Highland Mining and Minerals Co. is considering the purchase of two gold mines. Only one investment will be made. The Australian gold mine will cost $1,600,000 and will produce $300,000 per year in years 5 through 15 and $500,000 per year in years 16 through 25. The U.S. gold mine will cost $2,000,000 and will produce $250,000 per year for the next 25 years. The cost of capital is 10 percent. Use Appendix D for an approximate answer but calculate your final answers using the formula and financial calculator methods. (Note: In looking up present value factors for this problem, you need to work with the concept of a deferred annuity for the Australian mine. The returns in years 5 through 15 actually represent 11 years; the returns in years 16 through 25 represent 10 years.)
Answers
Answer:
a) The Net present value of Australian Gold Mine = $466,300
The Net present value of U.S. Gold Mine = $ 269,250
b) The Net present value of Australian Gold Mine = - $393,900
At this increased cost of capital which is the discount rate ,the decision of selecting Australian Gold Mine should not be selected. in this case selecting the u.s Gold mine will be the best option
Explanation:
To evaluate Highland Mining and Minerals Co.'s potential investments in either an Australian or a U.S. gold mine, we calculate and compare the net present value of each project's cash flows. We use a deferred annuity calculation for the Australian mine's later starting cash flows and a standard annuity calculation for the U.S. mine. The mine with the higher NPV at the cost of capital of 10% would be the better investment.
The analysis of Highland Mining and Minerals Co.'s investment decision requires calculating the present value of cash flows for both the Australian and U.S. gold mines, considering a deferred annuity approach for the Australian mine's cash flows. For the Australian mine, we need to consider the cash flows as two separate annuities: the first starting from year 5 to year 15 and the second from year 16 to year 25. Similarly, the U.S. gold mine's cash flows are also an annuity but with a regular payment from year 1 to year 25.
To calculate the present value (PV) of the Australian mine, we use the formula for a deferred annuity which accounts for the fact that cash flows start in the future. The PV of the annuity from years 5 to 15 is computed by determining the PV as if the annuity started in year 1 and then discounting it back four more years to the present value. The PV of the annuity from years 16 to 25 is computed by first discounting it back to year 15 and then finding its present value.
For the U.S. mine, the calculation is more straightforward since it's a standard annuity where we simply use the annuity present value formula to calculate the total PV of cash flows from year 1 to year 25.
After calculating the present values, we compare them to the initial investments to determine the net present value (NPV) of each project. Highland Mining and Minerals Co. would therefore choose the investment with the higher NPV, as this is expected to generate more value for the company, given the cost of capital at 10%.
Related Questions
Waterway Enterprises reported cost of goods sold for 2020 of $1,385,600 and retained earnings of $5,415,900 at December 31, 2020. Waterway later discovered that its ending inventories at December 31, 2019 and 2020, were overstated by $103,320 and $38,040, respectively.
Determine the corrected amounts for 2020 cost of goods sold and December 31, 2020, retained earnings
a. Corrected cost of goods sold $___
b. Corrected 12/31/20 retained earnings $ ____.
Answers
Answer:
(a) $1,320,320
(b) $5,377,860
Explanation:
Given that,
Cost of goods sold for 2020 = $1,385,600
Retained earnings at December 31, 2020 = $5,415,900
Ending inventories at December 31, 2019 overstated by $103,320
Ending inventories at December 31, 2020 overstated by $38,040
Cost of goods sold is calculated as follows:
= Beginning inventory + Purchases during the period - Ending inventory
The closing inventory is overstated by $38,040, indicates that the large amount of ending inventories is deducted while calculating the cost of goods sold. Therefore, it is added to the cost of goods sold.
The beginning inventory is overstated by $103,320, indicates that the large amount of opening inventory is added while calculating the cost of goods sold. Therefore, it is deducted to the cost of goods sold.
(a) Corrected cost of goods sold:
= Incorrect cost of goods sold for 2020 + Overstated ending inventory - Overstated opening inventory
= $1,385,600 + $38,040 - $103,320
= $1,320,320
(b) The retained
Corrected 12/31/20 retained earnings:
= Incorrect retained earnings - Overstated ending inventory at December 31, 2020
= $5,415,900 - $38,040
= $5,377,860
The retained earnings is calculated on the basis of higher ending inventories, so it must be deducted from the retained earnings.
2. John likes coffee and cookies. The price for one cup of coffee is $1; the price for one cookie is $1. His marginal utility for coffee is 10 – x, where x is the amount of coffee. His marginal utility for cookies is 21 – 2 y, where y is the number of cookies. How many cups of coffee and units of cookies will John buy if he has only $10
Answers
Answer:
3 cups of Coffee and 7 units of cookies
Explanation:
In order to maximize his utility John will satisfy the following relationship
The Rational Spending Rule for two goods, X and Y:
MUX/PX = MUY/PY
10 - x = 21 - 2y
10 - 21 + 2y = x
x = 2y - 11. ..........equation (1)
A budget line shows combinations of two goods a consumer is able to consume, given a budget constraint. Here John's constraint is $10,
we have, cups of coffee (x) + units of cookies (y) = $10
x + y = 10
We substitute X with the value of x in equation (1)
(2y - 11) + y = 10
2y +y = 10 + 11
3y = 21
y = 7.
y is the number of cookies, therefore y = 7 units
x = 2y - 11 = 2 × 7 - 11 = 14 - 11 = 3
x is the amount of coffee, therefore x = 3 cups.
If John has $10 he will 3 cups of Coffee and 7 units of cookies
You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.7, a debt-to-equity ratio of 0.4, and a tax rate of 30 percent. Assume a risk-free rate of 6 percent and a market risk premium of 11 percent. Lauryn’s Doll Co. had EBIT last year of $56 million, which is net of a depreciation expense of $5.6 million. In addition, Lauryn's made $5.3 million in capital expenditures and increased net working capital by $2.7 million. Assume the FCF is expected to grow at a rate of 3 percent into perpetuity. What is the value of the firm
Answers
Final answer:
The FCF model is used to calculate the value of Lauryn’s Doll Co., factoring in equity beta, tax rates, EBIT, and growth expectations. The model relies on determining the WACC and applying it to the perpetual growth formula to find the enterprise value.
Explanation:
To calculate the value of Lauryn’s Doll Co. using the Free Cash Flow (FCF) model, we first need to determine the company's weighted average cost of capital (WACC). The equity beta is 1.7, the debt-to-equity ratio is 0.4, and the tax rate is 30 percent. With a risk-free rate of 6 percent and a market risk premium of 11 percent, we can calculate the cost of equity using the Capital Asset Pricing Model (CAPM): Cost of Equity = Risk-Free Rate + (Beta × Market Risk Premium). Next, we determine the free cash flow for the company which is EBIT (1 - Tax Rate) + Depreciation - Capital Expenditures - Increase in Net Working Capital. Finally, to find the enterprise value, we use the perpetual growth model: Enterprise Value = FCF / (WACC - Perpetual Growth Rate).
Here is a step-by-step breakdown with the given figures:
Calculate Cost of Equity: Equity = 6% + (1.7 × 11%) = 24.7%
EBIT after tax = $56 million × (1 - 0.3) = $39.2 million
Free Cash Flow (FCF) = $39.2 million + $5.6 million - $5.3 million - $2.7 million = $36.8 million
Calculate WACC (assuming the cost of debt is approximately equal to the risk-free rate adjusted for tax): WACC = Cost of Equity × (Equity / (Equity + Debt)) + Cost of Debt × (Debt / (Equity + Debt)) × (1 - Tax Rate)
Determine Enterprise Value using Perpetual Growth Model:
To calculate the precise value of the firm, there is a need to determine the cost of debt and apply the WACC formula fully, but since we lack the cost of debt, a full calculation isn’t provided here.
Erin knows exactly what benefits she will receive when she retires. She has worked for the organization for 20 years and will receive 65% of the average of her two highest years of pay. Erin’s retirement plan is a ________ plan.
Answers
Answer:
defined benefit
Explanation:
A defined benefit plan is a type of pension plan in which the employees continue to receive a specified amount of money from the company after retirement. This benefit plan is subject to tax deduction.
A defined benefit plan is calculated by the employees salary, age and the period of time the individual worked in the company.
A defined budget plan makes it easy for the individual to budget their various expenses during their retirement period.
Products A and B are joint products. Product A can be sold for $1,200 at the split-off point, or processed further at a cost of $600 and then sold for $1,700. Product B can be sold for $3,000 at the split-off point, or processed further at a cost of $800 and then sold for $4,000. The company should process further:
Answers
Answer:
Product B should be process further
Explanation:
A company should process further a product if the addtional revenue from the split-off point is greater than than the further processing cost.
Product A $
Additional revenue ( 1,700 - 1,200) 500
Further processing cost (600)
Loss from further processing (100)
Product B $
Additional revenue ( 4,000 - 3,000) 1000
Further processing cost (800)
Loss from further processing 200
The company should process further Product B as doing do will increase net income by $200.
Product A should be sold at the split off point because processing further will reduce the net income of the company by $100
One hundred of the voters in a town are willing to pay $100 each to support a public green space, which will cost $10,000 to build and maintain. One hundred and fifty voters in the same town do not value the public green space. What is the social marginal benefit of the public green space
Answers
Answer:
Social Marginal Benefit = 10000
Net Social Marginal Benefit = 0
Explanation:
For Public Goods, Marginal benefit to each consumer is reflected within their willingness to pay for the public good.
Marginal Benefit (Willingness to pay) = 100 for 100 people, 0 for 150 people
So, Marginal Benefit = (100) (100) + (150) (0)
= 10,000
Marginal Cost of the public good space = 10000 [Given]
Net Social Marginal Benefit = Marginal Benefit - Marginal Cost
= 10,000 - 10,000
= 0
The social marginal benefit of the public green space is $10,000, which is the total amount the 100 supportive voters are willing to pay. The 150 voters who do not value the space contribute $0 to the social marginal benefit.
Explanation:The social marginal benefit of the public green space is the total value that all the town's inhabitants obtain from it. In this scenario, 100 voters are willing to pay $100 each, so their total valuation is $10,000. The other 150 voters do not value the space, so their contribution is $0. Therefore, the social marginal benefit, in this case, is $10,000.
It should be noted that what is considered as 'benefit' in economics might not necessarily mean profit or monetary gain. Instead, it encompasses everything that people value, whether in monetary terms or not, like the joy of having a public green space to visit.
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Adams, Incorporated would like to add a new line of business to its existing retail business. The new line of business will be the manufacturing and distribution of animal feeds. This is a major capital project. Adams, Incorporated is aware you an in an MBA program and would like you to help analysis the viability of this major business venture based on the following information:
• The production line would be set up in an empty lot the company owns.
• The machinery’s invoice price would be approximately $200,000, another $10,000 in shipping charges would be required, and it would cost an additional $30,000 to install the equipment.
• The machinery has useful life of 4 years, and it is a MACRS 3-year asset.
• The machinery is expected to have a salvage value of $25,000 after 4 years of use.
• This new line of business will generate incremental sales of 1,250 units per year for 4 years at an incremental cost of $100 per unit in the first year, excluding depreciation. Each unit can be sold for $200 in the first year. The sales price and cost are expected to increase by 3% per year due to inflation.
• Net working capital would have to increase by an amount equal to 12% of sales revenues. The firm’s tax rate is 40%, and its overall weighted average cost of capital is 10%.
Required:
Construct annual incremental operating cash flow statements.
Answers
Answer:
machine's cost = $200,000 + $10,000 + $30,000 = $240,000
useful life of 4 years
salvage value of $25,000, depreciable value = $215,000
MACRS 3-year asset:
0.333 x $215,000 = $71,5950.445 x $215,000 = $95,6750.148 x $215,000 = $31,8200.074 x $215,000 = $15,910incremental sales of 1,250 units per year, during 4 years:
1,250 x $200 = $250,0001,250 x $206 = $257,5001,250 x $212.18 = $265,2251,250 x $218.55 = $273,188incremental COGS of 1,250 units per year, during 4 years:
1,250 x $100 = $125,0001,250 x $103 = $128,7501,250 x $106.09 = $132,6131,250 x $109.27 = $136,588net working capital increases by 12% of sales revenue = $250,000 x 12% = $30,000
WACC = 10%
tax rate = 40%
initial investment = $240,000 (machine cost) + $30,000 (working capital) = $270,000
net cash year 1 = [($250,000 - $125,000 - $71,595) x (1 - 40%)] + $71,595 = $103,638net cash year 2 = [($257,500 - $128,750 - $95,675) x (1 - 40%)] + $95,675 = $115,520net cash year 3 = [($265,225 - $136,588 - $31,820) x (1 - 40%)] + $31,820 = $92,295net cash year 4 = [($273,188 - $136,588 - $15,910) x (1 - 40%)] + $15,910 = $88,324 + $25,000 (salvage value) + $30,000 (net working capital) = $143,324to calculate the present value:
PV = $103,638/1.1 + $115,520/1.1² + $92,295/1.1³ + $143,324/1.1⁴ = $94,216 + $95,471 + $69,343 + $97,892 = $356,922
NPV = $356,922 - $270,000 = $86,922
Final answer:
To analyze the viability of Adams, Incorporated's new business venture, construct annual incremental operating cash flow statements factoring in the initial equipment investment, sales, costs, and inflation. Calculate depreciation using MACRS and adjust net working capital to reflect the 12% of sales revenues. This process is critical to projecting the potential profitability of the investment.
Explanation:
The analysis of the viability of a new line of business for Adams, Incorporated involves constructing annual incremental operating cash flow statements. The initial investment consists of $200,000 for machinery, $10,000 for shipping, and $30,000 for installation. The machinery, which falls under MACRS 3-year property, has a projected useful life of 4 years and an estimated salvage value of $25,000. Sales are expected to be 1,250 units annually at $200 per unit initially, with both cost and sales price inflating by 3% per year. The net working capital will increase proportionately to 12% of sales revenues. The tax rate is 40%, and the weighted average cost of capital is 10%.
Example Operating Cash Flow Calculation (Year 1)
Initial Sales Revenue: 1,250 units × $200 = $250,000
Incremental Cost (excluding depreciation): 1,250 units × $100 = $125,000
Depreciation: Based on MACRS 3-year schedule for Year 1
Taxable Income: Sales Revenue - Incremental Costs - Depreciation
Taxes: Taxable Income × 40%
Net Operating Cash Flow: Taxable Income - Taxes + Depreciation
Net Working Capital Increase: 12% of Sales Revenue
For subsequent years, index the sales and costs by the inflation rate to calculate the new values. This example illustrates how to start the cash flow analysis by estimating the first year's operating cash flow. The exercise would be repeated for years 2 to 4, factoring in inflation-adjusted revenues, costs, and the annual depreciation, in accordance with MACRS.
On 1/1/X1, P acquired 80% of S for $800,000 when S's equity included $500,000 capital stock and $500,000 of Retained Earnings. During years X1 and X2 S earned $100,000 and $120,000, respectively. In both years, S paid $20,000 of dividends. Assume that P uses the cost method and that you are consolidating the pre-closing trial balances of P and S on 12/31/X2. What worksheet entries are required to establish reciprocity between P's Investment and S's equity accounts so that they can be liminated
Answers
Answer:
The worksheet entries are;
Debit Investment in S for $80,000 and credit P's Retained Earnings for $80,000
Explanation:
In this question, we are asked to calculate and state the worksheet entries that are required to establish reciprocity between P’s investments and S’s equity accounts so they can be liminated
We proceed as follows;
Firstly, we identify the beginning retained earning balance of s as at 1/1/x1; This is $500,000 as obtained from the question.
We then add the net income for two years which is 100,000
Mathematically this will give ; 500,000 + 100,000 = $600,000
This mean that the retained earning is $600,000
Now the unrecognized income is the retained earning - Beginning retained earning balance of s = 600,000-500,000 = $100,000
P’s share is 80% of this which is 80% of 100,000 = $80,000
Thus the worksheet entries is as follows;
Debit Investment in S for $80,000 and credit P's Retained Earnings for $80,000
Roosevelt Corporation has a weighted-average unit contribution margin of $30 for its two products, Standard and Supreme. Expected sales for Roosevelt are 40,000 Standard and 60,000 Supreme. Fixed expenses are $1,800,000. How many Standards would Roosevelt sell at the break-even point?
Answers
Answer:
Standards sales at break even point are 24000 units
Explanation:
The weightage of each product in sales mix is for each product is,
Total sales = 40000 + 60000 = 100000 units
Standard = 40000 / 100000 = 0.4
Supreme = 60000 / 100000 = 0.6
We first need to calculate the overall break even point in units and divide it in the sales mix.
The overall break even point in units = Fixed costs / Weighted average contribution margin per unit
Overall break even in units = 1800000 / 30 = 60000 units
Standards sales at break even point = 60000 * 0.4 = 24000 units
Roosevelt Corporation would sell 16,000 Standard units at the break-even point, covering its fixed expenses.
To find the number of Standard units Roosevelt Corporation would sell at the break-even point, we can use the contribution margin ratio.
1. Calculate the total contribution margin:
Contribution margin per unit = Weighted-average unit contribution margin = $30
Total contribution margin = Contribution margin per unit × Expected sales
= $30 × 40,000
= $1,200,000
2. Use the contribution margin ratio to find the break-even point:
Contribution margin ratio = Total contribution margin / Total sales
= $1,200,000 / ($30 × 40,000 + $30 × 60,000)
= $1,200,000 / ($1,200,000 + $1,800,000)
≈ 0.4
3. Determine the break-even sales for Standard units:
Break-even sales for Standard = Break-even sales × Proportion of Standard sales
= 0.4 × 40,000
= 16,000 units
Therefore, Roosevelt Corporation would sell 16,000 Standard units at the break-even point.
The break-even point occurs when total contribution margin equals fixed expenses, meaning the company has covered all its costs and has neither profit nor loss.
Randy Rouser completes landscaping work on Nina Tothill’s yard, and Nina writes a $1,750 check from her account at Small Bank. The check is written as payable to Randy Rouser. Randy needs to pay house repair bills, so he indorses the check and delivers it to Christina Caliss, a professional plumber, for value received. Christina in turn deposits the check in her account at Large Bank. Large Bank quickly returns the check to Christina with a mark stating that the check has insufficient funds. Christina wants to know whether Randy or Nina can be held liable for the check. Advise Christina on what she needs to know in order to answer that question.
Answers
Answer: Christina can hold Randy liable for the check
Explanation:
In this scenario it is important to note 2 things.
1. Nina PAID Randy.
2. Randy PAID Christina.
The point is that Randy is the one who had a contract with Nina. Even though Nina is the one who's check was not honored, Christina has NO CONTRACT with Nina. This means she cannot hold her liable.
As far as Christina is concerned, the check came from Randy and so she should hold him liable.
Randy on his part can then go back to Nina and hold her liable because he is the one who had a contract with her.
If you need any clarification do comment.
calculate the price elasticity of demand when the price of a barrel of gosum berries rises from $10 to $20. What kind of elasticity is this value that you computed for the price elasticity of demand and what does it mean for how demand will change based on a change in price within this price range
Answers
Answer:
PED = -0.176 or 0.176 in absolute terms. It is price inelastic, since PED < 1.
Explanation:
the quantity demanded for a price of $10 is 900 barrels.
the quantity demanded for a price of $20 is 800 barrels.
Using the midpoint method for calculating PED:
PED = {(Q2 - Q1) / [(Q2 + Q1) / 2]} / {(P2 - P1) / [(P2 + P1) / 2]}
PED = {(800 - 900) / [(800 + 900) / 2]} / {($20 - $10) / [($20 + $10) / 2]}
PED = (-100 / 850) / ($10 / $15) = -0.1176 / 0.6667 = -0.176
Price elasticity of demand measures how much does the quantity demanded of a good or service vary as a result form a 1% change in its price.
PED < 1, price inelastic. A 1% change in price will result in a proportionally smaller change in quantity demanded. PED > 1, price elastic. A 1% change in price will result in a proportionally larger change in quantity demanded. PED = 1, price unitary. A 1% change in price will result in a proportionally equal change in quantity demanded.The price elasticity of demand measures how demand changes with changes in price. In this scenario, if the price of gosum berries increases by 100% and demand decreases by 50%, the price elasticity of demand would be -0.5, which means demand is price inelastic. This means consumers will still purchase gosum berries even when prices rise.
Explanation:The price elasticity of demand quantifies how sensitive the demand of a product is to changes in its price. To calculate this, we would need to know by how much the quantity demanded changed as a result of the price change. Unfortunately, without this information, we cannot compute the exact price elasticity of demand in this example. However, let me explain how it would work if we had the necessary data.
Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. For example, if the price increased from $10 to $20, that would be a 100% increase in price. If, as a result of this price increase, the quantity demanded goes down by, say, 50%, then the price elasticity of demand would be -50%/100% = -0.5.
This negative value represents the inverse relationship between price and demand - as the price increases, the demand decreases. As for the kind of elasticity, if the price elasticity of demand is absolute value less than 1 (as in this example), we refer to it as price inelastic.
This means that demand is not very sensitive to price changes - a 1% increase in price leads to less than a 1% decrease in quantity demanded. In other words, consumers will continue to buy the product even if the price increases, suggesting that gosum berries are likely necessary goods for the consumers.
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Complete the following table by indicating whether or not each scenario is an example of price discrimination.
Last-minute "rush" tickets can be purchased for most Broadway theater shows at a discounted price. They are typically distributed via lottery or on a first-come, first-served basis a few hours before the show. Assume that the theater in question does not hold seats in reserve for this purpose, but rather offers rush tickets only for seats not sold before the day of the performance. Horizon Wireless offers various features "à la carte" that a customer may add to his or her calling plan, such as a text messaging package, a data package, and an Internet package.
Answers
Answer: yes; no
Explanation:
Price discrimination is an exploitative selling strategy that sellers use to try to charge their customers on different prices for the same product or service.
Last-minute "rush" tickets can be purchased for most Broadway theater shows at a discounted price. They are typically distributed via lottery or on a first-come, first-served basis a few hours before the show. Assume that the theater in question does not hold seats in reserve for this purpose, but rather offers rush tickets only for seats not sold before the day of the performance......... YES PRICE DISCRIMINATION OCCURS
---.>In this case, the groups are segmented into those who paid earlier at normal price and those who paid in relation to the rush at discounted price, A case price discrimination arises because the people who have paid more than others for a same show, would not be reserved seats which means that the product was same for the two type of consumers but not the same price
Horizon Wireless offers various features "à la carte" that a customer may add to his or her calling plan, such as a text messaging package, a data package, and an Internet package. NO PRICE DISCRIMINATION
---->This is because Because Horizon Wireless is offering the different features with a la carte pricing, where every customer is subject to the same pricing irrespective of his or her calling plan.
If the price of a data package or internet were different for a customer with a more expensive calling plan, then Horizon Wireless might be attempting to identify thier different consumer types and try to exploit the differences in their willingness to pay.
For each form of private spending, indicate whether it represents consumption or investment.
Private Spending Consumption Investment
1. Laundromats buying washing machines
2. People buying newspapers
3. Firms buying automobiles for delivery services
4. Firms buying soft drinks for a holiday party
Answers
Answer: 1. Investment; 2. Consumption; 3. Investment; 4. Consumption
Explanation: Consumption is defined as trading money for good or services as an individual as well as to absorb information, especially through a media form. It refers to expenditure on consumer goods that are not used in the production of other goods and services.
Investment on the other hand refers to expenditure on capital goods or assets that can be used to produce other goods and services thus investment spending stimulates greater production in an economy than consumption spending does.
Private consumption spending in this case would include people buying newspapers and firms buying soft drinks for a holiday party. Private investment spending includes laundromats buying washing machines and firms buying automobile for delivery services.
A company has two products: A and B. It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools. Annual production and sales level of Product A is 12,000 units, and the annual production and sales level of Product B is 11,500 units. What total overhead cost is allocated/assigned to Product A under activity-based costing?
Answers
Question: the budget activity for product A and B was not added to your question. Below is the remaining part of your question and the answer.
Activity Cost Pool Budgeted Cost Product A Product B
Activity 1 $120,600 $3700 $3500
Activity 2 $84,480 $5,900 $6,900
Activity 3 $116,840 $3,200 $6,000
Answer:
Overhead per unit of Product A = $11.796
Explanation:
Activity 1 allocated to Product A = $120,600 * $3700 / ($3700 + $3500)
= $ 61975
Activity 2 allocated to Product A = $84,480 *$5,900 / ($5,900+ $6,900 )
= $ 38940
Activity 3 allocated to Product A = $116,840 * $3,200 / ($3,200 + $6,000)
= $ 40640
Total allocated to Product A = $ 61975+ $ 38940 + $ 40640
= $141,555
Overhead per unit of Product A = Total allocated to Product A/Number of
units produced by product A
Overhead per unit of Product A = $141,555 / 12,000
Overhead per unit of Product A = $11.796
In a recent study for the National Bureau of Economic Research (NBER), four researchers looked at the effect of generous unemployment benefits on the local unemployment rate. They compared the unemployment situation in adjoining counties, which happened to lie in two different states that had different laws regarding the amount and duration of unemployment benefits. (Re-read the section on "A Natural Experiment of History" in Chapter 8 of the test to understand how the NBER research is based on a "natural experiment") The authors of the NBER study found that the unemployment rate "rises dramatically in the border counties belonging to the states that expanded unemployment benefit duration" during the Great Recession. Why might this be so? With the longer duration of unemployment benefits, firms needed to keep wages high to attract people to work. This caused downward wage rigidity, leading to persistent higher unemployment. The longer duration of unemployment benefits encouraged those workers who were unemployed to seek work sooner to avoid having their skills diminish, which increased the time for job search, leading to higher unemployment The longer the duration of benefits, the lower the wages become that firms will offer new workers. This caused upward wage rigidly, causing unemployment to rise dramatically. All of the above.
Answers
Answer:
With the longer duration of unemployment benefits, firms needed to keep wages high to attract people to work. This caused downward wage rigidity, leading to persistent higher unemployment
The Westchester Chamber of Commerce periodically sponsors public service seminars and programs. Currently, promotional plans are under way for this year’s program. Advertising alternatives include television, radio, and online. Audience estimates, costs, and maximum media usage limitations are as shown: Constraint Television Radio Online Audience per advertisement 100000 18000 20000 Cost per advertisement $2000 $300 $600 Maximum media usage 10 20 10 To ensure a balanced use of advertising media, radio advertisements must not exceed 50% of the total number of advertisements authorized. In addition, television should account for at least 10% of the total number of advertisements authorized. If the promotional budget is limited to $31,100, how many commercial messages should be run on each medium to maximize total audience contact? What is the allocation of the budget among the three media? If required, round your answers to the nearest dollar.
Answers
To maximize audience contact within a $31,100 budget, the optimal number of ads is 9 on television, 10 on radio, and 10 online, reaching an audience of about 1,620,000. The budget allocation is $18,000 for TV, $3,000 for radio, and $6,000 for online ads, totaling $27,000.
To maximize total audience contact within the budget of $31,100, given the constraints and audience per advertisement, we can set up the following linear programming model:
Objective:
Maximize audience contact: 100,000T + 18,000R + 20,000OConstraints:Budget constraint: 2000T + 300R + 600O ≤ 31,100Television constraint: 0.1(T+R+O) ≤ T (Television should account for at least 10% of the total)Radio constraint: R ≤ 0.5(T + R + O) (Radio ads must not exceed 50% of total ads)Usage constraints: 0 ≤ T ≤ 10, 0 ≤ R ≤ 20, 0 ≤ O ≤ 10Solution:
The optimal solution typically requires solving these equations using linear programming methods like the simplex method or using software tools like Excel Solver. Here is an approximate solution:
Television ads (T): 9Radio ads (R): 10Online ads (O): 10This allocation respects the budget constraint and maximizes audience contact, resulting in a total audience of approximately 1,620,000 people, and distributes the budget as follows:
Television: $18,000Radio: $3,000Online: $6,000Total: $27,000In each of the following situations, identify if there is a positive or negative externality in play. Explain you answer thoroughly.
A local bridal shop shares a strip mall with eight other businesses. Recently all have agreed that the signage at the road needs a facelift. Although all eight businesses use the sign, the other seven are not willing to pay for a fresh paint job. The bridal shop decides to foot the bill and, on their own, they update the sign. Is there a positive or negative externality in play?
Answers
Answer:
Positive Externality
Explanation:
Externalities are extra side effects to third un-involved party, without any monetary transaction for the same
Positive Externality is the positive side effect to third un-involved party, without any monetary transaction for the same. Negative Externality is negative side effect to third un-involved party, without any monetary transaction for the same.
The Local bride shop has only paid for the road signage facelift. Despite, all the seven other shops sharing strip mall with it also use the sign. This act of local bride shop will have more visibility & other benefits for all the other 7 businesses linked to it, who have not although paid for it. So, the other 7 businesses have a positive extra effect due to local bride shops' act. Hence it is a positive externality for all of them.
General Importers announced that it will pay a dividend of $4.30 per share one year from today. After that, the company expects a slowdown in its business and will not pay a dividend for the next 6 years. Then, 8 years from today, the company will begin paying an annual dividend of $2.40 forever. The required return is 12.7 percent. What is the price of the stock today?
Answers
Answer:
The price of the stock today is $11.59
Explanation:
As Gordon Growth Model, price of stock = expected dividend paid/ (discounting rate - growth rate)
Growth rate of dividend from year 1 to year 8 (after 7 years)
= ($2.4/$4.3)^(1/7) - 1 = -8%
Price of stock = $2.4/(12.7% - (-8%) = $11.59
On January 1, 2014, Pharoah Company purchased a copyright for $2356000, having an estimated useful life of 16 years. In January 2018, Pharoah paid $381000 for legal fees in a successful defense of the copyright.
(a) Copyright amortization expense for the year ended December 31, 2018, should be __________.
O $147250.
O $0.
O $171063.
O $179000.
Answers
Answer:
The correct is the last option,$179,000
Explanation:
The initial amortization expense=$2356000/16=$147.250
After four years additional expense was recorded for $381,000 which need to be added to the carrying value of the copyright
Carrying value=$2356000-($147.250*4)=$1,767,000.00
Plus additional qualifying expense =$381,000
Total carrying amount =$2,148,000.00
Remaining useful life =1 years
Revised amortization =$2,148,000.00/12 years=$179,000
The revised amortization from 2018 onward is $179,000
The last option is the correct answer
Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit, which affect the cost of asset of sale for the buyer as well as the seller. Consider this case: Purple Turtle Group buys on terms of 3.5/15, net 60 from its chief supplier. If Purple Turtle receives an invoice for $2,100.98, what would be the true price of this invoice?
Answers
Answer:
$2,027.45
Explanation:
Some companies trade on credit instead of cash. These companies allow their customers to pay later for purchases made today. These firms also provide a benefit to their customers with credit terms to pay earlier than the deadline and get discount on the actual invoice price.
In the given scenario, Purple Turtle Group has purchase goods and received an invoice of $2,100.98 with credit terms of 3.5/15, net 60. This means that the payment is due to be paid in next 60 days with a 3.5% discount if the payment is made within next 15 days. The actual invoice price will be then,
$2,100.98 * (100% - 3.5%) = $2,027.45
On January 1, 2016, Hobart Mfg. Co. purchased a drill press at a cost of $30,500. The drill press is expected to last 10 years and has a residual value of $5,500. During its 10-year life, the equipment is expected to produce 500,000 units of product. In 2016 and 2017, 22,500 and 79,000 units, respectively, were produced.
Required:
Compute depreciation for 2016 and 2017 and the book value of the drill press at December 31, 2016 and 2017, assuming the straight-line method is used.
2016 2017
Depreciation:
Book Values:
Answers
Answer:
Depreciation expense in 2016 and 2017 is $2,500
Book value in 2016 = $28,000
Book value in 2017 = $25,500
Explanation:
Straight line depreciation expense = (Cost of asset - Salvage value) / useful life
($30,500 - $5,500) / 10 = $2,500
The deprecation expense each year of its 10 year useful life would be $2,500.
Book value in 2016 = $30,500 - $2,500 = $28,000
Book value in 2017 = $28,000 - $2,500 = $25,500
I hope my answer helps you
The annual report for Sneer Corporation disclosed that the company declared and paid preferred dividends in the amount of $180,000 in the current year. It also declared and paid dividends on common stock in the amount of $2.80 per share. During the current year, Sneer had 1 million common shares authorized; 380,000 shares had been issued; and 172,000 shares were in treasury stock. The opening balance in Retained Earnings was $880,000 and Net Income for the current year was $380,000. Required: 1. Prepare journal entries to record the declaration, and payment, of dividends on (a) preferred and (b) common stock. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
Answers
Answer and Explanation:
The journal entries are shown below:
a. For preferred stock
Preferred dividend $180,000
To Preferred dividend payable $180,000
(Being the dividend declared is recorded)
Preferred dividend payable $180,000
To Cash $180,000
(Being the payment is recorded)
a. For common stock
Common dividend $582,400
To Common dividend payable $582,400
(Being the dividend declared is recorded)
Common dividend payable $582,400
To Cash $582,400
(Being the payment is recorded)
The computation is shown below:
= (380,000 shares - 172,000 shares) × $2.80
= $582,400
Josh and Alex work as design engineers creating high-end lighting fixtures. After one particularly enlightened afternoon, they decide to follow their dreams and open a cupcake bakery. Please sort their various costs, listed below, into the correct category.a. Implicit Costs b. Not a Cost c. Explicit Costs1. The garage space used for baking that can no longer be rented to a college student
2. Advertising space taken out on a social media network
3. Supplies like sugar, butter, and baking trays
4. The money they pay their neighbor's six year old son to deliver cupcakes to their customers
5. The salary Alex earned in his previous job designing light fixtures
Answers
Answer:
1. The garage space used for baking that can no longer be rented to a college student - implicit costs
Implicit costs are the opportunity costs, or in other words, what they give up to run the cupcake bakery. In this case, they are giving up on the rent they would get.
2. Advertising space taken out on a social media network - explicit costs
Explicit costs are monetary cost. To advertise on social media, they probably have to pay. In case they can advertise for free, then, this is not a cost.
3. Supplies like sugar, butter, and baking trays - explicit costs
Supplies have to be paid for with money, for these reason, they represent an explicit cost.
4. The money they pay their neighbor's six year old son to deliver cupcakes to their customers - explicit costs
Wages are also explicit costs because they have to be paid for with money. In this case, the kid is like their employee, and the money he earns is his wage.
5. The salary Alex earned in his previous job designing light fixtures - implicit costs
Alex quit his job to run the cupcake bakery instead. The salary he used to earn is something that he has given up, or an opportunity cost. Therefore, this salary represents an implicit cost.
In 2017, Eraser Corp had Revenue of $200 million, Cost of Goods Sold of $100 million (this includes Depreciation of $50 million), Sales General and Admin Expenses of $50 million, and faced a tax rate of 21%. Assume that no money was spent on Capital Expenditures or on additional Net Working Capital. According to our recipe, what should be the after-tax cash flow generated by Eraser Corp in 2017 (in millions)
Answers
Answer:
The after-tax cash flow generated by Eraser Corp in 2017 should be $89.5 million
Explanation:
Net income before tax = Revenue - Cost of Goods Sold - Sales General and Admin Expenses = $200 million - $100 million - $50 million = $50 million
Eraser Corp faced a tax rate of 21%,
Tax paid = 21% x $50 million = $10.5 million
No money was spent on Capital Expenditures or on additional Net Working Capital.
The after-tax cash flow generated by Eraser Corp in 2017 = Net income before tax + Depreciation expense - Tax = $50 million + $50 million - $10.5 million = $89.5 million
Note: Depreciation expense is Non-Cash Expenses, so it does not include in Cash Flow.
Preferred stock: 8 percent, par $10, authorized 20,000 shares. Common stock: par $1, authorized 50,000 shares. The following transactions occurred during the first year of operations in the order given: a. Issued a total of 45,000 shares of the common stock for $20 per share. b. Issued 12,000 shares of the preferred stock at $21 per share. c. Issued 3,500 shares of the common stock at $25 per share and 1,200 shares of the preferred stock at $21. d. Net income for the first year was $53,000.
Answers
Final answer:
Preferred stock: 8 percent, par $10, authorized 20,000 shares. Common stock: par $1, authorized 50,000 shares. Various transactions occurred involving the issuance of common and preferred stock, resulting in total cash inflows. Net income for the first year was $53,000.
Explanation:
The total number of authorized shares for preferred stock is 20,000 shares, with a par value of $10. Each share has a dividend rate of 8%. The total number of authorized shares for common stock is 50,000 shares, with a par value of $1.
The first transaction involved issuing 45,000 shares of common stock at $20 per share, resulting in a total cash inflow of $900,000.
In the second transaction, 12,000 shares of preferred stock were issued at $21 per share, resulting in a total cash inflow of $252,000.
The third transaction involved issuing 3,500 shares of common stock at $25 per share and 1,200 shares of preferred stock at $21 per share. This resulted in a total cash inflow of $109,500 for the common stock and $25,200 for the preferred stock.
Net income for the first year was $53,000 for both common and preferred stockholders.
Katlyn Williams owns a company that makes specialized components for the aerospace industry. Her most important customer is a company that is growing at a rate of 33% per year. Katlyn is working hard to grow her firm, because she knows that unless her company continually grows it will not be able to keep pace with the growth of its most important customer. This example illustrates the reason for growth referred to as ________.
Answers
Answer:
Need to accommodate the growth of a key customer.
Explanation:
In the given scenarios Katlyn is motivated to keep her company growing because her most important customer is a company that is growing at a rate of 33% per year.
To satisfy the customer needs for specialised components of aerospace equipment, Katlyn's company must also grow in output or they will not be able to satisfy the customer's need.
This demonstrates need to accommodate the growth of a key customer.
Answer:
Need to accommodate the growth of a key customer.
Explanation:
As mentioned in the question that the most important customer to Katlyn Williams is a company that is growing at a really fast pace which is 33% per year and in order to level that up Katlyn also need to put some effort in order to increase the pace of his company in delivering the required components to that particular customer as no company wants to displease its customers.
Hence it can be said that Katlyn need to accommodate the growth if its key customer.
Hope this clears.
California Surf Clothing Company issues 1,000 shares of $1 par value common stock at $18 per share. Later in the year, the company decides to Purchase 100 shares at a cost of $21 per share.
Record the transaction if California Surf reissues the 100 shares of treasury stock at $40 per share.
Answers
Answer:
The answer is given below;
Explanation:
Cash (100*40) Dr.$4,000
Treasury Stock,Common 100*21 Cr.$2,100
Paid in Capital, treasury stock 100*(40-21) Cr.$1,900
Antiques R Us is a mature manufacturing firm. The company just paid a dividend of $12.15, but management expects to reduce the payout by 6 percent per year, indefinitely. If you require a return of 10 percent on this stock, what will you pay for a share today?
Answers
Answer:
$70.86
Explanation:
The calculation of present value a share is shown below:-
Present value of share = Dividend (1 + Growth rate) ÷ (Rate of return + Growth rate)
= ($12.15 × (1 - 0.061)) ÷ (0.10 + 0.061)
= ($12.15 × 0.939) ÷ 0.161
= $11.40885 ÷ 0.161
= $70.86
Therefore for computing the present value we simply applied the above formula.
The following information is available for Ivanhoe Company. April 1 April 30 Raw materials inventory $10,500$14,000 Work in process inventory 4,8403,700 Materials purchased in April $97,700 Direct labor in April 80,300 Manufacturing overhead in April 162,000 Prepare the cost of goods manufactured schedule for the month of April.
Answers
Answer and Explanation:
The preparation of the cost of goods manufactured schedule for the month of April is presented below
Beginning work-in-process inventory $4,840
Manufacturing costs:
Direct materials:
Beginning inventory $10,500
Purchases $97,700
Materials available $108,200
Less: Ending inventory -$14,000
Direct materials used $94,200
Direct labor $80,300
Manufacturing overhead $162,000
Total manufacturing costs: $336,500
Total costs of work-in-process $341,340
($4,840 + $341,340)
Less: Ending work-in-process -$3,700
Cost of goods manufactured $337,640
Basically we simply the cost of goods manufactured formula
Suppose that the demand curve for barley can be characterized by the equation P = 100 - 2Qd. Suppose further that price was $10.00 and a $10.00 tax is imposed on the market. a) How many barleys would be purchased at a price of $10.00? After tax? b) What is the amount of tax revenue generated by the tax? c) How much excess burden is generated by the tax? d) What is the amount of consumer surplus before and after the tax? What is the difference in consumer surplus? Is it equal to excess burden plus the tax revenue?
Answers
Answer:
a. 45 , 40
b. $400
c. $25
d. before tax; $2025 and after tax ; $1,600
e. difference in consumer surplus $425
f. Yes it is equal
Explanation:
In this question, we are presented with the equation of a demand curve.
Given the price amount and the tax amount, we are asked to answer the questions that follow;
Please check attachment for complete solution and step by step explanation