Tom Scott is the owner, president, and primary salesperson for Scott Manufacturing. Because of this, the company's profits are driven by the amount of work Tom does. If he works 40 hours each week, the company's EBIT will be $585,000 per year; if he works a 50-hour week, the company's EBIT will be $1.65 million, and it can issue equity or issue debt with an interest rate of 9 percent. Assume there are no corporate taxes.
Required:
a. What are the cash flows to Tom under each scenario?
b. Under which form of financing is Tom likely to work harder?
Answers
Answer:
a.
If debt is issued;
40 Hour week;
EBIT = $585,000
Cash flows to Tom = EBIT - Interest
Interest will be on the $1.65 million that needs to be borrowed so;
= 9% * 1,650,000
= $148,500
Cash Flow to Tom = 585,000 - 148,500
= $436,500
50 Hour Week
Cashflows to Tom = EBIT - Interest
= 695,000 - 148,500
= $546,500
If Equity is Issued;
Company is worth $3.55 million but a $1.65 million investment is needed. If equity is issued for the cash, Tom will only own $3.55 million out of the ne total value.
= 3.55/(3.55 + 1.65)
= 3.55/5.2
40 Hour Week
Cash flow to Tom = EBIT * Tom ownership
= 585,000 * 3.55/5.2
= $399,375
50 Hour Week
= 695,000 * 3.55/5.2
= $474,471.15
b. Under Debt Issue because more cashflow of $546,500 will be due to him.
Related Questions
Wangerin Corporation applies overhead to products based on machine-hours. The denominator level of activity is 7,000 machine-hours. The budgeted fixed manufacturing overhead costs are $245,000. In April, the actual fixed manufacturing overhead costs were $249,900 and the standard machine-hours allowed for the actual output were 7,300 machine-hours. Required: a. Compute the budget variance for April. b. Compute the volume variance for April.
Answers
Answer and Explanation:
a. The computation of the budget variance of the month of April is shown below:
= Actual fixed manufacturing overhead costs - budgeted fixed manufacturing overhead costs
= $249,900 - $245,000
= $4,900 unfavorable
b. The volume variance is
= (Denominator machine-hours - Standard machine-hours allowed) × Budgeted fixed overhead rate
= (7,000 machine hours - 7,300 machine hours) × $245,000 ÷ 7,000 machine hours
= $10,500 favorable
g Oriole Company had actual sales of $1100000 when break-even sales were $660000. What is the margin of safety ratio? 67% 40% 33% 60%
Answers
Answer:
40%
Explanation:
Oriole company has an actual sales of $1,100,000
The break even sales is $660,000
Therefore, the margin of safety can be calculated as follows
= Actual sales-break-even sales/actual sales
= $1,100,000-$660,000/$1,100,000
= $440,000/$1,100,000
= 0.4×100
= 40%
Hence the margin of safety is 40%
A project has an initial cost of $17,700 and produces cash inflows of $7,200, $8,900, and $7,500 over three years, respectively. What is the discounted payback period if the required rate of return is 16 percent
Answers
Answer: Never
Explanation:
Discounted payback period aims to find out how long it will take for a project to repay its investment given its discounted cashflows.
Year 1 = 7,200 / ( 1 + 0.16)
= $6,206.8965
= $6,206.90
Year 2 = 8,900 / ( 1 + 0.16) ²
= $6,614.149
= 6,614.15
Year 3 = 7,500 / ( 1 + 0.16)³
= $4,804.93
Year 1 + Year 2 + Year 3
= 6,206.90 + 6,614.15 + 4,804.93
= $17,625.98
It failed to pay back the $17,700
Which of the following tactics might public sector unions use to increase management's cost of disagreeing with the union position during bargaining?
A. Threatening to release information about the dollar amount of liquor bills for government officials that are paid by taxpayers.
B. Threating to not endorse or work on behalf of a candidate favored by management in a political campaign.
C. Malicious obedience to the published work rules.
D. All the above are legal tactics that the union can use to pressure management to accept the union's position on an issue.
Answers
Answer:
D. All the above are legal tactics that the union can use to pressure management to accept the union's position on an issue.
Explanation:
Each and everyone one of the options mentioned above are tactics adopted by the union in pressuring management to accept their position on most of the issues which they have or are arguing about.
Dorsey Company manufactures three products from a common input in a joint processing operation.
Joint processing costs up to the split-off point total $350,000 per quarter.
The company allocates these costs to the joint products on the basis of their relative sales value at the split-off point.
Unit selling prices and total output at the split-off point are as follows:
Product Selling Price Quarterly Output
A $16 per pound 15,000
B $8 per pound 20,000
C $25 per gallon 4,000
Each product can be processed further after the split-off point. Additional processing requires no special facilities.
The additional processing costs (per quarter) and unit selling prices after further processing are given below:
Product Additional Processing Costs Selling Price
A $63,000 $20 per pound
B $80,000 $13 per pound
C $36,000 $32 per gallon
a. Compute the incremental profit (loss) for each product.
b. Which product or products should be sold at the split-off point and which product or products should be processed further? Show Computations.
Answers
Answer:
Product A B C
Incremental profit/(loss) (3 ,000) 20,000 (8,000)
b
Process further : Product B
Sell at the split of point : Product A and C
Explanation:
Question a
A company should process further a product if the additional revenue from the split-off point is greater than than the further processing cost.
Also note that all cost incurred up to the split-off point are irrelevant to the decision to process further .
Additional sales revenue = Sales revenue after further processing - sales revenue after split-off point .
Product A B C
Sales after split of point 20 13 32
Sales at the split off point (16) ( 8) (25)
Additional rev per unit 4 5 7
Quantity × 15,000 20,000 4,000
Additional sales rev 60,000 100,000 28,000
Further processing cost ( 63,000) ( 80,000) (36,000)
Incremental profit/(loss) (3 ,000) 20,000 (8,000)
Question b
Products A and Product C should be sold at the split of point
Doing so would save the the company the $11,000 in incremental losses ( 3,000+ 8,000).
Product B should be process further as it would produce an incremental profit of $20,000
Which of the following statements is correct? Review Later Strategic buyers are asset managers that are trying to time the purchase or sale of a business. Strategic buyers are institutions that provide capital and are not operators. Financial buyers are institutions that provide capital and are not operators. Financial buyers are operating partners that try to create synergies.
Answers
Answer:
Strategic buyers are asset managers that are trying to time the purchase or sale of a business.
Financial buyers are institutions that provide capital and are not operators.
Explanation:
Strategic buyers are the buyers which aim to buy the company through acquisition, or M&A in order to gain more power in the industry, basically expanding their horizons, they are competitors, or the suppliers in the supply chain, or the customers of the product, they tend to buy such companies in order to decrease their share of cost.
Financial buyers are the one which basically provides finance to the company.
In simple terms these buyers just invest in the companies and have short term or long term goals from this investment, as long as these goals in the form of expected return are fulfilled they keep the investment, as soon when they discover its profitable to sell it further and have a capital gain they do so.
A portfolio comprises Coke (beta of 1.1) and Wal-Mart (beta of 1). The amount invested in Coke is $10,000 and in Wal-Mart is $20,000. What is the beta of the portfolio?
Answers
Answer:
Beta= 1.133
Explanation:
Giving the following information:
Coke:
beta= 1.1
Investment= $10,000
Wal-Mart:
beta= 1
Investment= $20,000
First, we need to calculate the proportion of investments:
Coke= 10,000/30,000= 0.33
Wal-Mart= 20,000/30,000= 0.77
Now, to calculate the beta of the portfolio, we need to use the following formula:
Beta= (proportion of investment A*beta A) + (proportion of investment B*beta B)
Beta= (0.33*1.1) + (0.77*1)
Beta= 1.133
If the market interest rate is greater than the stated interest rate on bonds, the bonds will sell: ___________
a. at a premium.
b. at a discount.
c. at face value.
d. only after the stated interest rate is increased
Answers
Answer:
Option B, at a discount, is the right answer.
Explanation:
Bond is a kind of security or it is a liability for a company that occurs by issuing the bonds to the public. We find that if the stated interest rate on bonds is lower than the market interest rate then the general public will not buy bonds. Therefore, it becomes essential for a company to issue bonds at a discount rate so that it can attract the general public. It is the same case in the given question, therefore, the company will issue bonds at a discount rate.
International trade currently involves about ______________ worth of goods and services thundering around the globe. Group of answer choices
Answers
Answer:
$20 trillion
Explanation:
International trade is the trade that arises between different countries. Because of international trade, many various countries could be purchased the goods and services i.e. not be produced in those countries
Here the international trade consists of $20 trillion goods and services enormous around the globe
Hence, the correct answer is $20 trillion
An increase in the demand for the Canadian dollar will lead to
A.
an appreciation of the Canadian dollar and a higher quantity of Canadian dollars
traded
B.
a depreciation of the Canadian dollar and a higher quantity of Canadian dollars traded
C.
an appreciation of the Canadian dollar and a lower quantity of Canadian dollars
traded
D.
a depreciation of the Canadian dollar and a lower quantity of Canadian dollars traded.
Answers
Answer:
A. an appreciation of the Canadian dollar and a higher quantity of Canadian dollars
traded
Explanation:
An increase in the demand for the Canadian dollar will lead to
an appreciation of the Canadian dollar and a higher quantity of Canadian dollars traded.
When, the demand for Canadian dollar increases, it means, the Canadian dollar will appreciate against other currencies and higher quantity of the Canadian dollar will be traded.
A rightward shift in demand( increase) means the demand curve has moved up along the
supply curve causing the price of the currency measured on the horizontal axis to increase.
Bradshaw Inc. is contemplating a capital investment of $88,000. The cash flows over the project’s four years are: Year Expected Annual Cash Inflows Expected Annual Cash Outflows 1 $30,000 $12,000 2 45,000 20,000 3 60,000 25,000 4 50,000 30,000 The cash payback period is
Answers
Answer: 3.50 years
Explanation:
The Payback period is a method of checking the viability of a project. It measures how long it will take a project to pay back it's initial investment.
Formula is;
= Year before payback + Cash remaining till payback/ Cash inflow in year of payback
Year 1 Net Cash Inflow
= Cash Inflow - Cash Outflow
= 30,000 - 12,000
= $18,000
Year 2
= 45,000 - 20,000
= $25,000
Year 3
= 60,000 - 25,000
= $35,000
Year 4
= 50,000 - 30,000
= $20,000
Year 1 + 2 + 3
= 18,000 + 25,000 + 35,000
= $78,000
Amount remaining till payback
= Investment - Cash inflow so far
= 88,000 - 78,000
= $10,000
= Year before payback + Cash remaining till payback/ Cash inflow in year of payback
= 3 + 10,000/20,000
= 3.50 years
The merchandise costing method that matches the most current cost of items purchased against the current sales revenue is called the
Answers
Answer: LIFO
Explanation: LIFO which stands for last-in-first out is an inventory management system that considers the last inventory as the one to be disposed first. In merchandise costing, it considers the most recent cost of items purchased from the market versus the most recent sales revenue when dealing with the costing of the merchandise.
LIFO is generally not realistic for business organisations as most will not want to leave the older stock to start dealing on the newer stocks.
Fosnight Enterprises prepared the following sales budget: Month Budgeted Sales March April May June The expected gross profit rate is % and the inventory at the end of February was . Desired inventory levels at the end of the month are % of the next month's cost of goods sold. What are the total purchases budgeted for May?
Answers
The question is incomplete as the figures are missing. The complete question is,
Fosnight Enterprises prepared the following sales budget:
Month Budgeted Sales
March $6,000
April $13,000
May $11,000
June $20,000
The expected gross profit rate is 20% and the inventory at the end of February was $7,000. Desired inventory levels at the end of the month are 30% of the next month's cost of goods sold. What are the total purchases budgeted for May?
Answer:
Purchases - May = $10960
Explanation:
To calculate the total value of purchases that are budgeted for May, we first need to calculate the cost of goods sold and the opening and closing inventory for May.
As the gross profit margin is 20%, the cost of goods sold will be 80% of sales.
Cost of goods sold for May = 0.8 * 11000 = $8800
Cost of goods sold for June = 0.8 * 20000 = $16000
Opening inventory - May = 8800 * 0.3 = $2640
Closing Inventory - May = 16000 * 0.3 = $4800
Purchases = Closing Inventory + Cost of Goods Sold for the month - Opening Inventory
Purchases - May = 4800 + 8800 - 2640
Purchases - May = $10960
"A customer who is long 1 ABC Jan 40 Call wishes to create a "bear call spread." The second option position that the customer must take is:"
Answers
Answer:
Short 1 ABC Jan 30 Call
Explanation:
Investors create a "bear call spread" by first purchasing a call option at a certain price (in this case 40), and then selling an equal amount of calls with a lower price (in this case 30). Both call options expire must expire at the same date. The investors will do this because they believe that the price of an asset will decrease, that is why it is called a bear spread.
You are trying to decide which of two automobiles to buy. The first is American-made, costs $28,500, and has a rated gasoline mileage of 28 miles/gal. The second car is of European manufacture, costs $35,700, and has a rated mileage of 19 km/L. If the cost of gasoline is $3.25/gal and if the cars actually deliver their rated mileage, estimate how many miles you would have to drive for the lower fuel consumption of the second car to compensate for the higher cost of this car.
Answers
Answer:
So, the European made car must be driven at least 266666.67 kilo metres in order for both the cars to have same total cost and the European car should be driven more than 266666.67 kilo metres in order for it to have a lower total cost and provide an advantage over the american made.
Explanation:
To calculate the number of miles needed for the lower fuel consumption car to have the same cost as of the higher fuel consumption cost, we need to equate the cost equation of both the cars.
We need to convert the gallons into litres and miles into kilo metres. 1 gallon contains 3.785 litres and 1 mile contains 1.609 kilo metre. So, mileage of first car in kilo metre per Litre is,
Mileage American made = (28 * 1.609) / 3.785
Mileage American made = 11.90 kilo metre per litres
Gas cost per Litres = 3.25 / 3.785
Gas cost per Litres = $0.8586 rounded off to $0.86 per Litres
Gas cost per kilo metre - American Made = 0.86 / 11.90 = $0.072 per km
Gas cost per kilo metre - European Made = 0.86 / 19 = $0.045 per km
The total cost equation (purchase price + fuel cost) of first car which is American made is,
Let x be the number of kilo metres where both cars total costs are equal.
Total cost = 28500 + 0.072x
The total cost equation (purchase price + fuel cost) of first car which is European made is,
Let x be the number of kilo metres where both cars total costs are equal.
Total cost = 35700 + 0.045x
28500 + 0.072x = 35700 + 0.045x
0.072x - 0.045x = 35700 - 28500
0.027x = 7200
x = 7200 / 0.027
x = 266666.67 kilo metres
So, the European made car must be driven at least 266666.67 kilo metres in order for both the cars to have same total cost and the European car should be driven more than 266666.67 kilo metres in order for it to have a lower total cost and provide an advantage over the american made.
For Sheridan Company, sales is $1200000, fixed expenses are $340000, and the contribution margin ratio is 36%. What is net income?
Answers
Answer:
the net income is $92,000
Explanation:
The computation of the net income is shown below:
Net income = Contribution margin - fixed expenses
where,
Contribution margin is
= Sales × contribution margin ratio
= $1,200,000 × 36%
= $432,000
And, the fixed expenses is $340,000
So, the net income is
= $432,000 - $340,000
= $92,000
hence, the net income is $92,000
On November 10 of the current year, Flores Mills sold carpet to a customer for $7,300 with credit terms 4/10, n/30. Flores uses the gross method of accounting for cash discounts. What is the correct entry for Flores on November 10?
Answers
Answer:
Dr Cash 7,008
Dr Sales discounts 292
Cr Accounts Receivable 7,300
Explanation:
Preparation of the correct entry for Flores on November 17
Based on the information given we were told that Flores Mills sold the amount of $7,300 worth of carpet to a customer which include a credit terms of 4/10, n/30.
Therefore using the gross method of accounting for cash discounts this means that the transaction will be recorded as;
Dr Cash 7,008
(7,300-292)
Dr Sales discounts 292
(4%×$7,300)
Cr Accounts Receivable 7,300
Answer:
Accounts receivable - $7300 Dr.
Sales - $7300 Cr.
Explanation:
Given the following :
Amount carpet was sold = $7,300
Credit terms = 4/10 n/30
Date of sale = November 10
According to the credit terms of the sale, the customers receives a discount of 4% of payment is made within 10 days otherwise customer makes full payment. In other to make record of the purchase using the gross method of accounting on the same day, record is taken without deduction of the discount attached to the sale until payment is made.
Account receivable is debited with the sales price as payment has not yet been made and sales is credited with the equivalent amount.
6. If negative float appears on a partial path (until certain activity), the most likely explanation is: a. One or more activities on that path is running late. b. The project is not meeting its expected completion date. c. The project is meeting its expected completion date but a certain activity/ event on that path is not meeting its expected completion date. d. It must be a software glitch.
Answers
Answer:
c. The project is meeting its expected completion date but a certain activity/ event on that path is not meeting its expected completion date.
Explanation:
Float is the total amount of a project delay. A negative float means a delay longer than the intended or allowed float at a given time. This means that a float is an activity that takes longer than initially thought. Some projects have built-in standard floats, which are calculated based on previous experience of similar projects, with allowances given for some different expected backstory.The constraint at Pickrel Corporation is time on a particular machine. The company makes three products that use this machine. Data concerning those products appear below:VD JT SMSelling price per unit $ 344.85 $ 415.40 $ 119.32Variable cost per unit $ 270.18 $ 310.88 $ 91.96Minutes on the constraint 5.70 6.70 1.901. Rank the products in order of their current profitability from most profitable to least profitable. In other words, rank the products in the order in which they should be emphasized. (Round your intermediate calculations to 2 decimal places.)Multiple ChoiceJT, SM, VDJT, VD, SMVD, SM, JTSM, VD, JT
Answers
Answer:
JT, SM, VD
Explanation:
Calculation to rank the products in the order in which they should be emphasized
VD JT SM
Selling price per unit
$ 344.85 $ 415.40 $ 119.32
Less:Variable cost per unit
$ 270.18 $ 310.88 $ 91.96
Contribution per unit
$74.67 $104.52 $27.36
÷Minutes on the constraint 5.70 6.70 1.90
=Contribution per minut
$13.10 $15.60 $14.40
Ranking
VD $13.10 Third
JT $15.60 First
SM $14.40 Second
JT, SM, VD
Therefore the product will be rank from the highest to the lowest which is JT, SM, VD
At December 31, 2017, Windsor Corporation had a projected benefit obligation of $819,000, plan assets of $437,000, and prior service cost of $198,000, in accumulated other comprehensive income. Determine the pension asset/liability at December 31, 2017.
Answers
Answer:
$382,000
Explanation:
Calculation to Determine the pension asset/liability at December 31, 2017
Using this formula
Pension asset/liability =Projected benefit obligation - Plan assets
Let plug in the formula
Pension asset/liability=$819,000 - $437,000
Pension asset/liability=$382,000
Therefore the Pension asset/liability at December 31, 2017 will be $382,000
The goal of this exercise is to demonstrate your understanding of the total logistic cost factors, which are expenses to be minimized Roll over each firm name to reveal a logistic activity faced by the firm. Then identify which type of the logistic cost factor the activity represents by dropping it onto the proper spot in the graphic. Hyundai SC Johnson Walgreens Ford LOGISTICS COST FACTORCostco TransportationKmart Warehousing & Materials HandlingFrito-Lay Order processingToyota StockoutsChrysler InventorySafeway Return Products Handling Philips Franchising is a variation of:_________.a. corporate vertical marketing systems b. cooperative vertical marketing systems. c. administered vertical marketing systems d. contractual vertical marketing systems. e. wholesaler-sponsored voluntary systems
Answers
Answer and Explanation:
Stockouts logistics cost factor-
Safeway,
Kmart
Transportation logistics cost factor-
Hyundai,
Ford
Inventory logistics cost factor-
Toyota,
Frito Lay
Return goods handling logistics cost factor-
Phillips,
Costco
Warehousing and materials handling logistics cost factor -
Coca Cola,
Walgreens
Order processing logistics cost factor-
SC Johnson,
Chrysler
logistics cost factors are cost factors associated with logistics ( concerned with acquisition, storage and transportation ofresources) based on the kind of business or kind of products or services a company is into. From the above we see that logistics cost factors vary as the companies are into different products or services and industries and therefore face different logistics costs associated with their production and or delivery. Every company aims to achieve logistics efficiency through minimizing costs associated with their logistics costs factors example Hyundai with transportation logistics cost factors would aim to reduce it's logistics cost factors and maximise profits by its locating it's manufacturing plant close to where it imports parts for it's vehicle manufacturing so as to reduce cost of transporting vehicle parts to manufacturing plant
For a particular flight from Dulles to SF, USAir uses wide-body jets with a capacity of 430 passengers. It costs the airline $4,000 plus $60 per passenger to operate each flight. Through experience, USAir has discovered that if a ticket price is T, then they can expect (430 - 0.58T) passengers to book the flight. Determine the ticket price, T, that will maximize the airline's profit.
Answers
Answer:
$370.69
Explanation:
Given the following :
Capacity (n) = 430
Cost incurred by airline per flight = $4000 + $60 per passengers
If ticket price = T ; (430 - 0.58T) are expected to book.
Determine the ticket price, T, that will maximize the airline's profit.
Profit = Revenue earned - cost incurred
Revenue earned = capacity * price = nT
Cost incurred = $4000 + $60n
Profit = nT - (4000 + 60n)
If ticket price = T ; (430 - 0.58T) are expected to book. Then n = (430 - 0.58T)
Profit = (430 - 0.58T)T - ($4000 + 60(430 - 0.58T))
Profit = 430T - 0.58T^2 - ($4000 + 25800 - 34.8)
Profit = 430T - 0.58T^2 - 4000 - 25800 + 34.8
Profit (P) = - 0.58T^2 + 430T −29834.8
Taking the first derivative of P
P' = 2(-0.58T) + 430
P' = - 1.16T + 430
Hence solve for price (T) when P' = 0
0 = - 1.16T + 430
1.16T = 430
T = 430 / 1.16
T = 370.68965
Price = $370.69
Champion Contractors completed the following transactions and events involving the purchase and operation of equipment in its business.
2016
Jan. 1 Paid $306,000 cash plus $12,240 in sales tax and $1,900 in transportation (FOB shipping point) for a new loader. The loader is estimated to have a four-year life and a $30,600 salvage value. Loader costs are recorded in the Equipment account.
Jan. 3 Paid $7,000 to enclose the cab and install air conditioning in the loader to enable operations under harsher conditions. This increased the estimated salvage value of the loader by another $2,100.
Dec. 31 Recorded annual straight-line depreciation on the loader.
2017
Jan. 1 Paid $4,300 to overhaul the loader’s engine, which increased the loader’s estimated useful life by two years.
Feb. 17 Paid $1,075 to repair the loader after the operator backed it into a tree.
Dec. 31 Recorded annual straight-line depreciation on the loader.
Required:
Prepare journal entries to record these transactions and events.
Answers
Answer and Explanation:
The journal entries are shown below:
On Jan 1 2016
Equipment $320,140 ($306,000 + $12,240 + $1,900
To Cash $320,140
(Being the cash paid is recorded)
On Jan 3 2016
Equipment $7,000
To Cash $7,000
(Being the cash paid is recorded)
On Dec 31 2016
Depreciation Expense - Equipment $73,610
To Accumulated depreciation-Equipment $73,610
(being the depreciation expense is recorded)
On Jan 1 2017
Equipment $4,300
To Cash $4,300
(Being the cash paid is recorded)
On Feb 17 2017
Repair Expense - Equipment $1,075
To Cash $1,075
(Being the cash paid is recorded)
On Dec 31 2017
Depreciation Expense - Equipment $45,026
To Accumulated depreciation - Equipment $45,026
(being the depreciation expense is recorded)
Working notes.
1.
Equipment Cost $320,140
Additional cost $7,000
Total Cost $327,140
Less salvage value ($30,600 + $2,100) $32,700
Cost to be depreciated $294,440
Annual depreciation ($294,440 ÷ 4 years) $73,610
2. Total Cost ($327,140 + $4,300) $331,440
Less accumulated depreciation -$73,610
Book value $257,830
Less salvage -$32,700
Cost to be depreciated $225,130
Revised left useful life (4 - 1 + 2) 5
Revised annual depreciation ($225,130 ÷ 5 yrs) $45,026
Project Y costs $50,000, its expected cash inflows are as follows-- year 1: $19,000; year 2: $20,000; year 3: $18,000; year 4: $19,000; year 5 $20,000; year 6: $17,000, and its WACC is 7%.
a. What is the project's NPV?
b. What is the project's IRR?
c. What is the project's MIRR?
d. What is the project's Payback Period?
e. What is the project's Discounted Payback?
Answers
Answer:
a. $40,001.70
b. 30.19 %
c. 18,01% .
d. 2 years and 7 months
e. 3 years
Explanation:
Calculation of NPV using a financial calculator :
-$50,000 CFj
$19,000 CFj
$20,000 CFj
$18,000 CFj
$19,000 CFj
$20,000 CFj
$17,000 CFj
i/yr 7%
Shift NPV $40,001.70
Calculation of IRR using a financial calculator :
-$50,000 CFj
$19,000 CFj
$20,000 CFj
$18,000 CFj
$19,000 CFj
$20,000 CFj
$17,000 CFj
Shift IRR 30.19 %
Calculation of MIIR :
The First Step is to Calculate the Terminal Value at end of year 6.
Terminal Value (FV) = Sum of (PV x (1 + r) ^ 6 - n)
=$19,000 x (1.07) ^ 5 + $20,000 x (1.07) ^ 4 + $18,000 x (1.07) ^ 3 + $19,000 x (1.07) ^ 2 + $20,000 x (1.07) ^ 1 + $17,000 x (1.07) ^ 0
= $26,648.48 + $26,215.92 + $22,050.77 + $21,753.10 + $21,400 + $17,000
= $135,068.27
The Next Step is to Calculate the MIRR using a Financial Calculator :
-$50,000 CFj
0 CFj
0 CFj
0 CFj
0 CFj
0 CFj
$135,068.27 CFj
Shift IRR/Yr 18,01%
Therefore, the MIRR is 18,01% .
Calculation of the Payback Period :
$50,000 = Year 1 ($19,000) + Year 2 ($20,000) + $11,000 / $18,000
= 2 years and 7 months
Calculation of the project's Discounted Payback :
$50,000 = $19,000 / (1.07)^1 + $20,000 / (1.07)^2 + $18,000/ (1.07)^3 + $19,000/ (1.07)^4
= Year 1 ($17,757.01) + Year 2 ($17,468.77) + Year 3 ($14,693.36) + $80.83 / $14,495
= 3 years
"The customer deposits the required margin. Subsequently, ABC stock rises to $40; DEF rises to $50; and PDQ rises to $60. The new equity in the account is:
Answers
Answer:
$18,500
Explanation:
for computing the new equity in the account first we have to determine the starting equity which is shown below:
Initial one is
Long Market Value - Debit = Equity %
= $25,000 - $12,500 (50%)
= $12,500
Now the new equity is
The 4,000 in the ABC stock, the $15,000 in DEF stock and $12,000 in PDQ stock after increased in the market values
So, the new equity is
= $31,000 - $12,500
= $18,500
Unfortunately, auditing is not necessary for effective financial reporting. Do you agree with this statement? In 300 words, defend your position.
Answers
Answer: I do not agree with that statement.
Explanation: Auditing is a term used to describe the various processes and activities put in place to review, examine and verify the financial reports and statements of an organisation. When effectively implemented, it has the advantage of ensuring the following.
I. Improved quality of financial statements
II. Reduced chances for fraudulent activities.
III. Proper documentation and reporting of daily Transactions.
IV. Improved monitoring and evaluation of the financial activities of an organisation.
V. It is a statutory requirements and obligation for Business Organisations.
VI. It will help to make the financial records of an organisation to be more accessible and transparent.
Many organisations have continued to Implement periodic audits and make it part of their processes, system and policy as it has benefited them and helped them to comply with statutory regulations and obligations.
In a sell or process further decision, which of the following costs is relevant?
I. A variable production cost incurred after split-off.
II. A fixed production cost incurred prior to split-off.
a) Only I
b) Both I and II
c) Neither I nor II
d) Only II
Answers
Answer: a. Only I
Explanation:
In a sell or process further decision, the only cost that is relevant is the variable production cost that is incurred after split-off.
It should be noted that a split-off is when the parent company of an organization uses specified terms to divests its business unit
The interest rate in the federal funds market:_________.
a. is an interest rate that is largely unaffected by the policies of the Fed.
b. will fall if the Fed sells bonds and, thereby, reduces the reserves available to banks.
c. is determined by the imposition of price controls imposed by the Fed.
d. rises when the quantity of funds demanded by banks seeking additional reserves exceeds the quantity supplied by banks with excess reserves.
Answers
Answer:
Federal Funds Rate:
d. rises when the quantity of funds demanded by banks seeking additional reserves exceeds the quantity supplied by banks with excess reserves.
Explanation:
Federal funds rate is the target interest rate set by the FOMC (Federal Open Market Committee) at which commercial banks with deficit reserves borrow and banks with surplus reserves lend their excess reserves to each other overnight without collateral. The rates are set eight times a year in line with prevailing economic situations. The rates are lowered to boost economic growth and reduce unemployment by increasing money supply. They are increased to check inflation.
When money serves as a common denominator for measuring the exchange rates among goods and services, it performs as a
Answers
Answer:
Standard of value.
Explanation:
When money serves as a common denominator for measuring the exchange rates among goods and services, it performs as a standard of value.
Standard of value is an agreed-upon worth for a transaction in a country's medium of exchange, such as the U.S. dollar or Mexican peso. A standard of value allows all merchants and economic entities to set uniform prices for goods and services
A $100 bond with 4% coupon rate matures in 25 years. It bears semiannual coupons and is purchased for $117.50 to yield i(2). A $100 bond with 5% coupon rate also matures in 25 years. It also bears semiannual coupons, but is purchased for $135.00 to yield i(2). What is i(2)?
Answers
Answer:
4. At least 2.75%, but less than 3.25%
Explanation:
missing options:
Less than 1.75% At least 1.75%, but less than 2.25% At least 2.25%, but less than 2.75% At least 2.75%, but less than 3.25% 3.25% or morei⁽²⁾ = approximate YTM = {2 + [(100 - 117.50)/50]} / [(100 + 117.50)/2] = 1.65 / 108.75 = 1.517% x 2, annual rate = 3.03%
i⁽²⁾ = approximate YTM = {2.50 + [(100 - 135)/50]} / [(100 + 135)/2] = 1.80 / 117.50 = 1.532% x 2, annual rate = 3.06%
Since both YTMs are very similar, we can determine that i⁽²⁾ is approximately 3%, maybe a little less or a little more, since we are using the approximate yield to maturity formula.