Answer: An attestation service other than an audit service
Explanation:
Attestation services is simply when a conclusion is made on the financial statement of an organization or a company by a certified public accountant.
Therefore, it will be a report stating whether the company has complied with restrictive covenants related to officer compensation and payment of dividends contained in a bank loan agreement.
You have been given the following return information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is 0.97.
Year Fund Market Risk-Free
2008 -15.2% -24.5% 1%
2009 25.1 19.5 3
2010 12.4 9.4 2
2011 6.2 7.6 4
2012 -1.2 -2.2 2
What are the Sharpe and Treynor ratios for the fund?
Answer:
Sharpe ratio = 0.20
Treynor ratio = –0.005
Explanation:
Note: See the attached excel file for the calculations of average rate of returns, standard deviations and beta used in the calculation below.
a. Calculation of Sharpe ratio
Sharpe ratio refers to a investment measurement that employed to measure the an investment actual that has been adjusted for the risk associated with the investment.
Sharpe ratio can be calculated using the following formula:
Sharpe ratio = (Average fund rate - Average Risk Free rate) / Standard deviation of fund rate = (5.46% - 2.40%) / 15.05% = 0.20
a. Calculation of Treynor ratio
Treynor ratio refers to investment measurement that is calculated to show the risk of certain investments after the volatility of the market has been taking into consideration.
Treynor ratio can be calculated using the following formula:
Treynor ratio = (Average market return rate - Average Risk Free rate) / Beta = (1.96% - 2.40%) / 87.53% = –0.005
Given the following information. Which of the statements below can you support with this information?
Maximum capacity (labor hours): 480 hours per week
Effective capacity ratio: 85 %
Actual time worked: 380 hours per week over the last two weeks
On-time delivery %: 75 percent of the jobs are being completed on time
a. More capacity needs to be added in the short term to improve performance in the system.
b. We need to look at variability in the rate at which jobs enter the shop.
c. Our workforce is not working hard enough.
d. Our workforce may be waiting on delayed arrivals of inputs needed to do the work.
Describe the reasons why you selected the specific option(s) that you did.
Answer:
d. Our workforce may be waiting on delayed arrivals of inputs needed to do the work.
Explanation:
There are two possible sources for 25% of the jobs not being delivered on time:
we have a problem with inputs required (materials or labor)we have a problem with the capacity of our facilityIf we followed Juran's Law, we can simply assume that the problem here has to do with our productive system (like 85% of production errors). Two clear problems are obvious:
only 380 hours worked out of total of 480 hours per week ⇒ why didn't anyone work during the remaining 100 hours? Is there a delay with the inputs or we don't have enough workers?only 85% of the facility's capacity is being used ⇒ why only 85% of the effective capacity ratio? If we are finishing jobs late, why do we have 15% of unused capacity?Obviously we cannot answer these questions just be reading two paragraphs, but that is what should be answered in order to solve the issues.
Your estimate of the market risk premium is 9%. The risk-free rate of return is 3.7% and General Motors has a beta of 1.7. According to the Capital Asset Pricing Model (CAPM), what is its expected return?
Answer:
19%
Explanation:
The market risk premium is 9%
The risk free rate of return is 3.7%
General motors have a beta of 1.7
Therefore, using the capital asset pticing model the expected return can be calculated as follows
= 3.7% + 1.7×9%
= 3.7% + 15.3%
= 19%
Hence the expected return is 19%
Sue Helms Appliances wants to establish an assembly line to manufacture its new product, the Micro Popcorn Popper. The goal is to produce five poppers per hour. The tasks, task times, and immediate predecessors for producing one Micro Popcorn Popper are as follows:
Task Performance time(minutes) Predecessor
A 8 -
B 10 A
C 8 A,B
D 10 B,C
E 8 C
F 4 D,E
a. The theoretical minimum number of workstations is:___________
b. The assignment of tasks to workstations should be:________
Were you able to assign all the activities to workstations equivalent to the theoretical minimum workstation ?
c. The efficiency of the assembly line is:________
Answer:
Please see explanation below.
Explanation:
a. Cycle time = Production time available per hour / Units required per hour
= 60 / 5
= 12minutes
Minimum number of workstations = Sum of the task time / Cycle time
Sum of task time
= 8 + 10 + 8 + 10 + 8 + 4
= 48
The theoretical minimum number of work stations is
= 48 / 12
= 4
b. In order to assign the tasks to the work station, events that precede the task must be considered together with the time taken to complete each task.
°Task A This task is assigned to work station 1 and no task would further be assigned to work station 1, otherwise it will exceed the cycle time.
°Task B. This next task will be assigned to work station 2, no additional task will be assigned to station 2.
Task C is assigned to workstation 3, hence can no longer accept any other assigned task.
°Task D is the next task and will be assigned to work station 4, and we cannot assign any more task to work station 4.
°Task E and F will not be assigned as there are no more available stations.
Task Time Workstation
A. 8 1
B. 10 2
C. 8 3
D. 10 4
E. 8 -
F. 4 -
Please note that due to the theoretical minimum number of work station, which is 4, it will not be possible to assign task to all the workstations hence task E and F remains unassigned.
C. Efficiency of the assembly line
Efficiency ;
= Sum of task times / Actual number of work stations × cycle time
Although the actual number of required workstation is 5 but we cannot assign task E and F due to the theoretical minimum number of workstation. Therefore, additional work station will be required and there are 5 work stations in total.
= 48 ÷ (5 × 12) × 100
= 80%
The theoretical minimum should be = 4
The efficiency of the assembly line should be 80 percent
The production time = 60
The units that are required per hour = 5
[tex]cycle time = \frac{minutes in one hour}{units needed in a day} \\\\cycle time=\frac{60}{5}[/tex]
= 12
The workstation = 8+10+8+10+8+4
= 48
[tex]The minimum number = \frac{48}{12} \\\\= 4[/tex]
The efficiency of the assembly line
[tex]\frac{48}{5*60} \\\\= 0.8\\\\0.8*100 = \\\\80percent[/tex]
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The depreciation method that allocates an equal portion of the total depreciable cost for a plant asset to each unit produced is called:
Answer:
Accelerated depreciation
Explanation:
The term that is being described in the question is known as an Accelerated depreciation. In other words, this is a depreciation method where an asset loses its book value at a much more rapid pace than more traditional methods. This method is mostly used in accounting or for income tax purposes because it allows for a greater deduction in the first couple of years of the asset's life cycle.
Answer:
The units-of-production depreciation method
Explanation:
The units-of-production depreciation method assigns an equal amount of expense to each unit produced or service rendered by the asset.
Gi Gi's Dance Studio provided $280 of dance instruction and rented out its dance studio to the same client for another $165. The client paid immediately. Identify the general journal entry below that Gi Gi's will make to record the transaction.
Answer:
General Journal entry for GI is given below
Explanation:
General journal entry for GI's for its dance studio and the dance instructions would be
Entry DEBIT CREDIT
Cash $445
Renta income $165
Services provided $280
NOTE: As GI's is receiving cash for providing services and the studio, cash would be debited and Rental income and Services revenue would be credited.
Ford Motor Company is discussing new ways to recapitalize the firm and raise additional capital. Its current capital structure has a % weight in equity, % in preferred stock, and % in debt. The cost of equity capital is %, the cost of preferred stock is %, and the pretax cost of debt is %. What is the weighted average cost of capital for Ford if its marginal tax rate is %?
Complete Question:
Ford Motor Company is discussing new ways to recapitalize the firm and raise additional capital. Its current capital structure has a 10% weight in equity, 25% in preferred stock, and 65% in debt. The cost of equity capital is 17%, the cost of preferred stock is 11%, and the pretax cost of debt is 9%. What is the weighted average cost of capital for Ford if its marginal tax rate is 40%?
Answer:
7.96%
Explanation:
We can calculate WACC using the formula:
WACC = Cost of equity * Equity %age / 100% +
After Tax Cost of Debt * Debt %age / 100% +
Cost of Preferred Stock * Preferred Stock %age / 100%
Here,
Cost of equity is 17%
Cost of preferred stock is 11%
Post tax cost of debt = Pre-Tax cost * (1 - Tax rate)
This implies,
Post tax cost of debt = 9% * (1 - 40%) = 5.4%
Equity weight is 10% weight in equity
Preferred stock weight is 25%
Debt Weight is 65%
By putting value in the formula given in the attachment, we have:
WACC = 17% * (10% / 100%) + 11% * (25% / 100%) + 5.4% * (65% / 100%)
WACC = 1.7% + 2.75% + 3.51%
WACC = 7.96%
During the year, Bramble Corp. made an entry to write off a $31400 uncollectible account. Before this entry was made, the balance in accounts receivable was $413000 and the balance in the allowance account was $34500. The accounts receivable amount expected to be collected after the write-off entry was
Answer:
The accounts receivable amount expected to be collected after the write-off entry is $378,500
Explanation:
Allowance for bad debt = $34,500
Bad debt written off = $31,400
Credit balance in allowance for bad debts = Allowance for bad debt - Bad debt written off
= $34,500 - $31,400
= $3,100
The balance in receivables account = ($413,000 - $31,400) - ($34,500 - $31,400)
= $381,600 - $3,100
= $378,500
An invoice of $600 for merchandise purchased is showing 3/15, n/30 as terms of credit. If the invoice is paid on or before the fifteenth day after the invoice date, the amount to be paid is ________.
Answer:
Amount Payable or paid = $582
Explanation:
The terms of purchase state that the buyer will be entitled to a 3% cash discount if the payment for the purchases is made within 15 days of the purchase or invoice date.
Thus, if the payment is made on or within the fifteen days of invoice date, the cash discount that will be received is,
Discount = 600 * 0.03 = $18
So, the amount that will be payable for the merchandise will be,
Amount Payable or paid = 600 - 18 = $582
Jack, an employee of Desert Sky, Inc., has gross salary for May of . The entire amount is under the OASDI limit of $118,500 and thus subject to FICA. He is also subject to federal income tax at a rate of %. Which of the following is a part of the journal entry for accrual of the employer payroll taxes? (Assume a FICAOASDI Tax of % and FICAMedicare Tax of %.) Jack's income to date exceeds the FUTA and SUTA tax income limits
Answer:
Credit to Cash for $4,995 is correct
Explanation:
here is a complete question
has a gross salary for May of $7,000. The entire amount is under the OASDI limit of $118,500 and thus subject to FICA. He is also subject to federal income tax at a rate of 21%. Which of the following is a part of the journal entry to record the disbursement of his net pay? (Assume a FICA-OASDI Tax of 6.2 % and FICA-Medicare Tax of 1.45%. Round the final answer to the nearest dollar.) A. debit to Cash for $4,995 B. debit to FICA Tax Payable of $4,995 O C. debit to Employee Income Tax Payable of $4,995 D. credit to Cash for $4,995
The computation of the amount that becomes the part for accrual the employer payroll taxes is shown below:
Gross Pay $7,000
Less: Deductions
Federal Income tax $1,470 ($7000 × 21%)
FICA-OASDI tax $434 ($7000 × 6.2%)
FICA-Medicare tax $102 ($7,000 × 1.45%)
Total Deductions 2006
Net pay $4,995
Akram owns a small farm. He employs 80 workers in the field and has recently hired a manager to help him manage the farm. The income of the business varies greatly during the year. The farm makes a small profit but Akram is ambitious. He wants to take over a neighbour’s farm and increase the range of crops he sells. He thinks that he needs long-term finance and plans to take out bank loan to pay for the takeover. He has already borrowed money to buy a new tractor. A friend has advised him to form a company and sell shares
Question Completion:
Requirement. Identity two types of short-term finance Akram could use when the farm income is low
Answer:
Akram's Farm
Akram's farm can make good use of the following short-term financing sources:
1. Akram's farm can use Accounts Payable to provide short-term trade finance when the farm buys farm inputs, equipment, and other supplies on credit. The farm's Accounts Payable can provide interest-free trade loans by allowing the farm to take longer time to settle the suppliers. But, the farm should not miss out on cash discounts - an important source of trade finance.
2. Akram's farm can generate finances by ensuring early collections of the Accounts Receivable. Akram's farm can also go ahead and borrow on the accounts receivable through short-term bank loans guaranteed on the accounts. The farm can also factor the accounts receivable by selling them to factoring and finance houses for less.
Explanation:
Akram's farm is still a small farm that is not yet formed as a company. The immediate concentration is growing the entity and starting the processes for changing its corporate status so that it can take advantage of the sources of finance available to companies.
Japanese tourists come to experience the magic of Disney World and other attractions around Orlando, Florida. These tourists are:___________
[A] contributing to the United States’ deficit balance of payments.
[B] helping increase the balance of payments for Japan.
[C] exporting products and services back to Japan.
[D] further decreasing the United States’ balance of payments.
[E] helping the United States’ balance of payments.
Answer:
Option E, helping the United States’ balance of payments, is the right answer.
Explanation:
Option “E” is the correct answer because the balance of payment records all the transactions that occurred between the home country and the rest of the word. Therefore, if the foreign tourist spends in the country that means they are helping the balance of payment. This will increase the country’s surplus and the ability to pay the expenses because tourism is helping to generate revenue.
Jim and Kay Ross contributed to the support of their two children, Dale and Kim, and Jim's widowed parent, Grant. During the year, Dale, a 19-year-old full-time college student, earned $5,500 as a babysitter. Kim, a 23-year-old bank teller, earned $12,000. Grant received $5,000 in dividend income and $4,000 in nontaxable Social Security benefits (dividends, but not social security benefits, will be included in Grant's gross income). Kim and Grant currently reside with Jim and Kay. Dale's main place of residence is with Jim and Kay, and he is currently on a temporary absence to attend school. How many dependents can Jim and Kay claim on their joint income tax return?
Answer: 1 dependent
Explanation:
Only Dale can be claimed as a dependent as he is a qualifying child who is under 24 and is a full time student.
Kim cannot be claimed as a dependent as Kim is above the age of 19. To be a qualifying child for dependency, Kim would have to be less than 19 or less than 24 were Kim a full time student.
Grant also does not qualify as a dependent under the Qualifying relative designation as Grant's gross income of $5,000 exceeds the limit of $4,200 that Grant would have to be making less than in 2019 to be claimed as a qualifying relative.
If the marginal propensity to consume equals , the tax rate equals , and the marginal propensity to import equals , what is the value of the government purchases multiplier?
Answer: 1.90
Explanation:
The Government Purchases Multiplier given the variables is given by the expression;
Government Purchases Multiplier = [tex]\frac{1}{1 -(MPC ( 1 -T) - MPI)}[/tex]
Where MPC is the Marginal Propensity to Consume,
T is tax rate and,
MPI is the Marginal Propensity to Import
Government Purchases Multiplier = [tex]\frac{1}{1 -(MPC ( 1 -T) - MPI)}[/tex]
= [tex]\frac{1}{1 -(0.9 ( 1 -0.25) - 0.2)}[/tex]
= [tex]\frac{1}{ 1 - 0.475}[/tex]
= 1.90
Which of the following is an advantage of the corporate form of business? A. limited liability of stockholders B. less degree of government regulation C. separation of ownership and management D. low start-up costs
Answer: Limited liability of stockholders
Explanation:
Limited liability in a corporate fo.of business means that the shareholders will be legally responsible for debts of a company based on the on their share's nominal value.
This is an advantage of the corporate form of business along with the easy generation of huge equity.
The following data were taken from the records of Clarkson Company for the fiscal year ended June 30, 2020.
Raw Materials Inventory 7/1/19 $48,100
Factory Insurance $4,700
Raw Materials Inventory 6/30/20 39,700
Factory Machinery Depreciation 16,100
Finished Goods Inventory 7/1/19 96,100
Factory Utilities 28,700
Finished Goods Inventory 6/30/20 19,900
Office Utilities Expense 8,550
Work in Process Inventory 7/1/19 19,900
Sales Revenue 555,000
Work in Process Inventory 6/30/20 19,900
Sales Discounts 4,300
Direct Labor 139,350
Plant Manager’s Salary 61,100
Indirect Labor 24,560
Factory Property Taxes 9,610
Accounts Receivable 27,100
Factory Repairs 1,500
Raw Materials Purchases 96,500
Cash 32,100
Required:
Prepare an income statement through gross profit.
Answer:
Clarkson Company
Income statement for the year ended June 30, 2020
Sales Revenue $555,000
Less Costs of Goods Sold :
Opening Finished Goods Inventory $96,100
Add Cost of Goods Manufactured $390,520
Less Closing Finished Goods Inventory ($19,900) ($466,720)
Gross Profit $83,280
Explanation:
First prepare a Schedule of Manufacturing Costs to determine the Cost of Goods Manufactured.
Schedule of Manufacturing Costs
Factory Insurance $4,700
Raw Materials ($48,100 + $96,500 - $39,700) $104,900
Factory Machinery Depreciation $16,100
Factory Utilities $28,700
Direct Labor $139,350
Plant Manager’s Salary $61,100
Indirect Labor $24,560
Factory Property Taxes $9,610
Factory Repairs $1,500
Add Opening Work In Process Inventory $19,900
Less Closing Work In Process Inventory ($19,900)
Cost of Goods Manufactured $390,520
A company developed the following per-unit standards for its product: 2 gallons of direct materials at $8 per gallon. Last month, 2200 gallons of direct materials were purchased for $16720. The direct materials price variance for last month was
Answer:
$880 favorable
Explanation:
The computation of direct materials price variance for last month is shown below:-
Direct material price variance = Actual quantity × (Standard price - Actual price)
= 2,200 × ($8 - ($16,720 ÷ 2,200)
= 2,200 × ($8 - 7.6)
= 2,200 × $0.4
= $880 Favorable
Therefore for computing the direct materials price variance for last month we simply applied the above formula.
Burnett Corp. pays a constant $8.15 dividend on its stock. The company will maintain this dividend for the next 12 years and will then cease paying dividends forever. If the required return on this stock is 11 percent, what is the current share price
Answer:
$52.91
Explanation:
With regards to the above, we will apply the dividend discount model to come up with the price for share.
Under the dividend discount model, the price for share represents the present value of all its future dividend discounted at the required rate of return.
Since the share has 12 annual equal dividend payments of 8.15 each year, while the required rate is 11%, we can apply the below annuity to arrive at the share price.
(8.15/0.11) × [ 1- 1.11^(-12) ] = $52.91
Therefore, the current share price is $52.91
A company releases a? five-year bond with a face value of? $1000 and coupons paid semiannually. If market interest rates imply a YTM of 8%, which of the following coupon rates will cause the bond to be issued at a? premium?
A. 6%
B.10%
C. 8%
D. 5%
Answer: B.10%
Explanation:
For a bond to be issued at a premium, the Coupon rate needs to be higher than the current Market Yield to Maturity as this will cause the price of the bond to be higher than Par signifying that the bond is an attractive one.
If the Coupon rate is equal to the YTM then the bond will trade at Par.
If the Coupon rate is less than the YTM then the bond will trade at a discount.
Only 10% of the coupon rate will allow the bond by issued at a premium.
The coupon rate of a a bond refers to the amount of interest income earned each year based on the face value.
The yield to maturity of a band refers to the total estimated return if the bond is held until maturity.
When coupon rate is equal to YTM at issue, then, bond is issued at par value.When coupon rate is lower than YTM at issue, then, bond is issued at a discount.When coupon rate is higher than YTM at issue, then, bond is issued at a premium.
Therefore, the Option B is correct because only 10% of the coupon rate will allow the bond by issued at a premium
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A stock is selling today for $40 per share. At the end of the year, it pays a dividend of $2 per share and sells for $44. a. What is the total rate of return on the stock?
Answer:
The total rate of return on the stock is 14%.
Explanation:
The sources of income from a stock are dividends and increase in its value. Therefore, the total rate of return on stock is calculated by dividing the addition of appreciation in the of the stock and dividends paid by the original stock price.
Therefore, the total rate of return on the stock can be calculated using the following formula:
Total rate of return = [(P1 - Po) + D] / Po .......................... (1)
Where;
P1 = Ending stock price = $44
Po = Initial stock price = $40
D = Dividend paid = $2
Substituting the values into equation (1), we have:
Total rate of return = [(44 - 40) + 2] / 44
Total rate of return = [4 + 2] / 44
Total rate of return = 6 / 44
Total rate of return = 0.14, or 14%
The risk-free rate of return is 3.2 percent and the market risk premium is 4.6 percent. What is the expected rate of return on a stock with a beta of 2.12
Answer:
12.95%
Explanation:
The risk free rate of return is 3.2%
The market risk premium is 4.6%
The beta is 2.12
Therefore, the expected rate of return on a stock can be calculated as follows
= 3.2% + (2.12×4.6%)
= 3.2% + 9.752
= 12.95%
Hence the expected rate of return on a stock is 12.95%
Suppose the price level and value of the U.S. Dollar in year 1 are 1 and $1, respectively. Instructions: Round your answers to 2 decimal places. a. If the price level rises to 1.35 in year 2, what is the new value of the dollar?
Answer:
0.74
Explanation:
Data provided in the question
Price level = 1.35
According to the given situation, the computation of the new value of the dollar is shown below:-
The New value of the dollar = 1 ÷ Price level
= 1 ÷ 1.35
= 0.74074
or
= 0.74
Therefore for computing the new value of the dollar we simply applied the above formula.
The following data pertain to operations concerning the product for the last month: Actual hours worked 8,100 hours Actual total labor cost $119,880 Actual output 800 units What is the labor rate variance for the month?
Answer:
Instructions are below.
Explanation:
Giving the following information:
We weren't provided with enough information to solve the requirement. But, I will provide an example and the formula to guide an answer.
For example:
Standard rate per hour= $15
Actual hours worked 8,100 hours
Actual total labor cost $119,880
To calculate the direct labor rate variance, we need to use the following formula:
Direct labor rate variance= (Standard Rate - Actual Rate)*Actual Quantity
Actual rate= 119,880/8,100= $14.8
Direct labor rate variance= (15 - 14.8)*8,100
Direct labor rate variance= $1,620 favorable
Midhun uses internet to deposit 1 poin
and withdraw money from his
bank. Name this type of
banking.
e-commerce
O e-banking
O e-payment
O e-lending
Answer:
e banking
Explanation:
it is called e banking ( electronic), because Midhun is using both deposit and withdraw money through internet
Two mutually exclusive projects have an initial cost of $60,000 each. Project A produces cash inflows of $30,000, $37,000, and $20,000 for Years 1 through 3, respectively. Project B produces cash inflow of $80,000 in Year 2 only. The required rate of return is 10 percent for Project A and 11 percent for Project B. Which project(s) should be accepted and why
Answer:
Project A should be accepted because the NPV is higher. this means that project A is more profitable than project B
Explanation:
Net present value van be used to determine which project should be accepted.
Net present value is the present value of after tax cash flows from an investment less the amount invested.
NPV can be calculated using a financial calculator
For project A :
Cash flow in year 0 = $-60,000
Cash flow in year 1 = $30,000
Cash flow in year 2 = $37,000
Cash flow in year 3 = $20,000
I = 10%
NPV = $12,877.54
For project B :
Cash flow in year 0 = $-60,000
Cash flow in year 1 = $0
Cash flow in year 2 = $80,000
Cash flow in year 3 = $0
I = 11%
NPV = $4,929.79
Project A should be accepted because the NPV is higher. this means that project A is more profitable than project B
To find the NPV using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
Discounted payback period. Given the following two projects and their cash flows, LOADING..., calculate the discounted payback period with a discount rate of %, %, and %. What do you notice about the payback period as the discount rate rises? Explain this relationship. With a discount rate of %, the cash outflow for project A is:
Answer:
the numbers are missing, so I looked for a similar question:
Cash Flow A B
Cost $10,000 $105,000
Cash flow year 1 $3,571 $21,000
Cash flow year 2 $3,571 $10,500
Cash flow year 3 $3,571 $42,000
Cash flow year 4 $3,571 $31,500
Cash flow year 5 $3,571 $5,250
Cash flow year 6 $3,571 $0
With a discount rate of 5%, 10% & 15%
Discounted cash flows for project A:
5% 10% 15%
Cost $10,000
Cash flow year 1 $3,571 $3,401 $3,246 $3,105
Cash flow year 2 $3,571 $3,239 $2,951 $2,700
Cash flow year 3 $3,571 $3,085 $2,683 $2,348
Cash flow year 4 $3,571 $2,938 $2,439 $2,042
Cash flow year 5 $3,571 $2,798 $2,217 $1,775
Cash flow year 6 $3,571 $2,665 $2,016 $1,544
discounted payback period:
5% = 3.09 years
10% = 3.46 years
15% = 3.9 years
The higher the discount rate, the longer the discounted payback period.
Discounted cash flows for project B:
5% 10% 15%
Cost $105,000
Cash flow year 1 $21,000 $20,000 $19,091 $18,261
Cash flow year 2 $10,500 $9,524 $8,678 $7,940
Cash flow year 3 $42,000 $36,281 $31,555 $27,616
Cash flow year 4 $31,500 $25,915 $21,515 $18,010
Cash flow year 5 $5,250 $4,114 $3,260 $2,610
discounted payback period:
5% = more than 5 years, the project's NPV is negative -$9,166.37
10% = more than 5 years, the project's NPV is negative -$20,901.42
15% = more than 5 years, the project's NPV is negative -$30,563.54
Sound Systems (SS) has 200,000 shares of common stock outstanding at a market price of $37 a share. SS recently paid an annual dividend in the amount of $1.20 per share. The dividend growth rate is 4 percent. SS also has 4,500 bonds outstanding with a face value of $1,000 per bond that are selling at 99 percent of par. The bonds have a 6 percent coupon and a 6.7 percent yield to maturity. If the tax rate is 34 percent, what is the weighted average cost of capital?
Answer:
the weighted average cost of capital is 6.31 %
Explanation:
Weighted Average Cost of Capital (WACC) is the return required by the providers of long term permanent source of capital to the firm.
WACC = Ke × (E/V) + Kp × (P/V) + Kd × (D/V)
Ke = Cost of equity
= $1.20 / $37.00 + 0.04
= 0.0724 or 7.24 %
E/V = Weight of Equity
= (200,000 × $37) ÷ (200,000 × $37 + 4,500 × $1,000 × 99%)
= $7,400,000 ÷ ($7,400,000 + $4,455,000)
= 62.42 %
Kd = Cost of Debt
= Interest × (1 - tax rate)
= 6.70 % × (1 - 0.34)
= 4.42 %
D/V = Weight of Debt
= (4,500 × $1,000 × 99%) ÷ (200,000 × $37 + 4,500 × $1,000 × 99%)
= $4,455,000 ÷ ($7,400,000 + $4,455,000)
= 37.28 %
Therefore,
WACC = 7.24 % × 62.42 % + 4.42 % × 37.28 %
= 6.31 %
Torque corporation is expected to pay a dividend of $1 in the upcoming year. dividends are expected to grow at a rate of 6% per year. the risk free rate of return is 5% and the expected return on the market portfolio is 13%. the stock of torque corporation has a beta of 1.2. what is the return you should require on torque stock?a) 12%,
b) 14.6%,
c) 15.6%,
d) 20%
Answer:
The required rate of return on stock is 14.6% and option b is the correct answer.
Explanation:
The required rate of return is the minimum return that investors demand/expect on a stock based on the systematic risk of the stock as given by the beta. The expected or required rate of return on a stock can be calculated using the CAPM equation.
The equation is,
r = rRF + Beta * (rM - rRF)
Where,
rRF is the risk free rate rM is the return on market
r = 0.05 + 1.2 * (0.13 - 0.05)
r = 0.146 or 14.6%
"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.
Venture Capital Corporation loans Wally $15,000 to start a new business.Wally does not pay,but Venture fails to sue within the time prescribed by the applicable statute of limitations.Wally's promise to pay the debt even though recovery is barred:_________
A) needs new consideration.
B) needs no consideration.
C) is unenforceable regardless of any consideration.
D) needs legally sufficient and adequate consideration.
Answer:
B) needs no consideration.
Explanation:
In this scenario, Wally's promise to pay the debt even though recovery is barred needs no consideration. This is mainly due to the fact that the Corporation failed to sue within the statute of limitation that was set. Meaning they can no longer sue Wally in order to recover the loan that was given to him. If they were to try and sue Wally now the lawsuit would just be dismissed with no consideration given.
