Answer:
Pet Place Supplies Inc.
Schedule of Cash from Sales for May, June, and July:
May June July
Cash collections:
60% month of sale $80,400 $93,000 $101,400
30% ffg month of sale 40,200 46,500
10% second month 13,400
Total cash collections $80,400 $133,200 $161,300
Explanation:
a) Data and Calculations:
May June July
Projected credit sales $134,000 $155,000 $169,000
Cash collections:
60% month of sale $80,400 $93,000 $101,400
30% ffg month of sale 40,200 46,500
10% second month 13,400
Total cash collections $80,400 $133,200 $161,300
Kaskin, Inc., stock has a beta of 1.2 and Quinn, Inc., stock has a beta of .6. Which of the following statements is most accurate?
a. The expected rate of return will be higher for the stock of Kaskin, Inc., than that of Quinn, Inc.
b. The stock of Kaskin, Inc., has more total risk than Quinn, Inc.
c. The stock of Quinn, Inc., has more systematic risk than that of Kaskin, Inc.
Answer: a. The expected rate of return will be higher for the stock of Kaskin, Inc., than that of Quinn, Inc.
Explanation:
The beta of a stock measures its systematic risk which is its risk in relation to the market. With a higher systematic risk, there would be a higher expected return to compensate for this risk.
The beta is used to calculate the expected return in the CAPM formula:
Expected return = Risk free rate + Beta * Market premium
Note how the higher the beta, the higher the expected return based on the above formula.
Paul, the Director of Recruitment at an insurance company, finds that the company has a disparate impact on the proportion of Hispanic employees compared to the proportion of Hispanics in the labor market. Which of the following steps should Paul take to solve the problem most efficiently?
a) He should lower the job specifications for Hispanic applicants.
b) He should continue using the current recruiting practices because only organizations with affirmative action plans are required to meet EEO guidelines.
c) He should start advertising for job openings on the local Spanish radio station.
d) He should freeze the hiring process until qualified Hispanics apply for vacant positions
Answer: c) He should start advertising for job openings on the local Spanish radio station.
Explanation:
This realization by Paul should make him want to hire more Hispanics into the company and the best way to do so would be to advertise it in such a way that Hispanics have a better chance of hearing about job openings.
Advertising on Spanish radio would ensure that Hispanics hear the advertisements because they are the main ethnicity that speaks Spanish. This will give them an edge in learning about job openings and enable Paul to hire more Hispanics.
Baxter Co. wants to issue new 20-year bonds for some much-needed expansion projects. The company currently has 5.6 percent coupon bonds on the market that sell for $1,094.30,page 160 make semiannual payments, and mature in 20 years. What coupon rate should the company set on its new bonds if it wants them to sell at par
Answer:
The coupon rate the company should set on its new bonds if it wants them to sell at par is 4.86%.
Explanation:
The coupon rate can be determined by calculating the yield to maturity (YTM) using the following RATE function in Excel:
YTM = RATE(nper,pmt,-pv,fv) * Number of semiannuals in a year = RATE(nper,pmt,-pv,fv)*2 .............(1)
Where;
YTM = yield to maturity = ?
nper = number of periods = number of years to maturity * number of semiannuals in a year = 20 * 2 = 40
pmt = semiannual coupon payment = face value * (annual coupon rate / number of semiannuals in a year) = 1000 * (5.6% / 2) = 28
pv = present value = current bond price = $1,094.30 = 1094.30
fv = face value of the bond = 1000
Substituting the values into equation (1), we have:
YTM = RATE(40,28,-1094.30,1000)*2
Inputting =RATE(40,28,-1094.30,1000)*2 into excel (Note: as done in the attached excel file), we have
YTM = 4.86%
Therefore, the coupon rate the company should set on its new bonds if it wants them to sell at par is 4.86%.
The quantity demanded of cereal increased from 1,350 to 1,700 when the price of milk decreased from $2.05 to $1.65. What is the estimated cross-price elasticity of demand for cereal
Answer:
-1.33
Explanation:
Cross price elasticity of demand measures the responsiveness of quantity demanded of good A to changes in price of good B.
If cross price elasticity of demand is positive, it means that the goods are -substitute goods.
Substitute goods are goods that can be used in place of another good.
If the cross-price elasticity is negative, it means that the goods are complementary goods.
Complementary goods are goods that are consumed together
Cross Price elasticity of demand = percentage change in quantity demanded of good A / percentage change in price of good B
percentage change in quantity demanded of good = (1700/ 1350) - 1 = 0.259
percentage change in price = (1.65 / 2.05) - 1 = -0.195
0.259 / -0.195 = -1.33
The following data are available for product no. CK74, manufactured and sold by Ruby Corporation:
Maximum capacity with present facilities 11,000 units
Total fixed cost (per period) $ 851,400
Variable cost per unit $ 120.00
Sales price per unit $ 186.00
Required:
The number of units of CK74 that Ruby must sell to break- even is:________.
a. 12,900.
b. 4,577.
c. 7,095.
d. 6,050.
Answer:
Break-even point in units= 12,900
Explanation:
Giving the following information:
Total fixed cost (per period) $ 851,400
Variable cost per unit $ 120.00
Sales price per unit $ 186.00
To calculate the break-even point, we need to use the following formula:
Break-even point in units= fixed costs/ contribution margin per unit
Break-even point in units= 851,400 / (186 - 120)
Break-even point in units= 12,900
Answer: 12900
Explanation:
From the information given, we'll first calculate the contribution per unit which will be:
= Selling price per unit - variable cost per unit
= $186 - $120
= $ 66
Then, the break even sales in units will be: = Fixed cost/Contribution per unit
= 851,400 / 66
= 12,900
Therefore, the breakeven is 12900
An overall management objective is to:
a. minimize the number of sales transactions
b. minimize the total amount of accounts receivable
c. minimize the time from the beginning of the selling process to the end of cash collections
d. maximize the amount of float
Answer:
c. minimize the time from the beginning of the selling process to the end of cash collections
Explanation:
Management does not aim to minimize sales transactions or total amount of accounts receivable. Neither does it aim, to hold excess cash through cash float. Management aims to minimize the time from the beginning of the selling process to the end of cash collections so as to be liquid and avoid bad debts.
. A new bond issue is being issued at a market price of $922 with a 11.4% interest rate and will be due in 16 years. If the firm has a 32 percent tax rate, calculate the after-tax cost of debt.
Answer:
8.53%
Explanation:
Par value = $1000
Current bond = $922
Coupon = 1000*11.4% = $114
Years = 16
Pretax cost of debt = YTM(Nper, PMT, -PV, FV)
Pretax cost of debt = YTM(16, 114, -922, 1000)
Pretax cost of debt = 0.1255
Pretax cost of debt = 12.55%
After tax cost of debt = Pretax cost of debt * (1 - Tax rate)
After tax cost of debt = 12.55% * (1 - 32%)
After tax cost of debt = 0.1255 * 0.68
After tax cost of debt = 0.08534
After tax cost of debt = 8.53%
Redbud Company uses a certain part in its manufacturing process that it buys from an outside supplier for $44 per part plus another $6 for shipping and other purchasing-related costs. The company will need 10,000 of these parts in the next year and is considering making the part internally. After performing a capacity analysis, Redbud determined that it has sufficient unused capacity to manufacture the 10,000 parts but would need to hire a manager at an annual salary of $40,000 to oversee this production activity. Estimated production costs are determined to be:
Direct material $ 28
Direct labor 12
Variable overhead 6
Fixed overhead (includes manager at $4 per unit) 10
Total unit cost $ 56
A) Identify the relevant costs to make this part internally. (Select all that apply)
A) Historical cost
B) Direct labor
C) Direct material
D) Variable overhead
E) Fixed overhead
F) New manager's salary
B) Should Redbud produce the part or continue to buy it from the outside supplier? (Select the right answer)
A) Redbud should produce the part.
B) Redbud is indifferent about the decision.
C) Redbud should continue to buy it from the outside supplier.
C.What are the other factors that Redbud Company should consider in deciding to make the part internally? (Select all that apply.)
A) Total sales quantity.
B) The potential for improved control over the availability of the parts by having it when needed and the potential for improved quality of the parts.
C) Since Redbud Company is considering the use of currently available capacity, it should evaluate any relevant opportunity costs of using this capacity for more profitable activities.
Answer:
Redbud Company
A) Relevant costs:
B) Direct labor
C) Direct material
D) Variable overhead
F) New manager's salary
B) B) Redbud is indifferent about the decision.
C. Other factors to consider:
B) The potential for improved control over the availability of the parts by having it when needed and the potential for improved quality of the parts.
C) Since Redbud Company is considering the use of currently available capacity, it should evaluate any relevant opportunity costs of using this capacity for more profitable activities.
Explanation:
a) Data and Calculations:
Cost of buying parts from outside supplier = $50 per part
Units required in the next year = 10,000
Costs required to produce internally:
Supervisor's salaries $40,000
Direct material $ 28
Direct labor 12
Variable overhead 6
Fixed overhead (includes
manager at $4 per unit) 10
Total unit cost $ 56
Relevant costs:
Direct material $ 28
Direct labor 12
Variable overhead 6
Fixed overhead (includes
manager at $4 per unit) 4
Total unit cost $50
Identify every authority cited in the opinion (note that some sources may be cited more than once) and then do the following:
List all primary mandatory authority.
List all primary persuasive authority.
List all secondary persuasive authority.
Answer:
Primary Authorities :
Statues, regulations, jurisdiction, trial court, cases.
Primary Persuasive Authority :
Constitution, legislation.
Secondary Persuasive Authority :
Law review articles, trial courts.
Explanation:
Primary persuasive authority means law. Following a law is mandatory and statute provides the regulation which are required to be followed or else it will be regarded as crime. Secondary persuasive authority is not law but it leads to the law and helps explain the terms and standards of the law.
Given that annual deposit rates for Dollars and Euros are 8% and 6% respectively for the next 5 years. If the current spot rate of the Euro is $1.1845, obtain the implied rate for the Euro five years from now if International Fisher Equation (IFE) holds exactly.
a. $1.5415
b. $1.2742
c. $1.4284
d. $1.3750
e. None of the above.
Answer:
is the a
Explanation:
A disadvantage of the line structure is that it
Answer:
Disadvantages of a Line Organization
A line organization can suffer from a lack of specialization. This is because each department manager is concerned only with the activities of his own department. Therefore, employees are skilled in tasks pertaining to their departments alone.
These organizations can overburden a keyman or a few key-men to the extent of their breaking point. Also, in the absence of a staff aid, if a strong man seizes the organization, he can run it arbitrarily. Such arbitrary power can lead to a considerable damage to the organization.
Such organizations usually suffer from a lack of expert advice. If the line manager has trouble making a decision, there is no expert staff that he can turn to.
A line organization is usually rigid and inflexible. In fact, such organizations maintain discipline so rigorously that they can rarely change.
These organizations are based on the autocratic system of management.
The division of work is not based on any scientific plan but on the whims of the manager.
It might stop progress and prevent the unit to work effectively.
Such organizations might also encourage nepotism or favoritism based on relationship or friendship.
I hope this is helpful information.
The country of Arcadia has clusters of associated businesses and suppliers which include individual dye and textile manufacturing firms, chemical plants, and leather manufacturing companies, most of which are well reputed and internationally competitive. This has made Arcadia a major force in the global economic market. Which of the following factors of Michael Porter's diamond model is responsible for giving Arcadia an edge over its competitors?
A) Related and supporting industries
B) Demand conditions
C) Company strategy, structure and rivalry
D) Factor conditions
Answer:
A) Related and supporting industries
Explanation:
Competitive advantage is the edge an entity has over others that results in higher profit margins.
According to Michael Porter there are 4 factors that gives national advantage in the international environment:
- firm strategy' structure and rivalry
- related supporting industries
- demand conditions
- factor conditions.
Related supporting industries refers to the presence of supporting industries that helps a company to thrive.
Forms depend on others for high productivity. When the presence of other supporting companies is adequate production will be maximised.
This is the case in the given instance where the country of Arcadia has clusters of associated businesses and suppliers which include individual dye and textile manufacturing firms, chemical plants, and leather manufacturing companies, most of which are well reputed and internationally competitive. This has made Arcadia a major force in the global economic market
Suppose the standard deviation for the Martin Products Distribution is 4.0. If an investor is hoping for a return of at least 13%, the chances that investing in Martin Products will return at least 13%
a. are much less than in investing in U.S.
b. are the same as investing in U.S.
c. are greater than in investing in U.S.
d. cannot be determined
Answer: C. are greater than in investing in U.S.
Explanation:
Based on more information that was gotten online regarding the question, the distribution of Martin product is more than that of the US Water.
Therefore, in a case whereby an investor is hoping for a return of at least 13%, the chances that investing in Martin Products will return at least 13% will then be greater than in investing in U.S.
With so many workers habituated to using mobile devices for so much of their work, should company management develop apps for influencing subordinates? Explain your reasoning.
Answer:
This is not a yes or no answer.
The action of leadership/management would depend on their assessment of the impact of the habit on the results being delivered by the workers.
The questions to ask are:
Does the use of the mobile phone for their work reduce or increase productivity?Does what are the advantages? are there disadvantages?What would developing an app achieve for management?Explanation:
In trying to influence workers who are already habituated or accustomed to a particular way of doing things, it is best practice to study the culture and establish what its advantages are. This can then be compared to its demerits. If the demerits clearly and consistently present risks that make of no relevance the advantages, the leader(s) must move to correct such a risk.
So assuming that using mobile phones makes ICT risks (such as loss of company data, loss of company data, risk of unauthorised access etc) even more pronounced, whether or not the app is the best solution will depend on the total cost of that solution to the company weighed against other options.
Other options could simply be
- looking for an already existing app
- banning the using of mobile phone for office work using etc
- re-establishing the use of laptops as the preferred work tool
In any of the above scenarios, the leadership will succeed in influencing its workers positively if it:
plays its part well as a cultural shift role modelbecomes an arbiter of the policies modifying changes affecting work styleencourages the new workstyle by rewarding those that embrace it openly manage change by ensuring that there is a training platform that helps ease the transition into the new work style.Cheers
Venus Inc., a producer of high-end computer software, provides merchandising aids to its distributors in the form of interactive videos on the application of the software. It offers distribution allowances to resellers for putting up special counter displays of its exclusive range of products. It aims to accelerate the sales of its newly launched product through these measures. In this scenario, Venus Inc. is employing a ________.
Answer: push marketing strategy
Explanation:
A Push Marketing Strategy can sometimes be referred to as the push promotional strategy, and this occurs when businesses take their products to the customers.
In this strategy, different marketing techniques are used by the company to push their products to the consumers. This can be seen in the question given as Venus Inc. is utilizing different methods in order to accelerate the sale of its new product.
The free trade pact known as Mercosur has been successful at creating a full customs union between Brazil and Argentina. True False
Answer:
The given statement is "True".
Explanation:
An agreement for reducing obstacles to exporters and importers amongst two or even more organizations is determined as Free trade pact.Commodities could be purchased as well as transferred crossing international boundaries mostly under free markets having minimal or no governmental taxes restrictions or subsidies to prevent interchange.
Spirit Company's sales budget shows quarterly sales for the next year as follows: Unit sales Quarter 1.......... 10,000 units Quarter 2.......... 8,000 units Quarter 3.......... 12,000 units Quarter 4.......... 14,000 units Company policy is to have a finished goods inventory at the end of each quarter equal to 20% of the next quarter's sales. Budgeted production for the second quarter of the next year would be:
Answer:
8,800 units
Explanation:
Calculation to determine what Budgeted production for the second quarter of the next year would be:
Second Quarter - Sales 8,000
Less: Beginning Finished Goods
(8,000 x 20%) (1,600)
Add: Desired Ending Finished Goods (12,000 x 20% ) 2,400
Budgeted Production 8,800 units
(8,000-1,600+2,400)
Therefore Budgeted production for the second quarter of the next year would be:8,800 units
Suppose you invest equal amounts in a risky asset with an expected return of 16% and a standard deviation of returns of 18% and a risk-free asset with an interest rate of 4%. Calculate the standard deviation of the returns on the resulting portfolio.
Answer:
The answer is "[tex]10\%[/tex]".
Explanation:
You are equivalent investors in 16 percent of a portfolio and 4 percent of a risk-free asset. A weighted mean of these two will become the predicted return.
[tex]= \text{(Portfolio weight} \times \text{Return portfolio)} + \text{(Portfolio weight}\times \text{risk-free)}\\\\[/tex]
[tex]= (0.5 \times 16\%) + (0.5 \times 4\%)\\\\= (0.5 \times \frac{16}{100}) + (0.5 \times \frac{4}{100})\\\\= \frac{8}{100} + \frac{2}{100}\\\\= \frac{8+2}{100}\\\\= \frac{10}{100}\\\\= \frac{1}{10}\\\\= \frac{1}{10} \times 100\\\\=10\%[/tex]
Marlow Company purchased a point of sale system on January 1 for $6,500. This system has a useful life of 5 years and a salvage value of $950. What would be the depreciation expense for the second year of its useful life using the double-declining-balance method
Answer:
$1,560
Explanation:
The computation of the depreciation expense for the second year of its useful life is shown below:
First depreciation rate is
= 1 ÷ 5 ×2
= 40%
Now the depreciation expense for one year is
= 40% of $6,500
= $2,600
Now the depreciation expense for the second year is
= ($6,500 - $2,600) ×40%
= $1,560
Lot’s Wife Manufacturing produces rear-view video systems for buses. The firm’s cost function is TC = 2,000 + 120 Q. If the systems sell for $145, what is the break-even rate of production?
Answer:
80
Explanation:
in this question we have the cost function to be
TC = 2,000 + 120 Q.
breakeven point is at total cost = total revenue
total revenue = p*q
= 145 *Q= 145Q
tc = total cost = 145Q
145Q = 2000 + 120Q
We collect like terms from this equation above
145Q-120Q= 2000
25Q = 2000
divide through by 25
Q = 2000/25
q = 80
the breakeven rate of production is 80 quantities.
Sweet Treats common stock is currently priced at $17.15 a share. The company just paid $1.22 per share as its annual dividend. The dividends have been increasing by 2.4 percent annually and are expected to continue doing the same. What is this firm's cost of equity
Answer:
9.68 percent
Explanation:
Calculation to determine the firm's cost of equity
Using this formula
Cost of equity=[(Annual dividend×Increase in dividends×/Current price of common stock]+Dividends
Let plug in the formula
Cost of equity=[($1.22 × 1.024)/$17.15] + 0.024
Cost of equity=($1.24928/$17.15)+0.024
Cost of equity=0.0728+0.024
Cost of equity=0.0968*100
Cost of equity=9.68 percent
Therefore the firm's cost of equity is 9.68 percent
Bantam company calculated its net income to be $38,775 based on the unadjusted trial balance. The following adjusting entries were then made for:
Salaries and wages owed but not yet paid of $395.
Interest earned but not received from investments of $375.
Prepaid insurance premiums amounting to $275 have expired.
Unearned revenue in the amount of $805 has now been earned.
Required:
Determine the amount of net income (loss) that will be reported after the adjustments are recorded.
Answer:
the amount of net income or loss is $39,285
Explanation:
The computation of the amount of net income or loss is shown below:
= Net income + interest earned + unearned revenue - salaries & wages - prepaid insurance
= $38,775 + $375 + $805 - $395 - $275
= $39,285
hence, the amount of net income or loss is $39,285
The same should be considered and relevant
If a firm has sales of $100, total expenses (including interest and taxes) of $50, has a stock that is selling at $50 per share and has 10 shares of stock outstanding, then the firm has a P/E ratio of:
Answer: 10
Explanation:
P/E Ratio = Price per share/Earnings per share
Earnings per share:
= (Sales - expenses) / number of shares outstanding
= (100 - 50) / 10
= $5.00
P/E Ratio is therefore:
= 50 / 5
= 10
Your client is employed by a large multinational corporation headquarteredin your city. She worked for the company in her native country for five years before being assigned to a U.S.-based position last year. she knows that her employer arranged for a visa for her, but he is unsure about what type of visa and doesn't have any of her paperwork. Your client is likely:__________A) an undocumented immigrantB) a foreign nationalC) a naturalized citizenD) a lawful permanent resident
Answer:
The correct options A) an undocumented immigrant.
Explanation:
Undocumented immigrants are foreign nationals who are in the United States without legal documentation.
These immigrants either entered the US without being screened as required by immigration processes, or they entered the country on a temporary visa and stayed over the visa's expiration date, rendering the visa invalid.
This implies that your client is likely an undocumented immigrant. Therefore, the correct options A) an undocumented immigrant.
Neptune Company produces toys and other items for use in beach and resort areas. A small, inflatable toy has come onto the market that the company is anxious to produce and sell. The new toy will sell for $3.30 per unit. Enough capacity exists in the company’s plant to produce 30,200 units of the toy each month. Variable expenses to manufacture and sell one unit would be $2.08, and fixed expenses associated with the toy would total $54,766 per month. The company's Marketing Department predicts that demand for the new toy will exceed the 30,200 units that the company is able to produce. Additional manufacturing space can be rented from another company at a fixed expense of $2,738 per month. Variable expenses in the rented facility would total $2.31 per unit, due to somewhat less efficient operations than in the main plant.
Required:
1. What is the monthly break-even point for the new toy in unit sales and dollar sales?
2. How many units must be sold each month to attain a target profit of $12,474 per month?
3. If the sales manager receives a bonus of 20 cents for each unit sold in excess of the break-even point, how many units must be sold each month to attain a target profit that equals a 29% return on the monthly investment in fixed expenses?
Answer:
1) Break-even point in unit sales: 51,680 units
Break-even point in dollar sales: $144,704
2) The units that must be sold each month to attain a target profit of $12,474 per month are:
= 63,669 units
3) The units that must be sold each month to attain a target profit that equals a 29% return on the monthly investment in fixed expenses are:
= 108,574 units
Explanation:
1. On the first 30,200 units
Sales price $3.30
Variable expenses $2.08
Contribution margin $1.22
Above 30,200 units
Sales price $3.30
Variable expenses $2.31
Contribution margin $0.99
Fixed cost for initial 30,200 units = $54,766
Less: Contribution Margin (30,200 units * $1.22) + $36,844
Remaining uncovered cost = $17,922 ($54,766 - $36,844)
Monthly rental for additional space = $2,738
Total fixed costs covered by remaining sales = $20,660 ($17,922 + $2,738)
Required units = $20,660 / 0.99 = 20,869 units
Breakeven units = 30,200 + 20,869= 51,069 units
51,069 * $3.3 = $168,528
2)
Working: $12,474 / 0.99 = 12,600 units
Thus total units = 51,069 + 12,600 = 63,669
3)
Working: Desired monthly expenses: $54,766 + $2,738 = 57,504
57,504 * 20% = 11,501
Unit contribution margin: 0.99 - 0.20 = 0.79
Contribution margin = Target profit / Unit contribution margin = 11,501 / 0.20 = 57,505 units
51,069 units + 57,505 units = 108,574 units
If a company reports a net loss, it Group of answer choices may still have a net increase in cash. will not be able to pay cash dividends. will not be able to get a loan. will not be able to make capital expenditures.
Answer:
may still have a net increase in cash
Explanation:
In the case when the company recognized the net loss so it might be the condition that there is an increase in the cash balance as in the case as the closing balance should be more than the beginning balance of cash
So as per the given question, the above should be the answer and the same is relevant
In most situations, asset values do not equal the amount of money that could be realized if the assets were sold.
a. True
b. False
Answer:
True
Explanation:
The answer to this question is true. The recording of assets is usually done at cost. This is equivalent to the value that was exchanged when the asset was sold. In a country like the United States for example, if an asset such as a land or machine gets to appreciate in value after a period of time, it is not usually revalued. Therefore the answer to this question is true.
Corporations differ from partnerships and other forms of business association in two ways. One of these is that:________.
a. they are regulated by the Federal Trade Commission.
b. they are formed simply by an agreement entered into among their members.
c. they must be publicly registered or in some way officially acknowledged by the law.
d. their shareholders are entitled to their share of the company's profits as soon as they are ascertained or determined.
Answer: c. they must be publicly registered or in some way officially acknowledged by the law.
Explanation:
Corporations tend to have many shareholders who would get hurt if the company fails and for this reason they are regulated by the law. They must be publicly registered to allow people to purchase and sell shares and they must have the official acknowledgement of the law.
The formation of a corporation can be complicated and require a relatively high number of legal processes and corporations are not regulated by the Federal Trade Commission.
Also, even though shareholders are technically entitled to the company's profits, they don't get to collect it immediately because the company needs money to function and grow.
The Rosa model of Mohave Corp. is currently manufactured as a very plain umbrella with no decoration. The company is considering changing this product to a much more decorative model by adding a silk-screened design and embellishments. A summary of the expected costs and revenues for Mohave’s two options follows:
Rosa Umbrella Decorated Umbrella
Estimated demand 10,000 units 10,000 units
Estimated sales price $ 8.00 $ 19.00
Estimated manufacturing cost per unit
Direct materials $ 2.50 $ 5.50
Direct labor 1.50 4.00
Variable manufacturing overhead 0.50 2.50
Fixed manufacturing overhead 2.00 2.00
Unit manufacturing cost $ 6.50 $ 14.00
Additional development cost $ 10,000
Required:
1. Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations.
Rosa umbrella Decorated Umbrella Incremenral
sales revenue
variable cost
contribution margin
additional development cost
differential profit
2. Should Mohave add decorations to the Rosa umbrella?
Yes
No
3-a. Suppose that the higher price of the decorated umbrella is expected to reduce estimated demand for this product to 8,000 units. Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations.
Rosa Umbrella Decorated Umbrella Incremental
sales revenue
variable cost
contribution marginal
additional development cost
differential profit
3-b. Should Mohave add decorations to the Rosa umbrella?
Yes
No
Solution :
1. Incremental analysis when the demand for the decorated umbrella is 10,000 units.
[tex]\text{Particulars}[/tex] [tex]\text{Rosa umbrella}[/tex] [tex]\text{Decorated umbrella}[/tex] [tex]\text{Incremental}[/tex]
[tex]\text{Sales revenue}[/tex] $80000 $190000 $110000
[tex]\text{Less: Variable cost}[/tex] $ 45000 $120000 $75000
Contribution $35000 $70000 $35000
[tex]\text{Less: Additional}[/tex] --- $10000 $10000
development cost.
[tex]\text{Differential profit}[/tex] $35000 $60000 $25000
The company earns an additional profit of [tex]\$25,000[/tex] if it decorates and sells the Rosa umbrella.
2. The company, Mohave should add the decorations to the Rosa umbrella as this would increase the net revenues of the company by an amount of $25,000.
3.a. The demand for he decorated umbrella will fall to 8,000 units due to the higher price. If the company does not make any changes to the Rosa umbrella, it could sell 10,000 units.
The incremental profit or loss is :
Incremental analysis when the demand for the Rosa umbrella is 10,000 units and for the decorated umbrella is 8,000 units is given below:
[tex]\text{Particulars}[/tex] [tex]\text{Rosa umbrella}[/tex] [tex]\text{Decorated umbrella}[/tex] [tex]\text{Incremental}[/tex]
[tex]\text{Sales revenue}[/tex] $80,000 $152,000 $72,000
[tex]\text{Less: Variable cost}[/tex] $45,000 $96,000 $51,000
Contribution $35,000 $56,000 $21,000
[tex]\text{Less: Additional}[/tex] ---- $10,000 $10,000
development cost.
[tex]\text{Differential profit}[/tex] $35,000 $46,000 $11,000
The incremental profits are : $11,000.
3.b. The company should decorate and sell 8000 units of the decorated umbrellas as the increase in the net profit is $11,000.
I am buying a firm with an expected perpetual cash flow of $1,000 but am unsure of its risk. If I think the beta of the firm is 0, when the beta is really 1, how much more will I offer for the firm than it is truly worth? Assume the risk-free rate is 4% and the expected rate of return on the market is 10%. (Input the amount as a positive value.)
Answer:
$15,000
Explanation:
Value of a perpetuality = cash flow / r
According to the capital asset price model: Expected rate of return = risk free + beta x (market rate of return - risk free rate of return)
4 + 0 (10 - 4) = 4
1,000/ 0.04 = 25,000
4 + 1 (10 - 4) = 10
1000 / 0.1 = 10,000
25,000 - 10,000 = 15,000
