Answer: $2,585
Explanation:
Total budgeted amount for direct labor;
Production is estimated at 470 boxes.
Each box requires 0.5 hours of direct labor
Employees are paid $11 per hour.
= 470 * 0.5 * 11
= $2,585
A cash equivalent is: Multiple Choice Another name for cash. Close to its maturity date but its market value may still be affected by interest rate changes.
Complete Question:
A cash equivalent is:
Group of answer choices
a) Generally is within 12 months of its maturity date.
b) Another name for cash.
c) An investment readily convertible to a known amount of cash.
d) Is not considered highly liquid.
e) Close to its maturity date but its market value may still be affected by interest rate
changes
Answer:
c) An investment readily convertible to a known amount of cash.
Explanation:
In Financial accounting, cash equivalents can be defined as any short term and highly liquid investments which can be easily converted or transformed to a known and standard amounts of cash and as such are subjective to little or no risk of changes in value.
This ultimately implies that, a cash equivalent is an investment readily convertible to a known amount of cash.
Under the statements of cash flow, cash equivalents can be classified broadly into three (3) categories and these are;
1. Operating activities.
2. Financing activities.
3. Investing activities.
Answer:
money
Explanation:
On October 10, the stockholders? equity of Sherman Systems appears as follows:
Common stock?$10 par value, 72,000 $ 720,000
shares authorized, issued, and outstanding
Paid-in capital in excess of par value, common stock 216,000
Retained earnings 864,000
Total stockholders equity $ 1,800,000
Prepare journal entries to record the following transactions for Sherman Systems.
1a. Purchased 5,000 shares of its own common stock at $25 per share on October 11.
1b. Sold 1,000 treasury shares on November 1 for $31 cash per share.
1c. Sold all remaining treasury shares on November 25 for $20 cash per share.
2. Prepare the revised equity section of its balance sheet after the October 11 treasury stock purchase.
Answer: Please find answers in explanation column
Explanation:
Common stock?$10 par value, 72,000
shares authorized, issued, and outstanding $ 720,000
Paid-in capital in excess of par value, common stock $216,000
Retained earnings $864,000
Total stockholders equity $1,800,000
a)journal entry to record the purchase of shares on Oct 11
Date Account Debit Credit
Oct 11 Treasury stock $125,000
Cash $125,000
Calculation
value of the Treasury stock=No.of shares×Value per share
=5,000×$25 =$125,000
b. journal entry to record the sales of treasury shares.
Date Account Debit Credit
Oct 11 Cash $31,000
Treasury stock $25,000
Paid in capital from the sale of the stock
(31,000 - 25,000) $6,000
Calculation
Cash =No.of shares×Value per share
=1,000×$31 =$31,000
Treasury stock=No.of shares× purchased value of share
=1,000×$25 =$25,000
1c)journal entry to record the sales of the remaining treasury shares
Date Account Debit Credit
Nov 1 Cash $80,000
Paid in capital from the sale of the stock $6,000
Retained earning $14,000
Treasury stock $100,000
Calculation
Remaining treasury shares = 5000-1000= $4000
Cash =No.of shares×Value per share
=4, 000× 20 =$80 ,000
Treasury stock=No.of shares× purchased value of share
=4,000×$25 =$100,000
recall paid in capital from sale = $6000
retained earnings = treasury stock - cash- paid in capital= 100,000- 80,000 - 6,000= $14,000
2) Revised equity of the balance sheet to show new total stockholders’ equity
Account /Particulars Amount
Common stock $ 720,000
Paid-in capital $216,000
Retained earnings $864,000
less Treasury stock ($125,000)
Balance $739,000
Total stockholders equity $1,675,000
Write a detailed note on Manufacturing Process types and Service process types in process design?
Answer:
Each of the process are used to the crosses organizational borders.
Explanation:
Process structure of manufacturing:
Job process: It is highly adaptable, scaled operation and structured around particular events. Batch process: It most common used in industries. It is small to large batches. Line process: It is the repetitive process and have modular production with large quantity. Continuous flow chart: It is product focused process. It processed only one item at a time.Process design: There are three major process of design
Professional service designMass service designService shop designA company with 99,006 authorized shares of $8 par common stock issued 48,828 shares at $13 per share. Subsequently, the company declared a 2% stock dividend on a date when the market price was $22 a share. What is the amount transferred from the retained earnings account to paid-in capital accounts as a result of the stock dividend?
A. $43,563
B. $21,484
C. $7,812
D. $13,672
Answer:
$21,484
Explanation:
A company has 99,006 authorized shares of $8 par
The common stock was issued at 48,828 shares at the price of $13 for one share
The company made a 2% dividend declaration
= 2/100
= 0.02
The market price is $22 per share
Therefore, the amount that was transferred from the retained earnings account to the paid-in capital accounts can be calculated as follows
= 48,828 shares × 0.02 × $22
= $21,484
Hence the amount that was moved from the retained earnings account to the paid-in capital accounts as a result of stock dividend is $21,484
Break-Even Sales and Sales to Realize Income from OperationsFor the current year ended October 31, Friedman Company expects fixed costs of $14,300,000, a unit variable cost of $250, and a unit selling price of $380.a. Compute the anticipated break-even sales (units).unitsb. Compute the sales (units) required to realize income from operations of $2,405,000.units
Answer:
a. 110,000 units
b. 128,500 units
Explanation:
a. Compute the anticipated break even sales in unit
Break even point in unit = Total fixed cost / Contribution margin
Total fixed cost = $14,300,000
Contribution margin per unit = Unit selling price - Unit variable cost
= $380 - $250
= $130
Break even point in units = $14,300,000 / $130
= 110,000 units
b. Compute sales (units) required to realize income from operations of $2,405,000
Break even point + expected profits = (total fixed costs + expected profits) / Contribution margin
° total fixed cost + expected profits
= $14,300,000 + $2,405,000
= $16,705,000
°contribution margin per unit
= $380 - $250
= $130
Break even point + expected profits in unit
= $16,705,000 / $130
= 128,500 units
Which one of these is the best description of a comparative market analysis? It shows what similar homes in the area have recently sold for It shows the list prices of similar homes in the area It’s a guide to the minimum acceptable offer It discloses issues with the home that are known to the seller
Answer:
It shows what similar homes in the area have recently sold for.
Explanation:
Answer:
The statement "It shows the same types of homes in the area that are presently sold" is considered to be the best description for the comparative market analysis.
Explanation:
A comparative market analysis is a tool that is used by the real estate agent in order to remove the value of the particular property via evaluation of the same types of homes that could be presently sold in a similar area.
For finding the best description regarding the comparative market analysis, we need to determine the following information:
It does not show the list prices of the same types of homes in the area.It does not guide for a minimum acceptable offer.Also, it does not disclose the issues for the income that are aware to the seller.Therefore we can conclude that the first statement is correct
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You can spend $150 on either a new Kindle or a new pair of boots. If you choose to buy the new kindle, the economic cost of it is:
Answer:
$300
Explanation:
The economic cost is the sum of implicit cost and explicit cost.The implicit cost is the cost by implication, which is the cost of alternative forgone.
The explicit cost is the actual cost requiring actual cash flow in settling it.
Economic cost=cost of new kindle+cost of alternative forgone(new pair of boots)
Economic cost=$150+$150
The explicit cost is also the cost incurred from accounting point of view
Suppose when the price of coffee beans goes from $1 to $1.20 per pound, production increases from 90 million pounds of coffee beans to 110 million pounds per year. Using the mid-point method, the percentage change in quantity supplied is: Multiple Choice 20 percent 18 percent 0.6 6.0
Answer: 20%
Explanation:
Using the midpoint formula, the denominator is an average of the beginning and ending figures;
= [tex]\frac{Q2 - Q1}{Q2 + Q1 /2 } * 100[/tex]
= [tex]\frac{110 - 90}{(110 + 90)/2} * 100[/tex]
= [tex]\frac{20}{100} * 100[/tex]
= 20%
You own a stock portfolio invested 34 percent in Stock Q, 18 percent in Stock R, 36 percent in Stock S, and 12 percent in Stock T. The betas for these four stocks are 1.03, 1.09, 1.49, and 1.94, respectively. What is the portfolio beta
Answer:
Portfolio beta = 1.3156
Explanation:
The portfolio beta is a function of the weighted average of the individual stocks betas' that form up the portfolio. To calculate the portfolio beta, we use the following formula,
Portfolio beta = wA * Beta of A + wB * Beta of B + ... + wN * Beta of N
Where,
w represents the weight of each stock in portfolioPortfolio beta = 0.34 * 1.03 + 0.18 * 1.09 + 0.36 * 1.49 + 0.12 * 1.94
Portfolio beta = 1.3156
Hannah is the owner of a party store. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. If she could earn $53,000 working for another party store nearby, we know that her economic profit was
Answer:
$433,900
Explanation:
The computation of the capitalized cost of the land is shown below:-
Capitalized cost of the land = Purchase price + Demolition of building + Title insurance + Attorney fee + Property taxes covered during the period - Scrap value from the building
= $420,000 + $12,000 + $900 + ($3,000 - $500) - $1,500
= $420,000 + $12,000 + $900 + $2,500 - $1,500
= $435,400 - $1,500
= $433,900
In an attempt to bring about a change in the organization, what do you think might happen to The Learning Focus if Nemeroff fired all the existing writers and replaced them with new writers
Answer:
If all existing writers are replaced with new writers there could be a number of issues as the existing writers had experience and were use to of the type of writing required, they understand the nature of the reader. The new writers might fail to satisfy the old readers as they will be unaware of the taste the readers want and like to read. If learning focus Nemeroff fired all the existing writers the above described issues may appear.
Explanation:
If all existing writers are replaced with new writers there could be a number of issues as the existing writers had experience and were use to of the type of writing required, they understand the nature of the reader. The new writers might fail to satisfy the old readers as they will be unaware of the taste the readers want and like to read. If learning focus Nemeroff fired all the existing writers the above described issues may appear.
The best way to characterize public relations at Under Armour is to use the label Multiple Choice fund raising. political public relations. marketing public relations. relationship management. publicity
Answer:
The correct answer is the option: Marketing Public Relations.
Explanation:
To begin with, the concept known as "Public Relations" in the marketing field refers to the instrument that the managers have and they can use with the purpose to establish better relationships with the public and with the target audience that the company has. The major goal of the public relations strategy is to know how to engage the company in relationships with outside agents that can benefit the company in its image to the customers. Therefore that this type of strategy focuses on the actions that the company can take in order to increase its public image to the society.
The Sherman Antitrust Act: Multiple Choice was passed in 1800. All of these statements are true. was actively used by President Roosevelt in the early 20th century. no longer applies to business practices today.
Answer: Was actively used by President Roosevelt in the early 20th century.
Explanation:
The Sherman Act of 1890 was a law passed by Congress to target monopolies in the United States. At the time, Trusts had been in existence. Trusts were in effect monopolies because they worked by getting the largest stockholders to transfer their stock to a single trust and get profits from all companies in the trust. This Trust would then in effect control the industry as a monopoly.
To combat this, the Sherman Act enabled the Federal Government to go against Trusts and dissolve them. This was good news to President Theodore Roosevelt who ruled from 1901 to 1909. Roosevelt hated the anti-competitive tactics of the rich that ripped off the poor. He believed that this would bring about a revolution and he also hated them as the big corporations thought themselves above the law in his assessment.
Using the Sherman Act, he went against them with so much vigor that he earned the nickname, The Trust Buster. He started with a Trust controlled by J.P. Morgan called Northern Securities Company which was dissolved by the Supreme Court after the Attorney General under Roosevelt brought a suit against them.
"A customer owns 200 shares of ABC, purchased 2 years ago at $50 per share. The current market value of ABC stock is $60 per share. If the customer gifts the stock to his son, the result is the:"
Answer: The donor may incur a gift tax liability. Also, the cost basis will be $50 per share to the recipient of the gift.
Explanation:
From the question, we are informed that a customer owns 200 shares of ABC, that were bought 2 years ago at $50 per share and that the current market value of ABC stock is $60 per share.
If the customer gifts the stock to his son, the result is the donor may incur a gift tax liability. Also, the cost basis will be $50 per share to the recipient of the gift.
whatis the general termfor resources used by a business to produce good or services referred to as
Answer:
Factors of Production
Granger Inc. Comparative Balance Sheets December 31
Assets 2017 2016
Cash $80,800 $48,400
Accounts receivable 87,800 38,000
Inventory 112,500 102,850
Prepaid expenses 28,400 26,000
Long-term investments 138,000 109,000
Plant assets 285,000 242,500
Accumulated depreciation (50,000) (52,000)
Total $682,500 $514,750
Liabilities and Stockholders' Equity
Accounts payable $102,000 $67,300
Accrued expenses payable 16,500 21,000
Bonds payable 110,000 146,000
Common stock 220,000 175,000
Retained earnings 234,000 105,450
Total $682,500 $514,750
Granger Inc. Income Statement Data For the Year Ended December 31, 2017
Sales revenue $388,460
Less:
Cost of goods sold $135,460
Operating expenses, excluding depreciation 12,410
Depreciation expense 46,500
Income tax expense 27,280
Interest expense 4,730
Loss on disposal of plant assets 7,500 233,880
Net income $154,580
Additional information:
1. New plant assets costing $90,000 were purchased for cash during the year.
2. Old plant assets having an original cost of $51,750 and accumulated depreciation of $43,650 were sold for $1,350 cash.
3. Bonds payable matured and were paid off at face value for cash.
4. A cash dividend of $23,427 was declared and paid during the year.
Required:
Prepare a statement of cash flows for Granger Inc. using the direct method.
Answer:
GRANGER INC.
STATEMENT OF CASH FLOWS (USING INDIRECT METHOD)
FOR THE YEAR ENDED DECEMBER 31, 2017
Particulars Amount$
Cash flow from operating activities
Net Income 154,580
Adjustments to reconcile net income to net cash
provided by operating activities
Adjustment for non cash effects
Depreciation expense 46,500
Loss on sale of plant assets 7,500
Change in operating assets & liabilities
Increase in Accounts receivable -49,800
Increase in inventory -9,650
Increase in prepaid expenses -2,400
Increase in accounts payable 34,700
Decrease in accrued expenses payable -4,500
Net cash flow from operating activities (a) 176,930
Cash Flow from Investing activities
Old Plant assets sold 1,350
New plant assets purchased -90,000
Long-term investments purchased -29,000
Net cash Flow from Investing activities (b) -117,650
Cash Flow from Financing activities
Cash dividends paid -23,427
Common stock issued 45,000
Bonds paid -36,000
Net cash Flow from Financing activities (c) -14,427
Net Change in cash c=a+b+c 44,853
Add: Beginning cash balance 48,400
Closing cash balance 93,253
The principle that each World Trade Organization member must accord to all other member countries tariff treatment no less favorable than it provides to any other country is known as the __________ principle.
Answer:
Most favoured nation principle
Explanation:
Most favoured nation (MFN) clause of the World Trade Organisation requires that when a nation trades with others the concessions, immunities, and privileges granted to one nation should be the the same granted to all WTO members.
It discourages discrimination where one nation in international trade is favoured above another.
For example if Ghana reduces tariff on trades with South Africa it is expected that tariffs to other WTO nations will also be reduced to 3%.
Exceptions to this principle are for developing nations, regional free trade areas, and custom unions.
Presence indicators _____.
a. are small digital badges that people can embed in emails and on websites to share their contact information and social affiliations.
b. are visual elements used to change the aesthetic of a web page.
c. are things that others create we feel are worth redistributing to our social networks.
d. are an option to have one's profile reflected back to them from the perspective of others.
e. enable users to project an identity more vividly to others within a community
Answer: enable users to project an identity more vividly to others within a community.
Explanation:
The small digital badges that people can embed in emails and on websites to share their contact information and social affiliations are referred to as identity cards.
Skin/themes are the visual elements that are used to change the aesthetic of a web page.
Identity reflectors are option to have one's profile reflected back to them from the perspective of others.
Presence indicator allow users to project an identity more vividly to others within a community.
Which of the following is not a reason why it is important for parties to memorialize their agreements in writing?
a. A party enhances his/her chances of proving that an obligation was undertaken and makes it harder for the other party to deny making the promise.
b. Signing a writing communicates the seriousness of the occasion to the signer.
c. A person's signature on a written contract provides a basis for the contract to be authenticated.
d. Writings are subject to the danger that a person might fabricate terms.
Answer:
B. singing a writing communicates the seriousness of the occasion to the singer
The reason which is not important for parties to memorialize their agreements in writing is signing a writing communicates the seriousness of the occasion to the signer. Thus, the correct answer is C.
What is an agreement?Agreement refers to consent of individual on a particular opinion. When the both parties agree on a concept they will make it in writing. When this agreement enforceable by law it is considered as contract.
The reason it is important top memorialize the agreements in writing are it will act as proof or evidence when formulated in written to be presented in case of obligation.
An agreement will be duly signed by both the parties which shows its authenticity and reliability and avoid any false interpretation of the deal. When the agreement is in writing the violation of terms and conditions is not possible as it clearly mentions the drawbacks of circumstances if any party failed to fulfill the conditions of the agreement.
Therefore, the option C signing a writing communicates seriousness is the appropriate answer.
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BioGrow Pharma Inc. wanted its research partner, an R&D company, to develop a cancer vaccine. However, the project required huge capital investments, and its research partner was not ready to solely face the risks involved. Thus, to gain its partner's confidence and to prove its involvement, BioGrow Pharma invested $100 million in the project. This investment made by BioGrow Pharma will result in a _____.
Answer: credible commitment
Explanation:
From the question, we are informed that BioGrow Pharma Inc. wanted its research partner, an R&D company, to develop a cancer vaccine but that the project required huge capital investments, and its research partner was not ready to solely face the risks involved.
Therefore, to gain its partner's confidence and to prove its involvement, BioGrow Pharma invested $100 million in the project. This investment made by BioGrow Pharma will result in a credible commitment.
You short-sell 200 shares of Rock Creek Fly Fishing Co., now selling for $50 per share. You are required to post a 50% margin on the short sale. If your broker requires a 30% maintenance margin, at what price will you get a margin call? (Ignore interests and dividends)
a. $62.50
b. 57.69
c. 56.25
d. 37.50
Answer:
b. 57.69
Explanation:
Calculation for what price that you will get a margin call
First step
200 shares *$25 per share=$10,000
Second step
Based on the information given we are required to post a 50% margin on the short sale.
Now let find the 50% margin
50% margin =50%*$10,000
50% margin=$5,000
Hence,
$10,000+$5,000=$15,000
Third step
Based on the information given we were told that the broker requires a 30% maintenance margin.
.30=($10,000-200p)/200p
60p=$15,000-200p
260p= $15,000
Hence
$15,000/260
Price= $57.69
Therefore the price that you will get a margin call will be $57.69
Heston and Burton, CPA's, currently work a five-day week. They estimate that net income for the firm would increase by $75,000 annually if they worked an additional day each month. The cost associated with the decision to continue the practice of a five-day work week is an example of a(n)
Answer:
Opportunity cost.
Explanation:
Opportunity cost is an economics term that is used to describe the value or determinant to best forgone alternative in certain situations. In as much as every business model or dealings can never be measured in monetary terms because merit can also be determined through satisfaction gained and actual time spent on the job.
It is sometimes seen to fall in as individual perspective, this is seen as such because it is always different for every person in as much as our personality and different in likes and lifestyle affects it when it boils down to persons.
Economists also tag opportunity cost to be fundamental costs and are generally used for gaining a better understanding of a project.
Simon Company’s year-end balance sheets follow.
At December 31 2017 2016 2015
Assets
Cash $26,403 $29,364 $29,991
Accounts receivable, net 73,552 52,436 40,392
Merchandise inventory 96,214 70,676 43,017
Prepaid expenses 8,255 7,944 3,467
Plant assets, net 230,047 214,124 189,133
Total assets $434,471 $374,544 $306,000
Liabilities and Equity
Accounts payable $107,101 $64,564 $40,392
Long-term notes payable secured by
mortgages on plant assets 82,497 84,422 66,273
Common stock, $10 par value 162,500 162,500 162,500
Retained earnings 82,373 63,058 36,835
Total liabilities and equity $434,471 $374,544 $306,000
Required:
a. Compute the current ratio for the year ended 2017, 2016, and 2015.
b. Compute the acid-test ratio for the year ended 2017, 2016, and 2015.
Answer:
A.Current ratio
2017 191%
2016 248%
2015 289%
B.Acid Test Ratio
2017 101%
2016 139%
2015 183%
Explanation:
A.Computation of the current ratio for the year ended 2017, 2016, and 2015.
Using this formula
Current Ratio =Current Assets / Current Liabilities
2017 2016 2015
Cash $26,403 $29,364 $29,991
Accounts receivable, net
73,552 52,436 40,392
Merchandise inventory 96,214 70,676 43,017
Prepaid expenses 8,255 7,944 3,467
a.Current asset
204,424 160,420 116,867
b.Current Liabilities
Accounts payable $107,101 $64,564 $40,392
Let plug in the formula
(a) / (b) Current Ratio 191% 248% 289%
Therefore the Current ratio are:
2017 191%
2016 248%
2015 289%
B.Computation for acid-test ratio for the year ended 2017, 2016, and 2015.
Using this formula
Acid Test Ratio=Current Assets / Current Liabilities
2017 2016 2015
Cash $26,403 $29,364 $29,991
Accounts receivable, net
73,552 52,436 40,392
Prepaid expenses 8,255 7,944 3,467
a. Current asset
108,210 89,744 73,850
b. Current liabilities
Accounts payable $107,101 $64,564 $40,392
Let plug in the formula
(a) / (b)Acid Test Ratio 101% 139% 183%
Therefore the Acid Test Ratio are:
2017 101%
2016 139%
2015 183%
Script, Inc., has two product lines. The September income statements of each product line and the company are as follows: SCRIPT, INC. Product Line and Company Income Statements For Month of September Pens Pencils Total Sales $30,000 $30,000 $60,000 Less variable expenses (12,000) (12,000) (24,000) Contribution margin 18,000 18,000 36,000 Less direct fixed expenses (9,000) (7,000) (16,000) Product margin $9,000 $11,000 20,000 Less common fixed expenses (6,000) Net income $14,000Pens and pencils are sold in two territories, Florida and Alabama, as follows: Florida AlabamaPen sales $18,000 $12,000Pencil sales 9,000 21,000Total sales $27,000 $33,000The common fixed expenses are traceable to each territory as follows:Florida fixed expenses $2,000Alabama fixed expenses 3,000Home office administration fixed expenses 1,000Total common fixed expenses $6,000The direct fixed expenses of pens, $9,000, and of pencils, $7,000, cannot be identified with either territory. The company's accountants were unable to allocate any of the common fixed expenses to the various segments.Required:Prepare income statements segmented by territory for September.
Answer:
Script, Inc.
Territory and Company Income Statements
For the Month of September
Florida$ Alabama$ Company Total$
Sales
Pens 18000 12000 30000
Pencils 9000 21000 30000
Total sales [A] 27000 33000 60000
Variable cost
Pens 7200 4,800 12000
[18000*.4] [12000*.4]
[12000 Variable cost / 30000 = 0.40 per pen ]
Pencils 3600 8400 12000
[9000*.4] [21000*.4]
[12000 Variable cost /30000 = 0.4 per pencil]
Total var. cost [B] 10800 13200 24000
Contribution A-B 16200 19800 36000
D. fixed expenses 2000 3000 5000
Territory margin 14200 16800 31000
Common fixed expenses
Pen 9000
Pencil 7000
Home office 1000
Total 17,000 (17000)
Net income 14000
The FI Corporation’s dividends per share are expected to grow indefinitely by 5% per year. a. If this year’s year-end dividend is $8 and the market capitalization rate is 10% per year, what must the current stock price be according to the DDM? b. If the expected earnings per share are $12, what is the implied value of the ROE on future investment opportunities? c. How much is the market paying per share for growth opportunities (i.e., for an ROE on future investments that exceeds the market capitalization rate)?
Answer:
a)
P₀ = Div₁ / (Re - g)
P₀ = current stock price = ?Div₁ = next dividend = $8Re = equity cost = 10%g = constant growth rate = 5%P₀ = $8 / (10% - 5%) = $8 / 5% = $160
b)
EPS = $12
Return on equity (ROE) = g / b
b = retention rate = 1 - payout ratio = 1 - ($8/$12) = 0.333
g = 5%
ROE = 5% / 0.333 = 15%
c)
Present value of growth opportunity (PVGO) = P₀ - EPS/Re
P₀ = $160EPS = $12Re = 10%PVGO = $160 - $12/10% = $160 - $120 = $40 per share
A project requires an investment of $10 million and offers an annual after-tax cash flow of $1,250,000 indefinitely. If the firm's WACC is 12.5% and the project is riskier than the firm's average projects, should it be accepted?
Answer:
No.It should not be Accepted.
Explanation:
Weighted Average Cost of Capital (WACC) is the minimum return that is expected from a project. It shows the risk of the entity. If a project gives a return below the WACC, it is regarded as very risk and must not be accepted.
ABC Co. and XYZ Co. are identical firms in all respects except for their capital structures. ABC is all-equity financed with $475,000 in stock. XYZ uses both stock and perpetual debt; its stock is worth $237,500 and the interest rate on its debt is 10 percent. Both firms expect EBIT to be $53,000. Ignore taxes.
Requried:
a. Rico owns $23,750 worth of XYZ’s stock. What rate of return is he expecting?
b. Suppose Rico invests in ABC Co and uses homemade leverage. Calculate his total cash flow and rate of return.
c. What is the cost of equity for ABC and XYZ?
d. What is the WACC for ABC and XYZ?
Answer:
ABC Co. and XYZ Co.
a. Rico owns $23,750 worth of XYZ’s stock. What rate of return is he expecting?
Expected Rate of Return = 12.32%
b. Suppose Rico invests in ABC Co and uses homemade leverage. Calculate his total cash flow and rate of return.
Cash flow from ABC Co. = 11.16% of $23,750 = $2,650.50
Cash outflow from homemade leverage = 10% of $11,875 = $1,187.50
Total cash flows = $1,463 ($2,650.50 - $1,187.50)
Rate of return = $1,463/$11,875 x 100 = 12.32%
c. What is the cost of equity for ABC and XYZ?
Cost of Equity for ABC Co. = Expected Return on Equity
= $53,000/$475,000 x 100
= 11.16%
Cost of Equity for XYZ Co. = Expected Return on Equity
= $29,250/$237,500 x 100
= 12.32%
d. What is the WACC for ABC and XYZ?
WACC for ABC = Cost of Equity = 11.16%
WACC for XYZ = Weighted Cost of Equity + Weighted Cost of Debt
= 11.16% x 50% + 10% x 50%
= 0.0558 + 0.05
= 0.1058
= 10.58%
Explanation:
ABC:
Equity = $475,000
Expected EBIT = $53,000
Returns on Equity = $53,000/$475,000 x 100 = 11.16%
XYZ:
Equity = $237,500
Debt = $237,500
Interest on Debt = 10% = $23,750
EBIT = $53,000
Return for Equity = $29,250 ($53,000 - 23,750)
Return on Equity = $29,250/$237,500 x 100 = 12.32%
RICO is assumed to leverage debt for his shares in ABC Co. to the tune of 50% just as the debt leverage in XYZ Co.
ABC's and XYZ's costs of equity are equal to the expected returns on the equities expressed percentages of the equities.
ABC's and XYZ's WACC or Weighted Average Costs of Capital are the weighted cost of equity plus the weighted cost of debt respectively.
. A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 10.5%, and the expected constant growth rate is g = 6.4%. What is the stock's current price
Answer:
The answer is $18.29
Explanation:
We have many formulas to arriving at the stock price but here we use Gordon growth model.
Formula for getting stock price is:
D1/r - g
Where:
D1 - is the next year dividend or expected dividend to be paid next.
r is the rate of return
g is the growth rate
$0.75/0.105 - 0.064
$0.75/0.041
$18.29.
Therefore, the stock's current price is $18.29
Selling, general, and administrative expenses were $160,600; net sales were $730,000; interest expense was $17,500; research and development expenses were $76,650; net cash provided by operating activities was $193,800; income tax expense was $16,360; cost of goods sold was $401,500. Required: a. Calculate operating income for the period.
Answer:
OPERATING INCOME $91,250
NET INCOME $57,390
Explanation:
a. Calculation for operating income for the period.
Net sales $730,000
Less: Cost of goods sold ($401,500)
Gross profit $328,500
Less Selling, general, and administrative expenses ($160,600)
Less: Research and development expenses ($76,650)
OPERATING INCOME $91,250
b. calculation for the net income for the period.
Net sales $730,000
Less: Cost of goods sold ($401,500)
Gross profit $328,500
Less Selling, general, and administrative expenses ($160,600)
Less: Research and development expenses ($76,650)
OPERATING INCOME $91,250
Less: Interest expense ($17,500)
Less: Tax expense ($16,360)
NET INCOME $57,390
Therefore the OPERATING INCOME will be $91,250 while the NET INCOME will be $57,390
If I currently sell 10,000 units, and my use of Formula 1 indicates that I will need to sell 500 additional units to justify my suggested change to the marketing mix, what percentage of sales does that represent
Answer:
It represents a 5% change to the marketing mix.
Explanation:
The change = 500/10,000 x 100 = 5%.
Company A's change in a variable can be compared with another index, by expressing the change (addition) as a percentage of the index. For instance, the sale of 10,000 units is an index. The additional 500 units that is needed to be sold represent the change. In percentage terms, the change can be divided by the index and then multiplied by 100.
