Answer:
The answer is 15.508%
Explanation:
The annual coupon rate is:
8% x 900 x 2 / $1,000 = 14.4%
The yield to maturity as follows:
Yield to maturity (YTM) = [Coupon payment + (Face Value - Present Value) / Time to Maturity] / [(Face Value + Present Value) / 2]
=> YTM = [14.4% x $1,000 + ($1,000 - $900) / 30] / [ ($1,000 + $900) / 2] = 15.508%
The fixed cost of a production system is $20,000, and the variable cost per unit product is $17. The product has a revenue of $28 per unit. Calculate the breakeven quantity and determine the profit or loss amount when 1,500 units are produced. g
Answer:
Results are below.
Explanation:
Giving the following information:
Fixed costs= $20,000
Unitary variable cost= $17
Selling price= $28 per unit.
To calculate the break-even point in units, we need to use the following formula:
Break-even point in units= fixed costs/ contribution margin per unit
Break-even point in units= 20,000 / (28 - 17)
Break-even point in units= 1,818 units
Now, the profit for 1,500 units:
Loss= 1,500*11 - 20,000= -$3,500
Indigo Corporation had the following tax information.
Year Taxable Income Tax Rate Taxes Paid
2015 $294,000 35% $102,900
2016 332,000 30% 99,600
2017 399,000 30% 119,700
In 2018, Indigo suffered a net operating loss of $487,000, which it elected to carry back. The 2018 enacted tax rate is 26%.
Prepare Indigo’s entry to record the effect of the loss carryback.
Account titles Debit Credit
Answer:
Explanation:
Given that:
Indigo Corporation had the following tax information.
Year Taxable Income Tax Rate Taxes Paid
2015 $294,000 35% $102,900
2016 332,000 30% 99,600
2017 399,000 30% 119,700
In 2018, Indigo suffered a net operating loss of $487,000, which it elected to carry back. The 2018 enacted tax rate is 26%.
The objective is to prepare the Indigo's entry to record the effect of the loss carryback.
The Income Tax Refund Receivable = Taxable income(2018) × Tax rate(2018) + ( net operating loss - Taxable income(2018) ) × Tax rate(2018)
(332000 × 30%)+(476000-332000) × 30%
The Income Tax Refund Receivable = (332000 × 0.30)+(476000-332000) × 0.30
The Income Tax Refund Receivable = 99600 + 144000× 0.30
The Income Tax Refund Receivable = 99600 + 43200
The Income Tax Refund Receivable = 142800
Therefore, Indigo Corporation ENtry can be prepared as follows:
Account titles Debit Credit
Income Tax Refund Receivable 142800
Benefit Due to Loss Carryback 142800
To record the effect of the loss carryback
You find a zero coupon bond with a par value of $10,000 and 21 years to maturity. The yield to maturity on this bond is 4.3 percent. Assume semiannual compounding periods.What is the price of the bond?
Answer:
Price of bond $4,092.49
Explanation:
Computation the price of the bond
Using this formula
Price of bond=Par value*1/(1+YTM/2)^(2*time period)
Where,
Par value=$10,000
1/(1+YTM/2)=1/(1+0.043/2)
(2*time period)=(2*21 years)
Let plug in the formula
Price of bond=$10,000*1/(1+0.043/2)^(2*21)
Price of bond=$10,000*1/(1.0215)^42
Price of bond=$10,000*(0.97895252)^42
Price of bond=$10,000*0.4092497467
Price of bond=$4,092.49
Therefore the price of the bond will be $4,092.49
2. At an oral auction for used car, half of all bidders have a value of $1,500 and half have a value of $1,900. What is the expected winning bid if there are three bidders
Answer: $1,700
Explanation:
The expected winning bid is the weighted average of the 2 different bids.
Half of the bids are for $1,500 so weight of $1,500 is 0.5.
Half of the bids are for $1,900 so weight of $1,900 is 0.5.
Expected Winning bid = (1,500 * 0.5) + ( 1,900 * 0.5)
= 750 + 950
= $1,700
Bronco Corporation discovered these errors in August of Year 3:
Year Depreciation Overstated Prepaid Expense Omitted
1 $2500 $3000
2 4000 2000
Assume all current items are two months in duration. Net Income for Year 2 was $18,000. Assume all errors are discovered in August of Year #3. The Year #2 books are closed. The net effect on Year #3 Beginning Retained Earnings caused by the August Year #3 correcting journal entries was:
a. $5,500
b. $6,500
c. $6,000
d. $8,500
e. $4,500
Answer:
e. $4,500
Explanation:
Year Depreciation overstated Prepaid expense omitted
1 $2,500 $3,000
2 $4,000 $2,000
Year 2's net income = net income (year 2) + overstated depreciation (year 2) + omitted prepaid expenses (year 1) - omitted prepaid expenses (year 2) = $18,000 + $4,000 + $3,000 - $2,000 = $23,000
This means that year 2's net income was understated by $5,000.
But year 1's net income was overstated by = $2,500 - $3,000 = -$500.
The adjustment on the retained earnings account should be $5,000 - $500 = $4,500
What's the present value of $4,500 discounted back 5 years if the appropriate interest rate is 4.5%, compounded semiannually?
Answer:
The present value = $3,602.30
Explanation:
To calculate this, we will use the formula for calculating the future value for an amount invested, compounded semiannually at a certain interest rate. This is done as follows:
[tex]FV\ =\ PV(1+\frac{r}{n})^{(n\times t)}\\[/tex]
where:
FV = Future value = $4,500
PV = Present value = ??
r = interest rate = 4.5% = 4.5/100 = 0.045
n = number of compunding period per year = semiannually = 2
t = time = 5
[tex]4,500\ =\ PV(1+\frac{0.045}{2})^{(2\times 5)}\\\\4,500 = PV( 1+0.0225)^{10}\\4,500 = PV(1.0225)^{10}\\4,500 = PV (1.249203)\\Dividing\ both\ sides\ by\ 1.249203\ and\ making\ PV\ the\ subject\ of\ the\ formula\\\PV = \frac{4,500}{1.249203} \\PV= 3,602.297[/tex]
Therefore, the present value = $3,602.30
Beta is Question 10 options: a) A measure of the volatility of returns on an individual stock relative to the market b) Relates the risk-return trade-offs of individual assets to the market returns c) The computed cost of capital determined by multiplying the cost of each item in the optimal capital structure by its weighted presentation in the overall capital structure and summing up the results d) The cost of the last dollar of funds raised
Answer: a) A measure of the volatility of returns on an individual stock relative to the market
Explanation:
Beta is indeed a measure of the volatility of returns on an individual stock relative to the return on the market as a whole.
It is used in the Capital Asset Pricing Model which enables for the calculation of the stock's expected return.
Market Beta is always 1. Therefore betas measure shows how much more or less volatile than the market return, the stock return is. For instance, a beta of 2 means that the stock's returns are twice as volatile as the markets and a beta of 0.5 means the returns are only half as volatile as the market.
Heather Smith is considering a bond investment in Locklear Airlines. The $1,000 par value bonds have a quoted annual interest rate of 8 percent and the interest is paid semiannually. The yield to maturity on the bonds is 12 percent annual interest. There are 10 years to maturity.Required:Compute the price of the bonds based on semiannual analysis.
Answer:
Price of bond = $770.60
Explanation:
The value of the bond is the present value(PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV).
Value of Bond = PV of interest + PV of RV
The value of bond for Heather Smith can be worked out as follows:
Step 1
PV of interest payments
Semi annul interest payment
= 8%× 1000 × 1/2 =40
Semi-annual yield = 12/2 = 6% per six months
Total period to maturity (in months) = (2 ×10) = 20 periods
PV of interest =
40 × (1- (1+0.06)^(-20)/0.06) = 458.796
Step 2
PV of Redemption Value
= 1,000 × (1.06)^(-20) = 311.80
Step 3 :Price of bond
= 458.796 + 311.80 = 770.60
Price of bond = $770.60
Jackson Industries uses a standard cost system in which direct materials inventory is carried at standard cost. Jackson has established the following standards for one unit of product: Standard Quantity or Hours Standard Price or Rate Standard Cost Per Unit Direct materials 6 pounds $4.30 per pound $25.80 Direct labor 2.40 hours $5.00 per hour $12.00 During May, Jackson purchased 145,600 pounds of direct material at a total cost of $655,200. The total factory wages for May were $258,800, 90 percent of which were for direct labor. Jackson manufactured 21,000 units of product during May using 122,800 pounds of direct material and 50,900 direct labor-hours. The price variance for the direct material acquired by Jackson Industries during May is:
Answer:
Direct material price variance= $29,120 unfavorable
Explanation:
Giving the following information:
Standard: Direct materials 6 pounds $4.30 per pound $25.80
Actual= Jackson purchased 145,600 pounds of direct material at a total cost of $655,200.
To calculate the direct material price variance, we need to use the following formula:
Direct material price variance= (standard price - actual price)*actual quantity
Actual price= 655,200/145,600= $4.5
Direct material price variance= (4.3 - 4.5)*145,600
Direct material price variance= $29,120 unfavorable
The following accounts are from last year's books of Sharp Manufacturing: Raw Materials Bal 0 (b) 154,800 (a) 166,000 11,200 Work In Process Bal 0 (f) 513,200 (b) 132,400 (c) 168,800 (e) 212,000 0 Finished Goods Bal 0 (g) 464,000 (f) 513,200 49,200 Manufacturing Overhead (b) 22,400 (e) 212,000 (c) 26,400 (d) 156,800 6,400 Cost of Goods Sold (g) 464,000 Sharp uses job-order costing and applies manufacturing overhead to jobs based on direct labor costs. What is the amount of direct materials used for the year
Answer:
$132,400
Explanation:
Based on the information given we were told that Sharp make use of job order costing as well as applies manufacturing overhead to jobs which are often based on the direct labor costs, which simply means the amount of direct materials that is been used for the year will be a debit amount of $132,400 in the work in process .
Therefore the amount of direct materials used for the year will be $132,400
"A customer who is short 1 ABC Jan 65 Call wishes to create a "short call spread." The second option position that the customer must take is:"
Answer:
long 1 ABC Jan 75 Call
Explanation:
This type of customer (or investor) is bearish about the market, i.e. he/she believes that the stock prices will drop. The investor will try to create a net credit position (the credit spread = $75 - $65). The maximum possible profit is created when the stock price falls below $65, and the maximum possible loss would occur if the price went above $75. This investor is a net seller, since it is a short call spread.
Booher Book Stores has a beta of 1.0. The yield on a 3-month T-bill is 3% and the yield on a 10-year T-bond is 6%. The market risk premium is 4.5%, and the return on an average stock in the market last year was 10.5%. What is the estimated cost of common equity using the CAPM
Answer:
Cost of equity = 10.5%
Explanation:
The capital asset pricing model is a risk-based model. Here, the return on equity is dependent on the level of reaction of the the equity to changes in the return on a market portfolio. These changes are captured as systematic risk. The magnitude by which a stock is affected by systematic risk is measured by beta.
Under CAPM, Ke= Rf + β(Rm-Rf)
Rf-risk-free rate (long-term i.e 10 year treasury bill rate), β= Beta, Rm= Return on market., Ke- Return on equity (cost of equity)
This model can be used to work out the cost of equity as follows:
Ke= Rf + β (Rm-Rf)
Rf- 6%, β= 1.0, Rm- 10.5, E(r)- ?
Ke = 6% + 1.0× (10.5 -6)% = 10.5%
Ke = 10.5%
Cost of equity = 10.5%
Gabriele Enterprises has bonds on the market making annual payments, with eleven years to maturity, a par value of $1,000, and selling for $982. At this price, the bonds yield 7.6 percent.
Required:
What must the coupon rate be on the bonds?
Answer:
The answer is 7.35 percent
Explanation:
N(Number of periods) = 11years
I/Y(Yield to maturity) = 7.6 percent
PV(present value or market price) = $982
PMT( coupon payment) = ?
FV( Future value or par value) = $1,000.
We are using a Financial calculator for this.
N= 11; I/Y = 7.6; PV = -$982; FV= $1,000; CPT PV= $73.52
Therefore, coupon rate is ($73.52/$1,000) x 100 percent
=7.35 percent
Hawley company makes decorative wedding cakes. The company is considering buying the cakes rather than baking them, which will allow it to concentrate on decorating. The company averages 100 wedding cakes per year and incurs the following costs from baking wedding cakes.
Direct materials $550
Direct labor 950
Variable manufacturing overhead 150
Fixed manufacturing overhead 1,125
Total manufacturing cost $2,775
Number of cakes / 100
Cost per cake $28
Fixed costs are primarily the depreciation on kitchen equipment such as ovens and mixers. Hawley expects to retain the equipment. Hawley can buy the cakes for 28$.
1. Should Hawley make the cakes or buy them? Why?
2. If Hawley decides to buy the cakes, what are some qualitative factors that Hawley should also consider?
1. Should Hawley make the cakes or buy them? Why? (For the Difference column, use a minus sign or parentheses only when the cost of outsourcing exceeds the cost of making the cakes in-house.)
Make Outsource Difference
Cake costs cakes cakes (make—outsource)
Variable costs:
Direct materials
Direct labor
Variable manufacturing overhead
Purchase cost
Total differential cost of cakes
Hawley (should, should not) continue to make the cakes. Outsourcing will (decrease, increase) profits.
2. If Hawley decides to buy the cakes, what are some qualitative factors that Hawley should also consider?
A. Qualitative factors include considering sunk costs andmanager's opinions.
B. Qualitative factors include separating fixed and variable costs.
C. Qualitative factors include quality and on-time delivery.
D. Qualitative factors include contribution margins of the various products produced.
Answer:
1. Continue to Make the Cakes. Because the Cost of Outsourcing is greater that the cost of making by $1,150.
2. C. Qualitative factors include quality and on-time delivery.
Explanation:
Analysis of the Make or Buy Decision
Make Outsource Difference
Cake costs cakes cakes
Variable costs:
Direct materials $550 $0 $550
Direct labor $950 $0 $950
Variable manufacturing overhead $150 $0 $150
Fixed manufacturing overhead $1,125 $1,125 $0
Purchase cost $0 $2,800 ($2,800)
Total differential cost of cakes $2,275 $3,925 ($1,150)
Qualitative Factors.
Are non-monetary factors that need to be considered in decision making.
Break-even EBIT (with and without taxes). Alpha Company is looking at two different capital structures, one an all-equity firm and the other a levered firm with $ million of debt financing at % interest. The all-equity firm will have a value of $ million and shares outstanding. The levered firm will have shares outstanding. a. Find the break-even EBIT for Alpha Company using EPS if there are no corporate taxes. b. Find the break-even EBIT for Alpha Company using EPS if the corporate tax rate is %. c. What do you notice about these two break-even EBITs for Alpha Company? a. What is the break-even EBIT for Alpha Company using EPS if there are no corporate taxes?
Complete Question:
Alpha company is looking at two different capital structures, one an all-equity firm and the other a leverages firm with $2 million of debt financing at 8% interest. The all-equity firm will have a value of $4 million and 400,000 shares outstanding. The leveraged firm will have 200,000 shares outstanding.
a. Find the break even EBIT for Alpha company using EPS if there are no corporate taxes.
b.Find the break even EBIT for Alpha company using EPS if the corporate tax rate is 30%
c. What do you notice about these two break-even EBITs for Alpha company?
Answer:
Alpha Company
a. Break-even EBIT, using EPS without taxes:
= (EBIT - Interest 1) * (1 - taxes)/No. of shares = (EBIT - Interest 2) * (1 - taxes)/No. of shares
With alternative 1, there are no taxes, so:
= (EBIT - Interest 1)/No. of shares = EBIT - Interest 2)/No. of shares
= (EBIT - 0)/400,000 = EBIT - ($2,000,000 x 8%)/200,000
= (EBIT/400,000( = (EBIT - $160,000)/200,000
cross-multiplying:
EBIT200,000 = EBIT$64,000,000,000
dividing by 200,000:
EBIT = $64,000,000,000/200,000
EBIT = $320,000
b. Break-even EBIT, using EPS with taxes:
= (EBIT - Interest 1) * (1 - taxes)/No. of shares = (EBIT - Interest 2) * (1 - taxes)/No. of shares
= {(EBIT - $0) * (1 - 0.30)}/400,000 = {(EBIT - $160,000) * (1 - 0.30)}/200,000
= EBIT/400,000 = (EBIT - $112,000)/200,000
cross-multiplying:
= EBIT 200,000 = EBIT $44,800,000,000
EBIT = $44,800,000,000/200,000
= $224,000
c. The two break-even EBITs are not the same. When there are taxes, the break-even EBIT is $224,000, less by $96,000.
Explanation:
a) Data:
Alternative 1: All Equity:
No. of shares = 400,000
Value of shares = $4,000,000
Debt = $0
Interest on Debt = $0
Alternative 2: Equity + Debt:
No. of shares = 200,000
Value of shares = $2,000,000
Debt = $2,000,000
Interest on Debt = 8% or $160,000
b) Alpha's break-even EBIT is the point when the EBIT under alternative 1 are equal to the EBIT under alternative 2. This implies that under these given alternative financing options, the earnings before interest and taxes are before no matter the alternative chosen.
Which of the following is NOT one of the four levels of culture? A. Profit B. artifacts C. espoused values D. enacted values
Answer:
A. Profit
Explanation:
Culture is the shared characteristics and knowledge of a group of people that affects different aspects of their lives like language, religion, social traits, arts, and music.
Levels of culture are:
- Artefacts: these are physical manifestation of a culture like dress code, office allocation, awards, and ceremonies.
- Assumptions: are unconscious alignment with expected behaviour.
- Espoused value: these are stated values to be adhered to
- Enacted values: behaviours that are exhibited as a guide to others in a group
Net sales$688,500 $450,000 Cost of goods sold 337,364 133,200 Determine the 2016 and 2017 trend percents for net sales using 2016 as the base year.
Answer:
Trend- % change in sales = 34.64%
Explanation:
Trend analysis entails determining the performance of a business over time by comparing its performance data from one period to another. The aim of trend analysis is to identify the behavior of a set of ratios over a period of time by comparing them across different years.
To determine the trend for a particular data, we use the formula below
% Change in variable =
(Current year figure - Previous year figure)/Previous year figure × 100
DATA
Current year figure for sales (2017) - 450,000
Previous year figure for sale (2016) - 688,500
% change in sales = (450,000 -688,500)/688,500 × 100 = 34.64%
% change in sales = 34.64%
This implies that the company made sales in 2017 which is 34.64% less than that made in 2016
The open systems anchor of organizational behavior states that: 1 point A. organizations affect and are affected by their external environments. B. organizations can operate efficiently by ignoring changes in the external environment. C. people are the most important organizational input needed for effectiveness. D. organizations should avoid internal conflicts to achieve efficiency. E. organizations should be open to internal competition to be able to obtain a sustainable competitive advantage.
Answer:
A. organizations affect and are affected by their external environments.
Explanation:
An organizational behavior can be defined as the study of people's opinions, feelings, actions and how people perceive an organization.
The open systems anchor of organizational behavior states that organizations affect and are affected by their external environments. The external environment comprises of factors such as;
1. Criteria set by the regulatory agencies where the organization is operating.
2. The state of the economy, either recessionary or inflationary.
3. The policies adopted by the government.
4. The investor's needs or requirements.
5. The culture of the business environment.
On July 1, 20Y7, Pat Glenn established Half Moon Realty. Pat completed the following transactions during the month of July:
A. Opened a business bank account with a deposit of $25,000 from personal funds.
B. Purchased office supplies on account, $1,850.
C. Paid creditor on account, $1,200.
D. Earned sales commissions, receiving cash, $41,500.
E. Paid rent on office and equipment for the month, $3,600.
F. Withdrew cash for personal use, $4,000.
G. Paid automobile expenses (including rental charge) for the month, $3,050, and miscellaneous expenses, $1,600.
H. Paid office salaries, $5,000.
I. Determined that the cost of supplies on hand was $950; therefore, the cost of supplies used was $900.
What would the Financial Statement look like?
Answer:
Explanation:
A) Debit cash 25,000 , credit capital 25,000
B)Credit Payable 1850 , Debit supplies 1850
C) Credit cash (1200), Debit payable (1200)
D) Debit cash 41,500 , credit sales commission 41,500
E)Credit cash (3600). debit rent 3,600
F)Credit cash ( 4000), debit drawings 4000
G)credit cash (4,650), debit automobile 3,050,miscellaneous 1600
H) Credit cash (5,000), debit salaries 5000
i)Credit supplies (900) debit supplies expense 900
Overall total
Cash = 25000-1200+41500-3600-4000=4650-5000 48,050
Supplies = 1850 -900 =950
Account payable = 1850-1200 =650
Capital = 25,000
Drawing =4000
Sales commission = 41,500
Salaries = 5,000
Rent = 3,600
Automobile expenses =3050
Miscellaneous expenses =1600
Supplies expenses = 900
Income statement
Revenue ( sales commission ) 41,500
Expenses
salaries 5,000
Rent 3,600
Supplies 900
Automobile 3,050
Miscellaneous 1,600
Total expenses 14,150
Gross profit 27,350
Statement of financial position
Assets
Cash 48,050
Supplies 950
Total 49,000
Liabilities
Account payable 650
Capital 25,000
Drawing (4000)
Total 21,650
Owners equity 27,350
Total liabilities and equities 49,000
Owners equity = ( sales commission - salaries - rent -supplies - automobile -miscellaneous )
A company's board of directors votes to declare a cash dividend of $1.20 per share of common stock. The company has 24,000 shares authorized, 19,000 issued, and 18,500 shares outstanding. The total amount of the cash dividend is:
Answer:
$22,200
Explanation:
Shares is a method through which firms raise capital.
Authorised shares are the maximum number of shares a company can issue to investors
Outstanding shares are the total number of shares sold to investors . It is only outstanding shares that receive dividend payment.
Issued shares are the shares that a company issues
cash dividend = $1.20 x 18,500 = $22,200
Due Diligence refers to diligently monitoring the interview for lies or half-truths the interviewee might include. Select one: True False
Answer: False
Explanation:
Due diligence is a review, audit or an investigation that is performed in order to confirm certain facts. Due diligence also involves looking at the financial records of w company before having a transaction with the company in order to ascertain some facts.
Due Diligence is not diligently monitoring the interview for lies or half-truths the interviewee might include. This is false.
Yan Yan Corp. has a $3,000 par value bond outstanding with a coupon rate of 5.2 percent paid semiannually and 25 years to maturity. The yield to maturity on this bond is 4.8 percent. What is the price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Answer:
$3,173.63
Explanation:
For computing the price of the bond we need to apply the present value i.e to be shown in the attachment
Given that,
Future value = $3,000
Rate of interest = 4.8% ÷ 2 = 2.4%
NPER = 25 years × 2 = 50 years
PMT = $3,000 × 5.2% ÷ 2 = $78
The formula is shown below:
= -PV(Rate;NPER;PMT;FV;type)
So, after applying the above formula, the price of the bond is $3,713.63
The _____focuses on bringing different talents and perspectives together to make the best organizational decisions and to produce innovative, competitive products and services..
Answer:
Paradigm
Explanation:
Definition: a typical example or pattern of something; a model.
A local restaurant increases the prices on its burgers as soon as it begins a promotional campaign. Which of the following is most likely to be true?
a) The promotional campaign featured how much better their burgers are.
b) The promotional campaign focused on the value per dollar.
c) The promotional campaign made demand more elastic.
d) All of the above.
Answer: The promotional campaign featured how much better their burgers are
Explanation:
The most likely reason why a local restaurant will increase the prices on its burgers as soon as it begins a promotional campaign is that the promotional campaign featured how much better their burgers are.
Through the promotional campaign, the message has been passed to the customers and anyone interested that the burgers are better and customers will enjoy value for their money.
Bob: Listen, donuts are made to bring joy into our lives and to wake up our glazed faculties. Just let them be distributed according to unchanging moral principles of justice. The donuts will distribute themselves according to natural principles. We just take what we want and the leftovers will be appreciated by those who enjoy them most. Don't overcomplicate this. Where's the chocolate milk? End Part 2
Answer:
National law school of thought
Explanation:
The natural law school of thoughts refers to analyze the behavior of humans also it figured out the moral rule occurs from the behaviors.
It is inherent laws that are applied to all societies, communities, etc also it is common for all whether it is mentioned or officially announced
It should be rational and reasonable too
Therefore the given scenario represents the National law school of thought
MAD’s target capital structure is 60 percent debt and 40 percent equity. The yield to maturity on the company’s new debt will be 10 percent. MAD’s beta is 1.7, the risk free rate is 4% and the required market return is 12%. If the company’s tax rate is 30 percent, then which of the projects will be accepted?
Answer: D) Projects A and C
Explanation:
The projects to be taken should have a higher IRR than the company's Weighted Average Cost of Capital.
Cost of Equity
= Risk free rate + beta( market return - risk free rate)
= 4% + 1.7 (12% - 4%)
= 17.6%
After tax cost of debt
= Yield ( 1 - tax rate)
= 10% * ( 1 - 30%)
= 7%
WACC = (Weight of debt * after tax cost of debt) + (weight of equity * cost of equity)
= (0.6 * 7% ) + ( 0.4 * 17.6%)
= 4.2% + 7.04%
= 11.24%
Projects A and C both have IRR higher than the company's WACC and so should be accepted.
Division A had ROI of 15% last year. The manager of Division A is considering an additional investment for the coming year. What step will the manager likely choose to take
Answer: c.Reject the investment if it returns less than 15% ROI.
Explanation:
Additional investments should yield incremental returns if they are to be accepted. In the previous year, Division A had an Return on Investment of 15%, when an additional investment is being considered, it must bring in more than that 15% if it is to be accepted.
Therefore, if an investment is to give a less than 15% ROI, it should be rejected as it is not bringing additional returns for the Division.
As the athletic shoe buyer for Sports Authority, how would you go about forecasting sales for a new Nike running shoe?
Answer:
The answer is below
Explanation:
I would go about forecasting sales for a new Nike running shoe in the following ways:
1. Check past sales history: Examining Nike's sales history to check and differentiate which items have high sales well and those items that didn’t. This will help anticipate and forecast sales for the new Nike running shoe by putting it side by side with a similar product.
2. Conduct detailed market research: This is vital to predicting prospective sales in order to determine if the shoes will sell satisfactorily.
Making research to infer specifically the products, consumers wants will give Nike a current idea of what is in vogue. Thus, by conducting detailed research and discovering what their consumers prefer and disfavor, they will have the ability to predict sales for a new item.
The following data relate to the Denver Company's operations for the year ended December 31, 20XX:
Direct Materials Purchases $100,000
Indirect meterial usage 10,000
Indirect labor 10,000
Direct Labor 300,000
Sales salaries 100,000
Administrative salaries 50,000
Factory water and electricity 20,000
Advertising expenses 60,000
Depreciation-sales and general office 40,000
Depreciation-factory 50,000
Beginning Inventories:
Direct Materials $20,000
Work In Progress 60,000
Finished goods 80,000
Ending Inventories:
Direct Materials $30,000
Work in Progress 50,000
Finished goods 60,000
Required:
Prepare a statement of cost of goods manufactured.
Answer:
Cost of goods manufactured= $490,000
Explanation:
Giving the following information:
Overhead:
Indirect material usage 10,000
Indirect labor 10,000
Factory water and electricity 20,000
Depreciation-factory 50,000
Total overhead= 90,000
To calculate the cost of goods manufactured, we need to use the following formula:
cost of goods manufactured= beginning WIP + direct materials + direct labor + allocated manufacturing overhead - Ending WIP
Direct materials= 100,000 + 20,000 - 30,000= 90,000
cost of goods manufactured= 60,000 + 90,000 + 300,000 + 90,000 - 50,000
cost of goods manufactured= $490,000
The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and is not expected to for the next five years. Its latest EPS was $10, all of which was reinvested in the company. The firm’s expected ROE for the next five years is 20% per year, and during this time it is expected to continue to reinvest all of its earnings. Starting in year 6, the firm’s ROE on new investments is expected to fall to 15%, and the company is expected to start paying out 40% of its earnings in cash dividends, which it will continue to do forever after. DEQS’s market capitalization rate is 15% per year. a. What is your estimate of DEQS’s intrinsic value per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year? (Round your dollar value to 2 decimal places.) Because there is (Click to select) , the entire return must be in (Click to select) . c. What do you expect to happen to price in the following year? (Round your dollar value to 2 decimal places.)
Answer:
a) $94.88
b) in 1 year, the intrinsic price of the stocks should increase to $109.11
Explanation:
year dividend EPS
0 0 $10
1 0 $12
2 0 $14.40
3 0 $17.28
4 0 $20.736
5 0 $24.8832
6 $11.45 $28.61568
growth rate up to year 5 = 20%
ROE growth rate starting year 6 = 15%
dividend growth rate starting year 6 = 15% x (1 - 40%) = 9%
cost of equity = 15%
horizon value at year 5 = $11.45 / (15% - 9%) = $190.83
current intrinsic value per stock = $190.83 / 1.15⁵ = $94.88
intrinsic price in 1 year = $190.83 / 1.15⁴ = $109.11
The estimate of DEQS’s intrinsic value per share is $94.88. Also, in 1 year, the intrinsic price of the stocks will increase to $109.11.
Based on the information given, the dividend and the earnings per share are given below:
year dividend EPS
0 0 $10
1 0 $12
2 0 $14.40
3 0 $17.28
4 0 $20.736
5 0 $24.88
6 $11.45 $28.616
Growth rate up to year 5 = 20%ROE growth rate starting year 6 = 15%Cost of equity = 15%Therefore, the dividend growth rate starting year 6 will be:
= 15% x (1 - 40%)
= 15% × 60%
= 9%
Therefore, the horizon value at year 5 will be:
= $11.45 / (15% - 9%)
= $11.45 / 6%
= $190.83
Then, the current intrinsic value per stock will be:
= $190.83 / 1.15⁵
= $94.88
The intrinsic price in 1 year will be:
= $190.83 / 1.15⁴
= $109.11
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