Answer:
The activity rate will be 20 per order.
For product A it will be $8,000 applied
for Product B it will be $6,000 applied
Explanation:
estimated cost / activity pool = rate
14,000 / 700 = 20
Applied cost:
activity x rate
Product A 400 x 20 = 8,000
Product B 300 x 20 = 6,000
Answer:
$20 per purchase order
Explanation:
Resources in a company are allocated to companies at the beginning of a budgeting period based on consumption estimates. Activity-based costing (ABC) is a method used to identify the activities undertaken by an organisation, assigning the cost of each activity to the goods or services produced or offered by a company based on actual consumption of the related goods or services. The ABC method may support decisions associated with pricing, outsourcing and measurement of process improvements. The method allocates overhead costs of an activity based on cost drivers to determine the activity rate. This rate is then used to allocate costs based on actual consumption.
The overhead cost for the purchasing function of Devon Company is: $14,000
The cost driver is given as the number of purchase orders: 300(A) and 400(B)
The activity rate for the purchasing pool is therefore: $14,000/700 = $20 per order
Application:
If the actual purchase orders were below the estimated amount : say the orders for A were 250 and the actual purchase orders for B were 95, then the total cost of the purchasing function for the period would be (250 * $20) +(95*$20 = $6900 which would be below the $14,000 budget. That would signal that management would need to reassess and lower the resources allocated to the purchasing function during the next budgeting period.
If the actual orders were above the estimated amounts: say the orders for A were 450 and orders for B were 310 then the total cost incurred by the purchasing function would be (450 * $20) + (310 * $20) = $15200 which is above the budget. This would signal that there could be areas for process improvement to avoid redundancies arising from duplication of orders, loss of orders among other process inefficiencies.
You work for a marketing firm that has just landed a contract with Run-of-the-Mills to help them promote three of their products: guppy gummies, flopsicles, and mookies. All of these products have been on the market for some time, but, to entice better sales, Run-of-the-Mills wants to try a new advertisement that will market two of the products that consumers will likely consume together. As a former economics student, you know that complements are typically consumed together while substitutes can take the place of other goods. Run-of-the-Mills provides your marketing firm with the following data: When the price of guppy gummies increases by 5%, the quantity of flopsicles sold decreases by 4% and the quantity of mookies sold increases by 5%. Your job is to use the cross-price elasticity between guppy gummies and the other goods to determine which goods your marketing firm should advertise together.
By utilizing the concept of cross-price elasticity, the data indicates that guppy gummies and flopsicles, due to their negative cross-price elasticity, are complementary goods and should be advertised together. Guppy gummies and mookies, having a positive cross-price elasticity, are substitutes and are not typically consumed together.
Explanation:Based on the data provided, we can use the concept of cross-price elasticity to determine which products are complements and which are substitutes. Remember that substitute goods have positive cross-price elasticities: if the price of good A increases, the quantity consumed of good B also increases. On the other hand, complement goods have negative cross-price elasticities: if the price of good A increases, the quantity consumed of good B decreases.
In the case of guppy gummies and flopsicles, when the price of guppy gummies increases by 5%, the quantity of flopsicles sold decreases by 4%. This negative cross-price elasticity suggests that these goods are complements, meaning they are consumed together. Hence, it's a good idea to advertise these two products together.
Alternatively, when the price of guppy gummies increases by 5%, the quantity of mookies sold increases by 5%. This positive cross-price elasticity implies that guppy gummies and mookies are substitute goods, and they are not typically consumed together. Thus, it's not advisable to advertise these two products together.
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The Western Pipe Company has the following capital section in its balance sheet. Its stock is currently selling for $7 per share. Common stock (30,000 shares at $1 par) $ 30,000 Capital in excess of par 30,000 Retained earnings 150,000 Total equity $ 210,000 The firm intends to first declare a 15 percent stock dividend and then pay a 20-cent cash dividend (which also causes a reduction of retained earnings). Show the capital section of the balance sheet after the first transaction and then after the second transaction.
Western Pipe Co. After Stock Dividend
Common stock
Capital in excess of par
Retained earnings
Total equity
-------------------------
Western Pipe Co.After Stock Dividend
Common stock
Capital in excess of par
Retained earnings
Total equity
Answer:
(1)
CS 34,500
Capital in excess of par 57,000
RE 118,500
Total equity 210,000
(2)
CS 34,500
Capital in excess of par 57,000
RE 111,600
Total equity 203,100
Explanation:
(1)
RE 31,500
Common Stock 4,500
Capital in excess of par 27,000
(2)
RE 6,900
Dividends 6,900
34,500 shares outstanding x 0.2 per share = 6,900
The basic WACC equation The calculation of WACC involves calculating the weighted average of the required rates of return on debt, preferred stock, and common equity, where the weights equal the percentage of each type of financing in the firm’s overall capital structure. _______ is the symbol that represents the cost of raising capital through retained earnings in the weighted average cost of capital (WACC) equation. Wyle Co. has $3.9 million of debt, $3 million of preferred stock, and $3.3 million of common equity. What would be its weight on common equity? a. 0.29 b. 0.26 c. 0.32 d. 0.23
Answer:
[tex]R{_s}[/tex] is the symbol of cost of raising capital from retained earnings.
Weight of common equity = c) 0.32
Explanation:
[tex]R{_s}[/tex] is the symbol that represents the cost of raising capital through retained earnings in weighted average cost of capital.
Wyle Co.
Total of capital structure = Debt + Preferred Stock + Common Equity
= $3.9 million + $3 million + $3.3 million = $10.2 million
Weight on common equity = Equity/Capital structure
= [tex]\frac{3.3 million}{10.2million}[/tex] = 0.32
As weight is share of common equity out of total capital. It can be stated in percentage or decimal value.
[tex]R{_s}[/tex]
C) 0.32
Answer:
The weighted average cost of capital (WACC) formula calculates a company's cost of borrowing money, taking both debt and equity into consideration. Investors and analysts use the WACC to evaluate an investor's return on an investment (ROI) in a company.
Explanation:
Option C is the correct answer.
[tex]\text{GIVEN}:\\ \text{Debt} = 3.9 \text{ million}\\ \\\text{Preferred Stock} = 3 \text{ million}\\ \\\text{Common Equity} = 3.3 \text{ million} \\[/tex]
[tex]\\\text{Total value of capital structure}: \\ = 3.9 + 3 + 3.3\\ = 10.2\\\\\text{Weight of common equity}:\\= \text {Common equity / Total value of Capital structure}\\ \text{Weight of common equity} = 0.32[/tex]
Therefore, the weight on common equity will 0.32.
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Miller Company's total sales are $120,000. The company's direct labor cost is $15,000, which represents 30% of its total conversion cost and 40% of its total prime cost. Its total selling and administrative expense is $18,000 and its only variable selling and administrative expense is a sales commission of 5% of sales. The company maintains no beginning or ending inventories and its manufacturing overhead costs are entirely fixed costs. Required:1. What is the total manufacturing overhead cost? 2. What is the total direct materials cost? 3. What is the total manufacturing cost? 4. What is the total variable selling and administrative cost? 5. What is the total variable cost? 6. What is the total fixed cost? 7. What is the total contribution margin?
Answer:
1. Total manufacturing overhead cost = $35,000
2. Total Direct Material cost = $22,500
3. Total manufacturing cost = $72,500
4. Total Variable Selling and Administrative Cost = $6,000
5. Total variable cost = $43,500
6. Total Fixed Cost = $47,000
7. Total contribution margin = $76,500
Explanation:
Provided Sales = $120,000
Direct labor Cost = $15,000 which = 30% of total conversion cost
Total conversion cost = $15,000/30% = $50,000
Conversion cost = Labor cost + Manufacturing cost, manufacturing cost = $50,000 - $15,000 = $35,000
Provided Direct labor cost is 40% of total prime cost.
Total prime cost = Direct material + direct labor = $15,000/40% = $37,500
Direct material = $37,500 - $15,000 = $22,500
Provided selling and distribution expense = $18,000
Variable = Sales commission of 5% on sales = $120,000 X 5% = $6,000
Fixed Selling expenses = $18,000 - variable $6,000 = $12,000
Manufacturing Overhead cost is completely fixed = $35,000
Now we have total manufacturing cost = material + labor + manufacturing overheads = $22,500 + $15,000 + $35,000 = $72,500
Total variable cost = Material + labor + Selling & Administration
= $22,500 + $15,000 + $6,000 = $43,500
Total fixed cost = Manufacturing + Selling & Administrative
= $35,000 + $12,000 = $47,000
Total contribution margin = Selling Value - Total Variable Cost = $120,000 - $43,500 = $76,500
Final Answer
1. Total manufacturing overhead cost = $35,000
2. Total Direct Material cost = $22,500
3. Total manufacturing cost = $72,500
4. Total Variable Selling and Administrative Cost = $6,000
5. Total variable cost = $43,500
6. Total Fixed Cost = $47,000
7. Total contribution margin = $76,500
Fine Industries uses activity-based costing to assist management in setting prices for the company's three major product lines. The following information is available: Activity Cost Pool Estimated Overhead Expected Use of Cost Driver per Activity Cutting 900,000 25,000 labor hours Stitching 8,000,000 320,000 machine hours Inspections 2,800,000 160,000 labor hours Packing 800,000 64,000 finished goods units.
Compute the activity-based overhead rates.
The activity-based overhead rates for Fine Industries are:
Cutting: $36 per labor hour
Stitching: $25 per machine hour
Inspections: $17.50 per labor hour
Packing: $12.50 per finished goods unit
Based on the information provided, we can calculate the activity-based overhead rates for Fine Industries' four activity cost pools:
1. Cutting:
Cost pool total: $900,000
Cost driver: Labor hours
Estimated use of cost driver: 25,000 labor hours
Overhead rate: $900,000 / 25,000 labor hours = $36 per labor hour
2. Stitching:
Cost pool total: $8,000,000
Cost driver: Machine hours
Estimated use of cost driver: 320,000 machine hours
Overhead rate: $8,000,000 / 320,000 machine hours = $25 per machine hour
3. Inspections:
Cost pool total: $2,800,000
Cost driver: Labor hours
Estimated use of cost driver: 160,000 labor hours
Overhead rate: $2,800,000 / 160,000 labor hours = $17.50 per labor hour
4. Packing:
Cost pool total: $800,000
Cost driver: Finished goods units
Estimated use of cost driver: 64,000 finished goods units
Overhead rate: $800,000 / 64,000 finished goods units = $12.50 per finished goods unit
Therefore, the activity-based overhead rates for Fine Industries are:
Cutting: $36 per labor hour
Stitching: $25 per machine hour
Inspections: $17.50 per labor hour
Packing: $12.50 per finished goods unit
As a result of immigration, the demand for labor would _______, thesupply of labor would ______, and the real wage would ________.a. remain the same, decrease, decreaseb. increase, decrease, remain the samec. remain the same, increase, decreased. decrease, increase, remain the samee. decrease, increase, decrease
Answer:
The correct answer is option c.
Explanation:
As a result of immigration the population will increase. This will further cause the supply of labor to increase. The increase in supply of labor will further lead to a rightward in the labor supply curve. Consequently, wage rate will fall.
The demand for labor will not be affected by influx of workers.
So, option c is the correct answer.
On April 2, 2018, Montana Mining Co. pays $3,721,000 for an ore deposit containing 1,525,000 tons. The company installs machinery in the mine costing $213,500, with an estimated seven-year life and no salvage value. The machinery will be abandoned when the ore is completely mined. Montana begins mining on May 1, 2018, and mines and sells 166,200 tons of ore during the remaining eight months of 2018. Prepare the December 31, 2018, entries to record both the ore deposit depletion and the mining machinery depreciation. Mining machinery depreciation should be in proportion to the mine’s depletion. (Round your unit depreciation and depletion rates to 2 decimal places.)
Answer:
Dep expense 428,796
Acc Depp Machine 23,268
Acc dep deposit 405,528
Explanation:
213,5000 machine used in the ore deposit, so it will depreciate at the same rate.
3,721,000 ore deposit
166,200/1,525,000 = 0.108983606
213,500 x 0.108983606 = 23,268
3,721,000 x 0.108983606 = 405,528
Tommy McCartney is a sixteen-year-old high school student. He has worked forty hours per week at the local convenience store over the last year, and has diligently saved $6,000 for the purchase of his first car. While visiting a local car dealership, Tommy finds the “car of his dreams,” a used yellow Camaro. Tommy walks into the dealership, announces to the dealership owner that he is “ready to buy,” negotiates $6,000 as the purchase price, and leaves the dealership a proud car owner. Over the course of the next six months, Tommy drives the Camaro eight thousand miles, wears the tires thin, dents the left front fender, and regrets his purchase. He realizes that in two short years college will beckon, and he knows that his parents cannot afford to pay for his higher education. In short, he wants his money back. On a Saturday morning, Tommy returns to the car dealership, walks into the sales office, and hands the keys to the seller, asking for the return of his $6,000. The dealer chuckles, and then his look turns stern, saying “Son, I don’t owe you anything. You’ve just learned a lesson in the ‘School of Hard Knocks.’ The car is still yours, and the money is still mine!” Who will prevail? Is it legal and/or ethical to allow Tommy to escape his contractual obligations?
Explanation:
First of all, the dealer should not have sold the car to the sixteen year old boy without the presence of his parents or any guardian. It is illegal to have a contract with a child who is not legally allowed to drive the car before the age of eighteen.
Now secondly if the dealer has somehow sold the car to the boy, the boy cannot come back after few months and ask for returning his money because he purchased the car, the condition of the condition of the car got worse during the whole time when car was with him, and also there is no legal clause in the agreement which allows him to demand his money back after using the car for this long time. So demanding his money back from the dealer is totally unethical as well as illegal. The dealer is true that the car is still the property of the boy and the money is still the dealer's money.
A bank provides its customers mobile applications that significantly simplify traditional banking activities. For example, a customer can use a smart phone to take a picture of a check and electronically deposit into an account. This unique service demonstrates the bank's desire to practice which one of Porter's strategies?
Answer:
The correct answer would be Differentiation Strategy.
Explanation:
There are three generic strategies of Porter. One is Cost Leadership, other is Differentiation and the last one is Focus.
Among these strategies, Differentiation is the strategy which is used by the bank in this question. Differentiation is a strategy used by the companies to make them unique in the industry through some dimensions which are highly valued by the customers or clients of that company. For Example in this question, the bank provides the facility of transferring money in an account by just snapping a shot of check and depositing it into that account. This feature make them unique in the banking sector. So this is called the differentiation strategy.
Nash's Trading Post, LLC on July 15 sells merchandise on account to Tayler Co. for $2800, terms 1/10, n/30. On July 20 Tayler Co. returns merchandise worth $1000 to Nash's Trading Post, LLC. On July 24 payment is received from Tayler Co. for the balance due. What is the amount of cash received?
Answer:
Cash received 1,782
Explanation:
Sales Revenue 2,800
Return Goods 1,000 (customer return goods for this amount)
Sales after return 1,800 (original value less returns)
payment is due within discount period.
The terms are 1% discount within the first 10 days The payment is done at July 24th. Which is the nineth day.
1% discount of 1,800 = 18
Cash receipts 1,800 sale - 18 discounts = 1,782
An audit plan of substantive procedures for cash would not includeA. request a cutoff bank statement be mailed to the client. B. request client to prepare bank reconciliations. C. prepare a schedule of interbank transfers for a period of ten business days before and after year-end date.D. obtain a written client representation concerning compensating balance agreements.
Answer:
The correct answer is option A.
Explanation:
Substantive is a type of auditing procedure. It involves the process of examining financial statements and other related documents to check for error.
These tests are conducted to ensure that the financial records are complete and correct.
These procedures are conducted by an auditor and include examining journal entering, testing account balances and transactions.
Though it does not include requesting a cut off bank statement to be mailed to the client.
The cost (in dollars) of producing x units of a certain commodity is C(x) = 9000 + 6x + 0.05x2. (a) Find the average rate of change of C with respect to x when the production level is changed from x = 100 to the given value. (Round your answers to the nearest cent.) (i) x = 102
Answer: 16
Explanation: Average rate of change of C with respect to X is given as
= [tex]\frac{\Delta C}{\Delta X}[/tex]
= [tex]\frac{(C(102)-C(100))}{(X(102)-X(100))}[/tex]
= [tex]\frac{ 10132.2-10100}{102-100}[/tex]
= 32/2
= 16
Final answer:
The average rate of change of the cost function C(x) from x = 100 to x = 102 is $16.10.
Explanation:
The average rate of change of the cost function C(x) from x = 100 to x = 102 is the change in C divided by the change in x. We can calculate this by finding the values of C(102) and C(100) and then computing the difference between them.
To find C(102):
C(102) = [tex]9000 + 6(102) + 0.05(102)^2[/tex] = 9000 + 612 + 520.2 = 10132.2
To find C(100):
C(100) = [tex]9000 + 6(100) + 0.05(100)^2[/tex] = 9000 + 600 + 500 = 10100
Now, find the average rate of change:
Average rate of change = [tex]\frac{(C(102)-C(100))}{(102 - 100)}[/tex] = [tex]\frac{(10132.2 - 10100)}{2}[/tex] = [tex]\frac{32.2}{2}[/tex] = 16.1
Therefore, the average rate of change of C with respect to x when the production level is changed from x = 100 to x = 102 is $16.10.
Suppose the amounts presented here are basic financial information (in millions) from the 2019 annual reports of Nike and Adidas. Nike Adidas Sales revenue $19,887.0 $10,584.0 Allowance for doubtful accounts, beginning 80 120 Allowance for doubtful accounts, ending 110 126 Accounts receivable balance (gross), beginning 2,924 1,736 Accounts receivable balance (gross), ending 2,948 1,534 Calculate the accounts receivable turnover for both companies. (Round answers to 1 decimal place, e.g. 12.5.) Nike Adidas Accounts receivable turnover times times
Answer:
Both Companies have an Account Receivable turnover of 7.00 (seven)
Explanation:
(for future question it would be better if you upload an image with the table this is quite confusing)
[tex]\left[\begin{array}{ccc}-&Nike&Adidas\\sales&19887&10584\\B AR&2924&1736\\B all&80&120\\Net AR&2844&1616\\E AR&2948&1534\\E all&110&126\\Net AR&2838&1408\\\end{array}\right][/tex]
Account Receivable TurnOver Formula
[tex]\frac{net \: credit \: sales}{average \: account \: receivable} = AR \: TurnOver[/tex]
Where:
[tex]average \: AR = (beginning \: AR + ending \: AR) \div 2[/tex]
Nike:(2844+2838)/2 = 2841 Average Inventory
[tex]\frac{19887}{2841} = 7.00 \: AR \: turnOver[/tex]
Adidas(1616+1408)/2 = 1512 Average Inventory
[tex]\frac{10584}{1512} = 7.00 \: AR \: turnOver[/tex]
As Willard’s business grows and propsers, his company’s total assets requirements will equal ___________. total sources of financing less net assets and owner’s investment spontaneous debt financing plus bank loans plus owner’s investment less retained earnings spontaneous debt financing plus bank loans plus owner’s investment plus retained earnings total sources of financing less owner’s investment and retained earnings
Answer: Spontaneous debt financing plus bank loans plus owners investment plus retained earnings.
Explanation: It is the general rule in accounting that assets of any business entity will always be equal to the capital invested from different sources and the liabilities taken over by the business for funds. Debt, owners equity and retained earnings are a source of capital whereas bank loans is a liability .
Answer:
As the company grows and prospers, it's total assets requirement will be equal to spontaneous debt financing plus bank loans plus owner's investment plus retained earnings.
Explanation:
The total asset requirement can be defined as the book value of a set of assets that are just adequate to meet a particular solvency test. The company's total asset requirement will include company's capital and liabilities. Here, the bank loans can be classified as liability. While the others are source of capital for the company.
According to the Gordon growth model, what is an investor's valuation of a stock whose last dividend was $1.00 per year if dividends are expected to grow at a constant rate of 10 percent over a long period of time and the investor's required return is 16 percent?
Answer:
The investor valuation of a stock is $18.33
Explanation:
Gordon Growth model : The formula to compute investor valuation of stock is shown below:
= Dividend of year 1 ÷ (Required rate - growth rate)
where,
year 1 dividend = year 0 dividend × (1 + growth rate)
= $1 × (1 + 0.10)
=$1.10
Required rate of return = 16%
And, growth rate = 10%
Now apply the above formula which is equals to
= $1.10 ÷ (16% - 10%)
= $18.33
Hence, The investor valuation of a stock is $18.33
Final answer:
Using the Gordon growth model and given a last dividend of $1.00 with a 10% growth rate and a 16% required return, an investor would value the stock at $18.33.
Explanation:
According to the Gordon growth model (also known as the Dividend Discount Model), the value of a stock is calculated by dividing the next year's expected dividend by the difference between the investor's required rate of return and the dividend growth rate. In this case, since the last dividend was $1.00 and the dividends are expected to grow at a constant rate of 10 percent, the next expected dividend will be $1.00 multiplied by (1 + 10%), which equals $1.10. Given an investor's required return of 16 percent, the formula for the stock valuation would be:
Stock Value = Next Year's Dividend / (Required Return - Dividend Growth Rate) = $1.10 / (0.16 - 0.10) = $1.10 / 0.06 = $18.33.
Therefore, based on the Gordon growth model, an investor would value the stock at $18.33.
The marketing manager of Griffin Corporation has determined that a market exists for a telephone with a sales price of $36 per unit. The production manager estimates the annual fixed costs of producing between 40,000 and 80,000 telephones would be $450,000. Required Assume that Griffin desires to earn a $150,000 profit from the phone sales. How much can Griffin afford to spend on variable cost per unit if production and sales equal 50,000 phones?
Griffin Corporation can spend up to $24 per phone unit on variable costs to meet its projected profit goal of $150,000, considering fixed costs and the sales price of each unit.
Explanation:To calculate how much Griffin Corporation can afford to spend on variable cost per unit, we need to determine the total available budget for production. Firstly, the total profit goal, including fixed costs, is $600,000 ($450,000 fixed costs + $150,000 desired profit). The sales revenue from 50,000 phones at $36 each would be $1,800,000. So, the difference between sales revenue and the total profit goal gives us the total budget available for variable costs, which is $1,200,000 ($1,800,000-$600,000). Finally, dividing the total variable cost budget by the total number of phones produced provides the maximum amount that can be spent on variable costs per unit. Therefore, Griffin can afford to spend $24 ($1,200,000÷50,000) per phone unit on variable costs.
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Griffin Corporation can afford to spend $24 per unit on variable costs to achieve a desired profit of $150,000, given their annual fixed costs and the sales price of the telephones.
Calculation
Sales Price per Unit (SP): $36Fixed Costs (FC): $450,000Desired Profit (P): $150,000Units Sold (Q): 50,000Formulating the Equation
We can use the contribution margin formula:
Total Revenue (TR) = SP * QTotal Costs (TC) = FC + (Variable Cost per Unit (VC) * Q)For Griffin to achieve its desired profit:
TR = TC + P
SP * Q = FC + (VC * Q) + P
$36 * 50,000 = $450,000 + (VC * 50,000) + $150,000
Simplifying:
$1,800,000 = $600,000 + (VC * 50,000)
Solving for VC
Subtracting the fixed cost and desired profit from total revenue:
$1,800,000 - $600,000 = VC * 50,000
$1,200,000 = VC * 50,000
VC = $1,200,000 / 50,000
VC = $24 per unit
Therefore, Griffin can afford to spend $24 on variable costs per unit to achieve the desired profit.
Suppose the standard deviation of the losses had been $3000 instead of $1000. What would the larger standard deviation do to the width of the confidence interval (assuming the same level of confidence)?
Answer:
As the standard deviation increases from $1000 to $3000, this will cause the confidence interval to go more wider.
Explanation:
Confidence interval is a tool used by many statisticians to take out the estimate amount of uncertainty which is associated when a sample estimate is taken out of a population parameter.
Standard deviation is a tool which is used to measure the amount of variations and when this standard deviation increases this means that the amount variations also increases and thus the confidence interval will go more wider as standard deviation shifts from $1000 to $4000 as given in this case.
ells Company's delivery truck, with a cost of $56,000 was destroyed by fire. At the time of the fire, the balance of the Accumulated Depreciation account amounted to $38,000. The company received $32,000 reimbursement from its insurance company. The gain or loss as a result of the fire was
Answer:
The company will earn a gain of $14,000.
Explanation:
The original cost of the ells company's delivery truck was $ 56,000 and the accumulated depreciation account had a balance of $38,000, which means a provision for the $38,000 was made in case something bad happens to the truck, and it eventually did as the truck was destroyed by fire and hence the amount of $18,000 ($56,000 - $38,000) was left which was not covered by the company.
The company received $32,000 as insurance , which means the $18,000 loss would be covered here - $32,000 -$18,000 = $14,000, and also the company will gain $14,000.
A company’s balance sheets show a total of $30 million long-term debt with a coupon rate of 9 percent. The yield to maturity on this debt is 11.11 percent, and the debt has a total current market value of $25 million. The balance sheets also show that that the company has 10 million shares of stock; the total of common stock and retained earnings is $30 million. The current stock price is $7.5 per share. The current return required by stockholders, rS, is 12 percent. The company has a target capital structure of 40 percent debt and 60 percent equity. The tax rate is 40%. What weighted average cost of capital should you use to evaluate potential projects
Answer:
The weighted average cost of capital should you use to evaluate potential projects is 9.87%
Explanation:
Weighted average cost of capital (WACC) : The WACC shows the total proportion towards debt and equity.
The debt should always be calculated after considering tax.
The computation of weight-age average cost of capital is shown below:
For debt = Yield to maturity × (1 - tax rate )
= 11.11% × (1-0.40)
= 6.67%
For equity it is given in the question i.e = 12%
As, the capital structure is give, 40% is for debt and 60% is for equity. After considering these capital structure, the computation can be made.
= Cost of equity × weighted of equity + cost of debt × weight-age of debt
= 12% × 60% + 6.67% × 40%
= 7.2% + 2.67%
= 9.87%
Thus, the weighted average cost of capital should you use to evaluate potential projects is 9.87% .
Two methods are used to predict how many customers will call in for help in the next four days. The first method predicts the numbers of callers to be 23, 5, 14, and 20 for the four respective days. The second method predicts 20, 13, 14, and 20 for the four respective days. The actual numbers of callers turn out to be 23, 10, 15, and 19. Which method has the bigger forecast bias?
Answer:
The method 1 will have a bigger forecast bias ( whose value is 5 ) than the method 2 ( whose value 0 ).
Explanation:
To know which method will have the bigger forecast bias , we will see the deviation of both methods from the actual forecast numbers and then by seeing which one is having a bigger deviation value , we can say which one is having bigger forecast bias.
FORECAST BIAS = ACTUAL NUMBER - FORECAST NUMBER
Actual Forecast Forecast Forecast Forecast
caller turn method 1 method 2 bias method 1 bias method 2
23 23 20 0 3
10 5 13 5 -3
15 14 14 1 1
19 20 20 -1 -1
TOTAL 5 0
from the above information we can say that the method 1 with forecast bias value of 5 is much bigger than the method 2 with forecast bias value of 0.
If the inflation rate was 3.40% and the nominal interest rate was 5.60% over the last year, what was the real rate of interest over the last year? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. Round intermediate calculations to four decimal places.
Answer:
2.1276%
Explanation:
[tex]\ $Real Rate$ = \frac{1+nominal}{1+inflation} - 1 [/tex]
1.056/1.034 -1 = 0,021276595744681 rounding to 4 decimal places:
2.1277%
The reasoning behind this formula is the following:
there is a rate that generate the combine effect of the nominal and the inflation rate
Principal (1+real rate) = Principal x (1+nominal) / (1+ inflation)
removing the principal for clearence:
1+real rate =(1+nominal) x (1+ inflation)
real rate = (1+nominal) x (1+ inflation) - 1
Final answer:
To calculate the real interest rate, subtract the inflation rate of 3.40% from the nominal interest rate of 5.60%. The resultant real interest rate is approximately 2.20% for the last year.
Explanation:
The question asks us to calculate the real interest rate given a nominal interest rate of 5.60% and an inflation rate of 3.40% over the last year. According to the Fisher equation, the real interest rate can be approximated by subtracting the inflation rate from the nominal interest rate. This formula does not require cross-product terms, so we use a simple arithmetic subtraction for this calculation.
To find the real interest rate, we follow this basic formula:
Start with the nominal interest rate: 5.60%
Subtract the inflation rate: 3.40%
The result is the real interest rate
Therefore, the calculation would be:
Real Interest Rate ≈ Nominal Interest Rate – Inflation Rate
Real Interest Rate ≈ 5.60% – 3.40% = 2.20%
Hence, the real rate of interest over the last year was approximately 2.20%.
For a market to be competitive:a. each buyer and seller is small, relative to the whole market; no single decision-maker has any influence over the market price.B.sellers must produce goods and services that are different from their competitors.C.sellers should have substantial pricing power.D.the price must be a fair price
Answer: Option (A) is correct.
Explanation:
Each of the buyer and seller are small when we are relating it with the whole market. so, there will be no power in the hands of a single decision maker and if a firm wants to change their prices then it will not have any influence on the market price. In a competitive market, there are large number of buyers and sellers, thus, one buyer or seller doesn't have any impact on the market price.
Answer: A
Explanation:
It's a competitive market
A customer sells short 100 shares of ABC at $35 and buys 1 ABC Jul 35 Call @ $3. The stock falls to $30 and the customer closes the option contract at $1 and buys the stock at the current market price. The customer has a:A. $200 lossB. $300 lossC. $200 gainD. $300 gain
Answer:
The answer is $300 gain.
Explanation:
Operations:
Short 100 shares of ABC at $35 each= 100 * 35 = + $3,500Buy 1 ABC Jul 35 Call @ $3 (one call equals to 100 shares)= 100 * (3) = $(300), accumulated = + 3,500 - 300 = + 3,200Closes the option contract at $1 = 100 * 1 = + $100, accumulated = + 3,200 + 100 = + 3,300Buys the stock at the current market price (buys 100 stock @ $30 each)= 100 * (30) = $(3,000), accumulated = + 3,300 - 3,000 = + $300.Fox, Inc. is considering a five- year project that has initial after- tax outlay or after- tax cost of $170,000. The future after- tax cash inflows from its project for years 1 through 5 are $45,000 for each year. Fox uses the net present value method and has a discount rate of 11.25%. Will Fox accept the project?
Answer: Since Net Present Value is negative i.e. -4724.
[tex]\therefore[/tex] Fox will not accept the project.
Explanation:
Net Present Value = Initial after- tax outlay + Cash inflows[tex]\times[/tex]PVIFA(11.25%,5)
= -170000 + 45000[tex]\times[/tex]PVIFA(11.25%,5)
= -170000 +45000[tex]\times[/tex]3.6728
= - 4724
Since Net Present Value is negative i.e. -4724.
[tex]\therefore[/tex] Fox will not accept the project.
Splitland is a developing economy with two distinct regions. The northern region has great investment opportunities, but the people who live there need to consume all of their income to survive. Those living in the south are better off than their northern counterparts and save a significant portion of their income. The southern region, however, has few profitable investment opportunities and so most of the savings remain in shoeboxes and under mattresses. How could the development of the financial sector benefit both regions and promote economic growth in Splitland?
Answer: The presence of a financial intermediary would reduce the information costs that may have prevented the southerners from lending directly to the northerners in the past. This would promote economic growth.
Explanation: Information is key in modern societies.
The information costs that would have previously prohibited southerners from lending directly to northerners would be reduced by the establishment of a financial middleman. This would encourage economic expansion.
What is economic expansion?A real GDP expansion occurs when it takes two or more quarters to go from a low point to a high point. When the economy is stimulated, there is an increase in employment, which is followed by a rise in consumer confidence and discretionary expenditure.
The stage is additionally referred to as economic recovery. The term "business cycle" refers to a process that contains four phases: expansion, peak, contraction, and trough.
It is common knowledge that the economy is thriving during an expansion. Low interest rates, which make borrowing money affordable, considerable corporate activity, as well as significant discretionary spending, are characteristics of a thriving economy.
When expansion reaches its pinnacle, a peak happens. When there is a significant amount of demand for a good, inflation happens, and prices start to rise. Consumer spending starts to decline over time, and macroeconomic indices stop rising.
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The slogan of Natural Care Products is "Loving the Earth." This is more than just an advertising message. The company hires people who not only have job-related skills but also a commitment to sustainability and enjoyment of nature. The employees regularly have opportunities to sign up for service projects such as river cleanups and recycling drives. Employees are enthusiastic about developing and marketing products made with all-natural ingredients sustainably sourced. The HR department uses its communication tools to remind employees about how everyone contributes to realizing this eco-friendly vision for the company. Together, these efforts at Natural Care Products create _____.
Answer:
The correct answer would be Brand Alignment.
Explanation:
In simple words, Brand alignment is the alignment of your company's employees behaviors, sales promotions, product development, sales and marketing efforts, etc, with the goal of the company. In this example, The slogan of Natural Care Products is 'Loving the Earth', which means the goal of the company is to actually love the earth by making efforts for it to clean it and make it pollution free and to do everything which makes the earth live longer. In this regard, the Natural Care Products Company not only hires enthusiastic employees who are inclined towards saving the earth, but also creates their products from all natural sources, plus arrange many opportunities for the employees to sign up for recycling activities. Their all such activities come under the Brand Alignment.
The following direct materials data pertain to the operations of Wright Co. for the month of December. Standard materials price $5.00 per pound Actual quantity of materials purchased and used 16,500 pounds The standard cost card shows that a finished product contains 4 pounds of materials. The 16,500 pounds were purchased in December at a discount of 4% from the standard price. In December, 4,000 units of finished product were manufactured. Calculate the materials variances. Identify whether the variance is favorable or unfavorable?
Answer:
There are various material variances, but main are Material Price Variance and Direct Material Quantity Variance and with the combination of these 2 variances we have Material Usage Variance
Material Price Variance = (Standard Price - Actual Price) X Actual Quantity
Given standard Price = $5 per unit
Actual Price = $5 - 4% = $4.8
Material Price Variance = ($5 - $4.8) X 16,500 = $3,300 Favorable
Material Quantity Variance = (Standard Quantity - Actual Quantity) X Standard Price
Standard Quantity = 4,000 units X 4 pounds per unit = 16,000 pounds
Material Quantity Variance = (16,000 - 16,500) X $5 = - $2,500 Unfavorable
Material Usage Variance = Standard Price X Standard Quantity - Actual Price X Actual Quantity
= ($5 X 16,000) - ($4.8 X 16,500)
= $80,000 - $79,200 = $800 Favorable = Material Price Variance + Material Quantity Variance = $3,300 + (-$2,500) = $800 Favorable
Material Price Variance = $3,300 Favorable
Material Quantity Variance = - $2,500 Unfavorable
Material Usage Variance = $800 Favorable
Selected financial information for Feemster Company for 2012 follows. Sales $ 2,000,000 Cost of goods sold 1,400,000 Merchandise inventory Beginning of year 155,000 End of year 195,000. Required: Assuming that the merchandise inventory buildup was relatively constant, how many times did the merchandise inventory turnover during 2012?
The merchandise inventory turnover for Feemster Company in 2012 was 8 times; this was calculated by dividing the cost of goods sold, which was $1,400,000, by the average inventory amount of $175,000.
Explanation:To calculate the merchandise inventory turnover rate for Feemster Company in 2012, we need to use the formula:
Inventory Turnover = Cost of Goods Sold / Average Inventory
First, we find the average inventory for the year:
Average Inventory = (Beginning Inventory + End Inventory) / 2
Average Inventory = ($155,000 + $195,000) / 2
Average Inventory = $175,000
Then, we use the Cost of Goods Sold and Average Inventory to calculate the inventory turnover:
Inventory Turnover = $1,400,000 / $175,000
Inventory Turnover = 8 times
Thus, the inventory turned over 8 times during the year 2012.
James employs an apprentice in his guitar store who gets firsthand knowledge of craftsmanship and the process involved in becoming a professional luthier. This allows James to have a reliable hand who can assist him in his work without requiring him to hire a professional luthier. It also enables him to use his financial resources on procuring high-quality materials to make the guitars. The opportunity of _____ is highlighted in the given scenario.
Answer: Having lower opportunity costs.
Explanation: Opportunity cost can be defined as the cost of next best alternative foregone. In this case, James is saving his money by taking work of a professional from a new recruit also he gets the opportunity to procure high quality materials which he was earlier not able to. Thus, he is saving a major portion of income because of a less costly alternative available.
Consider an imaginary economy that has been growing at a rate of 4% per year. Government economists have proposed a number of policies to increase the growth rate but first need to convince the president that the policies will pay off. To do so, they want to present a comparison of the number of years it will take for the economy to double, depending on the growth rate. Using the rule of 70, determine the number of years it will take the economy to double at each growth rate. Growth Rate Years Required to Double (Percent) (Nearest whole number of years) 4 5 6
Answer:
If the rate is 4%: 70/4 = 17.5 years - about 18 years
Explanation:
The rule of seventy allows you to determine how long the amount invested will double. For this, just divide 70 by the annual rate of return. The rule of seventy can be applied intuitively for the calculation of other growth rates, such as a country's GDP.
The calculation is simple, just divide 70 by the value of the growth rate.
If the rate is 4%: 70/4 = 17.5 years - about 18 years
If the rate is 5%: 70/5 = 14 years
If the rate is 6%: 70/6 = 11.6 years - about 12 years
Using the rule of 70, we can determine the number of years it will take for the economy to double at different growth rates.
Explanation:To determine the number of years it will take for an economy to double at different growth rates, we can use the rule of 70. The rule of 70 states that the doubling time of a variable is approximately equal to 70 divided by the growth rate. Therefore, for a 4% growth rate, it will take approximately 17 years for the economy to double (70 / 4 = 17.5). For a 5% growth rate, it will take approximately 14 years (70 / 5 = 14). And for a 6% growth rate, it will take approximately 12 years (70 / 6 = 11.67).
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