accounting Break-Even Quantity = (Fixed Cost + Depreciation)/(Selling Price - Variable Cost)
Substituting values in the above formula, we get,
Accounting Break-Even Quantity = (7,500,000 + 4,075,000)/(11,070 - 9,700) = 8,449 units (answer for Part e)
IRR
IRR is the minimum rate of return acceptable from a project. It can be calculated with the use of IRR function/formula of EXCEL/Financial Calculator. The basic formula for calculating IRR is given below:
NPV = 0 = Cash Flow Year 0 + Cash Flow Year 1/(1+IRR)^1 + Cash Flow Year 2/(1+IRR)^2 + Cash Flow Year 3/(1+IRR)^3 + Cash Flow Year 4/(1+IRR)^4 + Cash Flow Year 5/(1+IRR)^5
IRR is calculated with the use of EXCEL as below:
Year Cash Flow 0 -40075000 15937630 15937630 15937630 15937630 30558130 33.16% 4 6 4 IRR 10
where
IRR = RR(B2:B7) = 33.16%
NPV
The NPV can be calculated with the use of following formula:
NPV = Cash Flow Year 0 + Cash Flow Year 1/(1+Discount Rate)^1 + Cash Flow Year 2/(1+Discount Rate)^2 + Cash Flow Year 3/(1+Discount Rate)^3 + Cash Flow Year 4/(1+Discount Rate)^4 + Cash Flow Year 5/(1+Discount Rate)^5
Substituting values in the above formula, we get,
NPV = -40,075,000 + 15,937,630/(1+9.90%)^1 + 15,937,630/(1+9.90%)^2 + 15,937,630/(1+9.90%)^3 + 15,937,630/(1+9.90%)^4 + (15,937,630 + 6,745,500 + 1,475,000 + 6,400,000)/(1+9.90%)^5 = $29,619,521.66
Profit, time and performance are all basic classifications of project priorities.
a) true
b) false
Answer:
b) false
Explanation:
The basic classifications of project priorities are cost, time and performance. Profit is not included in the list, cost is included.
A project manager must decide how to manage the trade offs between cost, time and performance. E.g. if you want something well done and cheap, you cannot expect to have it done fast. If you want something done well and fast, it wouldn't be cheap.
You need a 20-year, fixed-rate mortgage to buy a new home for $190,000. Your mortgage bank will lend you the money at a 8.1 percent APR for this 240-month loan. However, you can afford monthly payments of only $950, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment. How large will this balloon payment have to be for you to keep your monthly payments at $950
Answer:
$388,301, the loan's principal balance increases because the monthly payment doesn't even cover interest expense
Explanation:
In order for you to pay the debt completely in 20 years, you would need to pay $1,601.08 per month. But since you can only afford to pay $950 per month, the remaining balance will be $388,301.
I prepared an amortization schedule in an excel spreadsheet
Ticketsales, Inc., receives $5,000,000 cash in advance ticket sales for a four-date tour of Bon Jovi. Record the advance ticket sales on October 31. Record the revenue earned for the first concert date of November 5, assuming it represents one-fourth of the advance ticket sales.
Answer:
31-Oct
Dr Cash $5,000,000
Cr To Unearned Ticket revenue $5,000,000
05-Nov
Dr Unearned Ticket revenue $1,250,000
Cr To Ticket Revenue $1,250,000
Explanation:
Preparation of the Journal entry to record the advance ticket sales on October 31.
Since we were told that the company receives the amount of $5,000,000 cash in advance ticket sales this means that the transaction will be recorded as:
31-Oct
Dr Cash $5,000,000
Cr To Unearned Ticket revenue $5,000,000
Preparation of the Journal entry record the revenue earned for the first concert date of November 5
Since we were told that the company receives $5,000,000 cash in advance ticket sales for a four-date tour of Bon Jovi this means that the transaction will be recorded as:
05-Nov
Dr Unearned Ticket revenue $1,250,000 ($5,000,000*1/4)
Cr To Ticket Revenue $1,250,000