Answer:
8 million
Explanation:
I solved the question a short while ago
Module 4
Fundamentals of Finance
oneycutt Co. is comparing two different capital structures. Plan I would result in 39,000 shares of stock and $108,000 in debt. Plan II would result in 33,000 shares of stock and $324,000 in debt. The interest rate on the debt is 7 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $160,000. The all-equity plan would result in 42,000 shares of stock outstanding. What is the EPS for each of these plans
Answer:
All equity plan:
EPS = $160,000 / 42,000 = $3.81
Plan I:
EPS = [$160,000 - ($108,000 x 7%)] / 39,000 = $152,440 / 39,000 = $3.91
Plan II:
EPS = [$160,000 - ($324,000 x 7%)] / 33,000 = $137,320 / 33,000 = $4.16
Plan II is better since the resulting EPS is higher than the other alternatives.
A foreign branch bank operates like a local bank, but legally Group of answer choices a branch bank is subject to only the banking regulations of its home country and not the country in which it operates. it is a part of the parent bank. a branch bank is subject to both the banking regulations of its home country and the country in which it operates. it is a part of the parent bank, and a branch bank is subject to both the banking regulations of its home country and the country in which it operates.
Answer:
Foreign branch
This is usually refered to as legal and operational section (part)of the parent bank. It is said that creditors of the branch have full legal rights on the bank's assets in all and also creditors of the parent bank have hold/claims on its branches' assets.
A foreign branch bank operates like a local bank, but is legally part of the the parent.
A branch bank is subject to both the banking regulations of home country and the country in which it operates (foreign country)
Explanation:
Foreign Branches
A foreign branch bank is a branch of a bank in other country. It usually operates like a local bank even though they are a section or part of the the parent legally. Thehy abide by the rules and regulations of the banking regulations of home country and also that of foreign country which their operating is based (branched)
They are commonly known to give a wide and broad range of services than a representative office. Branch Banks are used by U.S. banks to expand overseas.
TB MC Qu. 08-54 Identify the situation below that will... Identify the situation below that will result in a favorable variance. Multiple Choice Actual revenue is higher than budgeted revenue. Actual revenue is lower than budgeted revenue. Actual income is lower than expected income. Actual costs are higher than budgeted costs. Actual expenses are higher than budgeted expenses.
Answer:
Actual revenue is higher than budgeted revenue
Explanation:
Which of the following best describes the type of loss covered by the Spoilage Damage insuring agreement of the ISO Equipment Breakdown Protection Coverage Form? A. The spoilage of perishable goods resulting from breakdown of covered equipment. B. Costs to replace food labels resulting from breakdown of refrigeration equipment.
Answer:
A. The spoilage of perishable goods resulting from breakdown of covered equipment.
Explanation:
The ISO Equipment Breakdown Protection Coverage is used to compensate for losses that occur as a result of equipment breakdown. The cost covered by this type of insurance includes cost of repair of the equipment that failed along with the replacement not any property damaged as a result of equipment failure.
So when perishable goods get damaged because of breakdown of covered equipment, the ISO Equipment Breakdown Protection Coverage will cover for the loss
Foods Galore is a major distributor to restaurants and other institutional food users. Foods Galore buys cereal from a manufacturer for $20.00 per case. Annual demand for cereal is 200,000 cases, and the company believes that the demand is constant at 800 cases per day for each of the 250 days per year that it is open for business. Average lead time from the supplier for replenishment orders is eight days, and the company believes that it is also constant. The purchasing agent at Foods Galore believes that annual inventory carrying cost is 10 percent and that it costs $40.00 to place an order.
How many cases of cereal should Foods Galore order each time it places an order? What is the total annual inventory cost if you order based on your Economic Order Quantity? (Sum of annual product purchasing cost, holding cost, and ordering cost). What is the total annual inventory cost if Foods Galore orders 10,000 each order at $18 per case? (Sum of annual product purchasing cost, holding cost, and ordering cost)
Answer:
The appropriate solution is:
(a) 2828 cases each time
(b) $4005656.85
(c) $3609800
Explanation:
The given values are:
Annual demand,
D = 200,000 cases
Per case cost,
C = $20
Carrying host,
H = [tex]10 \ percent\times 20[/tex]
= $[tex]2[/tex]
Ordering cost,
S = $40
(a)
The economic order quantity will be:
⇒ [tex]Q^*=\sqrt{(\frac{2DS}{H} )}[/tex]
On substituting the values, we get
[tex]=\sqrt{[\frac{(2\times 200000\times 40)}{2} ]}[/tex]
[tex]=\sqrt{\frac{16000000}{2} }[/tex]
[tex]=2828[/tex]
(b)
According to the question,
The annual ordering cost will be:
= [tex](\frac{D}{Q^*}) S[/tex]
= [tex](\frac{200000}{2828}) 40[/tex]
= [tex]2828.85[/tex] ($)
The annual carrying cost will be:
= [tex](\frac{Q^*}{2})H[/tex]
= [tex](\frac{2828}{2} )2[/tex]
= [tex]2828[/tex] ($)
The annual purchase cost will be:
= [tex]D\times C[/tex]
= [tex]200000\times 20[/tex]
= [tex]4000000[/tex] ($)
Now,
The total inventory cost will be:
= [tex]2828.85+2828+4000000[/tex]
= [tex]4005656.85[/tex] ($)
(c)
According to the question,
Order quantity,
Q = 10000 cases
Per case cost,
C = $18
Carrying cost,
H = [tex]10 \ percent\times 18[/tex]
= [tex]1.8[/tex]
The annual ordering cost will be:
= [tex](\frac{D}{Q} )S[/tex]
= [tex](\frac{200000}{10000} )40[/tex]
= [tex]800[/tex] ($)
The annual carrying cost will be:
= [tex](\frac{Q}{2} )H[/tex]
= [tex](\frac{10000}{2} )1.8[/tex]
= [tex]9000[/tex] ($)
The annual purchase cost will be:
= [tex]D\times C[/tex]
= [tex]200000\times 18[/tex]
= [tex]3600000[/tex]
Now,
The total cost of inventory will be:
= [tex]800+9000+3600000[/tex]
= [tex]3609800[/tex] ($)
g Earnings per share Financial statement data for the years 20Y5 and 20Y6 for Black Bull Inc. follow: 20Y5 20Y6 Net income $1,687,000 $2,632,000 Preferred dividends $40,000 $40,000 Average number of common shares outstanding 90,000 shares 120,000 shares a. Determine the earnings per share for 20Y5 and 20Y6. Round to two decimal places. 20Y5 20Y6 Earnings per Share $fill in the blank 1 $fill in the blank 2 b. Is the change in the earnings per share from 20Y5 to 20Y6 favorable or unfavorable
Answer:
a) EPS
2005 Earnings per share=$18.3
2005 Earnings per share=$21.6
b) EPS Variance = $3.3 favorable
Explanation:
Earnings per share(EPS) is the total earnings attributable to ordinary shareholders divided by the number of units of common stock
Earnings attributable to ordinary shareholders= Net income after tax - preference dividend
Earnings per share = (Net income after tax - preference dividend)/Number of shares
2005 Earnings per share = $1,687,000- $40,000/90,000 shares=$18.3
2006 Earnings per share=($2,632,000- $40,000)/120,000 shares=$21.6
2005 Earnings per share=$18.3
2006 Earnings per share=$21.6
EPS Variance
Comparing the EPS the Earning per share in 2006 is higher than that of 2005. Hence, the variance = 21.6-18.3= $3.3 favorable
EPS Variance = $3.3 favorable
Which is NOT a reason companies integrate horizontally?
A To expand internationally.
B Tobe in control of the resources used in the production process.
C To expand brand equity across new product lines.
D To increase production capacity.
Snowy Mountain Financial Advisors is a network of branches providing investing and financial advising services. It discloses that it uses a balanced scorecard with the following six performance measures.
Required:
Link the measures to the perspective number(s) of the balanced scorecard.
Perspective
1. Financial
2. Customer
3. Learning and growth
4. Internal business processed
Procedure Measure Prespective number
Market share
Regulatory compliance
New cutomer refresh from existing customer
Order errors
Brach profit
Answer:
Financial : market share and Branch profit Customer : New customer referrals from existing customer Learning and Growth : Not available on the score card Internal business processed : Regulatory compliance, Order errorsExplanation:
Linking the measures to the perspective number(s) of the balanced scorecard
Financial : market share and Branch profit Customer : New customer referrals from existing customer Learning and Growth : Not available on the score card Internal business processed : Regulatory compliance, Order errorsThe Market share is simply a portion of the general market that is been controlled by a product or organization
New customer referrals form existing customers is one way a company can get new and returning customers to patronize them
Regulatory compliance and order errors is been handled by the management of the business
Cominsky Company purchased a machine on July 1, 2018, for $28,000. Cominsky paid $200 in title fees and county property tax of $125 on the machine. In addition, Cominsky paid $500 shipping charges for delivery, and $475 was paid to a local contractor to build and wire a platform for the machine on the plant floor. The machine has an estimated useful life of 6 years with a salvage value of $3,000.
Determine the depreciation base of Cominsky’s new machine. Cominsky uses straight-line depreciation.
Depreciation base $
Entry field with incorrect answer now contains modified data
Answer:
$26,300
Explanation:
Depreciation Base is the total amount charged to expenses over an asset's useful life.
In Straight line method of Depreciation:
Depreciation Base = (Cost of Asset - Salvage Value)
Cost of Asset $28,000 + $200 + $125 + $500 + $475
Cost of Asset = $29,300
Depreciable Base = $29,300 - $3,000
Depreciable Base = $26,300
The Ring Division of A1d-Y6z Company reported the following information for May: selling price per unit .................... $35 variable costs per unit ................... $12 turnover .................................. 2.50 residual income ........................... $229,600 margin .................................... 22% units sold ................................ 40,000 Calculate the number of units the Ring Division needed to sell in May in order for the residual income in May to be $505,600.
Answer:
52,000 units
Explanation:
Selling price = $35*40,000 = $1,400,000
Variable cost = $12 * 40,000 = $480,000
Contribution margin = $1,400,000 - $480,000 = $920,000
Fixed cost = Residual income + Contribution
Fixed cost = $920,000 - $229,600
Fixed cost = $690,400
Sales to earn residual income = [Fixed cost + Desired profit] / Contribution per unit
Sales to earn residual income = [$690,400 + $505,600] / $35 - $12
Sales to earn residual income = $1,196,000 / $23
Sales to earn residual income = 52,000 units
You are analyzing two assets: collectible LEGO sets, and stock of Apple. In the last 5 years, LEGOs have had an annual volatility of 5%, annual return of 6%, and a CAPM beta (the correlation coefficient between the asset and the market risk-premium) of 1.6. Apple has had an annual volatility of 10%, an annual return of 8%, and a CAPM beta of 1.2. Is the following statement true or false?
According to CAPM, Apple has a higher expected return than LEGO.
Answer:
No, Apple has lower rate of return than LEGOs.
Explanation:
Risk free rate is 2% and Market risk is 9%
Expected return can be calculated by :
E(r) = Rf + beta * (Rm - Rf)
E(r) LEGOs = 2 + 1.6 * (9 - 2)
E(r) LEGOs = 13.2%
E(r) Apple = 2 + 1.2 * (9 - 2)
E(r) Apple = 10.4%
The Foundational 15 (Static) [LO13-2, LO13-3, LO13-4, LO13-5, LO13-6] Skip to question [The following information applies to the questions displayed below.] Cane Company manufactures two products called Alpha and Beta that sell for $120 and $80, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 100,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta Direct materials $ 30 $ 12 Direct labor 20 15 Variable manufacturing overhead 7 5 Traceable fixed manufacturing overhead 16 18 Variable selling expenses 12 8 Common fixed expenses 15 10 Total cost per unit $ 100 $ 68 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. Foundational 13-1 (Static) Required: 1. What is the total amount of traceable fixed manufacturing overhead for each of the two products
Answer:
Cane Company
Total traceable fixed manufacturing overhead:
Alpha = $1,600,000
Beta = $1,800,000
Explanation:
a) Data and Calculations:
Alpha Beta
Selling price per unit $120 $80
Direct materials $ 30 $ 12
Direct labor 20 15
Variable manufacturing overhead 7 5
Traceable fixed manufacturing overhead 16 18
Variable selling expenses 12 8
Common fixed expenses 15 10
Total cost per unit $ 100 $ 68
Total traceable fixed manufacturing overhead:
Alpha = $1,600,000 ($16 * 100,000)
Beta = $1,800,000 ($18 * 100,000)
Southern Atlantic Distributors began operations in January 2021 and purchased a delivery truck for $40,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful life for financial reporting purposes. For tax purposes, the deduction is 45% of cost in 2021, 30% in 2022, and 25% in 2023. Pretax accounting income for 2021 was $460,000, which includes interest revenue of $68,000 from municipal governmental bonds. The enacted tax rate is 25%.
Assuming no differences between accounting income and taxable income other than those described above:
Required:
1. Complete the following table given below and prepare the journal entry to record income taxes in 2021.
2. What is Southern Atlantic’s 2021 net income?
Answer:
1. Depreciation as per books = Cost of purchase/Useful life
Depreciation as per books = $40,000/4
Depreciation as per books = $10,000
Depreciation as per tax for 2021 = Cost of purchase * Deduction rate
Depreciation as per tax for 2021 = $40,000 * 45%
Depreciation as per tax for 2021 = $18,000
Temporary difference = $18,000 - $10,000
Temporary difference = $8,000
Particulars Amount Tax Rate Tax Recorded as
Pretax accounting income $460,000
Permanent difference -$68,000
Income subject to taxation $392.00 25% $98,000 Income tax expense
Temporary difference -$8,000 25% -$2,000 Deferred tax liability
Income taxable in $384,000 25% $96,000 Income tax payable
current year
Journal Entries - Southern Atlantic Distributors
Date Particulars and Explanation Debit Credit
Income tax expense $98,000
To Income taxes payable $96,000
To Deferred tax liability $2,000
(To record income tax expense)
2. Net income for 2021 = Pretax income - Income tax expense
Net income for 2021 = $460,000 - $98,000
Net income for 2021 = $362,000
Required information: Analyzing income effects from eliminating departments.
Suresh Co. expects its five departments to yield the following income for next year.
Dept. M Dept. N Dept. O Dept. P Dept. T Total
Sales $66,000 $38,000 $59,000 $45,000 $31,000 $239,000
Expenses
Avoidable 11,300 38,200 23,300 15,500 40,500 128,800
Unavoidable 53,000 14,400 4,500 31,200 11,900 115,000
Total expenses 64,300 52,600 27,800 46,700 52,400 243,800
Net income (loss) $1,700 $(14,600) $31,200 $(1,700) $(21,400) $(4,800)
Re-compute and prepare the departmental income statements (including a combined total column) for the company under each of the following separate scenarios.
1) Management eliminates departments with sales dollars that are less than avoidable expenses.
2) Management eliminates departments with expected net losses.
Answer and Explanation:
The computation and the preparation is presented below:
1.
Particulars Dept. M Dept. N Dept. O Dept. P Dept. T Total
Sales $66,000 $59,000 $45,000 $170,000
Expenses
Avoidable $11,300 $23,300 $15,500 $50,100
Unavoidable $53,000 $14,400 $4,500 $31,200 $11,900 $115,000
Total expense $64,300 $14,400 $27,800 $46,700 $11,900 $165,100
Net income
or loss $1,700 -$14,400 $31,200 -$1,700 -$11,900 $4,900
2.
Particulars Dept. M Dept. N Dept. O Dept. P Dept. T Total
Sales $66,000 $59,000 $125000
Expenses
Avoidable $11,300 $23,300 $34,600
Unavoidable $53,000 $14,400 $4,500 $31,200 $11,900 $115,000
Total expense $64,300 $14,400 $27,800 $31,200 $11,900 $149,600
Net income
or loss $1,700 -$14,400 $31,200 -$31,200 -$11,900 -$24,600
The following information pertains to Lightning Inc., at the end of December: Credit Sales $ 20,000 Accounts Payable 10,000 Accounts Receivable 11,800 Allowance for Uncollectible Accounts 400 credit Cash Sales 20,000 Lightning uses the aging method and estimates it will not collect 7% of accounts receivable not yet due, 20% of receivables up to 30 days past due, and 46% of receivables greater than 30 days past due. The accounts receivable balance of $11,800 consists of $7,500 not yet due, $2,300 up to 30 days past due, and $2,000 greater than 30 days past due. What is the appropriate amount of Bad Debt Expense
Answer:
The appropriate amount of Bad Debt Expense is $3,345.20.
Explanation:
The appropriate amount of Bad Debt Expense can be calculated as follows:
Bad debt expense = (Percentage of accounts receivable not yet due it will not collect * Accounts receivable not yet due) + (Percentage of receivables up to 30 days past due it will not collect * Amount of receivables up to 30 days past due) + (Parentage of receivables of receivables greater than 30 days past due it will not collect * Amount of receivables greater than 30 days past due) - Allowance for Uncollectible Accounts (credit) ……………………… (1)
Substituting the relevant values into equation (1), we have:
Bad debt expense = (7% * $7,500) + (20% + $2,300) + (46% * $2,000) - $400 = $3,345.20
Therefore, the appropriate amount of Bad Debt Expense is $3,345.20.
"Minimum wage laws cause unemployment because the legal minimum wage is set" 9) A) above the market wage, causing labor demand to be greater than labor supply. B) below the market wage, causing labor demand to be greater than labor supply. C) too low. D) below the market wage, causing labor demand to be less than labor supply. E) above the market wage, causing labor demand to be less than labor supply.
Answer: E) above the market wage, causing labor demand to be less than labor supply.
Explanation:
Minimum wage simply refers to the lowest wage that employers can pay their workers. Minimum wage is a form of price floor which means that it's typically higher than the equilibrium or market wage.
In this case, since it's higher than the market wage, there'll be an increase in the supply of labor as those that are unemployed will be willing to work duw to the increase in the wage rate.
On the other hand, there'll be a reduction in the demand for labor as employers typically will want to reduce cost and won't be interested in employing more workers.
Therefore, the correct option is E
The risk-free rate of return is 9.0%, the expected rate of return on the market portfolio is 14%, and the stock of Xyrong Corporation has a beta coefficient of 2.0. Xyrong pays out 50% of its earnings in dividends, and the latest earnings announced were $20 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 18% per year on all reinvested earnings forever
a. What is the intrinsic value of a share of Xyrong stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Intrinsic valueS
b-1. If the market price of a share is currently $108, and you expect the market price to be equal to the intrinsic value one year from now, calculate the price of the share after one year from now. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Price
b-2. What is your expected one-year holding-period return on Xyrong stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Expected one-year holding-period return
Answer:
$109
$118.81
18.26%
Explanation:
Intrinsic value can be determined using the constant growth dividend model
according to the constant dividend growth model
price = d1 / (r - g)
d1 = next dividend to be paid
r = cost of equity
g = growth rate
dividend, growth rate and cost of equity are not given and they have to be calculated
growth rate = retention rate x ROE
Retention rate = 1 - payout ratio = 1 - 0.5 = 0.5 = 50%
0.5 x 18% = 9%
According to the capital asset price model: cost of equity = risk free + beta x (market rate of return - risk free rate of return)
9% + 2x (14% - 9%) = 19%
dividend = payout ratio x earnings per share
0.5 x $20 = $10
Intrinsic value = [tex]\frac{10( 1 + 0.09)}{0.19 - 0.09}[/tex] = $109
Stock price in a year
[tex]\frac{10(1 + 0.9)^{2} }{0.19 - 0.09}[/tex] = 118.81
(dividend return + price return)
price return is the return on investment as a result of appreciation or depreciation of share price
Dividend return is the return on investment from dividend earned
price return = price at the end of the year - price at the beginning of the year
When converting net income to net cash provided (used) by operating activities under the indirect method increases in accounts receivable and increases in accrued liabilities are deducted. decreases in accounts payable and decreases in inventory are deducted. decreases in accounts receivable and increases in prepaid expenses are added. decreases in inventory and increases in accrued liabilities are added.
Answer:
Decrease in inventory and increases in accrued liabilities are added.
Explanation:
Computing Straight-Line and Double-Declining-Balance Depreciation
On January 2, 2016, Dechow Company purchases a machine to help manufacture a part for one of its key products. The machine cost $306,180 and is estimated to have a useful life of six years, with an expected salvage value of $32,760.
Compute each year's depreciation expense for 2016 and 2017 for each of the following depreciation methods.
a. Straight-line.
b. Double-declining balance.
Answer:
a.
2016 = $45,570
2017 = $45,570
b.
2016 = $102,080
2017 = $68,014
Explanation:
Straight line method
Straight line method charges a fixed amount of depreciation
Depreciation Charge = (Cost - Salvage Value) ÷ Estimated useful life
2016
Depreciation Charge = $45,570
2017
Depreciation Charge = $45,570
Double declining method
Double declining method charges a higher amount of depreciation at the early years and less in the later years
Depreciation Charge = 2 x SLDP x BVSLDP
2016
Depreciation Charge = 2 x 16.67 % x $306,180 = $102,080
2017
Depreciation Charge = 2 x 16.67 % x ($306,180 - $102,080) = $68,014
Murray Motor Company wants you to calculate its cost of common stock. During the next 12 months, the company expects to pay dividends (D1) of $1.30 per share, and the current price of its common stock is $40 per share. The expected growth rate is 5 percent. a. Compute the cost of retained earnings (Ke). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
Adamson Corporation is considering four average-risk projects with the following costs and rates of return:
Project Cost Expected Rate of Return
1 $2,000 16.00%
2 3,000 15.00
3 5,000 13.75
4 2,000 12.50
The company estimates that it can issue debt at a rate of rd = 10%, and its tax rate is 30%. It can issue preferred stock that pays a constant dividend of $5 per year at $48 per share. Also, its common stock currently sells for $33 per share; the next expected dividend, D1, is $4.00; and the dividend is expected to grow at a constant rate of 5% per year. The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock.
Required:
a. What is the cost of each of the capital components?
b. What is Adamson's WACC?
Answer:
a. Cost of debt = Interest * (1 - Tax rate)
= 10%*(1 - 0.30)
= 7%
Cost of preferred stock = Dividend/ Issue price
= 5/48
= 10.42%
Cost of common stock (Cost of retained earnings) = (D1/P0) + g
= (4/33) + 0.07
= 0.12 + 0.07
= 0.19
= 19%
b. Fund Cost Weight Cost * Weight
Debt 7% 0.15 1.05%
Preferred stock 10.42% 0.10 1.042%
Retained earnings 19% 0.75 14.25%
WACC 16.342%
Locomotive Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firm’s debt–equity ratio is expected to rise from 30 percent to 50 percent. The firm currently has $3.3 million worth of debt outstanding. The cost of this debt is 9 percent per year. Locomotive expects to have an EBIT of $1.32 million per year in perpetuity. Locomotive pays no taxes.
a. What is the market value of Locomotive Corporation before and after the repurchase announcement?
b. What is the expected return on the firm’s equity before the announcement of the stock repurchase plan?
c. What is the expected return on the equity of an otherwise identical all-equity firm?
d. What is the expected return on the firm’s equity after the announcement of the stock repurchase plan?
Answer: See explanation
Explanation:
a. What is the market value of Locomotive Corporation before and after the repurchase announcement?
Equity value = Debt value / Debt to equity ratio
= 3,300,000/0.3
= 11,000,000
Market value = Debt value + Equity value
= $3,300,000 + $11,000,000
= $14,300,000
b. What is the expected return on the firm’s equity before the announcement of the stock repurchase plan?
To solve this, we need to know the interest payment first which will be:
= $3,300,000 × 9%
= $3,300,000 × 0.09
= $297000
Return on equity will now be:
= (EBIT - interest) / Equity
= (1320000 - 297000) / 11000000
= 9.30%
c. What is the expected return on the equity of an otherwise identical all-equity firm?
This will be:
= Earnings before Interest / Unlevered firm value
= 1320000 / 14300000
= 9.23%
d. What is the expected return on the firm’s equity after the announcement of the stock repurchase plan?
This will be:
= 9.23% + 50% × (9.23% - 9%)
= 9.35%
Norris Company has the following capital structure: Common stock, $1 par, 100,000 shares issued and outstanding. On October 1, 2020, the company declared a 5% common stock dividend when the market price of the common stock was $15 per share. The stock dividend will be distributed on October 15, 2020, to stockholders on record on October 10, 2020. Upon declaration of the stock dividend, Norris Company would record:
Answer: Debit to retained earnings of $75000
Explanation:
Based on the information given, the stock dividend will be:
= 100,000 shares x 5%
= 100000 × 0.05
= 5,000 shares.
Since the market price is $15 per share, then the retained earnings will be:
= $15 × 5000
= $75000
Stock dividend distributable will be:
= 5,000 x $1
= $5000
Paid in capital in excess of par = $75000 - $5000 = $70000
The journal entry will be:
Debit Retained earnings $75000
Credit Stock dividend distributable $5,000
Credit Paid in capital in excess of par $70000
Bramble Corp. purchased land as a factory site for $1305000. Bramble paid $121000 to tear down two buildings on the land. Salvage was sold for $8400. Legal fees of $5340 were paid for title investigation and making the purchase. Architect's fees were $47000. Title insurance cost $3900, and liability insurance during construction cost $4200. Excavation cost $15480. The contractor was paid $4400000. An assessment made by the city for pavement was $9900. Interest costs during construction were $251000.
1. The cost of the land that should be recorded by Wilson Co. is:_____.
a. $989,880
b. $980,480
c. $996,280
d. $986,880
The cost of the building should be recorded by Wilson Co. is:_____.
a. 2,804,840
b. 2,813,200
c. 2,803,800
d. 3,014,240
Answer:
Part 1
$1,422,940
Part 2
$331,480
Explanation:
cost of the land calculation
Purchase Price $1305000
Cost to tear down building $121000
Sale of Salvages ($8400)
Leagl fees $5340
Total $1,422,940
The cost of the land that should be recorded by Wilson Co. is: $1,422,940
cost of the building calculation
Architect's fees $47000
Insurance $3900
Liability insurance $4200
Excavation cost $15480
city for pavement $9900
Borrowing Costs $251000
Total $331,480
The cost of the building should be recorded by Wilson Co. is $331,480
An analysis of stockholders' equity of Hahn Corporation as of January 1, 2020, is as follows: Common stock, par value $20; authorized 100,000 shares; issued and outstanding 90,000 shares $1,800,000 Additional Paid-in capital 900,000 Retained earnings 760,000 Total $3,460,000 During 2020, the company entered into the following transactions: Acquired 2,500 shares of its stock for $75,000. Sold 2,000 treasury shares at $35 per share. Sold the remaining treasury shares at $20 per share. Assuming no other equity transactions occurred during 2020, what should Hahn report at December 31, 2020, as total additional paid-in capital?
Answer:
$905,000
Explanation:
Calculation to determine what should Hahn report at December 31, 2020, as total additional paid-in capital
Total Additional Paid-in capital=$900,000 + (2,000 × $5) –[(2,500-2,000)× $10]
Total Additional Paid-in capital=$900,000 + (2,000 × $5) – (500 × $10)
Total Additional Paid-in capital=$900,000 + $10,000-$5,000
Total Additional Paid-in capital = $905,000
Therefore The amount that Hahn should report at December 31, 2020, as total additional paid-in capital is $905,000
Monsanto Company, a large chemical and fibers company, invested $37 million in state-of-the-art systems to improve process control, laboratory automation, and local area network (LAN) communications. The investment was not justified merely on cost savings but was also justified on the basis of qualitative considerations. Monsanto management viewed the investment as a critical element toward achieving its version of the future. What qualitative and quantitative considerations do you believe Monsanto would have considered in its strategic evaluation of these investments
Solution :
The investment which was made by the Monsanto Company had both qualitative as well as quantitative aspects. The quantitative aspect of the investment represents the strategic evaluation which relates to the investment in order to improve the process control and the laboratory automation. While improving the process control helps in controlling the working process of the machines and the human force which reduces the wastage to a large extent, it also increases the efficiency and it reduces the cost per unit.
The laboratory automation increases the efficiency of working and also increases the production. Strengthening the LAN network improves the organizations' communication and also reduces the unnecessary delays in the work saving cost. Improving the local area network provides qualitative improvement and it speeds up the work thus reducing the wastage of time and promotes effective communication.
Crane, Inc. manufactures two products: missile range instruments and space pressure gauges. During April, 50 range instruments and 200 pressure gauges were produced, and overhead costs of $72,750 were estimated. An analysis of estimated overhead costs reveals the following activities. Activities Cost Drivers Total Cost 1. Materials handling Number of requisitions $30,000 2. Machine setups Number of setups 23,750 3. Quality inspections Number of inspections 19,000 $72,750 The cost driver volume for each product was as follows. Cost Drivers Instruments Gauges Total Number of requisitions 375 625 1,000 Number of setups 175 300 475 Number of inspections 225 250 475
Answer:
Requirement: Determine the overhead rate for each activity "Materials handling, Machine setups, Quality inspections"
Materials handling overhead rate = Total cost / Cost driver volume
Materials handling overhead rate = $30,000 / 1,000
Materials handling overhead rate = $30
Machine setups overhead rate = Total cost / Cost driver volume
Machine setups overhead rate = $23,750 / 475
Machine setups overhead rate = $50
Quality inspections overhead rate = Total cost / Cost driver volume
Quality inspections overhead rate = $19,000 / 475
Quality inspections overhead rate = $40
Labeau Products, Ltd., of Perth, Australia, has $21,000 to invest. The company is trying to decide between two alternative uses for the funds as follows:
Invest in Invest in
Project X Project Y
Investment required $ 21,000 $ 21,000
Annual cash inflows $ 8,000
Single cash inflow at the end of 6 years $50,000
Life of the project 6 years 6 years
The company’s discount rate is 18%.
Required:
Determine the net present values. (Any cash outflows should be indicated by a minus sign.
Answer:
Project X = $6,980.82
Project Y = - $2,478.42
Explanation:
The Present value is the price today of future cash flows and is calculated as follows :
Project X
($21,000) CF 0
$8,000 CF 1
$8,000 CF 2
$8,000 CF 3
$8,000 CF 4
$8,000 CF 5
$8,000 CF 6
I/YR = 18%
Therefore, NPV is $6,980.82
Project Y
($21,000) CF 0
$0 CF 1
$0 CF 2
$0 CF 3
$0 CF 4
$0 CF 5
$50,000 CF 6
I/YR = 18%
Therefore, NPV is - $2,478.42
Super Clinics offers one service that has the following annual cost and utilization estimates: Variable cost per visit $ 10 Annual direct fixed costs $50,000 Allocation of overhead costs $20,000 Expected utilization 1,000 visits What price per visit must be set if the clinic wants to make an annual profit of $10,000 on the service? A. $ 70 B. $ 80 C. $ 90 D. $100 E. $110
Answer:
C. $ 90
Explanation:
Number of visits = 1,000
Variable cost = $10 × 1,000 = $10,000
Fixed cost = $50,000
Overhead cost = $20,000
Required profit = $10,000
So,Total Cost = Variable Cost+ Fixed Cost+ Overhead Cost
= $10,000 + $50,000 + $20,000
= $80,000
Now, Price per Visit = (Total Cost+ Required Profit) ÷ Number of visits
= ($80,000 + $10,000) ÷ 1,000
= $90,000 ÷ 1,000
= $90
One thousand adults live in Milltown. Every day, they all leave work at 4:30 p.m., arrive home at exactly 5:00 p.m., and go to bed at 9:00 p.m. Three fundraisers, Alpha, Beta, and Charlie, have targeted Milltown's population. To get a donation, they must call Milltown's residents after they get home from work but before they go to bed. Because the charities raising the funds are identical, the first to call a willing donor will get the donation. Beta's manager has decided that the best time to call is 7:00 p.m. because it is exactly halfway between 5:00 p.m. and bedtime. Which of the following is true?
a. Alpha and Charlie will also make calls at 7:00 p.m.
b. Beta's manager did not choose wisely.
c. Alpha and Charlie will divide up the rest of the market, with one choosing to call at 6:00 p.m. and the other at 8:00 p.m.
d. Beta is certain to generate the most donations.
Answer:
b. Beta's manager did not choose wisely.
Explanation:
If you know that you are competing with identical charities, calling later will only result in fewer donations. The calls should start at 5 PM, and probably the three fundraisers will start calling at the same time. The only advantage that they can have depends on reaching the adults first, so the time of the calls is important.
