Answer:
$96,154.20
Explanation:
We are to find the future value of the annuity
The formula for calculating future value = A (B / r)
B = [(1 + r)^n] - 1
A = Amount
R = interest rate
N = number of years
[(1.08)^9 - 1 ] / 0.08 = 12.487558
12.487558 x $7,700 = $96,154.20
Merchandise inventory: Multiple Choice Is a current asset. Is a long-term asset. Must be sold within one month. Is classified with investments on the balance sheet. Includes supplies the company will use in future periods.
Answer: is a current asset
Explanation:
Merchandise inventory is the product thqtbare owned by a company which the company wants to sell.
It should be noted that when preparing the balance, merchandise inventory sheet is reported as current asset.
Also, buying merchandise inventory is part of a business operating cycle.
A portfolio to the right of the market portfolio on the CML is: Group of answer choices a lending portfolio. an inefficient portfolio. a borrowing portfolio.
Answer:
a borrowing portfolio.
Explanation:
A borrowing portfolio is a portfolio to the right of the market portfolio. It is on the right half of the line. It shows that an investor can purchase the market portfolio and still borrow money so as to purchase more.
CML is known as the the capital market line. It shows the most advantageous portfolios that are a combination of risk and return.
Answer:
a borrowing portfolio.
Explanation:
A borrowing portfolio is a portfolio to the right of the market portfolio. It is on the right half of the line. It shows that an investor can purchase the market portfolio and still borrow money so as to purchase more.
CML is known as the the capital market line. It shows the most advantageous portfolios that are a combination of risk and return.
Explanation:
Explain how you decided whether payments on foreign investment and government transfers counted on the positive or the negative side of the current account balance for the United Kingdom in 2001.
Answer:
The payments on foreign investment and the government transfers counted on the negative side of the current account balance for the United Kingdom in 2001.
Explanation:
A national records the nation's transactions with the rest of the world on exporting, importing, foreign incomes and current transfers, over a defined period of time. The country's current account balance can be positive as a surplus or negative as a deficit. Typically, the payments on foreign investments and the government transfers like foreign aids are rated as negative because they are monies transferred out of the country in a particular period of a time.
Your bank pays 4% interest annually. You have $2,500 invested in the bank. How long will it take for your funds to double
Answer:
17.69 years
Explanation:
The formula to calculate the number of periods of time is:
n=ln(FV/PV)/ln(1+r)
n= number of periods of time
FV= future value=$2,500*2=$5,000
PV= present value=$2,500
r=interest rate=0.04
Now, you can replace the values in the formula:
n=ln(5,000/2,500)/ln(1+0.04)
n=ln2/ln1.04
n=0.69/0.039
n=17.69
According to this, the answer is that it will take 17.69 years for your funds to double.
Which of the following is a difference between global consistency and local adaptation? a. Unlike global consistency, local adaptation simplifies decisions. b. Unlike global consistency, a company following a policy of local adaptation modifies its standard operating procedures to adapt to differences in foreign customers, governments, and regulatory agencies. c. Unlike global consistency, a company following a policy of local adaptation follows the same rules and regulations across all its offices in different countries. d. Unlike global consistency, local adaptation is typically preferred by overseas managers who are charged with making the local business successful in other countries.
Answer:
b. Unlike global consistency, a company following a policy of local adaptation modifies its standard operating procedures to adapt to differences in foreign customers, governments, and regulatory agencies.
Explanation:
When a company wants to operate in different locations globally they can adopt 2 methods of operation.
The global consistency approach aims to maintain a uniform operational procedure across all countries where a company does business.
Local adaptation is when the company modifies it's standard operating procedures to fit local preferences, government policy, regulations, and politics.
Local adaptation tends to be more complex be side each location has its way of operating so there is no uniformity across global locations.
The Andrews Company has just purchased $55,736,000 of plant and equipment that has an estimated useful life of 15 years. The expected salvage value at the end of 15 years is $5,573,600. What will the book value of this purchase (exclude all other plant and equipment) be after its third year of use? (Use FASB GAAP)
Answer:
Book value = $45,703,520
Explanation:
We can calculate the book value of purchase after its third year of use by deducting all three years of depreciation from the cost of the asset.
DATA
Purchase cost = $55,736,000
Useful life = 15 years
Salvage value = $5,573,600
Solution
Book value = Cost - Accumulated depreciation
Book value = $55,736,000 - $10,032,480(w)
Book value = $45,703,520
Working
Depreciation per year = [tex]\frac{Cost-salvagevalue}{life}[/tex]
Depreciation per year = [tex]\frac{55,736,000-5,573,600}{15}[/tex]
Depreciation per year = $3,344,160
Depreciation for 3 years = $3,344,160 x 3
Depreciation for 3 years = $10,032,480
Three years accumulated depreciation for three years would be $10,032,480
Using the following data on bond yields: This Year Last Year Yield on top-rated corporate bonds 4 % 7 % Yield on intermediate-grade corporate bonds 6 % 9 % a. Calculate the confidence index this year and last year.
Answer:
0.6667 ; 0.7778
Explanation:
Given the following :
- - - - - - - - - - - - - - - - - this year - - - - last year
Top rated bond - - - - - 4% - - - - - - - - - 7%
Intermediate grade - - 6% - - - - - - - - - 9%
Confidence Index (This year) :
(Yield on top rated corporate bond / yield on intermediate grade corporate bond)
= 4% / 6% = 0.6667
Confidence index(last year) :
(Yield on top rated corporate bond / yield on intermediate grade corporate bond)
= 7% / 9% = 0.7778
An investor owns 5,000 shares, which is 1% of a corporation's outstanding stock before a stock repurchase. The investor did not sell any of his stock during the 25,000 share repurchase. Which one of the following statements is correct?
A. The investor still owns 1% of the corporation.
B. The stock's price is likely to drop by 5%.
C. The investor owns more than 1% of the corporation.
D. The investor now has 5,250 shares.
Answer:
C. The investor owns more than 1% of the corporation.
Explanation:
data provided in the question
Number of shares own = 5,000 shares
Outstanding stock percentage = 1%
Repurchased shares = 25,000
Based on the above information, the following statement is correct
i.e the investor owns more than 1% of the corporation as the A option, B and D options are incorrect and the option C is most appropriate option
Dermody Snow Removal's cost formula for its vehicle operating cost is $2,960 per month plus $326 per snow-day. For the month of December, the company planned for activity of 20 snow-days, but the actual level of activity was 18 snow-days. The actual vehicle operating cost for the month was $9,770. The spending variance for vehicle operating cost in December would be closest to: rev: ________
a. $290 U
b. $290 F
c. $942 U
Answer:
c. $942 U
Explanation:
Spending variance = Standard cost at 20 snow days - Actual operating cost.
Spending variance = [$2,960 + ($326*18)] - $9,770
Spending variance = $8,828 - $9,770
Spending variance = $942 (Unfavorable).
Note: The actual level of activity = 18 snow-days.
Burke's Corner currently sells blue jeans and T-shirts. Management is considering adding fleece tops to its inventory to provide a cooler weather option. The tops would sell for $53 each with expected sales of 4,300 tops annually. By adding the fleece tops, management feels the firm will sell an additional 285 pairs of jeans at $65 a pair and 420 fewer T-shirts at $26 each. The variable cost per unit is $36 on the jeans, $16 on the T-shirts, and $31 on the fleece tops. With the new item, the depreciation expense is $33,000 a year and the fixed costs are $76,000 annually. The tax rate is 35 percent. What is the project's operating cash flow?
Answer: $26,282.25
Explanation:
The operating cash-flow will be the amount of cash the company got from sales less the amount they would have to pay on taxes.
Cash from tops
= (Sales price - Variable costs) * quantity
= ( 53 - 31) * 4,300
= $94,600
Cash from jeans
= ( 65 - 36) * 285
= $8,265
Cash from jeans
= (26 - 16) * -420
= -$4,200
As this deals with cash, a tax adjusted depreciation will need to be added back because it is a non cash expense and fixed costs will have to be deducted.
Pre-tax operating cash-flow = 94,600 + 8,265 - 4,200 - 76,000
= $22,665
Post-tax Project Operating cash-flow
= $22,665 * ( 1 - 0.35) + (depreciation * tax)
= $22,665 * ( 1 - 0.35) + (33,000 * 0.35)
= $14,732.25 + 11,550
= $26,282.25
The Government Accounting Office (GAO) announces deep cuts to social security, Medicare, and welfare programs. Which determinant of aggregate demand causes the change
Answer:
Consumer spending
Explanation:
Consumer spending is the amount that individuals and families spend on final goods and services for personal use and enjoyment in the economy. Contemporary measures of consumer spending include all private purchases of durable goods, durable goods and services. Consumer spending can be thought of as a combination of personal savings, investment cost, and output in the economy.so correct answer is Consumer spendingWhich of the following reasons would cause a company to reject an offer to accept business at a special price?
a. The additional sales will increase differential income.
b. The additional sales will not increase fixed expenses
c. The additional sales will increase fixed expenses
d. The additional sale will not conflict with regular sales.
Answer:
The additional sale will not conflict with regular sales.
Explanation:
Accept business at a special price if the additional sales conflict regular sales. That is, special price must maintain the status quo or improve it.
"Your customer has been declared legally incompetent and his daughter has presented the proper legal papers appointing her as the guardian. Which statement is TRUE?"
Answer: B. Trading instructions can be accepted only from the daughter
Explanation:
The customer has been declared legally incompetent which means that he should not be making decisions that have to do with something as serious as trading instructions as he will not be able to comprehend them.
The only person that should therefore take over such roles would be his daughter who is a legal guardian. As she is not his guardian, she is able to take such decisions for him and so the trading instructions should be accepted only from the daughter.
Milo Company manufactures beach umbrellas. The company is preparing detailed budgets for the third quarter and has assembled the following information to assist in the budget preparation: The Marketing Department has estimated sales as follows for the remainder of the year (in units): July 30,000 October 20,000 August 70,000 November 10,000 September 50,000 December 10,000 The selling price of the beach umbrellas is $12 per unit. All sales are on account. Based on past experience, sales are collected in the following pattern: 30% in the month of sale 65% in the month following sale 5% uncollectibleSales for June totaled $300.000. c. The company maintains finished goods inventories equal to 15% of the following month's sales. This requirement will be met at the end of June. d. Each beach umbrella requires 4 feet of Gilden, a material that is sometimes hard to acquire. Therefore, the company requires that the ending inventory of Gilden be equal to 5096 of the following month's production needs. The inventory of Gilden on hand at the beginning and end of the quarter will be: June 30 72,000 feetSeptember 30 ___ feete. Gilden costs $0.80 per foot. One-half of a month's purchases of Gilden is paid for in the month of purchase; the remainder is paid for in the following month. The accounts payable on July 1 for purchases of Gilden during June will be $76,000. Required: 1. Prepare a sales budget, by month and in total, for the third quarter. (Show your budget in both units and dollars.) Also prepare a schedule of expected cash collections, by month and in total, for the third quarter. 2. Prepare a production budget for each of the months July-October. 3. Prepare a direct materials budget for Gilden, by month and in total, for the third quarter. Also prepare a schedule of expected cash disbursements for Gilden, by month and in total, for the third quarter.
Answer:
1(a). Budgeted sales value are as follows:
July = $360,000
August = $840,000
September = $600,000
Third Quarter = $1,800,000
1(b). Total scheduled cash collection are as follows:
July = $303,000
August = $486,000
September = $726,000
Third Quarter = $1,515,000
2. Units of production required are as follows:
July = 36,000 units
August = 67,000 units
September = 45,500 units
October = 18,500 units
3(a). Units of raw materials required to be purchased are as follows:
July = 206,000 units
August = 225,000 units
September = 128,000 units
Third Quarter = 559,000 units
3(b). Total Scheduled Cash Disbursement are as follows:
July = $158,400
August = $172,400
September = $141,200
Third Quarter = $472,000
Explanation:
Note: The data in the question are merged together. They are therefore first sorted before answering the question. See the attached Microsoft word file for the full question with the sorted data.
Also note: For all the budgets and schedules related to questions 1 to 3, see the attached excel file.
Looking forward to next year, if Baldwin’s current cash balance is $20,201 (000) and cash flows from operations next period are unchanged from this period and Baldwin takes ONLY the following actions relating to cash flows from investing and financing activities: Issues 100 (000) shares of stock at the current stock price Issues $200 (000) of long-term debt Pays $40 (000) in dividends Which of the following activities will expose Baldwin to the most risk of needing an emergency loan?a. Retires $20,000 (000) in long-term debtb. Liquidates the entire inventoryc. Sells $5,000 (000) of their Long-term assetsd. Purchases assets at a cost of $15,000 (000)
Answer: Purchases assets at a cost of $15,000 (000)
Explanation:
Out of the 4 options presented, 2 involves cash coming into the company which are; Sells $5,000 (000) of their Long-term assets and Liquidates the entire inventory. As these 2 bring cash into the company, they will not make Baldwin need an emergency loan.
The other 2 however, take money from the company being; Retires $20,000 (000) in long-term debt and Purchases assets at a cost of $15,000 (000). Retirement of long-term debt will have been in the budget for a long time so there would be no need for emergency funding.
The Purchase of the assets on the other hand has a less chance of being budgeted for than the long term debt retirement and being such a significant outflow, could expose Baldwin to the risk of needing to seek emergency loans.
Tasty Doughnuts has computed the net present value for capital expenditure at two locations. Relevant data related to the computation are as follows: Des Moines Cedar Rapids Total present value of net cash flow $712,500 $848,000 Amount to be invested (750,000) (800,000) Net present value $(37,500) $ 48,000 a. Determine the present value index for each proposal. Round your answers for the present value index to two decimal places.
Answer:
0.95 and 1.06
Explanation:
The computation of the present value index is shown below:
Present value index = Present Value of net cash Flow ÷ Amount invested
So for each projects, it would be
Particulars Des Moines Cedar Rapids
Total present value of
net cash flow (A) $712,500 $848,000
Amount invested (B) $750,000 $800,000
Present value index (A ÷ B) 0.95 1.06
Vaughn Manufacturing is constructing a building. Construction began in 2020 and the building was completed 12/31/20. Vaughn made payments to the construction company of $3114000 on 7/1, $6456000 on 9/1, and $5950000 on 12/31. Weighted-average accumulated expenditures were
Answer:
$3,709,000
Explanation:
7/1 Time weighted amount = $3,114,000 * 6/12 = $1,557,000
9/1 Time weighted amount = $6,456,000 * 4/12 = $2,152,000
12/31 Time weighted amount = $5,950,000 * 0/12 = $0
Weighted-average accumulated expenditures = 7/1 Time weighted amount + 9/1 Time weighted amount + 12/31 Time weighted amount
Weighted-average accumulated expenditures = $1,557,000 + $2,152,000 + 0
Weighted-average accumulated expenditures = $3,709,000
An investment adviser representative's friend provides him with a list of 10 prospective clients. The representative agrees to pay his friend a referral fee for each person on the list that opens an account with the adviser. Which statement is TRUE
Answer: C. The arrangement is permitted only if it is in writing between the investment adviser and the friend and the arrangement is disclosed in writing to any customer opening an account
Explanation:
The friend in this case will be ruled to be a Solicitor under SEC Rules as they are referring clients to the Investment Adviser for a fee.
As such this business relationship between the friend and the Investment Adviser representative will fall under SEC Rule 206(4)-3 Cash payments for client solicitations. This rule makes it clear amongst other things that the investment adviser will have to prepare a written disclosure document which will inform any customer opening an account of the agreement between the adviser and his friend.
The two main types of e-commerce are
Answer:
B2B (Business to business) and B2C (Business to consumer)
Best Buy’s new CEO and CFO will need to function as catalysts in helping the organization to deal with old problems in new ways. They would then be known as
Answer: change agent
Explanation:
A change agent is a person who dies something new in a company by utilizing anew process, adoption of new management structure or using an old model in a new way.
Since Best Buy’s new CEO and CFO will need to function as catalysts in helping the organization to deal with old problems in new ways. They will be known as change agents.
The CEO is termed as the person that is accountable for the overall company's performance. The role of the CEO is determined as the board of directors. Whereas, CFO is the person who manages the financial part of the company, and is accountable for the finance of the organization.
The correct answer is Change agent
A change agent is a person who dies something new in a company by utilizing a new process, adopting of new management structure, or using an old model in a new way. This is the person who acts as the agent of the company.
To know more about the change agent, refer to the link below:
https://brainly.com/question/10097361
Identify whether the following paragraph uses a direct, indirect, or semi-indirect organizational pattern.
Due to budgetary restraints, departmental charge cards will no longer be valid for purchasing supplies. Departments will now order all supplies through central purchasing in Accounting. The new procedure for ordering supplies will be effective March 1. Improved company intranet functionality will make this process easy and effective. The electronic Supply Request Form can be found on the intranet in the "Orders" folder. Supply requests submitted via the intranet will be processed within 24 hours.
Put the sentences in order for a paragraph using an indirect organizational pattern.
After considering cost-saving proposals, such as eliminating the internal Parts Shipping division and tertiary quality control measures, the executive team determined that staff furloughs would have the least impact on company morale.
Due to projected second quarter revenue short falls, the CEO has decided to take precautionary measures to protect the long-term viability of the company.
A mandatory staff furlough will be instituted July 1–6 of this year.
Due to projected second quarter revenue short falls, the CEO has decided to take precautionary measures to protect the long-term viability of the company.
After considering cost-saving proposals, such as eliminating the internal Parts Shipping division and tertiary quality control measures, the executive team determined that staff furloughs would have the least impact on company morale.
A mandatory staff furlough will be instituted July 1–6 of this year.
Due to projected second quarter revenue short falls, the CEO has decided to take precautionary measures to protect the long-term viability of the company.
A mandatory staff furlough will be instituted July 1–6 of this year.
After considering cost-saving proposals, such as eliminating the internal Parts Shipping division and tertiary quality control measures, the executive team determined that staff furloughs would have the least impact on company morale.
Answer:
a. Identification as direct, indirect, or semi-indirect organizational patterns:
Direct organizational pattern
b. Putting sentences in order for a paragraph using an indirect organizational pattern:
Due to projected second quarter revenue shortfalls, the CEO has decided to take precautionary measures to protect the long-term viability of the company.
A mandatory staff furlough will be instituted July 1–6 of this year.
After considering cost-saving proposals, such as eliminating the internal Parts Shipping division and tertiary quality control measures, the executive team determined that staff furloughs would have the least impact on company morale.
Explanation:
Organizational paragraph patterns refer to how paragraphs are organized in order to deliver intended messages. The direct organizational pattern delivers the bad news first before giving reasons, and then closes on a positive note. The indirect pattern starts with a buffer, the reasons, then delivers the bad news, before finally closing on a positive note. The semi-indirect pattern is a mixture of the two.
Duval inc budgets direct materials at $1/liter and requires 4 liters per unit of finished product. April’s activities show usage of 832 liters to complete 196 units at a cost of $798.72. Calculate the direct materials price and quantity variances and indicate favorable or unfavorable results.
Answer:
Instructions are below.
Explanation:
Giving the following information:
Duval inc budgets direct materials at $1/liter and requires 4 liters per unit of the finished product.
April’s activities show usage of 832 liters to complete 196 units at a cost of $798.72.
To calculate the direct material price and quantity variance, we need to use the following formulas:
Direct material price variance= (standard price - actual price)*actual quantity
Actual price= 798.72/832= $0.96
Direct material price variance= (1 - 0.96)*832
Direct material price variance= $33.28 favorable
Direct material quantity variance= (standard quantity - actual quantity)*standard price
Standard quantity= 4*196= 784
Direct material quantity variance= (784 - 832)*1
Direct material quantity variance= $48 unfavorable
I am buying a firm with an expected perpetual cash flow of $700 but am unsure of its risk. If I think the beta of the firm is 0, when the beta is really 1, how much more will I offer for the firm than it is truly worth? Assume the risk-free rate is 7% and the expected rate of return on the market is 14%. (Input the amount as a positive value.)
Answer:
$50
Explanation:
using the CAPM,
The expected rate of return = risk free rate + beta(market rate of return - risk free rate)
if beta is 0,
7% + 0 X(14% - 7%) = 7%
If beta is 1,
7% + 1 X(14% - 7%) = 14%
Present value of a perpetuity = amount / expected rate of return
if beta is 0, present value = $700 / 7% = $100
if beta is 1, present value = $700 / 14% = $50
the amount offered will differ by $100 - $50 = $50
1. Noor Patel has had a busy year! She decided to take a cross-country adventure. Along the way, she won a new car on "The Price Is Right" (valued at $15,500) and won $500 on a scratch-off lottery ticket (the first time she ever played). She also signed up for a credit card to start the trip and was given a sign-up bonus of $100. How much will she have to include in her federal taxable income?
2A. What is the amount of taxes for a head of house hold with a taxable income of $57,500 with a rate of 25%?
B. What is the amount of taxes for a single person with a taxable income of $35,000 with a rate of 15%?
C. What is the amount of taxes for a married couple filling jointly with a taxable income of $70,700 with a rate of 15%?
Answer:
1. 16,100
Explanation:
To get how much she would include in her federal taxable income. We would have to add up these values:
The car won on the price is right + scratch off lottery + sign up bonus.
15,500 + 500 + 100
=$16,100
2a.
head of household
0 to 9275 at 10% = 927.5
(37650 - 9275)*15% = 4256.1
(57500 - 37650)*25% = 4962.5
total = 927.5 + 4256.1 + 4962.5
= 10146.1
2b
single person
0 to 9275 at 10% = 927.5
(35000-9275)*10% = 3858.75
total = 927.5 + 3858.75
= 4786.25
2c
for married couple
0 to 18550 at 10% = 1855
(70700-1855)*15% = 7822.5
total = 1855 + 7822.5
=9677.5
On January 4, 2021, Runyan Bakery paid $344 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery's operations. Runyan received dividends of $4.50 per share on December 15, 2021, and Lavery reported net income of $250 million for the year ended December 31, 2021. The market value of Lavery's common stock at December 31, 2021, was $32 per share. On the purchase date, the book value of Lavery's identifiable net assets was $900 million and: The fair value of Lavery's depreciable assets, with an average remaining useful life of seven years, exceeded their book value by $70 million. The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill. Required: 1. Prepare all appropriate journal entries related to the investment during 2021, assuming Runyan accounts for this investment by the equity method. 2. Prepare the journal entries required by Runyan, assuming that the 10 million shares represent a 10% interest in the net assets of Lavery rather than a 30% interest.
Answer:
1. Dr Investment in LL $344
Cr Cash $344
Dr Investment in LL $75
Cr Investment Revenue $75
Dr Cash $45
Cr Investment in LL $45
2. Dr Investment in LL $344
Cr Cash $344
Dr Cash $45
Cr Investment in LL $45
Dr Net Unrealized loss -OC1 $24
Cr Fair value adjustment $24
Explanation:
1.
Preparation of the Journal entry to record the invoice made from 10million shares
Dr Investment in LL $344
Cr Cash $344
(To record the invoice made from 10million shares)
Preparation of the Journal entry to record the share in net income
Dr Investment in LL $75
($250×30%)
Cr Investment Revenue $75
(To record the share in net income)
Preparation of the Journal entry to record the dividend income
Dr Cash $45
(10×$4.50 per share)
Cr Investment in LL $45
(To record the dividend income)
2.
Preparation of the Journal entry to record the invoice made from 10million shares
Dr Investment in LL $344
Cr Cash $344
(To record the invoice made from 10million shares)
Preparation of the Journal entry to record the dividend income
Dr Cash $45
(10×$4.50 per share)
Cr Investment in LL $45
(To record the dividend income)
Preparation of the Journal entry to record the adjusting entry
Dr Net Unrealized loss -OC1 $24
(10×$32 per share)-$344
(320-344=-$24)
Cr Fair value adjustment $24
(To record the adjusting entry)
Southland Corporation has a present capital structure consisting of common stock (10 million shares) and debt ($150 million, 8% coupon rate). The company needs to raise $60 million and is undecided between two financing plans. Plan A: Equity financing. Under this plan, an additional common stock will be sold at $15 per share. Plan B: Debt financing. Under this plan, the firm will issue 10% coupon bonds. At what level of operating income (EBIT) will the firm be indifferent between the two plans? Assume a 40% marginal tax rate.
Answer:
The level of operating income (EBIT) where the firm will be indifferent between the two plans is $33 million.
Explanation:
Indifferent level of EBIT refers to the EBIT level where the he Earnings Per Share (EPS) two alternative financial plans are the same.
Indifferent level of EBIT can be calculated using the following formula:
[(EBIT - FB) * (1 - T)] / SA = [(EBIT - FB) * (1 - T)] / SB .................... (1)
Where:
EBIT = Indifference level of EBIT
FA = Fixed interest costs under plan B = Interest on existing debt = $150 * 8% = $12 million
FB = Fixed interest costs under plan A = Interest on existing debt + Interest on new debt = ($150 * 8%) + ($60 * 10%) = $18 million
T = Tax rate = 40%, or 0.40
SA = Number of equity shares outstanding under Plan B = Existing number of shares + New number of shares = 10 million + ($60 million / $15) = 10 million + 4 million = 14 million
SB = Number of equity shares outstanding under Plan A = Existing number of shares = 10 million
Substiuting the values into equation (1) and solve for EBIT, we have:
[(EBIT - 12) * (1 - 0.40)] / 14 = [(EBIT - 18) * (1 - 0.40)] / 10
[(EBIT - 12) * 0.60] / 14 = [(EBIT - 18) * 0.60] / 10
[EBIT0.60 - 7.20] / 14 = [(EBIT0.06 - 10.80] / 10
[EBIT0.60 - 7.20] * 10 = [(EBIT0.06 - 10.80] * 14
EBIT6 - 72 = EBIT8.40 - 151.20
-72 + 151.20 = EBIT8.40 - EBIT6
EBIT2.40 = 79.20
EBIT = 79.20 / 2.40
EBIT = $33 million
Therefore, the level of operating income (EBIT) where the firm will be indifferent between the two plans is $33 million.
Suppose selected comparative statement data for the giant bookseller Barnes & Noble are presented here. All balance sheet data are as of the end of the fiscal year (in millions).
2020 2019
Net sales $5,200 $5,500
Cost of goods sold 3,484 3,830
Net income 78 123
Accounts receivable 82 103
Inventory 1,146 1,262
Total assets 2,990 3,510
Total common stockholders’ equity 992 1,031
Required:
Compute the following ratios for 2020.
Answer:
Profit margin = net profit / total sales = $78 / $5,200 = 1.5%
Asset turnover = total sales / average total assets = $5,200 / ($2,990 + $3,510) = 1.6
Return on assets = net income / average total assets = $78 / $3,250 = 2.4%
Return on common stockholders’ equity = net income / average stockholders' equity = $78 / ($992 + $1,031) = 7.71%
Gross profit rate = gross profit / total sales = $1,716 / $5,200 = 33%
Geese Company utilizes the LIFO retail inventory method. Its cost-to-retail percentage is 60% based on beginning inventory and 64% based on current-period purchases. The company determined that beginning inventory at retail was $200,000 and that during the current period a new layer was added with retail value of $50,000. The cost of ending inventory should be
Answer:
$152,000
Explanation:
Calculation for the cost of the ending inventory
First step is to calculate the cost-to-retail percentage of the beginning inventory amount
Using this formula
Beginning Inventory =Cost-to-retail percentage*Beginning inventory at retail
Let plug in the formula
Beginning Inventory =60%*$200,000
Beginning Inventory =$120,000
Second step is to calculate current-period purchases percentage of the new layer amount
Using this formula
Current period purchases= Purchases percentage* New layer
Let plug in the formula
Current period purchases=64%*50,000
Current period purchases=$32,000
The last step is to find the cost of the ending inventory using this formula
Ending inventory cost=Beginning Inventory+Current period purchases
Let plug in the formula
Ending inventory cost=$120,000+$32,000
Ending inventory cost=$152,000
Therefore the cost of the ending inventory will be $152,000
Finding operating and free cash flows Consider the following balance sheets and selected data from the income statement of Keith Corporation.
Keith Corporation Balance Sheets December 31
Assets 2015 2014
Cash $ 1,500 $ 1,000
Marketable securities 1,800 1,200
Accounts receivable 2,000 1,800
Inventories 2,900 2,800
Total current assets $ 8,200 $ 6,800
Gross fixed assets $ 29,500 $ 28,100
Less: Accumulated depreciation 14,700 13,100
Net fixed assets $ 14,800 $ 15,000
Total assets $ 23,000 $ 21,800
Liabilities and stockholders' equity
Accounts payable $ 1,600 $ 1,500
Notes payable 2,800 2,200
Accruals 200 300
Total current liabilities $ 4,600 $ 4,000
Long-term debt 5,000 5,000
Total liabilities $ 9,600 $ 9,000
Common stock $ 10,000 $ 10,000
Retained earnings 3,400 2,800
Total stockholders' equity $ 13,400 $ 12,800
Total liabilities and stockholders' equity $ 23,000 $ 21,800
Keith Corporation Income Statement Data (2015)
Depreciation expense $1,600
Earnings before interest and taxes (EBIT) 2,700
Interest expense 367
Net profits after taxes 1,400
Tax rate | 40%
Required
a. Calculate the firm's net operating profit after taxes (NOPAT) for the year ended December 31, 2015
b. Calculate the firm?s operating cash flow (OCF) for the year ended December 31, 2015
c. Calculate the firm?s free cash flow (FCF) for the year ended December 31, 2015
d. Interpret, compare, and contrast your cash flow estimates in parts b and c.
Answer:
a. NOPAT = EBIT * (1-t)
NOPAT = $2,700 * (1-0.40)
NOPAT = $1,620
b. OCF = NOPAT + Depreciation
OCF = $1,620 + $1,600
OCF = $3,220
c. FCF = Net fixed asset investment - Net current asset investment
FCF = $3,320 - $1,400 - $1,400
FCF = $420
Note:
Net fixed asset investment = Change in net fixed assets + depreciation
= ($14,800- $ 15,000) + $1,600
= $1,400
Net current asset investment = Change in current assets - Change in accounts payable and accurals
= ($8,200 - $6,800) - {($1,600 + $200) - ($1,500 - $300)}
= $1,400
d. FCF is meaningful as it shows that OCF is able to cover Operating expenses as well as Investment in Fixed and Current Assets
You just sold 500 shares of Wesley, Inc. stock at a price of $30.92 a share. Last year, you paid $32.04 a share to buy this stock. What is your capital gain on this investment
Answer:
-$560
Explanation:
The computation of capital gain on this investment is shown below:-
Capital gain = (Stock price - Paid shares) × Sold shares
where,
The Stock price is $30.92
Paid shares is $32.04
And, the sold shares is 500 shares
Now placing these values to the above formula
So, the capital gain on this investment is
= ($30.92 - $32.04) × 500
= -$1.12 × 500
= -$560
