Answer: ADJUSTED CASH BALANCE PER BOOK as of January 31, 2018 is A) $7,950
Explanation:
ABC Enterprises reconciled cash balance per books (internal accounting records as of January 31, 2018.
Cash balance as per company book $7,500
Add:
Notes receivable collected by bank $1000
Deduct:
NSF check $500
Bank service charge $50
Adjusted Book Balance $7,950
Where has a company benefited through the competitive advantage that was gained through the implementation of an information systems technology related to an on-demand economy mega trend? Select one or more of the following on-demand economy mega trend topics on which to conduct your research: Connectivity Big data and data analytics Digitization Machine-to-machine technology
Answer:
For that kind of appropriate response, I am choosing Walmart as that of the obvious reasons.
Explanation:
Whenever it decides to integrate an available technology but mostly groundbreaking the strongest on-demand distribution network something which businesses could ever end up creating, Walmart could be regarded as being one of the most profitable businesses. Researchers can conclude that all of this contributes to something like the involvement of such a productive utilization BIG Information and statistical method for Walmart to many others accurately assess its eligibility criteria, stock control and production and consumption would need.With that same massive amounts of data, Walmart and after that needs to feed everything into everyone's information management that has used the data to sustain their probabilistic machine learning and statistical modeling techniques that enable Walmart to experience as a result that is not only complete and timely, and cover a wide range of products and everyone's availability triggered over a given period.They frequently include the use of another JIT inventory management system and that's why individuals could further automate their warehouse to purchase certain necessary ingredients anyway in preparation for all the distribution to have been produced to satisfy the expectations.On January 1, 2020, the ledger of Pharoah Company contains the following liability accounts.
Accounts Payable $53,900
Sales Taxes Payable 7,000
Unearned Service Revenue 15,800
During January, the following selected transactions occurred.
Jan. 5 Sold merchandise for cash totaling $20,520, which includes 8% sales taxes.
12 Performed services for customers who had made advance payments of $10,000. (Credit Service Revenue.)
14 Paid state revenue department for sales taxes collected in December 2019 ($7,000).
20 Sold 810 units of a new product on credit at $50 per unit, plus 8% sales tax.
21 Borrowed $31,500 from Girard Bank on a 3-month, 8%, $31,500 note.
25 Sold merchandise for cash totaling $12,420, which includes 8% sales taxes
Journalize the January transactions
Answer:
Jan. 5
Cash $20,520 (debit)
Sales tax $1,642 (credit)
Sales Revenue $18,878 (credit)
Jan 12
Unearned Service Revenue $10,000 (debit)
Service Revenue $10,000 (credit)
Jan 14
Sales Tax Control $7,000 (debit)
Cash $7,000 (credit)
Jan 20
Trade Receivables $43,740 (debit)
Sales tax $3,240 (credit)
Sales revenue $40,500 (credit)
Jan 21
Cash $31,500 (debit)
Note Payable : Girard Bank $31,500 (credit)
Jan 25
Cash $12,420 (debit)
Sales tax $994 (credit)
Sales Revenue $11,426 (credit)
Explanation:
The Sales Tax is an amount collected by the Firm on behalf of the tax authorities and as such must not be included in the revenue amount.
At the end of the period the sales tax collected and the sales tax paid by the entity are reconciled and the amount of tax to be paid to tax authorities is established
Accounts receivable balances are required to be reflected at net realizable value as of the balance sheet date. Use of the allowance method for estimating bad debit is the preferred method because it:________
A) is required by GAAP.
B) it provides for better matching of revenue with expenses.
C) A and B
D) None of the above
Answer:
Accounts receivable balances are required to be reflected at net realizable value as of the balance sheet date. Use of the allowance method for estimating bad debt is the preferred method because it:________
C) A and B
Explanation:
Company XYZ can use the allowance method which ensures that the Accounts receivable balances are stated at their gross amount and not the net realizable value. Therefore, the allowance account is a contrary account with normally a credit balance. The allowance method is required by GAAP and provides for better matching of revenue with expenses. Company XYZ can use two methods for estimating bad debt under the allowance method. The first is the percentage sales method and the accounts receivable aging method. Whichever method is chosen depends on the decision of management.
At which price and quantity combination would the government regulate this firm to get as close as possible to the most efficient point for society
Answer:
Point C and G. Refer to the attached image.
Explanation:
According to the attached image, the price and quantity combination the government would regulate this firm to get as close as possible to the most efficient point for society is C and G because, this is the point where marginal cost MC and Average Total Cost intercept and form lower equilibrium point.
This means that if company sell at this point they will not run at shortage and also for buying society, the quantity they will buy is also at the increase making it the most efficient point for the society.
Olinick Corporation is considering a project that would require an investment of $324,000 and would last for 8 years. The incremental annual revenues and expenses generated by the project during those 8 years would be as follows (Ignore income taxes.): Sales $ 200,000 Variable expenses 27,000 Contribution margin 173,000 Fixed expenses: Salaries 34,000 Rents 47,000 Depreciation 42,000 Total fixed expenses 123,000 Net operating income $ 50,000 The scrap value of the project's assets at the end of the project would be $24,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to: (
Answer:
Payback period = 3.5 years
Explanation:
Net income $50,000.00
Add: Depreciation expense $42,000.00
Net annual cash inflow $92,000.00
Payback period = Initial investment / Annual cash inflows
= $324,000 / $92,000
= 3.5 years
Kate invests $500 at the beginning of each year for 12 years into a fund earning an effective annual interest rate of 5%. Interest is paid on the fund at the end of each year. Kate takes each interest payment and reinvests it in another fund earning a rate of 4%. Find the combined value of Kate's two funds at the end of year 12
Answer:
$7,888.55
Explanation:
we can prepare Katie's expected balance on her accounts:
end of year 1 = $500 x (1 + 5%) = $525
end of year 2 = $525 + [$525 x (1 + 4%)] = $1,071
end of year 3 = $525 + [$1,071 x (1 + 4%)] = $1,638.84
end of year 4 = $525 + [$1,638.84 x (1 + 4%)] = $2,229.39
end of year 5 = $525 + [$2,229.39 x (1 + 4%)] = $2,843.57
end of year 6 = $525 + [$2,843.57 x (1 + 4%)] = $3,482.31
end of year 7 = $525 + [$3,482.31 x (1 + 4%)] = $4,146.60
end of year 8 = $525 + [$4,146.60 x (1 + 4%)] = $4,837.47
end of year 9 = $525 + [$4,837.47 x (1 + 4%)] = $5,555.97
end of year 10 = $525 + [$5,555.97 x (1 + 4%)] = $6,303.21
end of year 11 = $525 + [$6,303.21 x (1 + 4%)] = $7,080.33
end of year 12 = $525 + [$7,080.33 x (1 + 4%)] = $7,888.55
A double line drawn under the figures in a money column shows that the computation is complete.
a. True
b. False
Answer:
a. True
Explanation:
The double line figures are usually presented in Statement of Financial Position under the Total Assets amounts and Total Equity and Liabilities amounts to show that computations are complete for that section.
A company sells goods for $150,000 that cost $54,000 to manufacture. Which statement is true?
a. The company will recognize $96,000 gross profit on the balance sheet.
b. The company will decrease finished goods by $54,000.
c. The company will increase finished goods by $54,000.
d. The company will recognize sales on the balance sheet of $150,000.
Answer:
Option B is the correct answer.
Explanation:
The sale of finished goods worth $54000 for an amount of $150000 will require us to recognize a revenue of $150000 and a reduction in inventory of finished goods worth $54000.
Option a is incorrect as the gross profit is not recognized on balance sheet. The gross profit is an income statement item.
Option c is incorrect as the sale of finished goods will cause a reduction in the finished goods inventory for the amount of goods sold.
Option d is incorrect as the sale will be recognized in sales revenue on the profit and loss statement and not on the balance sheet as revenue is a profit and loss statement account.
Thus, option b is the correct answer as the sale of finished goods will be represented by a reduction in finished goods inventory by the cost of the goods sold which is $54000.
Ash is the preferred wood to be used in the production of baseball bats.If a company was to buy the rights to harvesting the ash trees out of all the forests in North America,which of the following barriers of entry has this company created?
A) control of resources
B) problems raising capital
C) economies of scale
D) licensing
E) patents and copyright law
Answer: A) control of resources
Explanation:
One of the ways that Monopolies create barriers to entry is by controlling the natural resource. This question is a an example of that happening.
By controlling the natural resource, the monopoly can decide who it wants to sell to and at what price. It could even decide not to sell the resource at all which would make it the sole producer of the goods derived from the resource which would effectively force every competitor out of the market as they would be unable to produce anything.
A branding strategy in which a firm uses the same brand for all or most of its products is called __________ branding.
Answer:
Umbrella branding
Explanation:
A branding strategy in which a firm uses the same brand for all or most of its products is called UMBRELLA branding.
Umbrella branding occurs when all or most of a firm's product mix features the same brand name. It is also known as family branding.
Umbrella Branding depends on a single brand name for the sale of multiple related products. The parent brand acts as an umbrella accommodating numerous products under its name.
ABC Company made two purchases at the beginning of Year 1:
• Inventory costing $100
• Land costing $700
Both were sold during Year 1:
• Inventory for $110
• Land for $900
How much gain would ABC Company show on its Year 1 Income Statement?
a) $200
b) $10
c) $210
d) $0
Answer:
c) $210
Explanation:
Calculation for how much gain would ABC Company show on its Year 1 Income Statement
Using this formula
Gain=Amount purchased-Amount sold
Let plug in the formula
Inventory Gain=Inventory costing $100-Inventory sold $110
Inventory Gain=$10
Land Gain=Land costing $700- Land sold $900
Land Gain=$200
Hence, the gain for both inventory and land gain will be:
Land Gain $200 +Inventory Gain $10
=$210
Therefore the amount of gain that ABC Company would show on its Year 1 Income Statement will be $210
Suppose the interest on a foreign government bonds is 7.5%, and the current exchange rate is $0.03571/foreign currency (i.e. 28 foreign currencies per dollar). If the forward exchange rate is $0.03508/foreign currency (i.e. 28.5 foreign currencies per dollar), and the current US risk-free rate is 4.5%, if the effective foreign risk-free rate is 6.366%. Which of the following is most likely to be correct?
A) The foreign government bond is a superior investment than the US Treasury bond.
B) The foreign government bond is less risky than the US Treasury bond.
C) The implied country risk premium of the foreign government bond is positive.
D) The fluctuation of $/foreign currency exchange rate will not affect the risk premium of the foreign government bond.
E) The capital markets between the US and the foreign country must be fully integrated.
Answer: C) The implied country risk premium of the foreign government bond is positive.
Explanation:
Given that the effective foreign risk-free rate is 6.336% and the interest on the foreign Govt. bonds is 7.5%, this would mean that the foreign govt. is offering higher on it's bonds than its risk free rate which means there is a premium.
The premium is;
= 7.5% - 6.366%
= 1.134%
This means that the implied country risk premium of the foreign government bond is positive.
Honeycutt Co. is comparing two different capital structures. Plan I would result in 12,700 shares of stock and $109,250 in debt. Plan II would result in 9,800 shares of stock and $247,000 in debt. The interest rate on the debt is 10 percent. The all-equity plan would result in 15,000 shares of stock outstanding. Ignore taxes for this problem. a. What is the price per share of equity under Plan I
Answer: $47.50
Explanation:
The Price per share under Plan I can be calculated by the formula;
Price per share = Value of debt / (Number of shares under all-equity plan - Number of shares under Plan)
= 109,250 / ( 15,000 - 12,700)
= 109,250 / 2,300
= $47.50
Which of the following trends has been observed in the world population in terms of aging? A) As nations have advanced economically, birthrates have increased in proportion to the growing world population. B) The world's population aged 80 and over is projected to decrease 233% by 2040. C) People aged 65 and older will soon outnumber children under age 5 for the first time in history. D) The world's population is growing older, but at a slower rate than it did in comparison with the previous two centuries.
Answer:
C) People aged 65 and older will soon outnumber children under age 5 for the first time in history
Explanation:
The world population refers to a number of populations in a word. it shows the approximation number of population in the world. It could be in millions, billions, etc
In terms of aging as we can see that the people who are aging of 65 or older would be soon more numerous than the children who comes under the age of 5 for the first time in history
Hence, the correct option is C.
Which of the following is most integral to the task of leading the drive for good strategy execution and operating excellence?
A. Pushing lower-level managers and supervisors to practice MBWA
B. Being a good motivator and a decisive decision-maker
C. Staying on top of how well things are going, making sure the company has a good strategic plan, putting . constructive pressure on the organization to achieve good results, displaying ethical integrity, leading social responsibility initiatives, and pushing corrective actions to improve strategy execution and achieve the targeted results
D. Practicing enlightened empowerment of employees and using a decentralized approach to decision-making
E. Being good at designing a strategy-supportive reward structure
Answer:
C. Staying on top of how well things are going, making sure the company has a good strategic plan, putting . constructive pressure on the organization to achieve good results, displaying ethical integrity, leading social responsibility initiatives, and pushing corrective actions to improve strategy execution and achieve the targeted results
Explanation:
To accomplish the organization objective, the planning plays an important role with the help of planning, the company could able to make the strategy and according to that it will get to know the time frame in which the chances of achieving the objectives could be high
Good plans results good results that represent the ethical, social responsibilities, and if there is any mistaken done so corrective actions could be taken out
Therefore the correct option is c.
Direct Materials Variances
The following data relate to the direct materials cost for the production of 10,000 automobile tires:
Actual: 145,000 lbs. at $2.80 per lb.
Standard: 150,000 lbs. at $2.75 per lb.
a. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.
Price variance $ Unfavorable
Quantity variance $ Favorable
Total direct materials cost variance $ Favorable
b. The direct materials price variance should normally be reported to the Purchasing Department . If lower amounts of direct materials had been used because of production efficiencies, the variance would be reported to the Production Supervisor . If the favorable use of raw materials had been caused by the purchase of higher-quality raw materials, the variance should be reported to the Purchasing Department .
Answer and Explanation:
The computation is shown below
a.
For Direct materials price variance is
= (Actual price - standard price) × actual quantity
= ($2.8 - $2.75) × 145000
= $7,250 unfavorable
For Direct materials quantity variance is
= (Actual quantity - standard quantity) × standard price
= (145,000 - 150,000) × $2.75
= $13,750 favorable
For Total direct material cost variance is
= $7,250 unfavarable + $13,750 favorable
= $6,500 favorable
b. The answers are purchasing department, production supervisor and the purchasing department
Suppose the price of gasoline decreases from $4.20 to $2.00, and in response quantity demanded increases from 10600 to 11200. Using the mid-point formula, what is the price elasticity of demand
Answer:
0.079
Explanation:
Price elasticity of demand using midpoint formula can be calculated as follows
Formula
Elasticity of demand = (change in quantity/average quantity)/(change in price/average price)
Calculation
Elasticity of demand = (600/10,900)/(-2.1/3.05)
Elasticity of demand =-0.055 / -0.688
Elasticity of demand =-0.079
working
Change in price (2-4.1) = -2.1
Average price (2+4.1)/2=3.05
Change in quantity (11,200-10600) = 600
average quantity (11,200+10,600)/2 = 10,900
The elasticity of demand is inelastic as the elasticity is below 1.
What should a manager ideally do after implementing a solution to a given work-related problem?
Answer:
After implementing a solution to a given work-related problem, the manager should EVALUATE THE OUTCOME OF THE SOLUTION.
...
focus on other problems.
evaluate the outcome of the solution.
analyze the experience of the decision-making process.
evaluate the performance of all employees involved in the problem-solving process.
Answer:
Evaluate the outcome of the solution
Explanation:
Correct in Edmentum! I took the test!
Abbott Landscaping purchased a tractor at a cost of $36,000 and sold it three years later for $18,000. Abbott recorded depreciation using the straight-line method, a five-year service life, and a $2,000 residual value. Tractors are included in the Equipment account.
1- Record the sale of equipment.
2- Assume the tractor was sold for $11,200 instead of $18,000. Record the sale.
Answer:
1. Record sale of equipment for $18,000
Date Account Title and Explanation Debit Credit
Cash $18,000
Accumulated Depreciation $20,400
Equipment $36,000
Gain on sale of Equipment $2,400
(To record sale of equipment)
Workings
Accumulated depreciation = (Cost - Residual Value/ Useful life ) * Number of years used
= ($36,000 - $2,000 / 5) * 3
= $20,400
2. Record sale of Equipment for $11,200
Date Account Title and Explanation Debit Credit
Cash $11,200
Accumulated Depreciation $20,400
Gain on sale of Equipment $4,400
Equipment $36,000
(To record sale of equipment)
Of the following efficient market hypotheses, researchers have stated that markets are somewhat efficient in the ____________ sense.
a) weak
b) semi-strong
c) semi-strong and strong
d) weak and semi-strong
Answer:
strong form
Explanation:
The efficient market hypotheses refers to a theory in which the prices of the assets depicts completely with respect to the information available
In this, the weak states that purchasing and the selling of the stock considered to be invalid also the stocks is either overvalued or undervalued. Also, it can be figure out with the fundamental analysis
The semi-strong states that it depicts all the information with related to the stock price also the investor could buy the stock but no benefit over and above could be taken
The strong states that all the information i.e. public or private with related to the stock price should be depicted also no profit should be considered if it is above the average investor even if the new information is also mentioned
Therefore this is a case of strong form
Assume that at retirement you have accumulated $500,000 in a variable annuity contract. The assumed investment return is 6%, and your life expectancy is 15 years. What is the hypothetical constant-benefit payment?
Answer:
The hypothetical constant-benefit payment is $51,481.38.
Explanation:
This can be calculated using the formula for calculating the present value of an ordinary annuity as follows:
PV = P * [{1 - [1 / (1 + r)]^n} / r] …………………………………. (1)
Where;
PV = Present value accumulated retirement benefit = $500,000
P = Annual hypothetical constant-benefit payment = ?
r = investment return = 6%, or 0.06
n = life expectancy = 15
Substitute the values into equation (1) and solve for P, we have:
$500,000 = P * [{1 - [1 / (1 + 0.06)]^15} / 0.06]
$500,000 = P * [{1 - [1 / 1.06]^15} / 0.06]
$500,000 = P * 9.712248987741
P = $500,000 / 9.712248987741
P = $51,481.38
Therefore, the hypothetical constant-benefit payment is $51,481.38.
Assume that no correcting entries were made at December 31, 2020. Ignoring income taxes, by how much will retained earnings at December 31, 2021 be overstated or understated?
a. $ 2,000 understated
b. $15,000 overstated
c. $15,000 understated
d. $18,000 understated
Answer; a. $ 2,000 understated
Explanation;
Inventory is usually self correcting so the overstatement in 2020 will not affect 2021. Only relevant effects will be the Depreciation in both years and inventory in 2021.
The Depreciation overstatement of $12,000 in 2020 had the effect of reducing Net income as it increased expenses so retained earnings will be understated.
In 2021, an understatement of Depreciation will overstate income as it understates expenses. The overstatement of Ending Inventory will lead to an understatement of Cost of Goods sold which will overstate Income as well.
2020 = $12,000 understatement
2021 = 6,000 + 4,000 = $10,000 overstatement
= 12,000 - 10,000
= $2,000 understatement
You win the million-dollar lottery and decide to quit working. How can you explain this decision using economics
Answer:
the income effect now groverns your behaviour as you demand more leisure and the opportunity cost of leisure goes down
Explanation:
In economics, the cost of opportunity refers to when one person or business chooses one advantage over another. When a person wins the lottery, the person's income increases. This increase in income motivates the person to choose more leisure at work. This means the person is ready to leave work for leisure. In this way, the potential cost of the holiday is reduced. And with an increase in a person's income, a person's purchasing power improves. Increasing purchasing power means the person seeks more rest. Therefore, choosing to retire at work with an increase in income indicates an income impact. Therefore, if a person decides to quit his job, that person's behavior will be controlled by the income effect.On January 1, Falk Company signed a contract to lease space in a building for three years. The current value of the three lease payments is $270,000.
Required: Prepare entries for Falk to record (a) the lease asset and obligation at January 1, and (b) the $90,000 straight-line amortization at December 31 of the first year.
Answer:
part a
Right of use asset $270,000 (debit)
Lease Obligation $270,000 (credit)
part b
Lease obligation $90,000 (debit)
Cash $90,000 (credit)
Explanation:
During initial recognition, the Lease Obligation is measured at the present value of lease payments whilst the Right of use asset is measured at the amount at which the Lease Obligation was initially recognized plus any other costs directly incurred in placing the assets in the location and condition intended for use by managers in terms of (IAS 16).
In the subsequent years, the Lease obligation will be amortized, this means the amount of liability increase by the amount cash flow set on the lease that comprises of interest and capital repayment.
On most points along a short run phillips curve, expectations of inflation are generally:_______
a. greater than actual inflation because people tend to overreact to inflationary predictions.
b. lower than actual inflation because of the money illusion.
c. not equal to actual inflation.
d. equal to actual inflation.
Answer: lower than actual inflation because of the money illusion.
Explanation:
The Phillips curve states that there is an inverse but stable relationship between inflation and unemployment. This theory posits that inflation is caused by economic growth which leads to employment opportunities for people and in turmy, reduces unemployment.
On most points along a short run phillips curve, expectations of inflation are generally lower than actual inflation because of the money illusion.
The step in the 5S approach in which standardized procedures for maintaining an orderly work environment are developed and implemented is:
Answer:
Standardize
Explanation:
The 5s approach includes
1. Sort
2. Systemize
3. Set in order
4. Shine
5. Sustain
The answer to this question is standardize and it has to do with orderliness, that is the continued cleaning and maintaining by carrying out shine, sort and set in order.
what does a scrum master support in order to help the team improve and take responsibility g
Answer:
The Scrum Master helps foster the culture of technical discipline and craftsmanship that is the hallmark of effective Agile teams. And, also, he builds a high-performing team – focusing on ever-improving team dynamics and performance.
Lastly, he helps the team manage interpersonal conflicts, challenges, and opportunities for growth.
Explanation:
A commercial bank recognizes that its net income suffers whenever interest rates increase. Which of the following strategies would protect the bank against rising interest rates?
a. Entering into an interest rate swap where the bank receives a fixed payment stream, and in return agrees to make payments that float with market interest rates.
b. Purchase principal only (PO) strips that decline in value whenever interest rates rise.
c. Enter into a short hedge where the bank agrees to sell interest rate futures.
d. Sell some of the bank's floating-rate loans and use the proceeds to make fixed-rate loans.
e. Buying inverse floaters.
Answer: c. Enter into a short hedge where the bank agrees to sell interest rate futures.
Explanation:
Futures are a derivative instrument that aims to give stability. It works by the seller of the future agreeing to sell the underlying asset or what it is being traded for a set price in future and at a certain time.
This way even if market conditions cause the price of the asset to change in the market, the parties to this contract will still trade at the price agreed.
If the bank sells interest rate futures, they can lock in a set interest rate for the future that will not change regardless of what happens in the market thereby keeping their Net Income stable.
Crane is a nonprofit organization that captures stray deer bewildered within residential communities. Fixed costs are $10000. The variable cost of capturing each deer is $10 each. Crane is funded by a local philanthropy in the amount of $54000 for 2020. How many deer can Crane capture during 2020?
Answer:
4,400 deer
Explanation:
Total fund received = Fixed cost + Variable cost
$54,000 = $10,000 + $10 × Variable cost
$44,000 = $10 × Variable cost
Therefore,
Variable cost = 4,400 deer
Discuss the following issues relating to Modigliani and Miller’s (MM) 1958 capital structure model.
A. What was the importance of the model?
B. What are the basic assumptions of the model?
Answer with Explanation:
Requirement 1:Modigliani & Miller's theorem helps understanding the value of the company, the factors that results in change in the value of the company and the financial risk that increases the firm's Weighted Average Cost of Capital.
M & M proposition 1:
The M & M proposition 1 (or M & M without Tax model) says that the value of the firm remains the same no matter what is the percentage of debt and equity in the capital structure hence the primary focus of the management must be to decrease cost and increase the return on the investment.
M & M proposition 2:
However later, due to increased critism of not considering the tax implications on the WACC, M & M presented a modified model which is also known as M & M With Tax Model. In it he acknowledges the importance of tax in calculating the WACC and he is of the opinion that the injection of the debt reduces the WACC. Hence the maximum level of debt must be used to exploit all the available investment opportunities.
The value of the company can be calculated using the following formula:
Value of the Company = Free Cash flow * (1 + g) / (WACC - g)
The changes in the capital structure results in changes to firm's WACC which changes the value of the company. This clearly shows that if the WACC can be reduced then the value of the firm would increased. Hence M & M model is useful in predicting the Optimal Capital structure that would give lowest WACC and thus highest value of the company.
Requirement 2:The basic assumptions of M & M proposition without tax Model are as under:
There are no transaction costs on trading of securitiesThere are no taxes.The market is perfect market which means that the investor and the corporation have same information which doesn't impacts the decision making of both entities.The Floatation costs are zero which means that their are no issuance costs, listing expenses, etc.The taxes on the Dividend distribution are also zero.The basic assumptions of M & M proposition with tax Model are as under:
There are no transaction costs on trading of securitiesThe capital market is perfect market which means that the investor and the corporation have same information which doesn't impacts the decision making of both entities.The Floatation costs are zero which means that their are no issuance costs, listing expenses, etc.