Minion, Inc., has no debt outstanding and a total market value of $211,875. Earnings before interest and taxes, EBIT, are projected to be $14,300 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20 percent higher. If there is a recession, then EBIT will be 35 percent lower. The company is considering a $33,900 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,500 shares outstanding. Assume the company has a tax rate of 21 percent
a-1. Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
a- Calculate the percentage changes in EPS when the economy expands or enters a 2. recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to the nearest whole number, e.g., 32.)
b-1.Calculate earnings per share, EPS, under each of the three economic scenarios after the recapitalization. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
b- Calculate the percentage changes in EPS when the economy expands or enters a 2. recession assuming recapitalization has occurred.
Answers
Answer:
Please see attached.
Explanation:
a. Calculate earnings per share EPS under each of the three economic scenarios
a.2 Calculate the percentage changes in earnings per share EPS for economic expansion, or recession.
b-i calculate economic per share EPS, under each of the three economic scenarios after recapitalisation.
b-2 calculate the percentage changes in EPS when the economy enters or expand a recession assuming no recapitalisation occurred.
Please find attached detailed solution to the above questions.
Related Questions
On January 1, 2020 Herald acquires 100% of Tribune and will operate Tribune as a wholly owned subsidiary. Herald's purchase price was less than the fair value of the net assets of Tribune. How is this handled
Answers
Answer:
When the purchase price is lower than the fair market value, accountants generally refer to this as negative goodwill. All negative goodwill must be reported as a gain.
Another way to refer to this type of situation is a bargain purchase (lower price than FMV).
Jay O'Brien LeBron new style is Coco fastest fighter
Answers
If a Treasury note has a bid price of $975, the quoted bid price in the Wall Street Journal would be
Answers
Answer:
the quoted bid price would be 97:16
Explanation:
the quoted ask price will be 97:50
The quoted bid price is the price at which buyers are willing to purchase a security, while the quoted ask is the price at which sellers are willing to sell their securities. There is always a difference between both of them, and it is called the spread.
Hart Attorney at Law experienced the follwoing transactions in 2016, the first year of operations:
1. Accepted $36,000 on 4/1/16, as a retainer for services to be performed evenly over the next 12 months.
2. Performed legal services for cash of $54,000.
3. Purchased $2,800 of office suppies on account.
4. Paid $2,400 of the amount due on accounts payable.
5. Paid a cahs dividend to the stockholders of $5,000.
6. Paid cash for operationg expenses of $31,000.
7. Determined that at the end of the accounting period $200 of office supplies remained on hand.
8. On 12/31/16, recognized the revenue that had been earned for services performed in accordance with Transaction 1
Required:
Show the effects of the events on the fianncial statements using a horizontal statement model.
Answers
Answer:
I used an excel spreadsheet since there is not enough room here.
Explanation:
On September 1, Boylan Office Supply had an inventory of 30 calculators at a cost of $18 each. The company uses a perpetual inventory system. During September, the following transactions occurred.
Sept. 6 Purchased with cash 80 calculators at $20 each from Guthrie Co.
Sept. 9 Paid freight of $80 on calculators purchased from Guthrie Co.
Sept. 10 Returned 3 calculators to Guthrie Co. for $63 cash (including freight) because they did not meet specifications.
Sept. 12 Sold 26 calculators costing $21 (including freight) for $31 each on account to Lee Book Store, terms n/30.
Sept. 14 Granted credit of $31 to Lee Book Store for the return of one calculator that was not ordered.
Sept. 20 Sold 30 calculators costing $21 for $32 each on account to Orr's Card Shop, terms n/30.
Journalize the September transactions.
Answers
Answer:
Sept 6. DR Inventory (80 * 20) 1,600
CR Accounts Payable $1,600
Sept 9. DR Inventory 80
CR Cash 80
Sept 10. DR Accounts Payable 63
CR Inventory 63
Sept 12. DR Accounts Receivable (26 * 31) 806
CR Sales Revenue 806
DR Cost of Goods Sold (21 * 26) 546
CR Inventory 546
Sept 14. DR Sales Returns and Allowances 31
CR Accounts Receivable 31
DR Inventory 21
CR Cost of Goods Sold 21
Sept. 20 DR Accounts Receivable (30 * 32) 960
CR Sales Revenue 960
DR Cost of Goods Sold (30 * 21) 630
CR Inventory 630
The transactions of Spade Company:
a. Kacy Spade, owner, invested $16,750 cash in the company in exchange for common stock.
b. The company purchased office supplies for $486 cash.
c. The company purchased $9,263 of office equipment on credit.
d. The company received $1,977 cash as fees for services provided to a customer.
e. The company paid $9,263 cash to settle the payable for the office equipment purchased in transaction c.
f. The company billed a customer $3,551 as fees for services provided.
g. The company paid $520 cash for the monthly rent.
h. The company collected $1,491 cash as partial payment for the account receivable created in transaction f.
g. The company paid a $800 cash dividend to the owner (sole shareholder).
Required:
Prepare the Trial Balance. Use May 31 as its report date.
Answers
Answer:
Please see attached trial balance as requested.
Explanation:
Please find attached solved trial balance for Spade Company as at May 31.
Wave Marine Products had sales revenue of $850,000 for the year-ended December 31, 2017.
a. December revenue totaled $120,000, and in addition, Big Wave collected sales tax of 5%. The tax amount will be sent to the state of Florida early in January.
b. On August 31, Big Wave signed a six-month, 4% note payable to purchase a boat costing $85,000. The note requires payment of principal and interest at maturity
c. On August 31 Big Wave received cash of S2,400 in advance for service revenue. This revenue will be earned evenly over six months.
d. Revenues of $850,000 were covered by Big Wave service warranty. At January 1, estimated warranty payable was $11,600. During the year, Big Wave recorded warranty expense of $34,000 and paid warranty claims of $34,800.
e. Big Wave owes $70,000 on a long-term note payable. At December 31, 12% interest for the year plus $35,000 of this principal are payable within one year.
Required:
For each item, indicate the account and the related amount to be reported as a current liability on the Big Wave Marine balance sheet at December 31.
Answers
Answer: Check explanation
Explanation:
a. Sales tax payable
Amount = $120,000 × 5%
= $120,000 × 0.05
= $6000
b. Notes payable, short term
Amount = $85000
Interest payable = $85000 × 4% × 4/12
= $1133.3
c. Unearned revenue
Amount: $2400 × 2/6
= $800
d. Accrued Warranty Payable
Amount = $11600 + $34000 - $34800
= $10800
e. Current portion of long term note payable
Amount = $35,000
Interest payable
Amount = $70000 × 12%
= $8400
You call a coworker to see if they can come help you solve a problem
Answers
Alternative price indexes
Because there isn't one single measure of inflation, the government and researchers use a variety of methods to get the most balanced picture of how prices fluctuate in the economy. Two of the most commonly used price indexes are the consumer price index (CPI) and the GDP deflator. The GDP deflator for this year is calculated by dividing the_____using______by the_____using_____and multiplying by 100. However, the CPI reflects only the prices of all goods and services.
Indicate whether each scenario will affect the GDP deflator or the CPI for the United States.
Scenario Shows up
in the...
GDP Deflator
Index CPI
An increase in the price of a Chinese-
made phone that is popular among
U.S. consumers.
A decrease in the price of a Treewood
Equipment feller buncher, which is a
commercial forestry machine made in
the U.S. but not bought by U.S. consumers.
Answers
Answer and Explanation:
The consumer price index refers to an index in which the prescribed market cost of goods & services by the prices years from the base year prices of the prescribed market basket and then it is multiplied by 100.
But the Gross Domestic Inflator would be represented when the all types of prices of goods and services generated domestically
An increase in the price refelected the GDP deflator
And, the decrease in the price of treewood represents CPI
The lease agreement specified quarterly payments of $6,500 beginning September 30, 2021, the beginning of the lease, and each quarter (December 31, March 31, and June 30) through June 30, 2024 (three-year lease term). The florist had the option to purchase the truck on September 29, 2023, for $13,000 when it was expected to have a residual value of $19,000. The estimated useful life of the truck is four years. Mid-South Auto Leasing’s quarterly interest rate for determining payments was 3% (approximately 12% annually). Mid-South paid $51,000 for the truck. Both companies use straight-line depreciation or amortization. Anything Grows’ incremental interest rate is 12%.
Required:
a. Calculate the amount of selling profit that Mid-South would recognize in this sales-type lease. (Be careful to note that, although payments occur on the last calendar day of each quarter, since the first payment was at the beginning of the lease, payments represent an annuity due.)
b. Prepare the appropriate entries for Anything Grows and Mid-South on September 30, 2021.
c. Prepare an amortization schedule(s) describing the pattern of interest expense for Anything Grows and interest revenue for Mid- South Auto Leasing over the lease term.
d. Prepare the appropriate entries for Anything Grows and Mid-South Auto Leasing on December 31, 2021.
e. Prepare the appropriate entries for Anything Grows and Mid-South on September 29, 2023, assuming the purchase option was exercised on that date.
Answers
Answer:
a) sales revenue 75,760
cost of good sold 51,000
gross profit: 24,760
b)
LESSOR ENTRIES:
lease receivable 69,260 debit
cash 6,500 debit
sales revenue 75,760 credit
--to record sale on lease--
cost of good sold 51,000 debit
Inventory 51,000 credit
--to record cost--
LESEE ENTRIES:
equipment 75,760 debit
lease liability 69,260 credit
cash 6,500 credit
Lease Schedule:
[tex]\left[\begin{array}{cccccc}Time&Beg&Cuota&Interest&Amort&Ending\\0&75760&6500&&6500&69260\\1&69260&6500&2078&4422&64838\\2&64838&6500&1945&4555&60283\\3&60283&6500&1808&4692&55591\\4&55591&6500&1668&4832&50759\\5&50759&6500&1523&4977&45782\\6&45782&6500&1373&5127&40655\\7&40655&6500&1220&5280&35375\\8&35375&6500&1061&5439&29936\\9&29936&6500&898&5602&24334\\10&24334&6500&730&5770&18564\\11&18564&6500&557&5943&12621\\12&12621&13000&379&12621&0\\\end{array}\right][/tex]
December 31st, 2021 (1st payment)
LESEE ENTRIES:
lease liability 4,422 debit
interest expense 2,078 debit
cash 6,500 credit
--to record payment--
depreciation expense 3,547.5 debit
acc depreciation 3,547.5 credit
--to record depreciation--
LESSOR ENTRIES:
cash 6,500 debit
lease receivables 4,422 credit
interest revenue 2,078 credit
e) option exercised:
LESEE ENTRIES:
lease liability 12,621 debit
interest expense 379 debit
cash 13,000 credit
--to record purchase option--
LESSOR ENTRIES:
cash 13,000 debit
lease receivables 12,621 credit
interest revenue 379 credit
--to record purchase option--
Explanation:
We solve for the present value of the lease:
Present Value of Annuity-due
[tex]C \times \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]
C $6,500
time 12
rate 0.03
[tex]6500 \times \frac{1-(1+0.03)^{-12} }{0.03} = PV\\[/tex]
PV $66,642.0567
+ 13,000 purchase option on June 2024:
PRESENT VALUE OF LUMP SUM
[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]
Maturity 13,000.00
time 12.00
rate 0.03
[tex]\frac{13000}{(1 + 0.03)^{12} } = PV[/tex]
PV 9,117.94
Total lease receivables: 66,642.06 + 9,117.94 = 75,760
a) sales revenue 75,760
cost of good sold 51,000
gross profit: 24,760
d) depreciation on equipment:
(75,760 - 19,000) / 4 year = 14,190 per year
we divide by four as only a quarter of the year past:
14,190 / 4 quarter = 3,547.5
It is the lesee which does the depreicaiton as the Truck possesion belong to it.
__________ provides a snapshot of the financial condition of the firm at a particular time. Multiple Choice The balance sheet The income statement The statement of cash flows All of the options are correct. None of the options are correct.
Answers
Answer:
The balance sheet
Explanation:
In a balance sheet, one can see the information on the assets of the company, their liabilities and the equity brought by the shareholders at any particular point in time.
In some cases, it can be referred to as statement of net worth because one can be able to see what the company owns and owes and how the assets are financed either as equity or debt.
Match the below mention description with given terms. If there is no match then write "No match"
a. This is the worth of the leased asset after the lease period expires.
b. This is a partial refund offered to attract the buyer to purchase the vehicle.
c. This is the price of an asset being leased as specified in the lease agreement, which includes the negotiated cost of the vehicle and any applicable fees and taxes.
d. This is the advertised retail price listed on a particular vehicle for sale.
e. This is a contract which allows the lessee (consumer) to use the asset, such as car, land, services etc., in return for a specific amount paid periodically.
1. Rebate
2. Purchase option
3. Lease
4. Depreciation
5. Closed-end lease
Answers
Answer:
1. No match.
2. Rebate.
3. No match.
4. No match.
5. Lease.
Explanation:
1. No match: This is the worth of the leased asset after the lease period expires.
The worth of the leased asset after the lease period expires is known as Residual value.2. Rebate: This is a partial refund offered to attract the buyer to purchase the vehicle.
3. No match: This is the price of an asset being leased as specified in the lease agreement, which includes the negotiated cost of the vehicle and any applicable fees and taxes.
Capitalized cost refers to the price of an asset being leased as specified in the lease agreement, which includes the negotiated cost of the vehicle and any applicable fees and taxes.4. No match: This is the advertised retail price listed on a particular vehicle for sale.
Sticker price is the advertised retail price listed on a particular vehicle for sale.5. Lease: This is a contract which allows the lessee (consumer) to use the asset, such as car, land, services etc., in return for a specific amount paid periodically.
a stock will pay dividend of $4 at the end of the year. it sells today for $104 and it its dividends are expected grow at a rate of 9%. what is the implied rate of return on this stock
Answers
Answer:
the implied rate of return on the stock is 14.80%
Explanation:
The computation of the implied rate of return is shown below:
The Rate of return is
= (Dividend at year 1 ÷ share price) + growth rate
= ( $6 ÷ 104) + 0.09
= 0.058 + 0.09
= 14.80%
We simply applied the above formula
And, the same is to be considered
hence, the implied rate of return on the stock is 14.80%
A cost that has already been paid, or a liability to pay that has already been incurred, is classified as a(n):
Answers
Answer:
Sunk cost
Explanation:
The sunk cost is a type of cost which is already spent or incurred by company these cost are not relevant for the decision making as for the decision making only relevant cost is to be considered
It is a past cost that cannot be recovered back.
hence, as per the given situation, it is a sunk cost and the same is to be considered
How is a proceeding for violation of the regulations in Circular 230 instituted against a tax practitioner
Answers
Incomplete question. The options read;
A. An aggrieved taxpayer files a petition with the United States Tax Court stating a claim against the attorney, certified public accountant, registered tax return preparer, enrolled agent, enrolled retirement plan agent, or enrolled actuary
B. The IRS representative signs a complaint naming the tax practitioner and files the complaint with the Administrative Law Judge (ALJ)
C. The Secretary of the Treasury files a complaint against the attorney, certified public accountant, registered tax return preparer, enrolled agent, enrolled retirement plan agent, or enrolled actuary in the United States District Court for the District of Columbia
D. The Commissioner of the IRS files a complaint against the attorney, certified public accountant, registered tax return preparer, enrolled agent, enrolled retirement plan agent, or enrolled actuary with the United States Tax Court
Answer:
D. The Commissioner of the IRS files a complaint against the attorney, certified public accountant, registered tax return preparer, enrolled agent, enrolled retirement plan agent, or enrolled actuary with the United States Tax Court
Explanation:
According to the information on the thetaxadviser website, when there is a violation of the regulations in Circular 230 instituted by a tax practitioner a complaint would be filed, and if found guilty, he or she "may be censured, suspended, or disbarred from practice before the IRS."
Usually, the Office of Professional Responsibility would take up the case against the tax practitioner.
When a famous painting becomes available for sale, it is often known which museum or collector will be the likely winner. Yet, the auctioneer actively woos representatives of other museums that have no chance of winning to attend anyway.
Suppose a piece of art has recently become available for sale and will be auctioned off to the highest bidder, with the winner paying an amount equal to the second highest bid. Assume that most collectors know that Janet places a value of $125,000 on the art piece and that she values this art piece more than any other collector. Suppose that if no one else shows up, Janet simply bids $125,000/2 = $5,000 and wins the piece of art.
The expected price paid by Kenji, with no other bidders present, is $:_________
Suppose the owner Of the artwork manages to recruit another bidder, Manuel, to the auction. Manuel is known to value the art piece at $8,000.
The expected price paid by Kenji, given the presence of the second bidder Manuel, is $:_________
Answers
Please find attached
Answer and Explanation:
1. If there are no other bidders present as from question them we can conclude that Kenji would buy the art piece for $5000. See question
2. If there is a bidder present in the name of Manuel who would bid for $8000 then Kenji would bid at $8000 and win the bid for the art piece. See question. Kenji would bid at price of 2nd highest bidder to win the bid for art piece
Pharoah Inc. has decided to raise additional capital by issuing $173,000 facevalue of bonds with a coupon rate of 6%. In discussions with investment bankers, it was determined that to help the sale of thebonds, detachable stock warrants should be issued at the rate of one warrant for each $100 bond sold. The value of the bondswithout the warrants is considered to be $155,700, and the value of the warrants in the market is $20,760. The bonds sold in the market at issuance for $174,600.
A. What entry should be made at the time of the issuance of the bonds and warrants?
B. Prepare the entry if the warrants were non-detachable.
Answers
Answer:
A. Dr Cash 174,600
Dr Discount on bonds payable 18,941
Cr Bond Payable 173,000
Cr Paid-in Capital—Stock Warrants
20,541
B. Dr Cash 174,600
Cr Discount on bonds payable 1,600
Cr Bond Payable 173,000
Explanation:
A. Preparation of the Journal entries that should be made at the time of the issuance of the bonds and warrants
Dr Cash 174,600
Dr Discount on bonds payable 18,941
($173,000 - $154,059)
Cr Bond Payable 173,000
Cr Paid-in Capital—Stock Warrants
20,541
[(174,600+18,941)-173,000]
B. Preparation of the journal entry if the warrants were non-detachable Journal entries
Dr Cash 174,600
Cr Discount on bonds payable 1,600
(174,600-173,000)
Cr Bond Payable 173,000
Calculation for value assign to bonds
Value assign to bonds=(155,700/155,700+20,760)*174,600
Value assign to bonds=155,700/176,460*174,600
Value assign to bonds=154,059
Calculation for value assign to warrant
Value assign to warrant=(20,760/155,700+20,760)*174,600
Value assign to warrant=20,760/176,460*174,600
Value assign to warrant=20,541
Presented below are four statements which you are to identify as true or false.
1. GAAP is the term used to indicate the whole body of FASB authoritative literature.
2. Any company claiming compliance with GAAP must comply with most standards and interpretations but does not have to follow the disclosure requirements.
3. The primary governmental body that has influence over the FASB is the SEC.
4. The FASB has a government mandate and therefore does not have to follow due process in issuing a standard.
Answers
Answer:
1. True.
2. False.
3. True.
4. False.
Explanation:
GAAP is an acronym for Generally Accepted Accounting Principles. It comprises of the accounting standard, procedures and principles used by public institutions in the United States of America. The GAAP is issued by the Financial Accounting Standards Board (FASB) and adopted by the U.S. Securities and Exchange Commission (SEC).
GAAP includes each of the following pronouncements:
Statements of Financial Accounting Standards.Accounting Research Bulletins.Accounting Principles Board Opinions.For external reporting purposes, US Generally Accepted Accounting Principles (GAAP) allows companies to use only the traditional format of the income statement.
When accountants prepare and compile financial statements for public firms, it must be in line with United States of America, Generally Accepted Accounting Principles (GAAP).
Also, the financial accounting standards board (FASB) is a private, non-profit organization saddled with the responsibility of establishing and maintaining standard financial accounting and reporting for general guidance of individuals such as investors, issuers and auditors.
Additionally, Securities and Exchange Commission (SEC) reviews registration statements of bond issuers, investment advisers etc, to ensure they comply with current laws and regulations.
1. True: GAAP is the term used to indicate the whole body of FASB authoritative literature.
2. False: Any company claiming compliance with GAAP must comply with most standards and interpretations but does not have to follow the disclosure requirements. All companies are required to follow the disclosure requirements at all times.
3. True: The primary governmental body that has influence over the FASB is the SEC.
4. False: The FASB has a government mandate and therefore does not have to follow due process in issuing a standard. FASB has to follow due process all the time in issuing standards.
Consider an economy described by the following equations:
Y=C+I+G
C=120+0.8×(Y−T)
I=500−50×r G=150
T=125
where Y is GDP, C is consumption, I is investment, G is government purchases, T is taxes, and r is the interest rate. If the economy were at full employment (that is, at the natural rate of output), GDP would be $2,850.
Identify the equation(s) each of the following statements describes.
a. It is a function of disposable income.
b. It depends on the interest rate.
The marginal propensity to consume in this economy is:____________ .
Suppose the central bank's policy is to adjust the money supply to maintain the interest rate at 3%, so r = 3. When the interest rate is 3%, GDP is __________$ .
GDP at an interest rate of 3% is the full-employment level.
a. True
b. False
Assuming no change in monetary policy, (a decrease, an increase) in government purchases by ____ would restore GDP to the full-employment level. (Note: Assume that such change in fiscal policy has no crowding-out effect.) Assuming no change in fiscal policy, (a decrease. an increase) in the interest rate by ___ would restore GDP to the full-employment level.
Answers
Answer:
Consumption c is a function of disposable income
Investment I is a function of interest rate
Marginal propensity to consume equals 0.8
If this 3, I = investment
= 500-(3*50)
= 500-150
= 350
We have Y= C+I+G
Y = 120+0.8(Y-125)+350+150
Y = 120+0.8Y-100+350+150
Y-0.8Y = 120-100+350+150
0.2Y = 520
Y = 520/0.2
Y = 2600
GDP and interest rate falls below full employment
If there is no change in monetary policy an increase in government purchases by 50dollars takes gdp back to full employment
If no change in fiscal policy when interest rate decreases by 1.4% God goes back to full employment.
KW Steel Corp. uses the LIFO method of inventory valuation. Waretown Steel, KW’s major competitor, instead uses the FIFO method. The following are excerpts from each company’s 20X1 financial statements:
KW Steel Corp. Waretown Steel ($ in millions)
20X1 20X0 20X1 20X0
Balance sheet inventories $797.6 $692.7 $708.2 $688.6
LIFO reserve 378.0 334.9
Sales 4,284.8 4,029.7 3,584.2 3,355.8
Cost of goods sold 3,427.8 3,226.5 2,724.0 2,617.5
Required:
a. Compute each company’s 20X1 gross margin percentage and inventory turnover using cost of goods sold as reported by each company. Restate KW’s cost of goods sold and inventory balances to the FIFO basis. On the basis of its adjusted data, recompute KW’s gross margin percentage and inventory turnover.
b. Restate KW's cost of goods sold and inventory balances to the FIFO basis. On the basis of its adjusted data, re-compute KW's gross margin percentage and inventory turnover. Explain how the revised figures alter your earlier comparisons.
Answers
Answer:
KW Steel Corp. and Waretown Steel
LIFO and FIFO Inventory Valuation Methods:
a. Computation of each company's 20X1 gross margin percentage and inventory turnover:
KW Steel Corp. Waretown Steel
($ in millions) ($ in millions)
20X1 20X0 20X1 20X0
B/sheet inventories $797.6 $692.7 $708.2 $688.6
LIFO reserve 378.0 334.9
Sales 4,284.8 4,029.7 3,584.2 3,355.8
Cost of goods sold 3,427.8 3,226.5 2,724.0 2,617.5
Gross margin $857.0 $803.2 $860.0 $738.3
Gross margin % 20% 24%
Average Inventory = $745.15 $698.4
Inventory Turnover 4.6 ($3,427.8/$745.15) 3.9 ($2,724.0/$698.4)
b. Restatement of KW's cost of goods sold and inventory balances to FIFO:
KW Steel Corp. Waretown Steel
($ in millions) ($ in millions)
20X1 20X0 20X1 20X0
Sales 4,284.8 4,029.7 3,584.2 3,355.8
Cost of goods sold $3,805.8 $3,561.40
Gross margin $479.0 $468.3 $860.0 $738.3
Gross margin % 11.2% 24%
Inventory Turnover 9.8 ($3,805.8/$388.75) 3.9 ($2,724.0/$698.4)
c. The performance of KW Steel worsened with the reinstatement of the LIFO reserves. Before the reinstatement, KW Steel was running closely behind its competitor, Waretown Steel. But after the reinstatement, Waretown gave KW Steel more gap in performance. This reinstatement shows that when the performances of two companies are compared based on different criteria, the financial analyst will likely arrive at a wrong conclusion.
Explanation:
a) Data and Calculations:
KW Steel Corp. Waretown Steel
($ in millions) ($ in millions)
20X1 20X0 20X1 20X0
B/sheet inventories $797.6 $692.7 $708.2 $688.6
LIFO reserve 378.0 334.9
Sales 4,284.8 4,029.7 3,584.2 3,355.8
Cost of goods sold 3,427.8 3,226.5 2,724.0 2,617.5
Gross margin $857.0 $803.2 $860.0 $738.3
Gross margin % 20% 24%
Average Inventory = $745.15 $698.4
Inventory Turnover 4.6 ($3,427.8/$745.15) 3.9 ($2,724.0/$698.4)
c.
KW Steel Corp. Waretown Steel
($ in millions) ($ in millions)
20X1 20X0 20X1 20X0
B/sheet inventories $797.6 $692.7 $708.2 $688.6
LIFO reserve 378.0 334.9
FIFO balance $419.6 $357.8
Cost of goods sold 3,427.8 3,226.5 2,724.0 2,617.5
LIFO reserve 378.0 334.9
Average Inventory = $745.15 $698.4
New Average Invt. 388.75
Masterson, Inc., has 4.1 million shares of common stock outstanding. The current share price is $84, and the book value per share is $11. The company also has two bond issues outstanding. The first bond issue has a face value of $70 million, has a coupon rate of 5.1%, and sells for 98% of par. The second issue has a face value of $50 million, has a coupon rate of 5.60%, and sells for 108% of par. The first issue matures in 20 years, the second in 12 years. The most recent dividend was $3.95 and the dividend growth rate is 5 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 21 percent. What is the company’s WACC?
Answers
Answer:
The answer is "8.37%".
Explanation:
[tex]\text{MV of equity} = \text{equity price} \times \text{number of outstanding shares}[/tex]
[tex]=84 \times 4100000\\\\=344400000[/tex]
[tex]\text{MV of Bond1}=\text{Par value} \times \text{bonds outstanding} \times \text{age of percentage}[/tex]
[tex]=1000 \times 70000 \times 0.98 \\\\=68600000[/tex]
[tex]\text{MV of Bond2}=\text{Par value} \times \text{bonds outstanding} \times \text{age of percentage}[/tex]
[tex]=1000 \times 50000 \times 1.08 \\\\=54000000[/tex]
[tex]\text{MV of firm} = \text{MV of Equity} + \text{MV of Bond1}+ \text{MV of Bond 2}[/tex]
[tex]=344400000+68600000+54000000\\\\=467000000[/tex]
[tex]\text{Weight of equity W(E)} = \frac{\text{MV of Equity}}{\text{MV of firm}}[/tex]
[tex]= \frac{344400000}{467000000}\\\\=0.7375[/tex]
[tex]\text{Weight of debt W(D)}= \frac{\text{MV of Bond}}{\text{MV of firm}}[/tex]
[tex]= \frac{122600000}{467000000}\\\\=0.2625[/tex]
Equity charges
By DDM.
[tex]\text{Price = new dividend} \times \frac{(1 + \text{rate of growth})}{( \text{Equity expense-rate of growth)}}[/tex]
[tex]84 = 3.95 \times \frac{(1+0.05)}{(\text{Cost of equity}- 0.05)}\\\\84 = 3.95 \times \frac{(1.05)}{(\text{Cost of equity} - 0.05)}\\\\84 = \frac{4.1475}{ (\text{Cost of equity} - 0.05)}\\\\\text{Cost of equity} -0.05 = \frac{4.1475}{84}\\\\\text{Cost of equity} -0.05 = 0.049375\\\\\text{Cost of equity} = 0.049375 + 0.05\\\\\text{Cost of equity} = 0.099375 \\\\\text{Cost of equity} \% = 9.9375 \% \ \ \ or \ \ \ 9.94 \% \\\\[/tex]
Debt expenses
Bond1
[tex]K = N \times 2 \\\\[/tex]
[tex]Bond \ Price = \sum [ \frac{\text{(Semi Annual Coupon)}}{(1 + \frac{YTM}{2})^k}] + \frac{Par\ value}{(1 + \frac{YTM}{2})^{N \times 2}}[/tex]
[tex]k=1\\\\K =20 \times 2\\\\980 = \sum [ \frac {(5.1 \times \frac{1000}{200})}{(1 + \frac{YTM}{200})^k}] + \frac{1000}{(1 + \frac{YTM}{200})}^{20 \times 2}\\\\k=1\\\\\ YTM1 = 5.2628923903\\\\Bond2\\[/tex]
[tex]K = N \times 2[/tex]
[tex]Bond \ Price = \sum [ \frac{\text{(Semi Annual Coupon)}}{(1 + \frac{YTM}{2})^k}] + \frac{Par\ value}{(1 + \frac{YTM}{2})^{N \times 2}}[/tex]
[tex]k=1\\\\K =12 \times 2\\\\[/tex]
[tex]1080 =\sum [\frac{(5.6 \times \frac{1000}{200})}{(1 + \frac{YTM}{200})^k}] +\frac{1000}{(1 +\frac{YTM}{200})^{12 \times 2}} \\\\k=1\\\\YTM2 = 4.72\\\\[/tex]
[tex]\text{Company debt costs} = YTM1 times \frac{(MV \ bond1)}{(MV \ bond1+MV \ bond2)}+YTM2 \times \frac{(MV \ bond2)}{(MV \ bond2)}\\\\[/tex]
The cost of the debt for the company:
[tex]= 5.2628923903 \times \frac{(68600000)}{(68600000+54000000)}+4.72 \times \frac{(68600000)}{(68600000+54000000)}\\\\[/tex]
Business debt cost=[tex]5.02 \% \\\\[/tex]
after taxation cost of debt:
[tex]= \text{cost of debt} \times (1- tax \ rate)\\\\= 5.02 \times (1-0.21)\\\\= 3.9658\\\\[/tex]
[tex]WACC= \text{after debt charges} \times W(D)+equity cost \times W(E) \\\\[/tex]
[tex]=3.97 \times 0.2625+9.94 \times 0.7375 \\\\ =8.37 \% \\\\[/tex]
a. What is the total cash outflow for buying and for leasing a motor vehicle with a cash price of $33,000
Answers
Answer:
For buying = $32,640
For leasing = $31,800
Explanation:
The computation is shown below:
For buying
Total cash outflow = Down payment + Loan repayment - Value of vehicle at the end of loan
= $5,600 + (780 × 48) - $10,400
= $32,640
For Leasing
Total cash outflow = Down payment + Loan repayment - Value of vehicle at the end of loan
= $2,000 + (600 × 48) - $1,000
= $31,800
Gabi Gram started The Gram Co., a new business that began operations on May 1. The Gram Co. completed the following transactions during its first month of operations.
May 1 G. Gram invested $40,000 cash in the company in exchange for its common stock.
1 The company rented a furnished office and paid $2,200 cash for May’s rent.
3 The company purchased $1,890 of equipment on credit.
5 The company paid $750 cash for this month’s cleaning services.
8 The company provided consulting services for a client and immediately collected $5,400 cash.
12 The company provided $2,500 of consulting services for a client on credit.
15 The company paid $750 cash for an assistant’s salary for the first half of this month.
20 The company received $2,500 cash payment for the services provided on May 12.
22 The company provided $3,200 of consulting services on credit.
25 The company received $3,200 cash payment for the services provided on May 22.
26 The company paid $1,890 cash for the equipment purchased on May 3.
27 The company purchased $80 of equipment on credit.
28 The company paid $750 cash for an assistant’s salary for the second half of this month.
30 The company paid $300 cash for this month’s telephone bill.
30 The company paid $280 cash for this month’s utilities.
31 The company paid $1,400 cash in dividends to the owner (sole shareholder).
Required:
a. Determine the final total for each account and verify that the equation is in balance.
b. Prepare an Income Statement for May,
c. Prepare a statement of Owner's equity for May,
d. Prepare 31 Balance Sheet.
e. Prepare Cash flows for May.
Answers
Answer:
a) May 1 G. Gram invested $40,000 cash in the company in exchange for its common stock.
Dr Cash 40,000
Cr Common stock 40,000
May 1 The company rented a furnished office and paid $2,200 cash for May’s rent.
Dr Rent expense 2,200
Cr Cash 2,200
May 3 The company purchased $1,890 of equipment on credit.
Dr Equipment 1,890
Cr Accounts payable 1,890
May 5 The company paid $750 cash for this month’s cleaning services.
Dr Cleaning expenses 750
Cr Cash 750
May 8 The company provided consulting services for a client and immediately collected $5,400 cash.
Dr Cash 5,400
Cr Service revenue 5,400
May 12 The company provided $2,500 of consulting services for a client on credit.
Dr Accounts receivable 2,500
Cr Service revenue 2,500
May 15 The company paid $750 cash for an assistant’s salary for the first half of this month.
Dr Wages expense 750
Cr Cash 750
May 20 The company received $2,500 cash payment for the services provided on May 12.
Dr Cash 2,500
Cr Accounts receivable 2,500
May 22 The company provided $3,200 of consulting services on credit.
Dr Accounts receivable 3,200
Cr Service revenue 3,200
May 25 The company received $3,200 cash payment for the services provided on May 22.
Dr Cash 3,200
Cr Accounts receivable 3,200
May 26 The company paid $1,890 cash for the equipment purchased on May 3.
Dr Accounts payable 1,890
Cr Cash 1,890
May 27 The company purchased $80 of equipment on credit.
Dr Equipment 80
Cr Accounts payable 80
May 28 The company paid $750 cash for an assistant’s salary for the second half of this month.
Dr Wages expense 750
Cr Cash 750
May 30 The company paid $300 cash for this month’s telephone bill.
Dr Telephone expense 300
Cr Cash 300
May 30 The company paid $280 cash for this month’s utilities.
Dr Utilities expense 280
Cr Cash 280
May 31 The company paid $1,400 cash in dividends to the owner (sole shareholder).
Dr Dividends 1,400
Cr Cash 1,400
debit credit
Cash $42,780
Equipment $1,970
Accounts payable $80
Common stock $40,000
Service revenue $11,100
Rent expense $2,200
Cleaning expenses $750
Wages expense $1,500
Telephone expense $300
Utilities expense $280
Dividends $1,400
totals $51,180 $51,180
income statementService revenue $11,100
Expenses:
Rent expense $2,200Cleaning expenses $750Wages expense $1,500Telephone expense $300Utilities expense $280 ($5,030)Net income $6,070
statement of owner's equityBeginning balance $0
Common stocks issued $40,000
Net income $6,070
Sub-total $46,070
Dividends ($1,400)
Ending balance $44,670
balance sheetAssets:
Cash $42,780
Equipment $1,970
Total assets $44,750
Liabilities and equity:
Accounts payable $80
Common stock $40,000
Retained earnings $4,670
Total liabilities and equity $44,750
cash flow statementCash flows from operating activities:
Net income $6,070
Increase in accounts payable $80
net cash from operating activities $6,150
Cash flows from financing activities:
Purchase of equipment ($1,970)
Cash flow from financing activities:
Common stocks issued $40,000
Dividends paid ($1,400)
net cash fro financing activities $38,600
net cash increase $42,780
beginning cash balance $0
ending cash balance $42,780
a.1. The final total for each account is determined in the general ledger as follows:
Cash Account
Date Account Titles Debit Credit
May 1 Common Stock $40,000
May 1 Rent Expense $2,200
May 5 Cleaning Services Expense $750
May 8 Consulting Fees $5,400
May 15 Salaries Expense $750
May 20 Accounts Receivable $2,500
May 25 Accounts Receivable $3,200
May 26 Accounts Payable $1,890
May 28 Salaries Expense $750
May 30 Telephone Expense $300
May 30 Utilities $280
May 31 Dividends $1,400
May 31 Balance $42,780
Totals $51,100 $51,100
Accounts ReceivableDate Account Titles Debit Credit
May 12 Consulting Fees $2,500
May 20 Cash $2,500
May 22 Consulting Fees $3,200
May 25 Cash $3,200
Totals $5,700 $5,700
EquipmentDate Account Titles Debit Credit
May 3 Accounts Payable $1,890
May 27 Accounts Payable 80
May 31 Balance $1,970
Totals $1,970 $1,970
Common StockDate Account Titles Debit Credit
May 1 Cash $40,000
Accounts PayableDate Account Titles Debit Credit
May 3 Equipment $1,890
May 26 Cash $1,890
May 27 Equipment $80
May 31 Balance $80
Totals $1,970 $1,970
Consulting FeesDate Account Titles Debit Credit
May 8 Cash $5,400
May 12 Accounts Receivable $2,500
May 22 Accounts Receivable 3,200
May 31 Balance $11,100
Totals $11,100 $11,100
Rent ExpenseDate Account Titles Debit Credit
May 1 Cash $2,200
Cleaning Services ExpensesDate Account Titles Debit Credit
May 5 Cash $750
Wages ExpenseDate Account Titles Debit Credit
May 15 Cash $750
May 28 Cash $750
May 31 Balance $1,500
Totals $1,500 $1,500
Telephone ExpensesDate Account Titles Debit Credit
May 30 Cash $300
Utilities ExpenseDate Account Titles Debit Credit
May 30 Cash $280
DividendsDate Account Titles Debit Credit
May 31 Cash $1,400
a.2. The determination that the equation is in balance is established through the Trial Balance as follows:
Date Account Titles Debit Credit
Cash $42,780
Common stock $40,000
Equipment $1,970
Accounts payable $80
Consulting fees $11,100
Rent expense $2,200
Cleaning expenses $750
Wages expense $1,500
Telephone expense $300
Utilities expense $280
Dividends $1,400
Totals $51,180 $51,180
b. The preparation of the income statement is as follows:
The Gram Co.
Income StatementFor the month ended May 31
Service revenue $11,100
Expenses:
Rent expense $2,200
Cleaning expenses $750
Wages expense $1,500
Telephone expense $300
Utilities expense $280 ($5,030)
Net income $6,070
c. The preparation of the statement of owner's equity is as follows:
The Gram Co.
Statement of Owner's EquityAs of May 31
Common stocks issued $40,000
Net income $6,070
Dividends ($1,400)
Ending balance $44,670
d. The preparation of the Balance Sheet is as follows:
The Gram Co.
Balance SheetAs of May 31
Assets:
Cash $42,780
Equipment $1,970
Total assets $44,750
Liabilities and equity:
Accounts payable $80
Equity:
Common stock $40,000
Retained earnings $4,670
Total equity $44,670
Total liabilities and
owner's equity $44,750
e. The preparation of the Statement of Cash Flows is as follows:
The Gram Co.
Statement of Cash FlowsOperating activities:
Net income $6,070
Increase in accounts payable $80
Net operating cash $6,150
Investing activities:
Purchase of equipment ($1,970)
Financing activities:
Common stocks issued $40,000
Dividends paid ($1,400)
Net financing cash $38,600
Net cash flows $42,780
Reconciliation:Beginning cash balance $0
Net cash flows $42,780
Ending cash balance $42,780
Data Analysis:May 1 Cash $40,000 Common Stock $40,000
May 1 Rent Expense $2,200 Cash $2,200
May 3 Equipment $1,890 Accounts Payable $1,890
May 5 Cleaning Services Expense $750 Cash $750
May 8 Cash $5,400 Consulting Fees $5,400
May 12 Accounts Receivable $2,500 Consulting Fees $2,500
May 15 Salaries Expense $750 Cash $750
May 20 Cash $2,500 Accounts Receivable $2,500
May 22 Accounts Receivable $3,200 Consulting Fees $3,200
May 25 Cash $3,200 Accounts Receivable $3,200
May 26 Accounts Payable $1,890 Cash $1,890
May 27 Equipment $80 Accounts Payable $80
May 28 Salaries Expense $750 Cash $750
May 30 Utilities (Telephone) $300 Cash $300
May 30 Utilities $280 Cash $280
May 31 Dividends $1,400 Cash $1,400
Learn more about preparing financial statements at https://brainly.in/question/33221066
Sara purchased a life insurance policy as an investment from her neighbor, Angela. Angela, the original policy holder had paid premiums of $12,000 before the sale. Sara paid Angela $16,500 to acquire the life insurance policy. Sara made additional payments of $5,000. When Angela died, Sara collected $50,000. How much of the policy proceeds is taxable to Sara
Answers
Answer:
$16,500
Explanation:
She invested = $12,000
Total money spent to acquire the policy = ($16,500 + $5000) = $21,500
Total money invested on policy = $21500 + $12000
Total money invested on policy = $33500
Money that sara got after angela died = $50,000
Therefore, the taxable proceed will be = $50,000 - $33,500 = $16,500
What is a sum of money that is borrowed and is expected to be paid back with interest?
Answers
Explanation: when someone borrows money from someone else or even from the bank it is done on the condition that the money would eventually be paid back in a certain period of time with an interest payment
As of June 30, Year 1, the bank statement showed an ending balance of $17,616. The unadjusted Cash account balance was $16,893. The following information is available: 1. Deposit in transit, $2,785. 2. Credit memo in bank statement for interest earned in June, $10. 3. Outstanding check, $3,504. 4. Debit memo for service charge. $6. Required Determine the true cash balance by preparing a bank reconciliation as of June 30, Year 1, using the preceding information, (Negative amounts should be indicated with minus sign.)
Bank Reconciliation
Unadjusted bank balance 6/30/Year 1
True cash balance 6/30/Year 1
Unadjusted book balance 6/30/Year 1
True cash balance 6/30/Year 1
Answers
Answer:
cash account reconciliation:
cash account balance $16,893
+ earned interest $10
- bank fees ($6)
reconciled cash account $16,897
bank account reconciliation:
bank account balance $17,616
+ deposits in transit $2,785
- outstanding check ($3,504)
reconciled bank account $16,897
After the accounts have been reconciled, both must have the same balance. If not, then you must check your answer and recalculate until both match.
Use the five transactions for Martin Rentals described below to answer the questions that follow Transactions:
Oct. 1 Martin purchases 2 new saws on credit at $375 each; the saws are added to Martin's rental fleet; payment is due in 30 days.
8 Martin accepts advance deposits for tool rentals of $75.15 Martin receives a $150 bill for electricity provided by Local Electric Company; payment is due in 30 days.
20 Customers are charged $750 by Martin for tool rentals; payment is due from customers in 30 days.
31 Payments of $500 are received by Martin from customers billed for rentals on October 20.
Answers
Answer:
I couldn't find the questions that should follow these transactions, the only requirement that I found on similar questions was to journalize them:
Oct. 1 Martin purchases 2 new saws on credit at $375 each; the saws are added to Martin's rental fleet; payment is due in 30 days.
Dr Equipment 750
Cr Accounts payable 750
8 Martin accepts advance deposits for tool rentals of $75.
Dr Cash 75
Cr Unearned revenue 75
15 Martin receives a $150 bill for electricity provided by Local Electric Company; payment is due in 30 days.
Dr Electricity expense 150
Cr Accounts payable 150
20 Customers are charged $750 by Martin for tool rentals; payment is due from customers in 30 days.
Dr Accounts receivable 750
Cr Service revenue 750
31 Payments of $500 are received by Martin from customers billed for rentals on October 20.
Dr Cash 500
Cr Accounts receivable 500
The Pritzker Music Pavilion in downtown Chicago is a technologically sophisticated and uniquely designed performing arts venue that hosts live concerts attended by over half a million patrons a year. A group of local organizers, led by a prominent local businesswoman, would like to use the pavilion for a concert to benefit a non-profit, national network of investors and environmental organizations working with companies and investors to address sustainability challenges such as global climate change. If the pavilion management agrees to host the concert, the organizers will donate all profits to Ceres (or absorb any losses).
Based on the following revenue and cost information, the organizers would like answers to several questions.
1. There are three sources of revenue for the concert:
2. Tickets will be sold for $15.50 each.
3. A large multinational corporation headquartered in Chicago will donate $2.00 per ticket sold.
4. Each concert attendee is expected to spend an average of $17.00 for parking, food, and merchandise.
5. On the expense side, there are also three components:
A popular national group has agreed to perform at the concert. Normally, the group demands a significant fixed fee to perform, but to reduce the risk for the organizers, the group has agreed to perform for $6.00 per ticket sold. The organizers will pay several companies to operate the parking, food, and merchandise concessions. They will pay $21,000 plus 15% of all parking, food, and merchandise revenue. The organizers will pay the pavilion $85,000 plus $7.00 per person attending to cover its operating expenses (production, maintenance, advertising, etc.)
Required:
a. What is the estimated contribution margin per ticket sold for the benefit concert?
b. What are the estimated total fixed costs for the benefit concert?
c. What is the estimated profit from the benefit concert if 10,500 tickets are sold?
d. How many tickets must be sold in order for concert profit to be $100,000?
e. Assuming a tax rate of 31% on profits from the concert, what must dollar ticket sales be in order for after-tax concert profits to be $100,000?
f. Assume that the organizers can negotiate the fixed payment for the pavilion's operating expenses. If the organizers expect to sell 10,500 tickets, how much can they afford to pay and still earn a profit of $100,000 (ignore taxes)?
Answers
Answer:
a. What is the estimated contribution margin per ticket sold for the benefit concert?
contribution margin per ticket = ($15.50 + $2 + $17) - ($6 + $2.55 + $7) = $34.50 - $15.55 = $18.95
b. What are the estimated total fixed costs for the benefit concert?
total fixed costs = $21,000 + $85,000 = $106,000
c. What is the estimated profit from the benefit concert if 10,500 tickets are sold?
estimated profit = (10,500 x $18.95) - $106,000 = $92,975
d. How many tickets must be sold in order for concert profit to be $100,000?
number of tickets sold = ($106,000 + $100,000) / $18.95 = 10,870.71 ≈ 10,871 tickets sold
e. Assuming a tax rate of 31% on profits from the concert, what must dollar ticket sales be in order for after-tax concert profits to be $100,000?
$100,000 / (1 - 31%) = $144,927.54
number of tickets sold = ($106,000 + $144,927.54) / $18.95 = 13,241.56 ≈ 13,241.56 tickets sold
f. Assume that the organizers can negotiate the fixed payment for the pavilion's operating expenses. If the organizers expect to sell 10,500 tickets, how much can they afford to pay and still earn a profit of $100,000 (ignore taxes)?
contribution margin increases to $18.95 + $7 = $25.95
10,500 = ($21,000 + $100,000 + ?) / $25.95
$272,475 = $121,000 + ?
? = $151,475
you can pay up to $151,475 in fixed expenses to the pavilion
The following expenditures were incurred by Tamarisk, Inc. in purchasing land: cash price $74,000, accrued taxes $4,400, attorneys’ fees $4,300, real estate broker’s commission $1,500, and clearing and grading $3,600. What is the cost of the land?
Answers
Answer:
$87,800
Explanation:
The following expenditures were incurred by Tamerisk incorporation when purchasing a land
Cash price = $74,000
Accured taxes = $4,400
Attorneys fee= $4,300
Real estate brokers commission = $1,500
Clearing and grading = $3,600
Therefore the cost of the land can be calculated as follows
= $74,000 + $4,400 + $4,300 + $1,500 + $3,600
= $87,800
Hence the cost of the land is $87,800
The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 5 years. The bond certificate indicates that the stated coupon rate for this bond is 10.0% and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is 7.5%, then this bond will trade at ________.
Answers
Answer:
$1,513.30
Explanation:
The Trading price of the Bond is it Present Value (PV) and is calculated as :
Fv = $1000
n = 5 × 2 = 10
pmt = ($1000 × 10.0%) ÷ 2 = $100
p/yr = 2
i = 7.5%
Pv = ?
Using a Financial Calculator, the Price of the Bond (PV) is $1,513.30.