Answer:
A) according to the affordability formula Joe-Bob can take out another loan because his DTI is 36%
B) He should follow the affordability formula when he wants to take out loans
C) He should not follow DTI if he isn't taking out loans
D) Taking out a loan will negatively impact his other priorities if his DTI is very high or greater than 100%
Explanation:
using the affordability formula
The debt to income ratio = [tex]\frac{total debt}{gross income}[/tex]
total debt = mortgage payment + loan repayment = $900 + $350
= $1250
gross income = $3500
hence debt to income ratio = 1250 / 3500 = 0.3571 = 35.7%
A) according to the affordability formula Joe-Bob can take out another loan because his DTI is 36%
B) He should follow the affordability formula when he wants to take out loans
C) He should not follow DTI if he isn't taking out loans
D) Taking out a loan will negatively impact his other priorities if his DTI is very high or greater than 100%
a. According to the affordability formulas, Joe-Bob cannot afford to take out a car loan. His current DTI without the auto loan is almost 36%.
b. Joe-Bob should follow the affordability formulas to guide his decisions in taking a new loan.
c. Joe-Bob does not need to follow the affordability formulas when his debt to income ratio (DTI) is far below 36%. He can also avoid the affordability formulas when he has the prospect of increasing his monthly income.
d. If Joe-Bob takes out the car loan despite his poor rating on the affordability formulas, he may not afford to pay his bills for necessities.
Thus, Joe-Bob should not take on more loans now until he improves his income. An automobile will require routine maintenance and some repairs, including fuelling.
Data and Calculations:
Current monthly income = $3,500
Monthly mortgage payment = $900
Monthly student loan payment = $350
Total current debts = $1,250 ($900 + $350)
The Affordability Formula (Current Debt Payment to Income Ratio) =
35.7% ($1,250/$3,500 x 100)
The Affordability Rule states that Joe-Bob should not spend more than 36% of his monthly income repaying loans.
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Kohler Corporation reports the following components of stockholders' equity on December 31, 2009.
Common stock—$10 par value. 100,000 shares authorized.
40,000 shares Issued and outstanding $400,000
Paid-ln capital In excess of par value, common stock . 60,000
Reamed earnings 270,000
Total stockholders 730,000
In year 2010, the following transactions affected its stockholders' equity accounts.
Jan. 1 Purchased 5,500 shares of its own stock at $15 cash per share.
Jan. 5 Directors declared a $4 per share cash dividend payable on February 28 to the February 5 stockholders of record.
Feb. 28 Paid the dividend declared on January 5.July 6 Sold 2,063 of its treasury shares at $19 cash per share.
Aug. 22 Sold 3,437 of its treasury shares at $12 cash per share.
Sept. 5 Directors declared a $4 per share cash dividend payable on October 28 to the September 25 stockholders of record.
Oct. 28 Paid the dividend declared on September 5.
Dec. 31 Closed the $408,000 credit balance (from net income) in the Income Summary account to Retained Earnings.
Required
a. Prepare journal entries to record each of these transactions for 2010.
b. Prepare a statement of retained earnings for the year ended December 31, 2010.
c. Prepare the stockholders' equity section of the company's balance sheet as of December 31, 2010.
Answer:
Kohler Corporation
a. Journal Entries:
Jan.1:
Debit Treasury Stock $55,000
Debit Paid-in Capital In Excess of par $27,500
Credit Cash Account $82,500
To record the purchase of 5,500 shares of treasury stock at $15 per share.
Jan. 5:
Debit Dividends $138,000
Credit Dividends Payable $138,000
To record the declaration of a $4 per share cash dividend on 34,500 shares.
Feb. 28:
Debit Dividends Payable $138,000
Credit Cash Account $138,000
To record the payment of dividend.
July 6:
Debit Cash Account $39,197
Credit Treasury Stock $20,630
Credit Paid-in Capital In Excess of par $18,567
To record the resale of 2,063 treasury shares at $19 per share.
Aug. 22:
Debit Cash Account $41,244
Credit Treasury Stock $34,370
Credit Paid-in Capital In Excess of par $6,874
To record the resale of 3,437 treasury shares at $12 per share.
Sept. 5:
Debit Dividends $160,000
Credit Dividends Payable $160,000
To record the declaration of a $4 per share cash dividend on 40,000 shares.
Oct. 28:
Debit Dividends Payable $160,000
Credit Cash Account $160,000
To record the payment of the cash dividends.
Dec. 31:
Debit Income Summary $408,000
Credit Retained Earnings $408,000
To close the net income to the Retained Earnings.
b. Statement of Retained Earnings for the year ended December 31, 2010:
December 31, 2009 balance $270,000
Net Income 408,000
Dividends (298,000)
December 31, 2010 balance $380,000
c. Stockholders' Equity Section of the Balance Sheet as of December 31, 2010:
Common stock—$10 par value:
100,000 shares authorized.
40,000 shares Issued and outstanding $400,000
Paid-in capital In excess of par value,
common stock 57,941
Retained earnings 380,000
Total stockholders $837,941
Explanation:
a) Data and Calculations:
Stockholders' Equity Section of the Balance Sheet as of December 31, 2009:
Common stock—$10 par value:
100,000 shares authorized.
40,000 shares Issued and outstanding $400,000
Paid-in capital In excess of par value,
common stock 60,000
Retained earnings 270,000
Total stockholders $730,000
b) Paid-in Capital In Excess of par:
December 31, 2009 balance $60,000
Treasury stock:
January 1 (27,500)
July 6 18,567
Aug. 22 6,874
December 31, 2010 balance $57,941
c) Kohler's treasury stock account is a contrary account to the common stock account. It is recorded using any of the two methods: cost method or the par value method. It is assumed that Kohler Corporation uses the par value method with the above and below par values in treasury stock transactions recorded in the Paid-in Capital In Excess of par. This is unlike the cost method that records all the treasury transactions in the Treasury Stock account at their cost effects.
Salud Company reports the following information. Use the indirect method to prepare only the operating activities section of its statement of cash flows for the year ended December 31, 2017. (Amounts to be deducted should be indicated with a minus sign.)
Selected 2017 Income Statement Data Selected Year-End 2017 Balance Sheet Data
Net income $470,000 Accounts receivable increase $40,400
Depreciation expense 87,000 Prepaid expenses decrease 16,500
Gain on sale of machinery 23,000 Accounts payable increase 10,000
Wages payable decrease 2,900
Answer:
Cash generated by operating activities is $517,200.
Explanation:
Cash flows from operating activities
Net Income $470,000
Adjustments to reconcile net income to operating cash flow
Add: Depreciation Expense $87,000
Less: Gain on Sale of Machinery $-23,000 $64,000
Change in Operating Assets and Liabilities
Accounts receivable increase $-40,400
Prepaid expenses decrease $16,500
Accounts payable increase $10,000
Wages payable decrease $-2,900 $-16,800
Cash generated by operating activities $517,200
Competitive markets ______ goods with positive externalities and ______ goods with negative externalities. Group of answer choices overprovide; underprovide underprovide; overprovide overprovide; overprovide underprovide; underprovide
Answer:
underprovide; overprovide
Explanation:
A good has positive externality if the benefits to third parties not involved in production is greater than the cost. an example of an activity that generates positive externality is research and development. Due to the high cost of R & D, they are usually under-produced. Government can encourage the production of activities that generate positive externality by granting subsidies.
A good has negative externality if the costs to third parties not involved in production is greater than the benefits. an example of an activity that generates negative externality is pollution. Pollution can be generated at little or no cost, so they are usually overproduced. Government can discourage the production of activities that generate negative externality by taxation
Tracy Company owns 4,000 of the 10,000 outstanding shares of Penn Corporation common stock. During 2018, Penn earns $450,000 and pays cash dividends of $150,000. If the beginning balance in the investment account was $900,000, the balance at December 31, 2018 should be:_______.
a. $900,000.
b. $1,020,000.
c. $1,080,000.
d. $1,200,000.
Answer:
$1,020,000
Explanation:
Tracy company has 4,000 out of the 10,000 outstanding shares the common stock of Penn corporation
Penn earns $450,000 during 2018
They make a cash dividend payment of $150,000
The beginning balance in the investment is 900,000
Therefore, the balance at December 31, 2018 can be calculated as follows
= $900,000 + ($450,000×0.4)-($150,000×0.4)
= $900,000+$180,000-$60,000
= $1,080,000-$60,000
= $1,020,000
Hence the balance at December 31st, 2018 is $1,020,000
"A registered representative ("RR") manages a corporate account. The corporation recently elected a new CEO who contacts the "RR" and gives trade instructions. Which statement is TRUE? The trade should be:"
Answer: D. entered once the "RR" verifies that the CEO is an authorized trader in the account
Explanation:
The registered representative must only trade on a corporate account on orders given by a person that is authorised to do so to avoid any mismanagement.
The people authorized to do so will be listed in a Corporate Resolution issued by the Board of Directors of the company or relevant stakeholders.
The registered representative would need to check this resolution first and if they find the new CEO listed in it as authorized to make trades, the registered representative will then enter the trade.
Consider the case of Purple Panda Pharmaceuticals: Next year, Purple Panda is expected to earn an EBIT of $2,000,000, and to pay a federal-plus-state tax rate of 30%. It also expects to make $500,000 in new capital expenditures to support this level of business activity, as well as $35,000 in additional net operating working capital (NOWC). Given these expectations, it is reasonable to conclude that next year Purple Panda will generate an annual free cash flow (FCF) of (rounded to the nearest whole dollar).
Answer:
Purple Panda Pharmaceuticals
Annual Free Cash Flow (FCF):
FCF = Sales Revenue - (Operating costs + Taxes) - Required investments in operating capital or net operating profit after taxes - net investment in operating capital =
Net Income = $1,400,000
additional NOWC = 35,000
Capital expenditures = 500,000
FCF = $865,000
Explanation:
a) Data and Calculations:
EBIT = $2,000,000
Tax = 30% or $600,000
Net Income = $1,400,000
additional NOWC = 35,000
Capital expenditures = 500,000
FCF = $865,000
Purple Panda Pharmaceuticals' Free Cash Flow shows what is available for distribution to security holders after the payment of taxes. Purple Panda will use the information from its Free Cash Flow to judge if a project will pay off and generate enough cash flow so that shareholders' value will be enhanced.
An investor with a balanced domestic portfolio who is looking for diversification and returns in the event that U.S. markets do not continue to expand, would be most interested in investing in which of the following?
a. Equities in Emerging Markets
b. Equities in U. S. companies with international appeal
c. Equities in U. S. companies involved in exports of their products
d. Equities in Italian wine exporting companies
Answer:
Option A, Equities in Emerging Markets, is the right answer.
Explanation:
A person who is not interested to invest in the U.S market or company then will not prefer the U.S companies for their diversification because the economic contraction in the U.S will affect these companies. He will be willing to invest in the equities in the emerging market. Moreover, he will not invest only in the foreign company because it will not provide him with the diversification. Therefore, the option “a” is correct.
Winnwbagel corp. currently sells 25,200 motor homes per year at 37,800 each, and 10,080 luxury motor coaches per year at $71,400 each. The company wants to introduce a new portable camper to fill out its product line., it hopes to sell 15,960 of these campers per year at $10,080 each. An independent consultant has determined that if the company introduces the new campers, it should boost the sales of its existing motor homes by 3,780 units per year, and reduce the sales of its motor coaches by 756 units per year. What is the amount to use as the annual sales figure when evaluating this project?
a. $237,293,280.
b. $262,271,520.
c. $357,739,200.
d. $95739200.
e. $160,876,800.
f. $249,782,400.
Answer:
Option C is correct
Annual sales figure =$ 357,739,200
Explanation:
Annual sales figure for Winnebago corp after the introduction f the new portable campers would be the sum of the annual sales figure for motor homes, luxury homes (after the introduction of new product) and the camper.
Note that the only the impact of the introduction of the new product would be considered on sales would . The existing sales figures are not not relevant because they are not incremental.
Also,any reduction in sales figure as result of the introduction of a new product would be deducted.
These explanations are incorporated into the analysis below:
Product type Quantity Price Sales figure ($'000)
Motor homes 3780 37,800 142,884
Luxury homes 756 71,400 (53,978.4)
Camper 15,969 (10,080 ) 160,967.52
Total sales 357,739.20
Annual sales figure =$ 357,739,200
Under Armour uses its website to sell its products, but Nathan Shriver, art director of Interactive, believes that what the website does, and what advertising does not do, is make the brand
Answer:
This question is incomplete, the options are missing. The options are the following:
a) Friendlier to the customer
b) Recognizable in retail stores
c) Seem special compare to off-label gear
d) Part of the consumer's daily life
e) Seem of higher quality than Nike
And the correct answer is the option D: Part of the consumer's daily life.
Explanation:
To begin with, when Nathan Shriver says that he believes that the website and advertising of the company does is to make the brand more part of the consumer's daily life refers that in the end it is that action what truly makes the company to increase its sales due to the fact that thanks to the marketing campaigns now the brand is more important in the life of the consumers and more due to the fact that those advertising make them understand that the use of Under Armour's products is essential to every day training and movement that the clients might face.
Discount factor is 0.985. Stock XYZ is selling for $40 a share. An American option on this stock with a strike price of $38 is trading at $0.25 per share. If it is known that this option is priced above its intrinsic value, what type of option is it?
Answer:
Put option
Explanation:
We have current price 40dollars - strike price 38dollars = $2. The question says the stock is trading at $0.25 per share. Since 0.25 is higher than 0 it is a put option. And the intrinsic value is $2.
The put option gives one the right to sell a particular number of shares at a price that has been set which is referred to as the strike price before a certain date.
"The interest rate charged from the banks to broker-dealers on loans where securities are collateral is the:"
Answer: broker loan rate
Explanation:
The broker loan rate is also refered to the call loan rate and it is the interest rate that is charged from the banks to broker-dealers on loans where securities are collateral.
It should be noted that the iterest rates that are given on broker loan rates are just a little above the short term interest rates.
According to the mean-variance criterion, portfolio A is better than portfolio B for a risk-averse investor whenever _____.
Answer: d. E(rA) ≥ E(rB) and σA ≤ σB
Explanation:
The options are:
a. E(rA) ≤ E(rB) and σA ≤ σB
b. E(rA) ≥ E(rB) and σA ≥ σB
c. E(rA) ≤ E(rB) and σA ≥ σB
d. E(rA) ≥ E(rB) and σA ≤ σB
Mean-variance criterion is when the means and the variances of the return of different portfolios are used as a basis to select a portfolio.
An investor will choose the portfolio that has a lower risk which is denoted by the standard deviation. Therefore, option D is correct.
Murray Company reports net income of $770,000 for the year. It has no preferred stock, and its weighted-average common shares outstanding is 350,000 shares. Compute its basic earnings per share.
Answer:
EPS = 2.2
Explanation:
Earning per share is the amount due to each of the ordinary shareholders after settlement of interest due on loans , preferred dividends and tax.
Earnings per share (EPS) = Earnings attributable to ordinary shareholders ÷ Units of shares
Where ;
Earnings attributable to ordinary shareholders = Net income - Preferred dividends
EPS = $770,000 - 0 ÷ 350,000 shares
EPS = $2.2
A project will reduce costs by $37,000 but increase depreciation by $17,300. What is the operating cash flow if the tax rate is 40 percent?
Answer:
The operating cash flow is $29,120.
Explanation:
Operating cash flow (OCF) can be described as the amount of cash that is generated by a firm from its regular operating activities during a specified period of time.
Operating cash flow (OCF) can be calculated using the following formula:
OCF = ATCS + DTS .......................... (1)
Where;
OCF = Operating cash flow = ?
ATCS = After Tax Cost Savings = Reduce costs * (1-tax rate) = $37,000 * (1 - 40%) = $22,200
DTS = Depreciation Tax Shield = Depreciation * Tax rate = $17,300 * 40% = $6,920
Substituting the values into equation (1), we have:
OCF = $22,200 + $6,920 = $29,120
Therefore, the operating cash flow is $29,120.
Weller Company's budgeted unit sales for the upcoming fiscal year are provided below: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Budgeted unit sales 34,000 36,000 27,000 32,000 The company’s variable selling and administrative expense per unit is $3.30. Fixed selling and administrative expenses include advertising expenses of $11,000 per quarter, executive salaries of $53,000 per quarter, and depreciation of $33,000 per quarter. In addition, the company will make insurance payments of $4,000 in the first quarter and $4,000 in the third quarter. Finally, property taxes of $7,200 will be paid in the second quarter. Required: Prepare the company’s selling and administrative expense budget for the upcoming fiscal year. (Round "Per Unit" answers to 2 decimal places.)
Answer and Explanation:
The preparation of company’s selling and administrative expense budget for the upcoming fiscal year is shown below:-
Weller Company
Selling and Administrative Expense Budget
Particulars 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year
Budgeted Unit
Sales a 34,000 36,000 27,000 32,000 129,000
Variable Selling and Administrative Expense
Per Unit $3.3 $3.3 $3.3 $3.3 $3.3
Variable Selling and Administrative
Expense (a × b) $112,200 $118,800 $89,100 $105,600 $425,700
Fixed Selling and Administrative Expense
Advertising $11,000 $11,000 $11,000 $11,000 $44,000
Executive
Salaries $53,000 $53,000 $53,000 $53,000 $212,000
Insurance $4,000 0 $4,000 0 $8,000
Property Taxes 0 $7,200 0 0 $7,200
Depreciation $33,000 $33,000 $33,000 $33,000 $132,000
Total Fixed Selling and Administrative
Expense $101,000 $104,200 $101,000 $97,000 $403,200
Total Selling and Administrative
Expense $213,200 $223,000 $190,100 $202,600 $828,900
Less:
Depreciation $33,000 $33,000 $33,000 $33,000 $132,000
Cash Paid for Selling and
Administrative
Expenses $180,200 $190,000 $157,100 $169,600 $696,900
According to the FTC's historical guidelines for mergers, would the FTC approve a merger between two firms that would result in an HHI of 1,025 after the merger?A: Maybe. The FTC would scrutinize the merger and make a case-by-case decision.B: Yes, the FTC would ignore the merger and allow it to go through.C: No, the FTC would probably challenge the merger.2. Instead of defining a market and counting up total sales, what are antitrust regulators looking at today when determining whether to allow a merger or not?A: HHIB: industry competitionC: four-firm concentration ratioD: innovation3. Price cap regulations are a market regulatory device governments utilize, where the top price a firm can charge is locked in for a defined period of time. All of the following statements are true, except:_________.A: The government sets a price by looking at the firm's average costs and then adding a normal rate of profit.B: The firm can make high profits by producing a higher quantity than expected.C: The firm can make high profits by producing at lower costs.D: The government sets a price level for a few years.
Answer and Explanation:
1. A: Maybe. The FTC would scrutinize the merger and make a case-by-case decision
the ftc would historically make a case-by-case decision for HHI( Herfindahl-Hirschman Index ) between 1000 and 1800 but nowadays antitrust enforcement agencies dontvdeoend much on ratios such as HHI in measuring competition but would rather perform in depth analysis of each industry under study
2.industry competition
Antitrust regulators look out for the level of competition in an industry in allowing mergers and rely more on case-by-case analysis in making it's evaluations
3.True
price cap regulations are used by government to control prices based on inflation levels or price cap index .price cap regulations set a cap on the price that can be charged by businesses for a product. They are set for a defined period of time.
4.A: The government sets a price by looking at the firm's average costs and then adding a normal rate of profit.
Government doesn't consider costs and normal rate of profit to the firm in setting price ceiling or floor for products
A company determined that the budgeted cost of producing a product is $30 per unit. On June 1, there were 89000 units on hand, the sales department budgeted sales of 390000 units in June, and the company desires to have 200000 units on hand on June 30. The budgeted cost of goods sold for June would be
Answer:
COGS= $8,370,000
Explanation:
Giving the following information:
Unitary cost= $30
Beginning inventory= 89,000
Sales= 390,000
Ending inventory= 200,000
First, we need to calculate the number of units sold:
Units sold= 89,000 + 390,000 - 200,000
Units sold= 279,000
Now, the cost of goods sold:
COGS= 279,000*30= $8,370,000
The major components of a time series are all of the following EXCEPT: trend. cycles. random variations. seasonality. inflation.
Answer: Inflation
Explanation:
Time series data are refer to those taken over a period of years with a minimum of four years being satisfactory. The data shown will have variations that fall under four major components being;
Trend - Data that moves in a predictable fashion and so can be used to predict future behavior.Cycles - The variation here follows the business cycle or its own. Random Variables - Cannot be predicted. Seasonal - These follow a chronological pattern.Only Inflation does not fall here.
Explain some of the basic principles of cost management, such as profits, life cycle cost, tangible and intangible costs and benefits, direct and indirect costs, and Reserves.
Answer:
Profits - These refer to the revenues accrued from a project less the costs of the project.
Life Cycle Cost - Life Cycle Cost is a concept in Cost management where the cost of a project throughout it's entire life is assessed. Costs assessed therefore include; initial capital costs, maintenance costs and operating costs.
Tangible and Intangible Costs - When costs are tangible, quantifying them.is easy as the cost can be stated and directly attributable to a cost object eg, cost of a fixed asset. Intangible cost on the other hand is not easy to quantify and is not easily attributable. For instance, the experience that a Project Manager leaves with if they resign.
Tangible and Intangible Benefits - Like tangible costs, tangible benefits are easily quantifiable and noticeable such as trade discounts from buying in bulk. Intangible benefits on the other hand are not easily quantifiable. An example would be Employee motivation from a safer working Environment.
Direct and Indirect Costs - Direct costs are costs that can be easily traced to a cost object. In other words, the reason for the cost is known e.g labor cost for assembling a product. Indirect Costs are harder to trace to a cost object even though they are related to production. An example would be the Electricity used for production.
Reserves - Cost reserves are monies held for any emergency expenses that may come up. This way the company can deal with them speedily.
Portage Bay Enterprises has $1 million in excess cash, no debt, and is expected to have free cash flow of $11 million next year. Its FCF is then expected to grow at a rate of 5% per year forever. If Portage Bay's equity cost of capital is 10% and it has 4 million shares outstanding, what should be the price of Portage Bay stock?
Answer:
=$55.25
Explanation:
Value of Equity= FCF / (k - g)
value of equity=$11/(10%-5%)=$220 million
total value of the firm(all equity)=value of equity+cash
value of equity=$220 million+$1 million
share price value=value of total equity/shares outstanding
share price value=$221 million/4 million=$55.25
Alternatively:
Value of equity=$11/(1+10%)^1+$11*(1+5%)/(10%-5%)/(1+10%)^1=$220 million
On January 1, a company issued 5%, 15-year bonds with a face amount of $80 million for $59,249,660 to yield 8%. Interest is paid semiannually. What was the interest expense at the effective interest rate on the December 31 annual income statement
Answer:
$3,565,174.18
Explanation:
Firstly, we need to calculate discount on the bond
Discount = $80,000,000 - $59,249,660
= $20,750,340
Since interest is paid semi-annually,
= 15 × 2
= 30 periods
Finding the amortized discount per period, we have;
= $20,750,340 ÷ 30
= $691,678
Therefore, interest expense on June 31;
Interest expense = Interest paid + discount amortized per period
= $80,000,000 × 0.05 × 6/22 + $691,678
= $1,090,909.09 + $691,678
= $1,782,587.09
Interest expense on December 31;
= $80,000 × 0.05 × 6/12 + $691,678
= $1,090,909.09 + $691,678
=$1,782,587.09
Total expense on December 31 = Interest expense on June 30 + Interest expense on December 31
= $1,782,587.09 + $1,782,587.09
= $3,565,174.18
A company has net income of $925,000; its weighted-average common shares outstanding are 185,000. Its dividend per share is $0.70, its market price per share is $93, and its book value per share is $83.50. Its price-earnings ratio equals:
Answer:
$18.60
Explanation:
Calculation for the price-earnings ratio
Using this formula
Price-Earnings Ratio = Market Price per Share/ Earnings per share
The Earnings per share will be Net Income/(Weighted-Average Common Shares Outstanding)
Let plug in the formula
Price-Earnings Ratio = $93 / ($925,000 / 185,000)
Price-Earnings Ratio=$93/5
Price-Earnings Ratio=$18.60
Therefore the price-earnings ratio will be $18.60
A share of stock is now selling for $110. It will pay a dividend of $8 per share at the end of the year. Its beta is 1. What do investors expect the stock to sell for at the end of the year? Assume the risk-free rate is 4% and the expected rate of return on the market is 15%. (Round your answer to 2 decimal places.)
Expected selling price $
Answer:
P1 = 118.5474 rounded off to $118.55
Explanation:
To calculate the price of the stock at the end of the year or P1, we first need to determine the required rate of return on the stock and the growth rate in dividends.
The required rate of return can be found using the CAPM equation. The formula for required rate of return under CAPM is,
r = rRF + Beta * (rM - rRF)
Where,
rRF is the risk free raterM is the return on marketr = 0.04 + 1 * (0.15 - 0.04)
r = 0.15 or 15%
Now we assume that the stock is a constant growth stock which means that the growth in dividends is expected to be constant throughout. The price of such a stock is found using the constant growth model of DDM. The formula for price today under the constant growth model is,
P0 = D1 / (r - g)
Where,
P0 is price todayD1 is expected dividend for the next periodg is the growth rate in dividendsPlugging in the available variables, g is,
110 = 8 / (0.15 - g)
110* (0.15 - g) = 8
16.5 - 110g = 8
g = (8 - 16.5) / -110
g = 0.077272 or 7.7272% rounded off to 7.73%
So to calculate the price at the end of the year or P1, we will use D2.
P1 = 8 * (1+0.0773) / (0.15 - 0.0773)
P1 = 118.5474 rounded off to $118.55
Espinoza Company is a wholesale distributor that uses activity-based costing for all of its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity based costing system:
Overhead costs:
Wages and salaries 220,000
Other expenses 150,000
Total $510,000
Distribution of resource consumption:
Filling Orders Activity Cost Pools Customer Support Other Total
Wages and salaries 35% 55% 10% 100%
Other expenses 35% 50% 15% 100%
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The activity measures for the activity cost pools for the year are as follows:
Activity Cost Pool Activity
Filling orders 3,500 orders
Customer support 15 customers.
What would be the overall activity rate for the filling orders activity cost pool?
Answer:
Espinoza Company
Activity rate for the filling orders activity cost pool:
Overhead for filling orders divided by number of orders
= $130,500/3,500
= $37.29 per order
Explanation:
a) Data and Calculations:
Overhead costs:
Wages and salaries 220,000
Other expenses 150,000
Total $510,000
Distribution of resource consumption:
Filling Orders Activity Cost Pools
Filling Orders Customer Support Other Total
Wages and salaries 35% 55% 10% 100%
Other expenses 35% 50% 15% 100%
Filling orders 3,500 orders
Customer support 15 customers
Overhead Allocation:
Filling Orders Customer Other Total
Support
Wages and salaries $77,000 $121,000 $22,000 $220,000
Other expenses 53,500 75,000 22,500 150,000
Total $130,500 $196,000 $44,500 $370,000
Activity rate for filling orders = $130,500/3,500 = $37.29 per order
ABC or Activity Based Costing technique uses activity pools to accumulate and distribute overhead costs so that costs can be allocated based on the level of activity undertaken for each activity pool.
Espinoza Company: The Activity rate for the filling orders activity cost pool:
The Overhead for filling orders divided by the number of orders is
= $130,500/3,500
= $37.29 per order
Calculation of Costa) Data and also Calculations:
Overhead costs:
The Wages and salaries 220,000
Then Other expenses 150,000
The total is $510,000
Then Distribution of resource consumption:
After that Filling Orders Activity Cost Pools
Filling Orders Customer Support Other Total
Wages and salaries 35% 55% 10% 100%
Other expenses 35% 50% 15% 100%
Then Filling orders 3,500 orders
Then the Customer support is 15 customers
Overhead Allocation:
Filling Orders Customer Other Total
Support
Wages and salaries $77,000 $121,000 $22,000 $220,000
Other expenses 53,500 75,000 22,500 150,000
The Total $130,500 $196,000 $44,500 $370,000
Activity rate for replenishing orders = $130,500/3,500 = $37.29 per order
ABC or When The Activity Based Costing technique uses activity pools to accumulate and distribute overhead costs so that costs can be allocated based on the level of activity undertaken for each activity pool.
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When the Federal Reserve buys long term MBS and Treasury securities from banks and announces its intention to keep buying these assets in large quantities for a long time the effect on commercial banks is to increase the value of fixed income securities that are not sold and at the same time to lower the interest spread between new loans originated and the cost of financing these loans. True False
Answer:
True
Explanation:
Since, Federal reserve purchased long term MBS in order to pay the less market interest rate and this will cause a rise in the amount of income i.e fixed securities. Also, due to less market interest rate, the financing cost is less and at the same time interest spread is narrower as it provides more liquidity
Therefore the given statement is true
You own 150 shares of Western Feed Mills stock valued at $41.20 per share. What is the dividend yield if your annual dividend income is $372
Answer:
6.01%
Explanation:
Calculation for the dividend yield
Using this formula
Dividend yield=(Annual dividend income/Numbers of shares)/Amount per shares
Let plug in the formula
Dividend yield =($372/150 shares)/$41.20 per share
Dividend yield =$2.48/$41.20
Dividend yield =0.0601*100
Dividend yield =6.01%
Therefore Dividend yield will be 6.01%
Eakins Inc.'s common stock currently sells for $15.00 per share, the company expects to earn $2.75 per share during the current year, its expected payout ratio is 70%, and its expected constant growth rate is 6.00%. New stock can be sold to the public at the current price, but a flotation cost of 8% would be incurred. By how much would the cost of new stock exceed the cost of retained earnings
Answer:
1.12%
Explanation:
By how much would the cost of new stock exceed the cost of retained earnings = Cost of new equity - Cost of retained earnings
Cost of retained earnings = ((2.75 * 70%) / 15) + 6.00%
Cost of retained earnings = ((2.75 * 0.7) / 15) + 0.06
Cost of retained earnings = 0.1283 + 0.06
Cost of retained earnings =0.1883
Cost of retained earnings = 18.83%
Cost of new equity= ((2.75 * 70%) / (15 * (1 - 8%) ) + 6.00%
Cost of new equity= 19.95%
Hence, Cost of new equity - Cost of retained earnings
= 19.95% - 18.83%
= 1.12%
Braxton's Cleaning Company stock is selling for $33.25 per share based on a required return of 11.7 percent. What is the the next annual dividend if the growth rate in dividends is expected to be 4.5 percent indefinitely?
Answer:
So, the next annual dividend will be $2.394
Explanation:
The constant growth model of DDM is used to calculate the price of a stock today whose dividend growth rate is expected to be constant forever. The price of such a stock is calculated using the formula for price under the constant growth model of DDM,
P0 = D1 / (r - g)
Where,
P0 is price todayD1 is the next annual dividend that will be paid by the stockr is the required rate of return g is the growth rate in dividendsTo calculate the next annual dividend, we will input the available values for P0, r and g in the formula,
33.25 = D1 / (0.117 - 0.045)
33.25 * (0.072) = D1
2.394 = D1
So, the next annual dividend will be $2.394
Liability for contracts formed by an agent depends on how the principal is classified and on whether the actions of the agent were authorized or unauthorized.a. Trueb. False
Answer:
True.
Explanation:
An agency can be defined as a mutual relationship existing between two parties, wherein a principal authorizes the agent to act as the principal's representative or on his behalf (fiduciary role) in dealing with third parties.
Liability for contracts formed by an agent depends on how the principal is classified and on whether the actions of the agent were authorized or unauthorized. This simply means that, the principal would be held responsible for the losses, legal claims and damages incurred by the agent, whether or not the agent's actions were authorized or unauthorized by the principal.
Hence, a principal is liable for acts or contracts entered into by an agent when he or she gives an agent either actual authority (power of attorney) or apparent authority.
Investing $1,500,000 in TQM's Channel Support Systems initiative will at a minimum increase demand for your products 1.7% in this and in all future rounds. (Refer to the TQM Initiative worksheet in the CompXM Decisions menu.) Looking at the Round 0 Inquirer for Andrews, last year's sales were $163,290,917. Assuming similar sales next year, the 1.7% increase in demand will provide $2,775,946 of additional revenue. With the overall contribution margin of 34.1%, after direct costs this revenue will add $946,598 to the bottom line. For simplicity, assume that the demand increase and margins will remain at last year's levels. How long will it take to achieve payback on the initial $1,500,000 TQM investment, rounded to the nearest month
Answer:
Payback = 19 month
Explanation:
Firm has invested in TQM's Channel Support systems of $1,500,000, It will increase demand of product by 1.7%.
Last years sales revenue was $163,290,917, a 1.7% increase will mean the sales will be:
= $163,290,917 * (1+0.017)
= $163,290,917 * (1.017)
= $166,066,862.59
Thus increase in sales revenue is:
= $166,066,862.589 - $163,290,917
= $2,775,945.589
Now consider contribution margin. From Total Sales, direct variable costs are deducted to get total contribution. The Overall contribution margin is It is 34.1%.
So extra contribution due to 1.7% increase in sales is = $2,775,945.589 * 34.1%
= $946,597.45
Thus increase in contribution margin will also increase profit to the same extent as there is no addition in fixed cost due to this project. So firm will be able to recover $946,597.45 of initial investment of $1,500,000 in one year.
Pay back is the time required to recover this full initial investment. It ascertained by dividing $1,500,000 amount by the net addition in profit per year.
Payback = $1,500,000 / $946,597.45
Payback = 1.585 per year * 12 month
Payback = 19.02 month
Payback = 19 month approximately
