Braxton Corp. has no debt but can borrow at 6.7 percent. The firm’s WACC is currently 8.5 percent, and the tax rate is 35 percent.
a. What is the company’s cost of equity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity %
b. If the firm converts to 20 percent debt, what will its cost of equity be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity %
c. If the firm converts to 40 percent debt, what will its cost of equity be?
d. If the firm converts to 20 percent debt, what is the company’s WACC?
e. If the firm converts to 40 percent debt, what is the company’s WACC?
WACC___%.
Answers
Answer
The answer and procedures of the exercise are attached in the image below.
Explanation
Please consider the data provided by the exercise. If you have any question please write me back. All the exercises are solved in a single sheet with the formulas indications.
Final answer:
Braxton Corp's initial cost of equity is 8.5%. If Braxton Corp takes on 20% debt, the new cost of equity will be 9.54%, and with 40% debt, it will be 11.12%. At 20% debt, the company's WACC and cost of equity for 40% debt need additional calculations involving the WACC formula with the given tax rate and cost of debts.
Explanation:
To answer the student's questions regarding Braxton Corp., we start with the information that the corporation currently has no debt and its Weighted Average Cost of Capital (WACC) is 8.5%, with a tax rate of 35%. Initially, the company's cost of equity is the same as its WACC since it has no debt, so it is 8.5%.
To calculate the new cost of equity after introducing debt, we can use the Modigliani-Miller proposition II with taxes, which identifies that the cost of equity increases with leverage due to the increased risk perceived by equity holders. The formula for the cost of equity when there is debt in the capital structure is:
Cost of equity = cost of equity with no leverage + (debt-to-equity ratio * (cost of equity with no leverage - after-tax cost of debt)).
To find the after-tax cost of debt, we use the formula: After-tax cost of debt = interest rate on debt * (1 - tax rate).
For Braxton Corp, the after-tax cost of debt = 6.7% * (1 - 0.35) = 4.355%.
Let's now calculate the new cost of equity if the firm converts to 20% and 40% debt:
20% Debt: The debt-to-equity ratio = 0.20 / (1 - 0.20) = 0.25
40% Debt: The debt-to-equity ratio = 0.40 / (1 - 0.40) = 0.6667
Using these debt-to-equity ratios, we can calculate the new cost of equity as follows:
At 20% debt:
Cost of equity = 8.5% + (0.25 * (8.5% - 4.355%)) = 9.53625% (rounded to 9.54%)
At 40% debt:
Cost of equity = 8.5% + (0.6667 * (8.5% - 4.355%)) = 11.11523% (rounded to 11.12%)
Lastly, to calculate the WACC for 20% and 40% debt scenarios, we use the WACC formula:
WACC = ((E/V) * Re) + ((D/V) * Rd * (1 - Tc)), where E is the market value of equity, Re is the cost of equity, D is the market value of debt, Rd is the cost of debt, V is the total market value of the firm's financing (E + D), and Tc is the corporate tax rate.
Related Questions
Bruce owns a cooperative project with two other members. Any member that chooses to put in a full day of work faces a cost of £50 but produces a total income of £120, which is shared amongst the three. So, for example, if Bruce and one other member do a full day of work, then the income per member is (£120 x 2)/3 = £80, leaving Bruce with a net income of £80 - £50 = £30. Assume that a member must either put in a full day of work or none at all. Based on this information, we can conclude that:
Answers
Answer:
If all are in work, income of each member is ($120 × 3 ÷ 3 =) $120 and the net income of each member is ($120 - $50 =) $70. This is the highest total net income of each member and this could be achieved if all work.
Explanation:
If all are in work, income of each member is ($120 × 3 ÷ 3 =) $120 and the net income of each member is ($120 - $50 =) $70. This is the highest total net income of each member and this could be achieved if all work.
Freshmart, Inc., began operations this year. The company produced 1,000 units and sold 1,000 units at a selling price of $100 per unit. Fixed overhead costs totaled $30,000 and fixed selling and administrative expenses were $15,000. Variable production costs were $25.00 per unit while variable selling and administrative expenses were $10.00 per unit. Contribution margin was:
A. $20,000.
B. $45,000.
C. $65,000.
D. $55,000.
Answers
Answer:
C. $65,000
Explanation:
Units produced (U) = 1,000
Selling price (P) = $100 per unit
Fixed overhead costs = $30,000
Fixed selling and administrative expenses = $15,000
Variable production costs (Vp) = $25.00 per unit
Variable selling and administrative expenses (Vs) = $10.00 per unit
Contribution margin (CM) is defined as Sales revenue (R) minus variable costs (V). Thus, fixed costs should not be considered. Sales revenue is given by:
[tex]R= U*P = 1,000*\$100\\R = \$100,000[/tex]
Variable costs are given by:
[tex]V= U*(V_{p}+V_{s}) = 1,000*(\$25.00 +\$10.00)\\V = \$35,000[/tex]
Therefore, the contribution margin is:
[tex]CM = R- V = \$100,000-\$35,000\\CM = \$65,000[/tex]
When Bruno's basis in his LLC interest is $150,000, he receives cash of $55,000, a proportionate share of inventory, and land in a distribution that liquidates both the LLC and his entire LLC interest. The inventory has a basis to the LLC of $45,000 and a fair market value of $48,000. The land's basis is $70,000, and the fair market value is $60,000. How much gain or loss does Bruno recognize, and what is his basis in the inventory and land received in the distribution?
Answers
Answer:
Please see attachment
Explanation:
Please see attachment .
Please note that B= Bruno
3 main sections of the blance sheet
Answers
3 main sections of the balance sheet are:
Answer:
1. ownership equity
2. liabilities
3. assets
Answer:
Asset, liability and equity
Explanation:
There are 3 main sections in balance sheets;
1. Assets - have value because a business can use or exchange them to produce the services or products of the business. Assets mainly categorize into current and non-current.
2. Liabilities - are the debts owed by a business, often incurred to fund its operation, it results to a possible outflow in the future. Liabiities also divided into current and non-current portion, that depends on its maturity period.
3. Equity - represents retained earnings and funds contributed by its shareholders
Suppose that this year's money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5 trillion. The price level is , and the velocity of money is . Suppose that velocity is constant and the economy’s output of goods and services rises by 5 percent each year. Use this information to answer the questions that follow. If the Fed keeps the money supply constant, the price level will , and nominal GDP will . If the Fed wants to keep the price level stable instead, it should next year. If the Fed wants an inflation rate of 10 percent instead, it should . (Hint: The quantity equation can be rewritten as the following percentage change formula:
Answers
The Fed can control the price level and nominal GDP by manipulating the money supply, assuming a constant velocity. If the Fed aims for stable price levels, the rise in nominal GDP has to be due to an increased real output. For a 10% inflation, the Fed should increase the money supply by 15%, encompassing both increased output and price levels.
Explanation:This question applies the formula of the Quantity Theory of Money, which is Money Supply × Velocity = Nominal GDP. This formula is also referencing to the concept that nominal GDP equals the Price Level multiplied by Real GDP.
If the Fed keeps the money supply constant and velocity stays the same, but real output increases (i.e. Real GDP increases by 5%), then the nominal GDP would increase as well. For the price level to remain stable, the increase in nominal GDP must be entirely due to the increase in real output (i.e. the 5% increase in Real GDP), hence no change in the price level.
However, if the Fed wants an inflation rate of 10%, it should increase the money supply by 15% (5% for real GDP growth and 10% for inflation). This is because with the assumed constant velocity, an increase in the money supply would lead to an increase in nominal GDP either through inflation (increase in prices) or through an increase in the output of the economy (Real GDP).
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Sheridan Company’s standard labor cost per unit of output is $33.00 (3.00 hours x $11.00 per hour). During August, the company incurs 2,970 hours of direct labor at an hourly cost of $12.10 per hour in making 1,100 units of finished product.
Answers
Answer:
Instructions are listed below.
Explanation:
Giving the following information:
Sheridan Company’s standard labor cost per unit of output is $33.00 (3.00 hours x $11.00 per hour). During August, the company incurs 2,970 hours of direct labor at an hourly cost of $12.10 per hour in making 1,100 units of finished product.
Direct labor efficiency variance= (SQ - AQ)*standard rate
Direct labor efficiency variance= (3,300hs - 2,970hs)*11= $3,630 favorable
Direct labor rate variance= (Standard Rate - Actual Rate)*Actual Quantity
Direct labor rate variance= (11 - 12.1)*2,970= $3,267 unfavorable
The shares of preferred stock issued by Saturn Corporation can be exchanged for common stock. However, any dividends in arrears are lost. Which of the following features are present in the preferred stock issued by Saturn?Select all answers that apply to this question.ConvertibleRedeemableCumulativeNoncumulative
Answers
Convertible and Noncumulative features are present in the preferred stock issued by Saturn.
Explanation:
It requires the owners of these preferred shares to be traded for common stocks so as to have the possibility of exchanging their preferential stock to common equity within a predisposed time.
Since it states that "the arrears payments have been lost," though, this means that the preferred stock does not collect.
You have no right to receive past dividends as the holders of this form of share if the Company starts to question again expectations for dividends. If the distributing company is making losses during that year, it can opt to miss dividends on such non-cumulative, convertible redeemable preferred stock.
Michigan unemployment tops 15% The U.S. Department of Labor reported that Michigan's unemployment rate in June 2009 rose to 15.2%, becoming the first state in 25 years to suffer an unemployment rate exceeding 15%. Michigan has been battered by the collapse of the auto industry and the housing crisis and has had the highest unemployment rate in the nation for the past 12 months. Source: CNNMoney, July 17, 2009 Is this increased unemployment frictional, structural, or cyclical? Explain. The increased unemployment rate in Michigan is _____. A. structural, frictional, and cyclical, which are all due in part to the downturn in the U.S. economy B. cyclical that arises due to a downturn in the U.S. economy and frictional that arises due to changes in international competition C. structural that arises due to changes in international competition, and cyclical due to a downturn in the U.S. economy D. cyclical only, and is due to a downturn in the U.S. economy E. frictional that arises due to normal labor turnover
Answers
Angela, Inc., holds a 90 percent interest in Corby Company. During 2017, Corby sold inventory costing $77,000 to Angela for $110,000. Of this inventory, $40,000 worth was not sold to outsiders until 2018. During 2018, Corby sold inventory costing $72,000 to Angela for $120,000. A total of $50,000 of this inventory was not sold to outsiders until 2019. In 2018, Angela reported separate net income of $150,000 while Corby's net income was $90,000 after excess amortizations. What is the noncontrolling interest in the 2018 income of the subsidiary?
Answers
Answer
The answer and procedures of the exercise are attached in a microsoft excel document.
Explanation
Please consider the data provided by the exercise. If you have any question please write me back. All the exercises are solved in a single sheet with the formulas indications.
Preferred stock which confers rights to prior periods' unpaid dividends even if they were not declared is called:
A. Noncumulative preferred stock.
B. Participating preferred stock.
C. Callable preferred stock.
D. Cumulative preferred stock.
Answers
Answer:
D. Cumulative preference stock.
Explanation:
A. Non cumulative Pref stock: if preference dividend is not paid in the current year, it is forfeited.
B. Participating Pref Stocks: Holders can participate in profit sharing after receipt of fixed interest.
C. Callable Pref Stock: This are stocks that the company can redeem in between. Hence the company can redeem it at a premium.
D. Cumulative Pref Stock: The dividend are accumulated and paid anytime before payment to common stock holders.
The excess return is the difference between the average return on a security and the average
return for ________.
A) Treasury bonds
B) a portfolio of securities with similar risk
C) a broad-based market portfolio like the S&P 500 index
D) Treasury bills
Answers
Answer:
(d) Treasury bills
Explanation:
Treasury bills :
Treasury Bills is also called T-bills. It is the momentary currency advertise instrument, given by the national bank in the interest of the administration to control brief liquidity shortages.
These do not yield any interest, but issued at a discount, at its redemption price, and repaid at par when it gets matured.
Charles is a single person, age 35, with no dependents. In 2019, Charles has gross income of $75,000 from his sole proprietorship. Charles also incurs $80,000 of deductible business expenses in connection with his proprietorship. He has interest and dividend income of $22,000. Charles has $7,000 of itemized deductions. Charles's taxable income is
A) $6, 650.
B) $17,000.
C) $12, 950.
D) $10, 700.
Answers
Answer:
A)
Explanation:
Fenton Manufacturing Company at June 30: Cash in bank account $ 6,455 Inventory of postage stamps $ 74 Money market fund balance $ 12,400 Petty cash balance $ 350 NSF checks from customers returned by bank $ 867 Postdated checks received from customers $ 391 Money orders $ 257 A nine-month certificate of deposit maturing on December 31 of current year $ 8,000 Based on this information, Fenton Manufacturing Company should report Cash and Cash Equivalents on June 30 of:
Answers
The Cash and Cash Equivalents of Fenton Manufacturing Company on June 30 should be reported as $26,855. This is derived from the sum of cash in the bank account, money market fund balance, and a 9-month certificate of deposit maturing by the year's end.
Explanation:The Fenton Manufacturing Company should report its Cash and Cash Equivalents by calculating the total of its cash, money market fund balance, and the nine-month certificate of deposit. The total would then be calculated as follows: $6,455 (Cash in bank account) + $12,400 (Money market fund balance) + $8,000 (A 9-month certificate maturing in December). Therefore, the total Cash and Cash Equivalents reported on June 30 would be $26,855.
It's important to note that some items are not included in this calculation.
Inventory of postage stamps: This is not cash and thus is not included.Petty cash: This can be included under cash.Not sufficient funds (NSF) checks: These are not considered good cash until they have cleared the bank.Postdated checks: These cannot be included because they aren’t yet available.Money orders: These are included within Cash and Cash Equivalents because they can be converted easily into cash.Learn more about Cash Equivalents here:https://brainly.com/question/34319867
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Final answer:
Fenton Manufacturing Company should report $19,462 as Cash and Cash Equivalents on June 30, including cash in the bank, the money market fund balance, the petty cash, and money orders.
Explanation:
To determine the Cash and Cash Equivalents that Fenton Manufacturing Company should report on June 30, we must identify items that are considered cash or equivalent to cash. According to accounting standards, cash and cash equivalents include currency on hand, demand deposits, and investments with original maturities of three months or less.
Cash in bank account: $6,455
Money market fund balance: $12,400
Petty cash balance: $350
Money orders: $257
Items such as inventory of postage stamps, NSF (non-sufficient funds) checks, postdated checks received, and long-term certificates of deposit are not considered cash equivalents. Thus, the Cash and Cash Equivalents for Fenton Manufacturing Company on June 30 would be the sum of the amounts listed above.
Adding these amounts gives us $6,455 (Cash in bank) + $12,400 (Money market) + $350 (Petty cash) + $257 (Money orders) = $19,462 as the total Cash and Cash Equivalents that should be reported.
Which of the following policies represents an automatic stabilizer with respect to fiscal policy?A. Elected officials decide to raise the minimum wage just as the economy starts to slow down. B. The government builds more roads to reduce commuting time. C. As corporations report lower profits, their tax bill falls. D. The government agrees to review income tax rates whenever economic conditions warrant.
Answers
Answer:
C. As corporations report lower profits, their tax bill falls.
Explanation:
You will find the procedures, formulas or necessary explanations in the archive attached below. If you have any question ask and I will aclare your doubts kindly.
Consider the following balance sheet for the Wahoo Bank. Use it to answer the two questions that follow. Use a required reserve ratio of 10% and assume that the bank keeps no excess reserves. What will change on the balance sheet if the Fed buys $800 in government securities from the bank? Wahoo Bank Balance Sheet Assets Liabilities and net worth Government $1,600 Liabilities: securities Required reserves Excess reserves Loans $400 $0 Checking deposits $4,000 $1,000 $3,000 Net worth Total assets $5,000
Answers
Answer:
Please see attachment
Explanation:
Please see attachment
Assume that Jones deposits $500 in currency into her checkable deposit account in First National Bank. A half‑hour later Smith obtains a loan for $750 at this bank. By how much and in what direction has the money supply changed? Explain.
Answers
Answer:
money supply increase here $750
Explanation:
given data
deposits = $500
loan = $750
time = half hour
to find out
how much and in what direction has the money supply changed
solution
we know that Currency and check able deposits both are the part of money supply
so that Jones deposit money not impact the money supply
and we know when we go for loan , bank open check able deposit account
so we can say new loan made is = $750
Check able deposit is also part of money supply
so money supply increase here $750
Depositing $500 does not change the money supply, but when Smith obtains a $750 loan, the money supply increases by $750 due to the creation of new demand deposits.
Explanation:When Jones deposits $500 in currency into her checking account in First National Bank, the bank's reserves increase by that amount, but the money supply does not change because the currency was already part of the money supply in the form of physical cash. However, when Smith obtains a loan for $750, the money supply increases by that amount. This is because the bank has created new money through lending that did not exist in the form of physical cash or demand deposits before the loan was made. This expansion of money supply is a result of the money multiplier effect in fractional reserve banking, where banks hold only a fraction of their deposits in reserve and loan out the rest, therefore increasing the total amount of checkable deposits within the economy.
Two years back, the Republic of Terbia, a developed economy, experienced a massive boom in the information technology (IT) industry. The rapid expansion of credit to the firms in this industry resulted in a significant increase in employment and prices in the economy. However, due to overvaluation and speculation in the market, stock prices of these firms fell sharply. IT being one of the most important sectors, this downturn affected the economy adversely, leading to a recession. Alicia White, an industry expert, suggests that expansionary monetary policy by the central bank is necessary to induce greater spending in the economy. However, Jaime Russell, a teacher at a community college, disagrees. According to him, increasing the supply of money would not help. The only possible impact of a fall in the interest rate would be an increase in aggregate supply. This, in turn, will reduce prices and profits further. Instead, the government should use expansionary fiscal policies to boost aggregate demand. Alicia and Jaime are most likely to have a difference of opinion on which of the following?
A. Falling prices in Terbia could indicate a slump in aggregate demand.
B. An expansionary fiscal policy can lead to an increase in prices in Terbia.
C. Expansionary monetary policy is more effective under a flexible exchange rate system.
D. Consumers in Terbia are confident that the economy will turn around in the near future.
E. Cyclical unemployment in Terbia has increased in recent months.
Answers
Answer:
D. Consumers in Terbia are confident that the economy will turn around in the near future.
Explanation:
Please consider the information provided by you in the exercise. If you have any question please write me back. Please take a look to the image attached.
Cindy is a baker and runs a large cupcake shop.
She has already hired 11 employees and is thinking of hiring a 12th.
Cindy estimates that a 12th worker would cost her $100 per day in wages and benefits while increasing her total revenue from $2,600 per day to $$2,750 per day.
Should Cindy hire a 12th worker? LO14.2
A. Yes
B. No
C. You need more information to figure this out
Answers
Answer:
The answer is A. Yes, Cindy should hire 12th worker.
Explanation:
Please see the below for detailed calculations and explanations:
By increasing one employees, Cindy's cupcakes shop marginal cost per day will increase by the amount equals to the salary and benefit of the 12th in one day which is: $100;
The benefits brought back to Cindy's shop is the increase in marginal revenue of $150 ( calculated as $2,750 - $2,600).
As marginal revenue is higher than marginal cost in case the 12th employees is hired, Cindy should hire one more employees as it will increase her total profit at the end of the day by $50 ( i.e Marginal revenue - Marginal cost = 150 - 100 =$50).
The sales and cost data for two companies in the transportation industry are as follows: X Company Y Company Amount Percent Amount Percent Sales $120,000 100 $120,000 100 Variable costs 72,000 60 36,000 30 Contribution margin 48,000 40 84,000 70 Fixed costs 36,000 72,000 Operating income $12,000 $12,000 The annual breakeven point in sales dollars for X Company is:
Answers
Answer:
The annual breakeven point in sales dollars for Company X is $90,000
Explanation:
Hi, in order to find the break even point (BEP) in dollars, we need to use the following formula.
[tex]BEP(Dollars)=\frac{FixedCosts}{ContributionMargin}[/tex]
Everything should look like this.
[tex]BEP(Dollars)=\frac{36,000}{0.4} =90,000[/tex]
Best of luck.
Final answer:
The breakeven point for X Company is calculated by dividing the fixed costs by the contribution margin ratio, which results in a breakeven point of $90,000 in sales.
Explanation:
To calculate the annual breakeven point in sales dollars for X Company, we use the breakeven formula which is Fixed Costs divided by the Contribution Margin Ratio. The Contribution Margin Ratio (CM Ratio) is calculated by dividing the Contribution Margin by the Sales. For X Company, the CM Ratio is $48,000 divided by $120,000, which equals 0.4 or 40%. The breakeven point in sales dollars is then found by dividing the Fixed Costs ($36,000) by the CM Ratio (0.4), which results in a breakeven point of $90,000.
X Company needs to achieve $90,000 in sales to cover all its fixed and variable costs and to break even.
Mary Stahley invested $4500 in a 48-month certificate of deposit (CD) that earned 9.5% annual simple interest. When the CD matured, she invested the full amount in a mutual fund that had an annual growth equivalent to 21% compounded annually. How much was the mutual fund worth after 10 years? (Round your answer to the nearest cent.)
Answers
Answer:
Please see attachment
Explanation:
Please see attachment
When calculating simple interest, the interest earned cannot earn any interest while in compound interest. The interest itself starts earning money when it is due.
This is the reason why compound interest gives a higher return.
We'll first find the maturity value of the CD at the end of 48 months ( 4years).
=4500 + 4500 ∗ 0.095 ∗ 4 = 6210
She will invested $6210 into the mutual fund
h= After 10 years
R= 21% compound interest
P(1 + R/100) h
6210 (1+21/100) 10 (note that it is raise to power 10
when you use your calculator to sum the above together, it will give you.
$ 41,777.75
Conclusively, the mutual fund worth after 10 years is $ 41,777.75.
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The BRS Corporation makes collections on sales according to the following schedule: 40% in month of sale 56% in month following sale 4% in second month following sale The following sales have been budgeted: Sales April $ 150,000 May $ 160,000 June $ 150,000 Budgeted cash collections in June would be:
Answers
Answer:
Budgeted cash collections in June would be: $155,600
Explanation:
In The BRS Corporation:
Budgeted cash collections in June = 40% sales amount in June + 56% sales amount in May + 4% sales amount in April
Sales have been budgeted: in April: $150,000, in May: $160,000, in June: $150,000
Therefore, Budgeted cash collections in June = 40% x $150,000 + 56% x $160,000 + 4% x $150,000 = $60,000 + $89,600 + $6,000 = $155,600
The budgeted cash collections for BRS Corporation in June would be $155,600, which is the sum of 40% of June's sales, 56% of May's sales, and 4% of April's sales.
To calculate the budgeted cash collections for BRS Corporation in June, we use the provided percentages for collections in the month of sale, the month following the sale, and the second month following the sale. We will apply these percentages to the budgeted sales figures for April, May, and June.
Calculating June Collections:
Collections from June sales (40% of June sales):0.40 x $150,000 = $60,000Collections from May sales (56% of May sales):
0.56 x $160,000 = $89,600Collections from April sales (4% of April sales):
0.04 x $150,000 = $6,000
Now, we add the amounts collected for each month:
Total budgeted cash collections in June = $60,000 (June) + $89,600 (May) + $6,000 (April) = $155,600
The following financial information applied to your company for 2018:
• Sales revenues, $4,350,000 • Labor and materials, $970,000
• Depreciation for existing assets purchased prior to 2018, $80,000
• On January 5, 2018, you purchased $130,000 of equipment classified as 5-year MACRS assets
• On September 23, 2018, you purchased $210,000 of equipment classified as 7-year MACRS assets
a) Calculate the total depreciation expenses allowed in 2018.
b) Calculate the taxes your company owes for 2018 and your net income for 2018.
Answers
Answer:
a) fiscal-year depreciation 136,009
b) fiscal year taxable income 3,243,991
Explanation:
fiscal-year depreciation:
The MACRS (Modified Accelerated Cost Recovery System) always use alf-year convention
for the 5-year class:
130,000 x 20% = 26,000
for the 7-years class:
210,000 x 14.29% = 30,009
previous year assets: 80,000
total depreciation: 136.009
taxale income:
sales revenues 4,350,000
operating expense (970,000)
depreciaiton expense (136, 009)
net income: 3,243,991
Duo Company manufactures two products, Uno and Dos. Contribution margin data follow.
Uno Dos
Unit sales $ 13.00 $ 31.00
Less variable cost:
Direct material $ 7.00 $ 5.00
Direct labor 1.00 6.00
Variable overhead 1.25 7.50
Variable selling and administrative cost 0.75 0.50
Total variable cost $ 10.00 $ 19.00
Unit contribution margin $ 3.00 $ 12.00
Duo company’s production process uses highly skilled labor, which is in short supply. The same employees work on both products and earn the same wage rate.
Required:
1. Calculate the contribution margin per scarce resource for each of the products assuming an arbitrary time period for which direct laborers earn $1.00 per unit.
2. Which of Duo Company’s products is most profitable?
Answers
Answer:
1. Uno = $3
Dos = $2
2. Uno
Explanation:
1. The computation of the contribution margin per scarce resource for each of the products is shown below:
= Unit contribution margin ÷ direct laborers per unit
For Uno, it would be
= $3 ÷ $1 = $3
For Dos, it would be
= $12 ÷ $6 = $2
2. As we compare the contribution margin , the Uno has more unit of contribution margin than the Dos. So, Uno is most profitable
Final answer:
The scarce resource's contribution margin for Uno is $3.00 per labor dollar and for Dos, it's $2.00 per labor dollar. The Dos product is more profitable with a unit contribution margin of $12.00 compared to Uno's $3.00.
Explanation:
The contribution margin per scarce resource, in this case, direct labor, can be calculated by dividing the unit contribution margin by the direct labor cost. So for the Uno product, it's $3.00/$1.00 = $3.00 per labor dollar. For the Dos product, it's $12.00/$6.00 = $2.00 per labor dollar.
To determine which of Duo Company's products is most profitable, we should consider the unit contribution margin. Here, the Dos product, with a unit contribution margin of $12.00, is more profitable per unit than the Uno product which has a unit contribution margin of $3.00.
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Sandpiper Company has 10,000 shares of cumulative preferred 2% stock, $100 par and 50,000 shares of $30 par common stock. The following amounts were distributed as dividends: Year 1 $40,000 Year 2 10,000 Year 3 60,000 Determine the dividends per share for preferred and common stock for each year. Round all answers to two decimal places. If an answer is zero, enter '0'.
Answers
Answer:
Year 1
$ 40.000 - Total Dividends
$ 20.000 - Preferred Stockholers
$ 20.000 - Common Stockholers
Year 2
$ 10.000 - Total Dividends
$ 10.000 - Preferred Stockholers
$ 0 - Common Stockholers
Year 3
$ 60.000 - Total Dividends
$ 30.000 - Preferred Stockholers
$ 30.000 - Common Stockholers
Total
$ 60.000 Preffered Stockholers
$ 50.000 Common Stockholers
Explanation:
First it's necessary to said that the preferred stockholders have a higher claim to dividends than common stock, it means that each time that the company paid dividends, the one corresponding to Preffered Stockholers must be paid first and if one year there are not enough dividends to pay then they must be paid the next year along with the dividends of next year, it's a kind of guaranteed dividend.
Total Dividends to Preferred Stockholders
10.000 Shares
2% percent of par value
$100 Par Value
Total Dividends: 10,000 * 2% * $100 = $ 20.000 of Dividend each year.
Preferred dividends for preferred stock.
$ 20.000
Total Dividends to be paid by the company each year
Year 1 Year 2 Year 3
$ 40.000 $ 10.000 $ 60.000
$ 20.000 $ 10.000 $ 30.000 Preffered Stockholers
$ 20.000 $ 30.000 Common Stockholers
Answer:
Year 1:
Dividend per common share: $0.4
Dividend per preferred share: $2
Year 2:
Dividend per common share: $0
Dividend per preferred share: $1
Year 1:
Dividend per common share: $0.6
Dividend per preferred share: $3
Explanation:
Year 1:
Dividend has to be paid to preferred stocks = 2% x 100 x 10,000 = $20,000 => Dividend per one preferred stock = 20,000/10,000 = $2
Dividend left to be paid to common share = (40,000-20,000) = $20,000 => Dividend per one common share = 20,000/50,000 = $0.4
Year 2:
Dividend has to be paid to preferred stocks = 2% x 100 x 10,000 = $20,000; Dividend actual paid-out = $10,000 => Dividend per one preferred stock = 10,000/10,000 = $1 & the other $1 per share will be paid later.
Dividend left to be paid to common share = 0
Year 3:
Dividend has to be paid to preferred stocks = 2% x 100 x 10,000 = $20,000 => Dividend per one preferred stock = 20,000/10,000 = $2. This plus $1 dividend per share payable from Y2 making the Dividend per one preferred stock paid out in Y3 = $3 => Total dividend paid to preferred stock = 3 x 10,000 =$30,000
Dividend left to be paid to common share = (60,000-30,000) = $30,000 => Dividend per one common share = 30,000/50,000 = $0.6
Michelle is an active participant in the rental condominium property she owns. During the year, the property generates a ($23,500) loss; however, Michelle has sufficient tax basis and at-risk amounts to absorb the loss. If Michelle has $132,000 of salary, $11,700 of long-term capital gains, $4,700 of dividends, and no additional sources of income or deductions, how much loss can Michelle deduct?
Answers
Rental loss: ($23,500). Income: $148,400. Loss < Income, so Michelle can deduct entire $23,500 loss against her taxable income. Consult tax professional for specifics.
Michelle can deduct the entire rental property loss of $23,500 against her income. Here's the breakdown:
1. Total income:
Salary: $132,000Long-term capital gains: $11,700Dividends: $4,700Total income: $132,000 + $11,700 + $4,700 = $148,4002. Deductible rental loss:
Since the rental loss ($23,500) is less than Michelle's total income ($148,400), she can deduct the entire loss amount against her taxable income.Therefore, Michelle can deduct $23,500 of the rental property loss. This will reduce her taxable income and potentially lower her tax liability.
Remember, this is a simplified scenario and other factors like state taxes or specific tax deductions might influence the actual amount Michelle can deduct. It's always recommended to consult with a tax professional for personalized advice.
Bumblebee Company estimates that 403,000 direct labor hours will be worked during the coming year, 2017, in the Packaging Department. On this basis, the budgeted manufacturing overhead cost data are computed for the year. Fixed Overhead Costs Variable Overhead Costs Supervision $94,920 Indirect labor $161,200 Depreciation 66,360 Indirect materials 112,840 Insurance 29,760 Repairs 80,600 Rent 29,400 Utilities 100,750 Property taxes 22,560 Lubricants 24,180 $243,000 $479,570 It is estimated that direct labor hours worked each month will range from 29,800 to 36,100 hours. During October, 29,800 direct labor hours were worked and the following overhead costs were incurred. Fixed overhead costs: Supervision $7,910, Depreciation $5,530, Insurance $2,435, Rent $2,450, and Property taxes $1,880. Variable overhead costs: Indirect labor $13,010, Indirect materials, $7,924, Repairs $5,910, Utilities $7,890, and Lubricants $2,098.
(a) Prepare a monthly manufacturing overhead flexible budget for each increment of 2,100 direct labor hours over the relevant range for the year ending December 31, 2017.
(b) Prepare a flexible budget report for October. (List variable costs before fixed costs.)
Answers
Answer:
The answers are attached in the following microsoft excel document.
Explanation:
Consider the data provided by you. The solution of the problems are attached below with the explanations necessary to resolve the problems. If you have any question please ask.
Assume the same set of facts for Berol Corporation as in Exercise 10-16 except that it received $109,862 in return for the issuance of the bonds when the market rate was 8%.Facts were: Berol Corporation sold 20-year bonds on January 1, 2012. The face value of the bonds was $100,000, and they carry a 9% stated rate of interest, which is paid on December 31 of every year. Berol received $91,526 in return for the issuance of the bonds when the market rate was 10%. Any premium or discount is amortized using the effective interest method.Required:
1.Prepare the journal entry to record the sale of the bonds on January 1, 2012, and the proper balance sheet presentation on this date.2,Prepare the journal entry to record interest expense on December 31, 2012, and the proper balance sheet presentation on this date.
Explain why the company was able to issue the bonds for $109,862 rather than for the face amount.
Answers
Answer
The answer and procedures of the exercise are attached in a microsoft excel document.
Explanation
Please consider the data provided by the exercise. If you have any question please write me back. All the exercises are solved in a single sheet with the formulas indications.
Cedar Corporation incurs a net capital loss of $20,000 in 20X3 that cannot be deducted on its income tax return but must be carried forward to 20X4. However, Cedar will deduct the net capital loss in the computation of current earnings and profits for 20X3.
A. True
B. False
Answers
Answer:True
Explanation:
The computation of profit for accounting purposes differs from profit for tax purposes. An item may be deducted for accounting purposes but not allowed for tax purposes e.g donations and these are referred to as permanent timing differences.
Some items are referred to as temporary timing differences which means they are consider for either tax or accounting in the current year and they are not consider for tax or accounting in the current year. This is called defer tax and it can be an asset if it leads less tax in future or a liability if it leads more tax payment in future.
The above explains why the net capital loss will be deducted in the current year for accounting profit and in the future for tax profit.
vINet Library issued $85 par value preferred stock that pays a 7.25% dividend rate per year. The stock has a beta of 1.13. The current risk-free rate is 2.1% and the market return is 11.2%. Assuming that CAPM holds, what is the intrinsic value of this preferred stock?
Answers
Answer:
$49.77
Explanation:
For computing the intrinsic value, first we have to determine the current year dividend and expected rate of return which is shown below:
The computation of the dividend is shown below:
= $85 × 7.25%
= $6.1625
And, the expected rate of return would be
= Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)
= 2.1% + 1.13 × (11.2% - 2.1%)
= 2.1% + 1.13 × 9.1%
= 2.1% + 10.283%
= 12.38%
Now the intrinsic value would be
= (Dividend) ÷ (Required rate of return)
= $6.1625 ÷ 12.38%
= $49.77
Answer: 49.77
Explanation:
.0210 + 1.13 ( 0.112 - .0210 ) = 12.38%
7.25% x 85 = 6.163
6.163 / 12.38% = 49.77
Using a large value for order k in the moving averages method is effective in
a. smoothing out random fluctuations.
b. eliminating the effect of seasonal variations in the time series.
c. tracking changes in a time series more quickly.
d. providing a forecast when only the most recent time series are relevant.
Answers
Using a large value for order k in moving averages smooths out random fluctuations by averaging multiple data points, which highlights longer-term trends and reduces noise.
Explanation:The use of a large value for order k in the moving averages method is most effective in smoothing out random fluctuations. When time series data is plotted on a graph, using a simple moving average with a larger order k means that each point on the moving average line is the average of the preceding k data points. This process averages out much of the short-term variability and noise, and it highlights longer-term trends or cycles. This is especially useful when the aim is to identify or forecast underlying trends without the distraction of the random fluctuations that can occur in the short term.
For instance, in the context of unemployment rates, using a five-year average smooths the graph compared to using monthly averages. Monthly figures tend to fluctuate more due to various factors influencing the labor market in the short term. In contrast, a five-year average can more clearly indicate the overall direction in which unemployment rates are moving, by smoothing out these short-term fluctuations.