Answer:
(a) New Price of ABC = $17.24. New Price of XYZ = 3.42. Premium = 28.57%
(b) New Price of ABC = $17.36. New Price of XYZ = 3.30. Premium = 24.06%
(c) No since the prices would change relative to the premium offered. In part (b), the premium depends on the new price of ABC. Refer to the explanation below for an in-depth answer
Explanation:
(a) ABC is making a cash offer of $ 3.42 million to completely buyout XYZ Corporation i.e to acquire 100% shareholding which is 1 million shares. To find out the new price of XYZ, all you need to do is divide the amount offered by the number of shares. This is 3.42 Mn/1 Mn. Therefore, ABC is essentially offering $ 3.42 per share and so the new price of XYZ would change to reflect this.
Currently the price of XYZ is $2.66 while the price offered is $3.42. This means that ABC is paying a premium of 28.57% to buy the company (New Price/Old Price - 1). The price of ABC in this case will decrease to reflect this expenditure. The formula to calculate the new price of ABC is simple; Old price of ABC share - (Premium on XYZ share x Old Price of XYZ share) = $18 - (0.2857 x 2.66) = $17.24. Hence, the new price of ABC would be $17.24.
(b) Now, in this scenario, ABC is making a stock offer so to calculate the value of ABC's stock, we will need to look at the combined value of both these entities keeping in mind that the exchange ratio is 0.19. So, the formula is combined value of ABC= (Old Price of ABC + Old Price of XYZ)/ (1+Exchange ratio). Therefore, combined value = (18+2.66)/1.19 which is $17.36. New price of ABC is $17.36.
Similar to part (a), the new price of XYZ would be equal to the amount received by the shareholders per share. This would be calculated as the new price of ABC (since stock offer is announced instead of cash) x exchange ratio = 17.36 x 0.19 = $3.30. The premium in this case would be (using the formula mentioned in part a), 3.30/2.66 - 1 = 24.06%
(c) No, the answers to each part may not be identical. The market will react differently to the stock offer relative to the cash offer. In the stock offer, the market knows that ABC is paying a premium due to which the price of ABC will go down while the price of XYZ will go up. This will lower the amount of premium being offered (as demonstrated in each part above). The premium offered in part b will be lower because the premium depends on the new (lower) price of ABC. This is not the case with the cash offer since in the cash offer, the premium offered does not depend on the new price of XYZ.
a. The price of ABC is likely to decrease and the price of XYZ is likely to increase. The premium over the current market price of the cash offer can be calculated. b. The price of ABC is likely to decrease and the price of XYZ is likely to increase. The premium over the current market price of the stock offer can be calculated. c. The answers to parts (a) and (b) do not have to be identical because the method of payment and perceived value can impact market reaction.
Explanation:a. When ABC makes a cash offer to purchase XYZ for $3.42 million, the price of the ABC stock is likely to decrease because the company is spending a substantial amount of money to acquire XYZ. On the other hand, the price of the XYZ stock is likely to increase as investors anticipate the takeover and the potential gain from the transaction. The premium over the current market price of the offer can be calculated by subtracting the market price of XYZ before the offer from the offer price and dividing it by the market price of XYZ before the offer. In this case, the premium would be ($3.42 million - ($2.66 × 1 million)) / ($2.66 × 1 million).
b. When ABC makes a stock offer with an exchange ratio of 0.19, the price of ABC is likely to decrease as investors perceive the stock offer to be less valuable than cash. The price of XYZ is likely to increase as investors anticipate the takeover and the potential gain from the transaction. The premium over the current market price of the offer can be calculated by subtracting the market price of XYZ before the offer from the offer price and dividing it by the market price of XYZ before the offer. In this case, the premium would be (0.19 × $18 × 1 million - ($2.66 × 1 million)) / ($2.66 × 1 million).
c. The answers to parts (a) and (b) do not have to be identical because the method of payment and the perceived value of cash versus stock can impact the market reaction. In the cash offer, the stock price of ABC is likely to decrease due to the spending of a substantial amount of money, while in the stock offer, the stock price of ABC is likely to decrease due to the perceived lower value of stock as a method of payment.
What is the payback period for Tangshan Mining company's new project if its initial after-tax cost is $5,000,000 and it is expected to provide after-tax operating cash inflows of $1,800,000 in year 1, $1,900,000 in year 2, $700,000 in year 3, and $1,800,000 in year 4
Answer:
Explanation:
Payback period calculates the amount of time it takes to recover the amount invested in a project to be recovered from the cumulative cash flow.
In year 1 , the amount recovered is = $-5,000,000 + $1,800,000 = $-3,200,000
In year 2, the amount recovered is = $-3,200,000 + $1,900,000 = $-1,300,000
In year 3, the amount recovered is = $-1,300,000 + $700,000 = $-600,000
In year 4, the amount recovered is 3 + (600,000 / 1,800,000) = 3.33 years
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JT Engineering is deciding between two machines. Machine A costs $352,000, with inflows of $209,000 and outflows of $154,000. Machine B costs $380,000, with inflows of $231,000 and outflows of $166,000. Both have a 10-year life and no salvage value. JT uses the straight-line method for depreciation and requires a return of 12%. How desirable are the machines? Use annual rate of return to determine the answer.
Answer:
Machine B is preferrable with annual rate of return of 14.21%,higher than the required annual rate of return of 12%
Explanation:
Annual rate of return of both machine needs to ascertained ,then compared with the required annual rate of rate of 12% in order to determine which machine gives at least 12% annual rate of return and worth investing in.
Annual rate of return=net income/average investment
net income=inflows-outflows-depreciation
Machine A average investment=$352,000/2=$176,000
Machine B average investment=$380,000/2=$190,000
Machine A net income=$209,000-$154,000-($355,000/10)
=$209,000-$154,000-$35,500
=$19,500
Machine B net income=$231,000-$166,000-($380,000/10)
=$231,000-$166,000-$38,000
=$27,000
Machine A annual rate of return=$19,500/$176,000
=11.08%
Machine B annual rate of return=$27,000/$190,000
=14.21%
The Machine B is more preferable because its annual rate of return (14.21%) is higher than the required annual rate of return (12%).
The Annual rate of return of both machine needs to known to encourage comparison with the required annual rate of return
Given Information
The required annual rate of rate = 12%
Machine A average investment = $352,000/2
Machine A average investment = $176,000
Machine B average investment = $380,000/2
Machine B average investment = $190,000
Net income = Inflows - Outflows - DepreciationMachine A Net income = $209,000 - $154,000 - ($355,000/10)
Machine A Net income = $209,000 - $154,000 - $35,500
Machine A Net income =$19,500
Machine B Net income = $231,000 - $166,000 - ($380,000/10)
Machine B Net income = $231,000 - $166,000 - $38,000
Machine B Net income = $27,000
Annual rate of return = Net income/Average investmentMachine A Annual rate of return = $19,500/$176,000
Machine A Annual rate of return = 11.08%
Machine B Annual rate of return =$27,000/$190,000
Machine A Annual rate of return = 14.21%
Therefore, the Machine B is more preferable because its annual rate of return (14.21%) is higher than the required annual rate of return (12%).
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On January 3, 2014, Trusty Delivery Service purchased a truck at a cost of $90,000. Before placing the truck in service, Trusty spent $3,000 painting it, $1,500 replacing tires, and $4,500 overhauling the engine. The truck should remain in service for five years and have a residual value of $9,000. The truck's annual mileage is expected to be 22,500 miles in each of the first four years and 10,000 miles in the fifth year - 100,000 miles in total.
In deciding which depreciation method to use, Mikail Johnson, the general manager, requests a depreciation schedule for each of the depreciation methods (straight-line, units-of-production, and double-declining-balance).
Answer:
Accumulated depreciation for Years 1 - 5 under:
the Straight-line method is $90,000.the Units-of-production method is $90,000.the Double-declining-balance method is $86,170.Explanation:
The total cost of the asset is $90,000 + $3,000 + $1,500 + $4,500 = $99,000, since all the other costs were directly attributable cost and were necessary to bring the asset to usable form.
The painting is capitalized because it is the first time Trust Delivery would be using the asset, otherwise it would have been expendedOverhauling cost can be regarded as a separate asset, if we were provided with different useful lives - componentization.Under straight-line method, depreciation expense is (cost - residual value) / No of years = ($99,000 - $9,000) / 5 years = $18,000 yearly depreciation expense.
Accumulated depreciation for Years 1 to 5 is $18,000 x 5 years $90,000.
The unit-of-production method is used when the asset value closely relates to the units of output it is able to produce. It is expressed with the formula below:
(Original Cost - Salvage value) / Estimated production capacity x Units/year
At Year 1, depreciation expense (DE) is: ($99,000 - $9,000) / 100,000 miles x 22,500 miles = $20,250/year
Accumulated depreciation for the first four years is $20,250 x 4 years = $81,000.
At Year 5, depreciation = $90,000 / 100,000 miles x 10,000 miles = $9,000
Note that this depreciation method results in higher depreciation charge when the asset is heavily used, at this time, it was in Years 1 - 4.
Accumulated depreciation expense for Years 1 to 5, under this method, is $90,000 (addition of first four years and the Year 5).
The double-declining method is otherwise known as the reducing balance method and is given by the formula below:
Double declining method = 2 X SLDP X BV
SLDP = straight-line depreciation percentage
BV = Book value
SLDP is 100%/5years = 20%, then 20% multiplied by 2 to give 40%
At Year 1, 40% X $99,000 = $39,600
At Year 2, 40% X $59,400 ($99,000 - $39,600) = $23,760
At Year 3, 40% X $35,640 ($59,400 - $23,760) = $14,256
At Year 4, 40% X $21,384 ($35,640 - $14,256) = $8,554 approximately (the depreciation expense would stop at this stage since the amount falls below the residual value).
Accumulated depreciation expense for Years 1 to 4, under this method, is $86,170 (addition of all the yearly depreciation).
Which one of the following statements is TRUE? a. A shareholder-friendly charter will make it harder for a company to be acquired. b. A targeted share repurchase can be used to encourage a hostile takeover. c. A targeted share repurchase is when the company purchases stock from one shareholder at a higher price than it offers to other shareholders. d. An example of asset switching is an option to exchange one piece of real estate for another. e. Anti-takeover charter provisions are good for shareholders because they prevent a raider from stealing the company for a below-market price.
Answer:
The answer is C.) A targeted share repurchase is when the company purchases stock from one of the shareholder at a higher price than it offers to other shareholders.
Explanation:
This indicates that shareholders will benefit when the company is acquired because they usually receive a higher price for their shares.
A corporate body consist of a group of persons or board of directors that are chosen to govern the affairs of a corporation or other large institution.
The correct statement is that a targeted share repurchase is when the company purchases stock from one shareholder at a higher price than it offers to other shareholders.
Explanation:The correct statement among the options is:c. A targeted share repurchase is when the company purchases stock from one shareholder at a higher price than it offers to other shareholders.
A targeted share repurchase is a strategy used by companies to repurchase shares from specific shareholders, often those who hold a significant stake in the company. The company offers a premium price to these shareholders to incentivize them to sell their shares, which can help prevent a hostile takeover.
This strategy is shareholder-friendly because it allows the company to reward loyal shareholders and maintain control over its ownership structure, making it harder for outsiders to acquire the company.
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Suppose you are a euro-based investor who just sold Microsoft shares that you had bought six months ago. You had invested €10,000 to buy Microsoft shares for $120 per share; the exchange rate was $1.55 per euro. You sold the stock for $135 per share and converted the dollar proceeds into euro at the exchange rate of $1.50 per euro. How much of the return is due to the exchange rate movement?
Answer:
The answer is €375.
Explanation:
If the exchange rate is $1.55 per € then €10,000 is equal to $15,500. At $120 per share, you can but 129 shares for $15,500.
And if you sell those 129 share at $135 per share, then your total comes up to $17,415. If the exhange rate had stayed the same, that would be €11,235 just for the increase in the prices of the shares. But the exhange rate is $1.50 per € so the amount after selling the shares is €11,610. The difference the exhange rate makes is €11,610 - €11,235 = €375.
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7. A stock price (which pays no dividends) is $50 and the strike price of a two year European put option is $54. The risk-free rate is 3% (continuously compounded). Compute the lower bound for the put option such that there are arbitrage opportunities if the price is below the lower bound and no arbitrage opportunities if it is above the lower bound
Answer:
LOWER BOUND FOR THE OPTION
= $54 e-0.03045 *2 - $50
= ($54 * 0.94092) - $50
= $50.81 - $50
= $0.81
Note
3% is the simple interest but 0.03045 is the compound interest.
The lower bound for the European put option is calculated as the maximum of zero or the difference between the strike price and the current stock price, discounted back to the present using the risk-free rate over the option's life. The calculation results in $3.76704, which is the threshold below which an arbitrage opportunity might exist.
To compute the lower bound for a European put option, we can utilize a financial concept known as put-call parity. However, because we are not given any information about a corresponding call option or the price of a put option, we'll focus on the intrinsic value of the put option.
The value of a put option equals the present value (discounted value) of the strike price minus the current stock price, provided this difference is positive. Otherwise, the value is zero since an option cannot have a negative intrinsic value.
The formula for the lower bound of a European put option price is:
Lower bound = max(0, Strike Price - Current Stock Price) × exp(-risk free rate × time to expiry)
In this case:
Strike Price (K) = $54Current Stock Price (S) = $50Risk-free rate (r) = 3%Time to expiry (T) in years = 2We then calculate the lower bound:
Lower bound = max(0, 54 - 50) × exp(-0.03 × 2) = 4 × exp(-0.06) = 4 × 0.94176 = $3.76704
Therefore, if the price of the put option is below $3.76704, there would be an arbitrage opportunity. If it is above this price, there should be no arbitrage opportunities.
Important to note: The actual market price of the option could be higher due to the time value of money and other market factors, but it cannot be lower than its intrinsic value without presenting an arbitrage opportunity.
Annual starting salaries for college graduates with degrees in business administration are generally expected to be between $43,000 and $61,600. Assume that a 95% confidence interval estimate of the population mean annual starting salary is desired. (Round your answers up to the nearest whole number.)
Answer: 332
Explanation:
Lowest value = $43,000
Highest value = $61,600
Range = ( HV - LV ) / 4
= ( $61,600 - $43,000 ) / 4
= $4650
Where p = $4650
Required sample size (n)
n = ( Za /2 × P/E )²........... equation 1
Using 95% confidence level
Za/2 = Z 1 - 0.95
= Z0.025
= 1.96 using Z-table
Substituting Z into equation 1
n = ( 1.96 × 4650/500 )²
= ( 1.96 × 9.3 )²
= 332.25
To the nearest whole number
= 332
Cane Company manufactures two products called Alpha and Beta that sell for $150 and $105, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 107,000 units of each product. Its unit costs for each product at this level of activity are given below:
Alpha Beta
Direct materials $30 $10
Direct labor 25 20
Variable manufacturing overhead 12 10
Traceable fixed manufacturing overhead 21 23
Variable selling expenses 17 13
Common fixed expenses 20 15
Total cost per unit $125 $91
The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are deemed unavoidable and have been allocated to products based on sales dollars.
Required:
1. What is the total amount of traceable fixed manufacturing overhead for the Alpha product line and for the Beta product line?
2. What is the company’s total amount of common fixed expenses?
3. Assume that Cane expects to produce and sell 85,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 15,000 additional Alphas for a price of $100 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease?
4. Assume that Cane expects to produce and sell 95,000 Betas during the current year. One of Cane’s sales representatives has found a new customer that is willing to buy 5,000 additional Betas for a price of $44 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease?
The total traceable fixed manufacturing overhead and common fixed expenses for the Alpha and Beta lines were calculated using given data. Further, by considering variable costs and revenues, the impact on profits of additional sales was evaluated. The findings reveal an increase in profits for additional Alpha sales but a decrease for Beta.
Explanation:1. To compute the traceable fixed manufacturing overhead for each product line, we first need to multiply the units produced by the cost per unit. Therefore, for Alpha, the traceable fixed manufacturing overhead equals 107,000 units * $21 per unit = $2,247,000. For Beta, the traceable fixed manufacturing overhead equals 107,000 units * $23 per unit = $2,461,000.
2. To determine the total amount of common fixed expenses, we can use the given unit cost figures. For Alpha, the total cost per unit is $125 and the common fixed expense per unit is $20, implying 20/125 = 16% of the total costs are common fixed expenses. For Beta, the total cost per unit is $91 and common fixed expense per unit is $15, implying 15/91 = 16.5% of total costs. We average the percentages and multiply by the total unit costs produced to determine the common fixed expense. Thus, the total common fixed expense is approximately 16.25% of $216 (average cost of alpha and beta) * 214,000 (total production of both Alpha and Beta) = $7,554,750.
3. The additional 15,000 Alphas would sell for $100 each resulting in revenue of $1,500,000. However, the variable costs would increase. Variable costs are equal to direct materials + direct labor + variable manufacturing overhead + variable selling expenses = $30 + $25 + $12 + $17 = $84 per unit. Thus, variable costs for the additional units would be 15,000 units * $84 = $1,260,000. The profit increase would be calculated by subtracting variable costs from the total revenue, which would result in an increase of $240,000.
4. The additional 5,000 Betas selling for $44 each would lead to a revenue of $220,000. Variable costs for Beta include direct materials + direct labor + variable manufacturing overhead + variable selling expenses, resulting in $10 + $20 + $10 + $13 = $53 per unit. For the additional units, this equals 5,000 units * $53 = $265,000. By subtracting the variable costs from total revenues, we find that accepting the offer would result in a decrease in profits of $45,000.
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Production Budget Aqua-pro Inc. produces submersible water pumps for ponds and cisterns. The unit sales for selected months of the year are as follows: Unit Sales April 180,000 May 220,000 June 200,000 July 240,000 Company policy requires that ending inventories for each month be 25% of next month's sales. However, at the beginning of April, due to greater sales in March than anticipated, the beginning inventory of water pumps is only 21,000. Prepare a production budget for the second quarter of the year. Show the number of units that should be produced each month as well as for the quarter in total.
Answer:
Production Budget April 214,000
Production Budget May 215,000
Production Budget June 210,000
Production Budget Total 639,000
Explanation:
We use the formula to calculate the production budget
Production = Sales + Ending Inventory - Opening Inventory.
Aqua-pro Inc.
Production Budget
For the Quarter
Particulars April May June July Total
Unit Sales 180,000 220,000 200,000 240,000
Add Desired
Ending Inventory 55,000 55,000 60,000 --x---x---x--
Less Opening
Inventory 21,000 55,000 50,000 60,000
Production Units 214,000 215,000 210,000 639,000
Ending Inventory Calculations
April 25% of 220,000= 55,000
May 25% of 200,000= 55,000
June 25% of 240,000 =60,000
Final answer:
The production budget for the second quarter is determined by calculating the number of units to be produced each month, aligning with sales forecasts and inventory policy, which mandates a 25% ending inventory relative to the next month's sales.
Explanation:
The production budget for Aqua-pro Inc. requires calculating the number of units to be produced each month based on sales forecasts and inventory policy. With the given unit sales for April (180,000), May (220,000), June (200,000), and July (240,000), along with the company's ending inventory policy of 25% of the next month's sales, we can calculate the production for each month.
For April, the beginning inventory is 21,000, and the desired ending inventory is 25% of May's sales, which is 55,000 units (220,000 * 0.25). Therefore, the production needed for April is April's sales plus May's ending inventory minus April's beginning inventory (180,000 + 55,000 - 21,000 = 214,000 units). Using the same method, calculate for May and June by taking into account the desired ending inventory for the following month and the actual unit sales of the current month.
To find the total production for the quarter, simply add the production amounts for April, May, and June. Keep in mind that July's beginning inventory also needs to be 25% of August's sales (which we assume to be equal to July's sales unless stated otherwise).
Consider returns R on a stock XYZ in the follwoing 4 states of he economy. each with probability p Boom state: p=0.15, R=35% Normal state: p=x?, R=8% Slowdown state: p=0.1, R=1% Recession state: p=0.2, R = -33% What is the expected return for stock XYZ? Quote your answer to 1 decimal place, but do not type the "%" Do not round intermediate results.
Answer:
The return on stock XYZ is 3.2
Explanation:
The expected return on a stock whose returns differ based on different scenarios can be calculated by multiplying the return in a scenario by the probability of that scenario and taking a sum of all such scenario returns after they have been multiplied by their respective probabilities.
The formula can be written as,
Return on a stock = rA * pA + rB * pB + ... + rN * pN
Where,
r represents the scenario returnsp represents the probability of scenariosProbability of normal state (x) = 1 - (0.15 + 0.1 + 0.2) = 0.55
Return on stock XYZ = 0.35 * 0.15 + 0.08 * 0.55 + 0.01 * 0.1 + (-0.33) * 0.2
Return on stock XYZ = 0.0315 or 3.15% rounded off to 3.2%
Turnbull Co. is considering a project that requires an initial investment of $270,000. The firm will raise the $270,000 in capital by issuing $100,000 of debt at a before-tax cost of 9.6%, $30,000 of preferred stock at a cost of 10.7%, and $140,000 of equity at a cost of 13.5%. The firm faces a tax rate of 40%. What will be the WACC for this project
Answer:
10.32%
Explanation:
WACC is the average cost of capital of the firm based on the weightage of the debt and weightage of the equity multiplied to their respective costs. weightage can be calculated by using the market value of the equity and debt.
The formula for WACC is
Weighted average cost of capital = (Cost of Common stock x Weightage of Common stock) + (Cost of debt (1 - tax ) x Weightage of debt) + (Cost of Preferred stock x Weightage of Preferred stock)
Weighted average cost of capital = (13.5% x 140,000 / 270,000) + (9.6%(1 - 0.4) x $1,00,000 / $270,000 ) + (10.7% x $30,000 / $270,000 )
Weighted average cost of capital = 7% + 2.13% + 1.19% = 10.32%
The Weighted Average Cost of Capital (WACC) for Turnbull Co.'s project, given the provided funding mix and costs, is approximately 10.36%.
Explanation:The Weighted Average Cost of Capital (WACC) for Turnbull Co. will be calculated by taking the percentage of each type of debt in the total capital and multiplying it with its related cost. Each of these resulting values is then summed up. For the debt: ($100,000 / $270,000) * 9.6% * (1 - 0.40) = 0.02133 or 2.133%. For the preferred stock: ($30,000 / $270,000) * 10.7% = 0.0119 or 1.19%. For common equity: ($140,000 / $270,000) * 13.5% = 0.07037 or 7.037%. So, the total WACC for this project will be 2.133% + 1.19% + 7.037% = 10.360, or approximately 10.36%.
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1. Peter's Audio Shop has a before-tax cost of debt of 7%, a cost of equity of 11%, and a cost of preferred stock of 8%. The firm has 104,000 shares of common stock outstanding at a market price of $20 a share. There are 40,000 shares of preferred stock outstanding at a market price of $34 a share. The bond issue has a total face value of $500,000 and sells at 102% of face value. The tax rate is 34%. What is the weighted average cost of capital for Peter's Audio Shop?
Answer:
9.14%
Explanation:
The computation of the weighted average cost of capital is shown below:-
Debt = $500,000 × 1.02
= $0.51 m
Preferred = 40,000 × $34
= $1.36 m
Common = 104,000 × $20
= $2.08 m
Total = $0.51 m + $1.36 m + $2.08 m
= $3.95 m
So, Weighted average cost of capital = ($2.08 ÷ $3.95 m × 0.11) + ($1.36 m ÷ $3.95 m × 0.08) + (($0.51 m ÷ 3.95 m × 0.07 × (1 - 0.34))
= 0.057924 + 0.027544 + 0.005965
= 0.091433
or 9.14%
Therefore for computing the weighted average cost of capital we simply applied the above equation.
The Sports Equipment Division of Harrington Company is operated as a profit center. Sales for the division were budgeted for 2017 at $900,660. The only variable costs budgeted for the division were cost of goods sold ($442,410) and selling and administrative ($62,050). Fixed costs were budgeted at $101,520 for cost of goods sold, $89,750 for selling and administrative, and $69,820 for noncontrollable fixed costs. Actual results for these items were:
Sales $888,900
Cost of goods sold
Variable 419,540
Fixed 106,680
Selling and administrative
Variable 60,800
Fixed 73,180
Noncontrollable fixed 89,660
The Sports Equipment Division of Harrington Compan
The Sports Equipment Division of Harrington Compan
Prepare a responsibility report for the Sports Equipment Division for 2017. (List variable costs before fixed costs.)
Assume the division is an investment center, and average operating assets were $1,169,100. The noncontrollable fixed costs are controllable at the investment center level. Compute ROI. (Round ROI to 1 decimal place, e.g. 1.5.)
Return on investment
%
Answer and Explanation:
The preparation of the responsibility report is presented below:
Particulars Budget Actual difference
Sales $900,660 $888,900 $11,760 F
Variable costs
Cost of goods sold $442,410 $419,540 $22,870 F
Selling and administrative $62,050 $60,800 $1,250 F
Less: total variable costs $504,460 $480,340 $24,120 F
Contribution margin $396,200 $408,560 $12,360 F (A)
Controllable fixed costs
cost of goods sold $101,520 $106,680 $5,160 U
Add or less: Selling and administrative $89,750 $73,180 $16,570 F
Less: total controllable fixed cost $191,270 $179,180 $11,410 F (B)
controllable margin $204,930 $229,380 $23,770 F (A - B)
Now
Return on investment is
= ($229,380 - $89,660) ÷ $1,169,100
= 11.9%
The favorable variance leads when the standard cost is more than the actual cost while the unfavorable variance leads when the standard cost is less than the actual cost
On January 1, 2009, Vacker Co. acquired 70% of Carper Inc. by paying $650,000. This included a $20,000 control premium. Carper reported common stock on that date of $420,000 with retained earnings of $252,000. A building was undervalued in the company's financial records by $28,000. This building had a ten-year remaining life. Copyrights of $80,000 were to be recognized and amortized over 20 years. Carper earned income and paid cash dividends as follows: NI Div Paid 2009 $105,000 $54,600 2010 $134,400 $61,600 2011 $154,000 $84,000 On December 31, 2011, Vacker owed $30,800 to Carper. There have been no changes in Carper's common stock account since the acquisition. 1. Show the acquisition date FV allocation, which includes detailed steps such as allocation to BV, FV over BV, and Goodwill allocation, between controlling and noncontrolling interests.
Answer:
Goodwill allocations
Goodwill attributed to Vacker co. - 70% = $104000
Goodwill attributed to non-controllable interest - 30% = $36000
Explanation:
Showing the acquisition date FV allocation , which includes detailed steps such as allocation to BV,FV over BV and Goodwill allocation, between controlling and nocontrolling interests
$28000 was set out as the fair value of the building and will be amortized within ten years remaining
$80000 were to be recognized and amortized over 20 years
Amortized assets are : building and copyright
Goodwill = fair value of the assets acquired - controlling interests
The assets acquired include : copyright, common stocks , retained earnings and buildings
controlling interests = non-controlling interest * 30%
Goodwill allocations
Goodwill attributed to Vacker co. - 70% = $104000
Goodwill attributed to non-controllable interest - 30% = $36000
Suppose you hold bonds in your investment portfolio and are concerned about interest rate risk. Other factors equal, which of the following statements is true?
O Your short term bonds have more interest rate risk than your long term bonds.
O Your long term bonds have more interest rate risk than your short term bonds.
O Your high coupon bonds have more interest rate risk than low coupon bonds.
O a & c are true.
O b & c are true.
Answer: Your long term bonds have more interest rate risk than your short term bonds.
Explanation:
Longer term bonds are considered riskier than shorter term bonds. This is because due to their long term it is generally feared that a rise in Inflation could reduce the payments due from the bonds.
There is also a fear that the price will have more exposure to interest rate risk overtime as interest rates could rise over the duration of the bond.
For these reasons, the risk is higher on Longer term bonds and as such the rate charged on them is higher as well.
If you need any clarification do react or comment.
Set up the payoff matrix. You are deciding whether to invade France (F), Sweden (S) or Norway (N), and your opponent is simultaneously deciding which of these three countries to defend. If you invade a country that your opponent is defending, you will be defeated (payoff: −1), but if you invade a country your opponent is not defending, you will be successful (payoff: +1).
Answer:
Suppose:
F stands for France, S stands for Sweden, and N stands for Norway.
The game according to the given condition is:
[ Find the matrix in attachment ]
Each point indicates that you invaded.
Each of these items must be considered in preparing a statement of cash flows for Irvin Co. for the year ended December 31, 2017. For each item, state how it should be shown in the statement of cash flows for 2017. (a) Issued bonds for $200,000 cash. Choose the type of cash inflows and outflows (b) Purchased equipment for $180,000 cash. Choose the type of cash inflows and outflows (c) Sold land costing $20,000 for $20,000 cash. Choose the type of cash inflows and outflows (d) Declared and paid a $50,000 cash dividend. Choose the type of cash inflows and outflows
Answer:
(a) Issued bonds for $200,000 cash. - cash inflow from financing activity;
(b) Purchased equipment for $180,000 cash. - cash outflow from investing activity;
(c) Sold land costing $20,000 for $20,000 cash. - cash inflow from investing activity;
(d) Declared and paid a $50,000 cash dividend. - cash outflow from financing activity
A company's flexible budget for 60,000 units of production showed sales of $96,000, variable costs of $36,000, and fixed costs of $26,000. What operating income would be expected if the company produces and sells 70,000 units? Use a contribution margin format. You must show how you calculated each number for credit. Use the template below for all of the remaining problems. Check: Operating income should be greater than $43,000. (3 points)Sales $Variable costs $Contribution margin $Fixed costs $Operating income $
Answer:
Calculation of Operating Income if company produces and sells 70,000 units
Sales ($96,000/60,000 units × 70,000) $112,000
Less variable costs ( $36,000/60,000×70,000) ($42,000)
Contribution $70,000
Less Period Costs
fixed costs (26,000)
Operating Income 44,000
Explanation:
First Determine the Standard Cost or Revenue
Then Flex the Budget to the new level of 70,000 units produced and sold
A firm is considering changing their credit terms. It is estimated that this change would result in sales increasing by $ 1 comma 400 comma 000 $1,400,000. This in turn would cause inventory to increase by $ 175 comma 000 $175,000, accounts receivable to increase by $ 140 comma 000 $140,000, and accounts payable to increase by $ 60 comma 000 $60,000. What is the firm's expected change in net working capital?
Answer:
The firm's expected change in net working capital: Net working capital increases by $255,000
Explanation:
Net working capital is calculated by using following formula:
Net working capital = Current assets - Current Liabilities
The inventory increases by $175,000, accounts receivable increases by $140,000.
The Current assets increases by: $175,000 + $140,000 = $315,000
The accounts payable increases by $60,000, the Current Liabilities increases by $60,000
Net working capital increases by: $315,000 - $60,000 = $255,000
Answer:
$255,000
Explanation:
As we Know Working capital is the the net or current assets and current liabilities.
Increase in Current Assets
Accounts receivable $140,000
Inventories $175,000
Total Increase in CA $315,000
Increase in Current Liabilities
Accounts payable $60,000
Increase in Working Capital = Increase in Current Assets - Increase in Current Liabilities
Change in Working Capital = $315,000 - $60,000 = -$255,000
As current Liabilities increased more than the current assets, so the working capital will decrease by $255,000
Manchester Corporation had 100,000 shares of common stock outstanding and 5% bonds with a face value of $1,000,000 outstanding throughout the current year. The bonds are convertible into 150,000 common shares. Net income for the current year was $212,500 with a 25% tax rate. What is the amount of the diluted EPS for the current year
Answer:
$.6375
Explanation:
Diluted EPS=Net Income /(Weighted Average shares + any convertible securities )
=$212,500*(1-25%)/(100,000+150,000)
=$.6375
The following information relates to Halloran Co.'s accounts receivable for 2018: Accounts receivable balance, 1/1/2018 $ 844,000 Credit sales for 2018 3,470,000 Accounts receivable written off during 2018 54,000 Collections from customers during 2018 3,050,000 Allowance for uncollectible accounts balance, 12/31/2018 205,000 What amount should Halloran report for accounts receivable, before allowances, at December 31, 2018?A. $1,210,000.B. $1,264,000.C. $1,005,000.D. None of these answer choices are correct.
Answer:
The correct option is A.
Explanation:
Let us journalize the effects of the transactions as follows:
Debit Accounts receivable $3,470,000
Credit Sales revenue $3,470,000
(To record credit sales during the year)
Debit Allowance for doubtful accounts $54,000
Credit Accounts receivable $54,000
(To write-off accounts receivable)
Debit Cash $3,050,000
Credit Accounts receivable $3,050,000
(To record collections on account)
The net effects of the above journals on Accounts receivable is: $844,000 + $3,470,000 - $54,000 - $3,050,000 = $1,210,000
Camilo’s property, with an adjusted basis of $155,000, is condemned by the state. Camilo receives property with a fair market value of $180,000 as compensation for the property taken.
a. What is Camilo’s realized and recognized gain?
b. What is the basis of the replacement property
Answer:
The correct answer for (a) is $25,000 and $0 and for option (b) is $155,000.
Explanation:
According to the scenario, the computation of the given data are as follows:
Adjusted basis = $155,000
Fair market value = $180,000
(a). Realized gain = Fair market value - Adjusted basis
= $180,000 - $155,000
= $25,000
As, fair market value is more than the adjusted basis, so there will be no recognized gain.
So, Recognized gain = $0
(b). We can calculate the basis of the replacement by using following formula:
Basis = Market value - Realized gain
= $180,000 - $25,000
= $155,000
Return on Investment, Margin, Turnover Ready Electronics is facing stiff competition from imported goods. Its operating income margin has been declining steadily for the past several years. The company has been forced to lower prices so that it can maintain its market share. The operating results for the past 3 years are as follows: Year 1 Year 2 Year 3 Sales $14,500,000 $ 9,500,000 $ 9,000,000 Operating income 1,200,000 1,345,000 945,000 Average assets 15,000,000 15,000,000 15,000,000 For the coming year, Ready's president plans to install a JIT purchasing and manufacturing system. She estimates that inventories will be reduced by 70% during the first year of operations, producing a 20% reduction in the average operating assets of the company, which would remain unchanged without the JIT system. She also estimates that sales and operating income will be restored to Year 1 levels because of simultaneous reductions in operating expenses and selling prices. Lower selling prices will allow Ready to expand its market share. (Note: Round all numbers to two decimal places.) Required: 1. Compute the ROI, margin, and turnover for Years 1, 2, and 3. Year 1 Year 2 Year 3 ROI 0.77 % 0.09 % 0.06 % Margin 0.08 % 0.01 % 0.10 % Turnover 0.97 0.63 0.6 2. Conceptual Connection: Suppose that in Year 4 the sales and operating income were achieved as expected, but inventories remained at the same level as in Year 3. Compute the expected ROI, margin, and turnover. ROI % Margin % Turnover Why did the ROI increase over the Year 3 level? 3. Conceptual Connection: Suppose that the sales and net operating income for Year 4 remained the same as in Year 3 but inventory reductions were achieved as projected. Compute the ROI, margin, and turnover. ROI % Margin % Turnover Why did the ROI exceed the Year 3 level? 4. Conceptual Connection: Assume that all expectations for Year 4 were realized. Compute the expected ROI, margin, and turnover. ROI % Margin % Turnover Why did the ROI increase over the Year 3 level?
Answer:
See explaination
Explanation:
1. see attachment for the table
2: Conceptual connection
Year 4 : Sales = 14500000, Operating Income = 1200000, Average Assets = 15000000
ROI= Operating Income/Average Assets = 1200000/15000000 = 0.08
Margin = Operating income/Sales = 1200000/14500000 = 0.08
Turnover ratio :Sales/Average Assets = 14500000/15000000 = 0.97
The ROI has increased in year 4 over the 3rd Year’s ROI because Operating income is increased but inventory were same . So we are earning more amount of profit from the same level of investment which is the reason of increase in ROI.
3. Conceptual connection
Year 4 : Sales = 9000000, Operating Income = 945000, Average Assets = 12000000
ROI= Operating Income/Average Assets = 945000/12000000 = 0.08
Margin = Operating income/Sales = 945000/9000000 = 0.11
Turnover ratio :Sales/Average Assets = 9000000/12000000 = 0.75
The ROI has exceeded level of year 3 because operating profit is same but the investment in assets is lower under year 4. So we are able to earn same amount i.e. 945000 by investing lesser. The same return of profit with lower investment has increased the ROI.
4. Conceptual Connection
Year 4 : Sales = 14500000, Operating Income = 1200000, Average Assets = 12000000
ROI= Operating Income/Average Assets = 1200000/12000000 = 0.10
Margin = Operating income/Sales = 1200000/14500000 = 0.08
Turnover ratio :Sales/Average Assets = 14500000/12000000 = 1.21
The ROI has exceeded the level of year 3 because operating profit is increased at the same time the investment in assets is also decresed. So we are able to earn more amount by investing lesser. So there are two factors which has increased ROI first is more operating income and second the lower investment. We are able to earn more with lesser investment.
1. The computation of the ROI, margin, and turnover for Year 1, 2, and 3 is as follows:
ROI 8% ($1.2/$15 x100) 8.97% 6.3%
Margin 8.28% 14.16% 10.5%
Turnover 0.97x 0.63x 0.60x
2. The computation of the ROI, margin, and turnover for Year 4 is as follows:
Basis:
Sales in Year = $14,500,000
Operating income = $1,200,000
Average assets = $15,000,000
a. ROI = 8% ($1,200,000/$15,000,000 x 100)
b. Margin = 8.28% ($1,200,000/$14,500,000 x 100)
c. Turnover = 0.97x ($14,500,000/$15,000,000)
d. The Year 4's ROI increased over the Year 3 level because of the increased operating income.
3. The computation of the ROI, margin, and turnover for Year 4 is as follows:
Basis:
Sales in Year = $9,000,000
Operating income = $945,000
Average assets = $12,000,000
a. ROI = 7.88% ($945,000/$12,000,000 x 100)
b. Margin = 6.52% ($945,000/$14,500,000 x 100)
c. Turnover = 0.75x ($9,000,000/$12,000,000)
d. The Year 4's ROI exceeded the Year 3 level because of the reduced average assets versus the stable operating income.
4. The computation of the ROI, margin, and turnover for Year 4 is as follows:
Basis:
Sales in Year = $14,500,000
Operating income = $1,200,000
Average assets = $15,000,000
a. ROI = 8% ($1,200,000/$15,000,000 x 100)
b. Margin = 8.28% ($1,200,000/$14,500,000 x 100)
c. Turnover = 0.97x ($14,500,000/$15,000,000)
d. The Year 4's ROI increased over the Year 3 level because of the increased average assets and operating income.
Data and Calculations:
Ready Electronics Operating Results
Year 1 Year 2 Year 3 Projected Year 4
Sales $14,500,000 $ 9,500,000 $ 9,000,000 $14,500,000
Operating income 1,200,000 1,345,000 945,000 1,200,000
Average assets 15,000,000 15,000,000 15,000,000 12,000,000
Average assets in Year 4 = $12,000,000 ($15,000,000 x (1 - 20%).
Formula:
ROI (Return on Investment) = Operating Income/Average Assets x 100
Margin = Operating Income/Sales x 100
Turnover = Sales/Average Assets
Learn more about ROI, margin, and Asset Turnover here: https://brainly.com/question/25814719 and https://brainly.com/question/25895372
Does PepsiCo’s portfolio exhibit good resource fit? What are the cash flow characteristics of each of PepsiCo’s six segments? Which businesses are the strongest contributors to PepsiCo’s free cash flows?
Answer:
Yes, PepsiCo’s portfolio exhibit good resource fit.
The cash flow characteristics of PepsiCo's six segments are
Ability to scout for future acquisitions. Good credits and return on Investment.Reinvestment in the development of businessAbility to pay off expensesAbility to provide a buffer against future financial challengesGood sales in and out of season,The strongest contributors to PepsiCo is:
Frito-Lay North America (FLNA), Quaker Foods North America (QFNA), North America Beverages (NAB), Latin America, Europe Sub-Saharan Africa (ESSA), and Asia, Middle East and North Africa (AMENA)
Frito-Lay ratings is good in that it accounts for 29% of PepsiCo's total revenue as at Septemeber 2019 report.
Final answer:
To determine if PepsiCo's portfolio exhibits good resource fit, an analysis of the cash flow characteristics of each of its six segments is necessary, along with an understanding of the company's dependence on cash flows from investing and financing activities. Evaluating cash tied up in receivables and payables, alongside the company's financial stability, ethics, competitive environment, and workforce treatment, would provide a comprehensive view.
Explanation:
To evaluate if PepsiCo's portfolio exhibits good resource fit, we can first consider if the company's core operations generate more cash than they use. In general, a diversified portfolio like PepsiCo's, with multiple product lines and segments, should balance cash flows across the business divisions. Positive cash flow from operations indicates good resource fit as it implies the company is efficiently generating enough revenue to cover its operational costs and invest in growth.
For a detailed analysis, one would need to examine the cash flow characteristics of PepsiCo's six business segments. These segments include Frito-Lay North America, Quaker Foods North America, North America Beverages, Latin America, Europe Sub-Saharan Africa, and Asia, Middle East and North Africa. The segments' individual performance can indicate which are the strongest contributors to PepsiCo’s free cash flows and their influence on the overall resource fit of the company.
Moreover, understanding the dependence of the organization on cash flows from investing activities and financing activities is pivotal. Predictable cash flows from these activities can support basic operations if necessary, though a heavy reliance may indicate potential resource misalignment within the company's portfolio.
The analysis should also include the amount of cash tied up in transactions outside of the company's direct control, such as receivables and payables. High levels of receivables might indicate that a lot of cash is locked up, whereas a substantial amount in payables could suggest that the company has favorable payment terms with its suppliers, which is a positive sign of cash flow management.
the strength of PepsiCo's portfolio and cash flow contributions is assessed by looking at the firm's financial stability, its ethical considerations, employee treatment, competitive environment, as well as by examining strategic decisions like mergers and product line expansions.
Country Gold Silver Bronze Totals United States 35 39 29 103 China 32 17 14 63 Russia 27 27 38 92 Australia 17 16 16 49 Japan 16 9 12 37 Totals 127 108 109 344 If a medal is picked at random from this group, find the probability that it was A gold medal....................................... A silver medal won by a Russian...................................... A bronze medal or won by the United States............................... A silver medal or a bronze medal...................................... A gold medal and a silver medal....................................... A silver medal given that it was won by Japan................................. A medal won by Australia given that it was bronze.....................................
Answer:
0.3692
0.0785
0.5320
0.6308
0
0.2432
0.1468
Explanation:
A gold medal - Number of gold medals divided by total number of medals:
[tex]P(G) = \frac{127}{344}\\P(G) = 0.3692[/tex]
A silver medal won by a Russian - Number of silver medals won by Russia divided by total number of medals:
[tex]P(S\cap R) = \frac{27}{344}\\P(S\cap R) = 0.0785[/tex]
A bronze medal or won by the United States - Number of total bronze medals added to silver and gold medals from USA, divided by total number of medals:
[tex]P(B\cup U)=\frac{109+35+39}{344}\\P(B\cup U)=0.5320[/tex]
A silver medal or a bronze medal - Number of total silver plus total gold medals divided by total number of medals:
[tex]P(S\cup B)=\frac{108+109}{344}\\P(S\cup B)=0.6308[/tex]
A gold medal and a silver medal - A medal can't be both gold and silver, the probability is zero:
[tex]P(G\cap S)=0[/tex]
A silver medal given that it was won by Japan - Number of Japan silver medals divided total medals won by Japan:
[tex]P(S|J)=\frac{9}{37}\\P(S|J)=0.2432[/tex]
A medal won by Australia given that it was bronze - Number of Australia bronze medals divided by total bronze medals:
[tex]P(A|B)=\frac{16}{109}\\P(A|B)=0.1468[/tex]
Priya owns a small manufacturing operation and is reviewing her company's pricing strategy. She sees that her company's total variable expenses are $987,493 and its fixed expenses are $378,674. Her company's total revenue is $1,590,655. Suppose that Priya's company manufactures 84,000 units of the product. What is her company's breakeven selling price?
Answer:
$16.26
Explanation:
The break-even point is the level of sales at which the business incur no profit no loss.Fixed and variable costs are covered at this level of sales. Use following formula of break-even to calculate the fixed cost.
As we know that
Break-even price per unit = Variable cost per unit + Fixed cost per unit
Break-even price per unit = ($987,493/84,000) + ($378,674/84,000)
Break-even price per unit = $16.26 (Rounded to 2 decimal places )
Operating profits and losses for the seven industry segments of Cullumber Corporation are:
Penley $94 Cheng $(18 )
Konami (41 ) Takuhi 34
KSC 27 Molina 136
Red Moon 50
Based only on the operating profit (loss) test, which industry segments are reportable?
Penley ReportableNot Reportable Cheng ReportableNot Reportable
Konami ReportableNot Reportable Takuhi ReportableNot Reportable
KSC ReportableNot Reportable Molina ReportableNot Reportable
Red Moon ReportableNot Reportable
Answer:
Penley Reportable
Cheng Not Reportable
Konami Reportable
Takuhi Not Reportable
KSC Reportable
Molina Not Reportable
Red Moon Reportable
Explanation:
total profits pf projectable segments
= 94 + 18 + 41 + 27 + 136 + 50
= $400
operating profit(loss) test = $400*10%
= $40
7. Suppose that people expect inflation to equal 3%, but in fact, prices rise by 5%. Describe how this unexpectedly high inflation rate would help or hurt the following: 1. the government 2. a homeowner with a fixed-rate mortgage 3. a union worker in the second year of a labor contract 4. a college that has invested some of its endowment in government bonds
Answer:
The answer is:
1. Help
2. Help
3. Hurt
4. Hurt
Explanation:
1. Help. This unxpected increase in inflation will help the government because this will increase its revenue and also reduce the real value of government outstanding debts.
2. Help. Paying at a fixed rate that was agreed when the interest rate was 3percent will be of help with the home owners because the real interest rate he will be paying lower. The lenders lose during this period.
3. Hurt. It will hurt this worker because the contract was agreed when the interest rate was 3percent. Now that prices of goods and services have increased, purchasing power will be reduced.
4. Hurt. Because with increased inflation, interest rates will be lower. So the college is earning lower interest rate.
When the selling division in an internal transfer has unsatisfied demand from outside customers for the product that is being transferred, then the lowest acceptable transfer price as far as the selling division is concerned is: A. variable cost of producing a unit of product. B. the full absorption cost of producing a unit of product. C. the market price charged to outside customers, less costs saved by transferring internally. D. the amount that the purchasing division would have to pay an outside seller to acquire a similar product for its use.
Answer:
C. the market price charged to outside customers, less costs saved by transferring internally.
Explanation:
Divisional manager performance is evaluated separately from one department to another. The Selling department need a minimum price equivalent to price the items fetch in market transaction to raise performance.
However goal congruence has to be met, therefore the price must exclude savings as a result of Internal transfer for the interest of the firm as a whole.
Assume you’ve just started a new business to manufacture Fry-Plate, a new solar-powered cooking pan for camping. Your business analyst tells you that in the long run Fry-Plate will sell for $32.50 because, after a few years pass, similar products will be introduced by your competitors. Assume that, in the long run, you want to earn $4.50 on each unit of Fry-Plate sold. What is the target price? What is the target profit? What is the target cost? (Round your answers to 2 decimal places.)
Answer:
Target price $32.50
Target profit $4.50
Target cost $28.00
Explanation:
Target price $32.50
Target profit $4.50
Target cost ($32.50-$4.50)
$28.00
Therefore the target price is $32.50,
The target profit is $4.50 while the target cost is $28.00
Answer:
First of all let's understand that Target costing is a system under which a company plans the price, costs, and the margins that it wants to achieve for a new product in advance. The following are the three terms that should be familiarized.
(a) Target price – It is the price the company is expected to sell.
(b) Target profit – It is the required margin the company is expected to gain on selling price.
(c) Target cost – It is the cost the company is expected to incur on manufacturing of the product.
Based on the given information, the target price, target profit and target cost is determined as below:
(a) Target price is the selling price. That is $32.50.
(b) Target profit is the amount we wish to earn. That is $4.50.
(c) Target cost is the difference between the target price and the target profit. That is $28 ($32.50 - $4.50).
Explanation: