Answer:
a. Return on Stockholders’ Equity = 10.75%
b. New return on stockholders' equity = 12.29%
Explanation:
a. What is its return on stockholders’ equity?
This can be calculated as follows:
Net Income = Sales * Profit Margin = $4,320,000 * 1.8% = $77,760
Total Assets = Sales / Total Assets Turnover = $4,320,000 / 3.50 = $1,234,285.71
Total Liabilities = Current Liabilities + Long term liabilities = $139,000 + $372,000 = $511,000
Total Stockholders’ Equity = Total Assets - Total Liabilities = $1,234,285.71 - $511,000 = $723,285.71
As a result, we have:
Return on Stockholders’ Equity = (Net Income / Total Stockholders Equity) * 100 = ($77,760 / $723,285.71) * 100 = 10.75%
b. If the asset base remains the same as computed in part a, but total asset turnover goes up to 4.00, what will be the new return on stockholders’ equity? Assume that the profit margin stays the same as do current and long-term liabilities.
This can be calculated as follows:
New Sales = Total Assets * New Assets Turnover Ratio = $1,234,285.71 * 4 = $4,937,142.86
New Net Income = New sales * Profit Margin = $4,937,142.86 * 1.8% = $88,868.57
As a result, we have:
New return on stockholders' equity = (New Net Income / Total Stockholders Equity) * 100 = ($88,868.57 / $723,285.71) * 100 = 12.29%
In 2010 the Federal Reserve Board (the Fed) reported that nonfinancial companies in the United States had around $2 trillion in cash and short-term liquid assets. As the U.S. economy was still struggling, consumer spending remained low, and companies resisted in investing in new projects that would create value for their stakeholders.
As the economy improves, uncertainty in the markets decreases, and companies will start investing in projects. However, the challenge of analyzing and selecting projects that would generate cash flows and returns and add value to the firm would remain.
The assumptions in the analysis about cost of equity and debt—overall and for projects—have a significant impact on the type and the value of investments that a company makes.
According to the Association of Finance Professionals’ report, published in 2011 on current trends in estimating and applying the cost of capital, companies use a discount rate that is usually above or below 1% of the company’s true rate. Using this information and certain inputs from the Fed, Michael Jacobs and Anil Shivdasani estimated that a 1% drop in the cost of capital leads U.S. companies to increase their investment by about $150 million over three years.
Based on your understanding of the concept of cost of capital, which of the following statements are valid?
a. Companies always use the weighted average cost of capital (WACC) as the discount rate to analyze the financial viability of projects.
b. A company’s estimate of cost of capital impacts its application in the analysis of new investments that, consequently, affects the value of the firm and shareholders’ wealth.
c. Investors care about the incremental value addition that new projects are making; they are least concerned with the discount rates that the company uses.
d. Companies incorporate the required rate of return in the cost of capital to compensate investors for the components’ risks.
Answer:
b. A company’s estimate of cost of capital impacts its application in the analysis of new investments that, consequently, affects the value of the firm and shareholders’ wealth. d. Companies incorporate the required rate of return in the cost of capital to compensate investors for the components’ risks.Explanation:
A company's estimate of cost of capital, is serious because it is used in the calculations of the returns from a new investment which is used to calculate the value of the firm and its shareholders. They therefore need to make these estimates as accurate as possible.
Companies also incorporate the required rate of return in the cost of capital so that the investors who provided this capital, can be ensured of a return on their investment because it would be accounted for in analysis of new investments.
On August 1, Lola Company’s assets are $30,000 and its liabilities are $10,000. On August 4, Lola issues a sustainability report. On August 5, ownership invests $3,000 cash and $7,000 of equipment in Lola. After the investment, what is the amount of equity for Lola?
Answer: $30,000
Explanation:
Before the investment, Equity was:
= Assets - Liabilities
= 30,000 - 10,000
= $20,000
The owner then invested $3,000 and $7,000 therefore making a total of $10,000.
Equity becomes
= 20,000 + 10,000
= $30,000
The equity is $30,000
Lola's company assets are $30,000
The liabilities are $10,000
Equity= $30,000-$10,000
= $20,000
On August 5, ownership invests $3,000 in cash and $7,000 in equipment
= $3,000+$7,000
= $10,000
The amount of equity for Lola is
= $20,000+$10,000
= $30,000
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Hatch has a standard of 2.2 hours of labor per unit, at $10.70 per hour. In producing 1,640 units, Hatch used 3,900 hours of labor at a total cost of $40,400. What is Hatch's total labor variance
Answer: $1,794.40 Unfavorable
Explanation:
Total labor variance = Actual cost of labor - Standard cost of labor
Actual cost of labor = $40,400
Standard cost of labor = Hours per unit * Cost per hour * Number of units
= 2.2 * 10.70 * 1,640
= $38,605.60
Total labor variance = 40,400 - 38,605.60
= $1,794.40 Unfavorable
Unfavorable because actual cost of labor was greater than the standard cost.
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A computer manufacturer is producing a one-of-a-kind innovation called Innovel, a cloud computing software that helps navigate Internet content. While making the channel decision and finalizing the distribution arrangement, the manufacturer is keen on limiting the distribution of Innovel and gives only Techaven Inc. the rights to sell Innovel in that region. Techaven is known for its unique facilities and specialized inventories. In this case, the manufacturer is using the ________ arrangement of distribution.
Answer: exclusive
Explanation:
Exclusive distribution occurs when a manufacturer authorizes only one distributor to sells its product within a particular region. It should be noted that this distribution arrangement is typically used for premium and exclusive products.
Since the manufacturer is keen on limiting the distribution of Innovel and gives only Techaven Inc. the rights to sell Innovel in that region, the this is an exclusive arrangement of distribution.
How do you feel when you buy a product that is overpriced?
Compute the payback period for each of these two separate investments:
a. A new operating system for an existing machine is expected to cost $290,000 and have a useful life of four years. The system yields an incremental after-tax income of $83,653 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $11,000.
b. A machine costs $200,000, has a $15,000 salvage value, is expected to last eleven years, and will generate an after-tax income of $46,000 per year after straight-line depreciation.
Answer:
1.89 years
3.18 years
Explanation:
Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows
Payback period = Amount invested / cash flow
Cash flow = net income + depreciation
Straight line depreciation expense = (Cost of asset - Salvage value) / useful life
(290,000 -11,000) / 4 = 69,750
Cash flow = $83,653 + 69,750 = 153,403
Payback = $290,000 / 153,403 = 1.89
(200,000 - 15,000) / 11 = 16,818.18
Cash flow = $46,000 + 16,818.18 = 62,818.18
Payback = 200,000 / 62,818.18 = 3.18
1.57
Suppose there are three factories in Macroland and the following occurred in 2019: Metal, plastic and a car factory. Metal factory produces $200, plastic factory produces $500, and car factory produces $700, of its respective products. The metal factory sells all of its output to the car factory. The plastic factory sells $80 worth of plastic to the car factory, $20 to the government, and the rest to consumers. The Car factory exports $50 of its cars and sells the rest to consumers.
Required:
What is the GDP of Macroland in 2019?
Answer:
$1120
Explanation:
The computation of the GDP is shown below:
Y = C + I + G + X
Here Y denotes the GDP
C denotes the consumption = $500 - $80 - $20 = $400 and 700 - 50 = $650
I denotes the investment = $
G denotes the government purchase = $20
X denotes the net exports = $50
So,
Y = $400 + $650 + 0 + $20 + $50
= $1120
A company purchased property for $100,000. The property included a building, a parking lot, and land. The building was appraised at $60,000; the land at $46,600, and the parking lot at $18,400. Land should be recorded in the accounting records with an allocated cost of
Answer:
$37,280
Explanation:
We use the appraised values to apportion the Purchase Cost of the Property to determine the Cost of Land as follows :
Land Cost = $46,600 / $125,000 x $100,000
= $37,280
Land should be recorded in the accounting records with an allocated cost of $37,280.
A marketing team at a carwash company was brainstorming better methods to identify what influenced their customers. The team discussed the social and personal factors of various customers and their decisions. What additional factors should the team discuss?
a. situational factors
b. psychological factors
c. personal factors
Bothell Company uses a job order costing system that allocates estimated overhead as 40% of prime costs. What is the cost of a job that required direct materials of $2,000 and direct labor of $5,200
Answer:
$10,080
Explanation:
The computation of the cost of the job is shown below:
We know that
prime cost = direct material + Direct labor
= $2,000 + $5,200
= $,7200
Now overhead is
= 40% of $7200
= $2,880
And,
Cost of job = direct material + Direct labor + overhead
= $2,000 + $5,200 + $2,880
= $10,080
Dixie Bank offers a certificate of deposit with an option to select your own investment period. Jonathan has $7 comma 500 for his CD investment. If the bank is offering a 5 % interest rate, compounded annually, how much will the CD be worth at maturity if Jonathan picks a
Answer:
a. Two year investment period:
Future value = Amount * (1 + rate)^ number of years
= 7,500 * ( 1 + 5%)²
= $8,268.75
b. Five year investment period:
= 7,500 * (1 + 5%)⁵
= $9,572.11
c. Eight-year investment period:
= 7,500 * ( 1 + 5%)⁸
= $11,080.92
Steve is the librarian in his city's library. The library provides group diability insurance where premiums are paid by employees with after-tax dollars. He enrolls in a policy through the employer that provides a benefit of $4,200 a month. If he is in the 25% tax bracket and is disabled, what are his benefits after tax?
a. $0.
b. $1,050.
c. $3,150.
d. $4,200.
Answer: $4200
Explanation:
Tax benefit refers to the reduction in the tax liability which is enjoyed by an individual and helps the individual reduce his or her tax burden.
Since we are already given the information that Steve enrolls in a policy through the employer that provides a benefit of $4,200 a month, then his benefits after tax is $4200.
Brandy’s Restaurant estimates that its total cost of providing Q meals per month is given by TC = 6,000 + 2 Q. If Brandy charges $4 per meal, what is its break-even level of output?
Answer: 3,000 meals
Explanation:
The 6,000 in this total cost formula represents the fixed costs of providing the Q meals per month.
The 2 represents the variable cost.
If a meal is $4, that means that the Contribution margin is:
= 4 - 2
= $2 per meal
The break-even level of output is:
= Fixed cost / Contribution margin per meal
= 6,000 / 2
= 3,000 meals
Situation 1: There is a Head of Human Resource (HR) in a recognized Multinational National Company (MNC). You are a marketing executive in that company. You have made a communication with the HR regarding an emergency short time leave in a Critical moment of the Company’s turnover.
In this case how you will communicate with him and convince him to provide you a short-term leave. The things to be aware of.
1. HR is a rudy person.
2. He isn't very familiar with you.
3. Company is now at a Critical Moment and there is a lot of turnovers.
4. HR is about the age of 45+
And also provide an alternative answer if the situation gets negative over you.
Ans.
Answer:
As a marketing executive of the company looking to beg an emergency leave from a HR person who is considered to be rudy, unfamiliar with me, 45+ age and also that the company is experiencing a lot of turnovers, the best way to approach the HR would be to:
1. Write an official letter to him making the intentions clear.
2. Politely ask him to consider your request even though you two are not very familiar with each other.
3. Stress the importance of the emergency and why you have to leave.
Mantle Publications publishes a golf magazine for women. The magazine sells for $4.00 a copy on the newsstand. Yearly subscriptions to the magazine cost $36 per year (12 issues). In December 2016, Mantle Publications sells 4,000 copies of the golf magazine at newsstands and receives payment for 6,000 subscriptions for 2017. Financial statements are prepared monthly.
a. Indicate the accounts increased or decreased to record the December newsstand sales and subscriptions received.
b. Indicate the accounts increased or decreased for the necessary adjustment on January 31, 2017. The January 2017 issue has been mailed to subscribers.
Answer:
Accounting uses the Revenue recognition principle which means that a business should only recognize revenue when it has provided the service for which it was paid for.
a.
Date Account Title Debit Credit
12/31/2016 Cash $16,000
Sales Revenue $16,000
Working
= 4,000 issues sold for December * $4 per copy
= $16,000
Date Account Title Debit Credit
12/31/2016 Cash $216,000
Unearned Subscription Revenue $216,000
Working
= 6,000 subscriptions * $36 per subscription
= $216,000
b.
Date Account Title Debit Credit
12/31/2016 Unearned Subscription Revenue $18,000
Sales revenue $18,000
Working
= 216,000 * 1/ 12 months
= $18,000
Maximum diversification benefit can be achieved if one were to form a portfolio of two stocks whose returns had a correlation coefficient of:
Answer:
-1.0
Explanation:
Diversification in a portfolio can be regarded as spreading of investments by investors so that risk can be minimized. The correlation coefficient "r" that exist between two securities allows us to know how return that's gotten from one security is related to returns from another security. For instance, it is possible for two securities within same sector to move in the same direction, i.e it is possible to be positively correlated, in this sense when price of one goes up , the other price also goes up this might not be with the same margin.
As regards negative correlation, there is movement of security returns in opposite directions, in this sense there is least relationship between the securities. Hence with r= 1 there is movement of the two stocks in opposite direction hence Maximum diversification.
It should be noted that Maximum diversification benefit can be achieved if one were to form a portfolio of two stocks whose returns had a correlation coefficient of -1.0
Mabel is a single 40-year-old who has borrowed money on numerous occasions. Her payment record has been good, except she has been delinquent in paying a few bills. Which of the following is true regarding credit information gathered on Mabel?
a. Since Mabel has been delinquent, she waives her right to see the credit files.
b. If Mabel is rejected for a loan because of the consumer report, the lender must tell her the source of the report.
c. Mabel has a right to have the information regarding her delinquency in paying a few loans stricken from her credit record because her record has generally been good.
d. Mabel's only legal remedy, if there is erroneous information in her credit file, is to report the problem to the FTC for enforcement.
Answer:
b. If Mabel is rejected for a loan because of the consumer report, the lender must tell her the source of the report.
Explanation:
The best answer to this question is option b, given that it gives the best description of the situation at hand. If she is turned down for a loan due to the fact that she has been delinquent in paying bills, the the agency from which she seeks this loan has to tell her the source of the report. A credit report gives a summarized statement of a persons financial state. It has such important information like the particulars of the person , address as well as the person SSN,
On January 1, 2018, Sunrise Corporation issued $4,000,000 face value, 8% coupon, 5-year bonds dated January 1, 2018, for $3,800,000 (market interest rate of 9.3%). The bonds pay annual interest on January 1. Instructions Prepare all the journal entries that Sunrise Corporation would make related to this bond issue through January 1, 2019, using effective interest rate method. Be sure to indicate the date on which the entries would be made.
Answer:
Sunrise Corporation
Journal Entries:
January 1, 2018:
Debit Cash $3,800,000
Debit Discounts on Bonds $200,000
Credit 8% Bonds Payable $4,000,000
To record the issuance of bonds at a discount.
December 31, 2019:
Debit Interest Expense $353,400
Credit Interest Payable $320,000
Credit Amortization of discounts $33,400
To record the interest expense and first amortization of discounts.
January 1, 2019:
Debit Interest Payable $320,000
Credit Cash $320,000
To record the payment of the first interest.
Explanation:
a) Data and Calculations:
Face value of bonds issued = $4,000,000
Coupon interest rate = 8%
Market interest rate = 9.3%
Maturity period = 5 years
Interest payment = Annual on January 1
Issue price = $3,800,000
Discounts = $200,000 ($4,000,000 - $3,800,000)
January 1, 2018:
Cash $3,800,000 Discounts on Bonds $200,000 8% Bonds Payable $4,000,000
December 31, 2019:
Interest Expense $353,400
Interest Payable $320,000
Amortization of discounts $33,400 ($353,400 - $320,000)
Value of bond on December 31, 2018 or January 1, 2019 = $3,833,400 ($3,800,000 + $33,400)
January 1, 2019:
Interest Payable $320,000 Cash $320,000
Jamie is single. In 2020, she reported $108,000 of taxable income, including a long-term capital gain of $5,800. What is her gross tax liability
Answer:Jamie's gross tax liability is $19,572.50
Explanation:
Since Jamie is single with taxable income of $108,000 which includes $5,800 long term capital gain.
Therefore $102,200 (108,000 -5,800) will be taxed under normal tax rates and $5,800 would be under long term capital gain tax rate.
With regards the 2020 tax schedule, Since her ordinary income is $102,200, Jamie falls under 24% rate tax bracket under filing for single status.
qd
Tax liability on ordinary income =$14,382.50 plus 24% of any income you made above $84,200
14,382.50 + 0.24 (102,200 - 84,200)
14,382.50 + 0.24 x 18000
= 14,382.50 + 4,320
= $18,702.50
Also, according to her income, longterm capital gain tax applicable in 2020 is 15%
Tax on long term capital gain = 5,800 × 0.15
= $870
Jamie's gross tax liability is $18,702.50 + 870 = $19,572.50
Joe quits his computer programming job, where he was earning a salary of $ per year, to start his own computer software business in a building that he owns and was previously renting out for $ per year. In his first year of business he has the following expenses: salary paid to himself, $; rent, $0; and other expenses, $. Find the accounting cost and the economic cost associated with Joe's computer software business. (Enter numeric responses using an integer.) The accounting cost of Joe's business is $ 107000- nothing. (Enter your response as an integer.)
Answer:
accounting cost = $65,000
economic cost = $74,000
Explanation:
Here is the complete question
Joe quits his computer programming job, where he was earning a salary of $50,000year, to start his own computer software business in a building that he owns and was previously renting out for $24,000/year. In his first year of business he has the following expenses: salary to himself, $40,000; rent, $0; other expenses, $25,000.
Find the accounting cost and economic cost associated with Joe's computer software business.
There are two types of costs
1. Economic cost or Implicit cost or opportunity cost : Implicit cost is the cost of the next best option forgone when one alternative is chosen over other alternatives. It is used in calculating economic profit
By starting his business, joe is forgoing his income and the rent he could have earned on his building
$50,000+ $24,000 = 74,000
2. Explicit cost : It includes the amount expended in running the business. It is used in calculating accounting profit
They include rent , salary and cost of raw materials
40,000+ 25,000 = 65,000
Investment Center Sales Income Average Invested Assets Electronics $ 40,500,000 $ 2,916,000 $ 16,200,000 Sporting goods 20,740,000 2,074,000 12,200,000 1. Compute return on investment for each department. Using return on investment, which department is most efficient at using assets to generate returns for the company
Answer and Explanation:
The computation of the return on investment is shown below;
We know that
Return on Investment is
= (Net Income ÷ Average Operating Assets] × 100
For Electronics
= [$29,16,000 ÷ 162,00,000] × 100
= 18%
And,
For Sporting goods
= [$20,74,000 ÷ 122,00,000] × 100
= 17%
So here the electronics department should be selected as it has high return on investment
A company purchased equipment valued at $66000. It traded in old equipment for a $9000 trade in allowance. The old equipment cost $44000 and accumulated depreciation of $36000. This transaction has commercial substance. What is the recorded value of the new equipment?
Answer:
11000.
Explanation:
Is the answer to this question
A company is concerned about the number of customers that have to wait for service in their customer service department. Assume the rate at which customers arrive is 12 per hour. Using the infinite queuing notion for the models presented in the textbook, which of the following is the mean time between arrivals?
A) 12 minutes
B) 6 minutes
C) 2 Minutes
D) 1 Minute
E) None of these
Answer:
E) None of these
Explanation:
Calculation to determine which of the following is the mean time between arrivals
Using this formula
Mean time between arrivals = 1/Arrival rate
Let plug in the formula
Mean time between arrivals= 1/12
Mean time between arrivals= 0.0833 hours or 5 minutes
Therefore the Mean time between arrivals will be 0.0833 hours or 5 minutes
Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments. The company is considering two different investments. Each require an initial investment of $15,300 and will produce cash flows as follows:
End of Year Investment
A B
1 $8,300 $0
2 8,300 0
3 8,300 24,900
The present value factors of $1 each year at 15% are: __________
Following is information from Skechers USA, Inc. for fiscal 2016 (in thousands).
Total 2016 revenue $3,563,311
Total revenue growth rate 5.0%
Terminal revenue growth rate 2%
Net operating profit margin (NOPM) 8.2%
Net operating asset turnover (NOAT)3.42
Projected 2017 total revenue would be:
A. $3,634,577 thousand.
B. $3,855,503 thousand.
C. $3,324,568 thousand.
D. $3,741,477 thousand.
E. None of the above.
Answer:
D. $3,741,477 thousand
Explanation:
Calculation to determine what total revenue would be:
Total value=$3,563,311 million ×(1+.05)
Total value=$3,563,311 million × 1.05
Total value = $3,741,477 thousand
Therefore total revenue would be:$3,741,477 thousand
World-Tour Co. has just now paid a dividend of $2.83 per share (Div0); its dividends are expected to grow at a constant rate of 6% per year forever. If the required rate of return on the stock is 16%, what is the current value of the stock after paying the dividend
Match each description 1 through 6 with the characteristic of preferred stock that it best describes by writing the letter of that characteristic in the blank next to each description.
A. Callable
B. Convertible
C. Cumulative
D. Noncumulative
E. Nonparticipating
F. Participating
_____ 1. Holders of the stock are entitled to receive current and all past dividends before common stockholders receive any dividends.
_____ 2. The issuing corporation can retire the stock by paying a prespecified price.
_____ 3. Holders of the stock can receive dividends exceeding the stated rate under certain conditions.
_____ 4. Holders of the stock are not entitled to receive dividends in excess of the stated rate.
_____ 5. Holders of this stock can exchange it for shares of common stock.
_____ 6. Holders of the stock lose any dividends that are not declared in the current year.
Answer and Explanation:
The classification is as follows
a. In the callable, the corporation who issued could retired the stock by payoff the mentioned price
b. In the convertible, the stockholders could able to exchange for the common stock shares
c. In the cumulative, the stockholders should received the current as well as the past dividends prior to the common stockholders
d. In the non-cumulative, the stockholders should lose the dividend that not declared in the present year
e. In the non-participating, the stockholders should not received any dividend that more than the stated rate
f. In the participating, the stockholder should received any dividend that more than the stated rate
If a bank has a required reserve ratio of 25 percent and there is $10,000 in deposits, what is the maximum amount of loans that can be made by this bank
Answer: $40,000
Explanation:
Based on the information given in the question, the maximum amount of loans that can be made by this bank will be calculated as:
= Deposit × 1/Reserve ratio
= $10000 × 1/25%
= $10000 × 1/0.25
= $10000 × 4
= $40000
Therefore, the maximum increase in money supply is $40000.
In 2020, Susan had interest expense of $58,500 from her investments. Susan's has investment income of $46,500. Of this amount, interest is $15,000, qualified dividends are $9,000, and a net capital gain on the sale of securities is $22,500. What is the maximum amount of Susan's investment interest expense deduction for the current year if she decides to give up the capital gain preferential treatment
Answer:
Susan
The maximum amount of Susan's investment interest expense deduction for the current year if she decides to give up the capital gain preferential treatment is:
= $46,500.
Explanation:
a) Data and Calculations:
Investment interest expense = $58,500
Investment income = $46,500
Makeup of investment income:
Interest = $15,000
Dividends = $9,000
Net capital gain on the sale of securities = $22,500
b) Susan's investment interest expense is the interest amounting to $58,500 that she paid on the money she borrowed to purchase the taxable investments. The amount that Susan can deduct is capped at her net taxable investment income for the year, which totaled $46,500 since she gives up the capital gain preferential treatment. The remaining $12,000 in interest expense can be carried forward to the next fiscal year to reduce her future taxes.
