Answer:
The correct answer is letter "A": territorial restriction.
Explanation:
A territorial restriction is set by companies when they do not want to be exposed to different regions' laws, taxation systems, or competition. The territorial restriction establishes the boundaries where the goods or services can be offered and is usually passed from manufacturers to retailers.
Vaughn, Inc. reports the following financial information for its sports clothing segment. Average operating assets $2,915,000 Controllable margin $612,150 Minimum rate of return 8 % Compute the return on investment and the residual income.
a. Return on investment ___.
b. Residual income ____.
Answer:
a. 21
b. $378,950
Explanation:
ROI = (Net operating income / Average operating asset)100
= ($612,150 / $2,915,000)100
= 21
Residual income = Net operating income - (average operating asset x minimum rate of return)
Residual income = $612,150 - ($2,915,000 x 8%)
= $612,150-$233,200
= $378,950
*we used controllable margin because it is in segmented department wherein fixed cost is more complicated to allocate each department.
On November 1, 2017 the Gallup polling organization reported that a 95% confidence interval for the true proportion of U.S. adults in favor of the way Donald Trump is handling his job as president is (0.35, 0.41). What is the sample proportion from which this interval was computed?
Answer:
sample proportion = 0.38
Explanation:
Please see attachment.
A machine is purchased on January 1, 2018, for $90,000. It is expected to have a useful life of five years and a residual value of $5,000. The company closes its books on December 31. Under the double-declining balance method, what is the total amount of depreciation to be expensed during the 2019? Multiple Choice $22,000 $34,000 $21,600 $22,400
Answer:
$21,600
Explanation:
The computation of the total amount of depreciation to be expense is shown below:
First, we have to find the depreciation rate which is shown below:
= One ÷ useful life
= 1 ÷ 5
= 20%
Now the rate is double So, 40%
In year 1, the original cost is $90,000, so the depreciation is $36,000 after applying the 50% depreciation rate
And, in year 2, the $(90,000 - $36,000) × 40% = $21,600
Residual value is ignored in this method.
Campbell Corporation is evaluating an extra dividend versus a share repurchase. In either case, $15,000 would be spent. Current earnings are $2.50 per share, and the stock currently sells for $50 per share. There are 4,000 shares outstanding. Ignore taxes and other imperfections. a. Evaluate the two alternatives in terms of the effect on the price per share of the stock and shareholder wealth per share.
Answer:
$46.25; $50
$50; $50
Explanation:
Given that,
Amount spent = $15,000
Current earnings = $2.50 per share
Current selling price = $50 per share
Shares outstanding = 4,000
Alternative 1: Extra dividend
Price per share:
= Current selling price - (Amount spent ÷ Shares outstanding)
= $50 - ($15,000 ÷ 4,000)
= $46.25
Shareholder wealth = $50
Alternative 2: Repurchase
Price per share = $50
Shareholder wealth = $50
Kroger Supermarkets changes its ads constantly to describe new products it has for sale and different price specials it offers.
Which medium would be the least logical choice for placement of its messages?
billboard (outdoor)
direct mail
radio
magazines
Answer:
The correct answer is letter "B": direct mail.
Explanation:
To make sure specials information is delivered on time, companies should not use direct mailing as a means of advertisement. Usually, mailing arrives at the destination from one (1) week and on which makes difficult for consumers to catch promotions on time, when stock for the products may not be available anymore.
Today's consumers do not need to rely on marketer-supplied information about products and services because they can use ________ to seek out a wealth of information.
A) push strategies
B) direct and digital marketing
C) the Internet
D) personal selling
E) public relations
Answer:
The answer to the question would be C
Explanation:
Without a doubt, the economic crisis has changed the way consumers approach the market for goods and services. In this new era, austerity, discounts and the search in different channels of the best price / benefit ratio dominate.
Of course, technology and the Internet are the best allies of the consumer who wants to be informed: thanks to smartphones, bar scanners, social networks or websites that compare prices or offer discounts, we are the buyers with more prior information on what we want or need to acquire.
The consumer should not believe so here the internet should be used.
What is internet?Prior to the decade, people visit different kind of markets for gathering information related to a particular product. It needs time, effort etc. But in today situation everyone prefer online shopping by using the internet where the consumer easily compared the products with terms of price, quality, quantity, etc.
learn more about the product here: https://brainly.com/question/24590978
The following costs pertain to Pete Co.’s purchase of inventory in 2014, Pete Co.’s first year of operations:
1200 units of product X 12,500
Insurance cost during transit of purchased goods 200
Freight-in 350
Cost of labor to bring product X to saleable condition 3,200
Total 16,250
None of the inventory was sold during 2014. What will be the ending balance in Pete Co.’s inventory
A. 16,250
B. 13,050
C. 15,700
D. 12,500
Answer:
Option (a) is correct.
Explanation:
Cost of ending inventory includes purchase cost, Insurance cost during transit, Freight in charges and cost of conversion (labor cost).
Ending balance in Pete Co.’s inventory:
= Purchase cost + Insurance cost during transit + Freight in + cost of conversion (labor cost)
= $12,500 + $200 + $350 + $3,200
= $16,250
Therefore, the the ending balance in Pete Co.’s inventory is $16,250.
Final answer:
The ending balance in Pete Co.'s inventory for 2014 is $16,250, reflecting the sum of all associated costs required to make the products ready for sale, as none were sold.
Explanation:
To determine the ending balance in Pete Co.’s inventory, we need to consider all the costs associated with getting the inventory to a saleable condition, including the purchase cost, insurance during transit, freight-in, and labor costs. The sum of all these costs will provide the total inventory value at the end of the year since none of the inventory was sold.
Purchase cost of product X: $12,500Insurance cost during transit: $200Freight-in: $350Cost of labor to bring product X to saleable condition: $3,200Total ending inventory balance: $12,500 + $200 + $350 + $3,200 = $16,250Therefore, the correct answer for the ending balance in Pete Co.’s inventory for 2014 is $16,250, which corresponds to option A.
The Steel Factory is considering a project that will produce annual cash flows of $36,800, $45,500, $56,200, and $21,800 over the next four years, respectively. What is the internal rate of return if the initial cost of the project is $135,000?
Answer:
rate of return is 7.56 %
Explanation:
given data
annual cash flows C1 = $36,800
annual cash flows C2 = $45,500
annual cash flows C3 = $56,200
annual cash flows C4 = $21,800
initial cost = $135,000
to find out
internal rate of return
solution
we will apply here initial cost formula for all annual cash flow that is express as
initial cost = [tex]\frac{C1}{(1+r)} +\frac{C2}{(1+r)^2} +\frac{C3}{(1+r)^3} +\frac{C4}{(1+r)^4}[/tex] .......................1
here C is annual cash flow and r is rate of return
put here value and we get r
initial cost = [tex]\frac{C1}{(1+r)} +\frac{C2}{(1+r)^2} +\frac{C3}{(1+r)^3} +\frac{C4}{(1+r)^4}[/tex]
135000 = [tex]\frac{36800}{(1+r)} +\frac{45500}{(1+r)^2} +\frac{56200}{(1+r)^3} +\frac{21800}{(1+r)^4}[/tex]
solve it and we get
r = 0.0756
so rate of return is 7.56 %
"Lluvia Manufacturing and Paraguas Products both seek funding at the lowest possible cost. Lluvia would prefer the flexibility of floating rate borrowing, while Paraguas wants the security of fixed rate borrowing. Lluvia is the more credit-worthy company. With the better credit rating, Lluvia has lower borrowing costs in both types of borrowing. Assumptions Lluvia Paraguas Credit rating AAA BBB Prefers to borrow Floating Fixed Fixed-rate cost of borrowing 6.000% 12.000% Floating-rate cost of borrowing: LIBOR (current=4%) 4.000% 4.000% Spread 1.000% 4.000% Total floating-rate 5.000%
8.000%"However, it could borrow at LIBOR + 2.000% and swap for fixed rate debt. What should they do? (LIBOR is 5.500%)
Answer:
Paraguas should borrow at LIBOR + 2.000% and swap for fixed rate debt.
Lluvia should choose funding in floating rate
Explanation:
Paraguas wants the security of fixed rate borrowing; thus it should borrow at LIBOR + 2.000% and swap for fixed rate debt, in which Libor is 5.500%; their total cost at 7.5% is still lower than Fixed rate 12.0%
Lluvia prefer the flexibility of floating rate borrowing, and its rating is better; then it can enjoy lower cost of borrowing at 5%. However it may face the increase if LIBOR increase later; vice versa if LIBOR decrease, its cost of borrowing is able to reduce also.
According to the real business cycle models, A. the Federal Reserve can affect inflation and real GDP by using monetary policy to influence the money supply. B. inflation can change due to movements in the money supply, however, fluctuations in real GDP are mainly explained by changes in the level of technology. C. wages and prices adjust quickly through rational expectations, so that monetary policy movements will create changes in the money supply which create fluctuations in real GDP. D. changes in the level of technology are the main causes of inflation and fluctuations in real GDP.
Answer: (D).
According to the real business cycle, "changes in the level of technology are the main causes of inflation and fluctuations in real GDP".
Explanation:
The "real business cycle" states that an economy during its lifetime will go through all the various stages of a business cycle which include; expansion, peak, recession, depression, trough and recovery. There will be periods where economic activities will be high and other periods when they will be low.
According to the real business cycle, technological innovation or shocks, which determine the extent to which inputs are converted to outputs, are responsible for the changes in the economy (such as inflation and real GDP fluctuations).
Krumple Inc. produces aluminum cans. Production of 12-ounce cans has a standard unit quantity of 4.4 ounces of aluminum per can. During the month of April, 304,000 cans were produced using 1,243,000 ounces of aluminum. The actual cost of aluminum was $0.17 per ounce and the standard price was $0.07 per ounce. There are no beginning or ending inventories of aluminum. Required: Calculate the materials price and usage variances using the columnar and formula approaches. Enter amounts as positive numbers and select Favorable or Unfavorable. Materials Price Variance $ Material Usage Variance
Answer:
Instructions are listed below.
Explanation:
Giving the following information:
Production of 12-ounce cans has a standard unit quantity of 4.4 ounces of aluminum per can. During April, 304,000 cans were produced using 1,243,000 ounces of aluminum. The actual cost of aluminum was $0.17 per ounce and the standard price was $0.07 per ounce.
Direct material price variance= (standard price - actual price)*actual quantity
Direct material price variance= ( 0.07 - 0.17)*1,243,000= $124,300 unfavorable
Direct material quantity variance= (standard quantity - actual quantity)*standard price
Direct material quantity variance= (1,337,600 - 1,243,000)*0.07= $6,622 favorable
In the perfectly competitive gadget industry there are 10 firms with identical costs given by C = 500 + 20q + q2, none of which believes it can alter price. Marginal cost is given by the function MC=20 + 2q. a. Find the shutdown point of one of these firms. Be sure to explain what you are doing. (5 points)
Answer:
The explanation is below
Explanation:
A. Shutdown point is achieved when price equal AVC. when price lowers than the AVC, firm shutdown.
VC = q^2
AVC = q
So,
P = q is the shutdown point.
B. For profit maximizing level of output,
P = MR = MC
500 = 20 + 2q
q = 240 units
So, profit maximization level of output = 240 units
C. Firm level supply curve = MC curve above the shutdown point
Number of firms = 5
So,
Industry supply curve = 10*MC = 200+20Q
Industry supply curve = 200+20Q
It shows that MC curve above the shutdown point is supply curve.
Basile Enterprises owns machinery with a book value of $467,000. The machinery is expected to generate future net cash flows of $525,000. The machinery has a fair value of $416,000. Basile should recognize a loss on impairment of
Answer:
Zero
Explanation:
In this case, the sum of future cash flows is exceeded than the book value. So, no impairment loss would be recognized
If the book value is more than the generated future cash flows so book value cannot be recovered. In this case, the generated future cash flows are ignored
In this scenario, we compare the values between book value and the fair value of machinery, the difference would be the loss on impairment of the asset
In mathematically,
= Book value - fair value
Suppose that the minimum wage was increased to $10 per hour. Which of the following would be most likely to result from the minimum wage increase?
a) an increase in the employment of low-skill workers previously employed at wage rates of less than $10 per hour
b) an increase in the number of jobs providing low-skill workers with on-the-job training
c) a reduction in the number of teenagers unemployed
d) an increase in the demand for high-skill workers providing services that are a good substitute for those whose wages were pushed up by the higher minimum wage
Increasing the minimum wage to $10 per hour would most likely result in an increase in the demand for high-skill workers and could decrease the employment levels of low-skilled workers, rather than increase it. The correct option is d.
If the minimum wage was increased to $10 per hour, according to economic theory and empirical studies, we can infer that this would not lead to an increase in the employment of low-skill workers previously employed at lower wages. Instead, a study demonstrates that a 10% increase in the minimum wage might decrease the hiring of unskilled workers by 1 to 2%, which suggests that raising the minimum wage would more likely decrease employment levels among low-skilled workers.
Given this, the most likely result of increasing the minimum wage to $10 per hour from the provided options is (d) an increase in the demand for high-skill workers providing services that are good substitutes for those whose wages were pushed up by the higher minimum wage. This is because firms may seek to substitute lower-skilled labor with more skilled labor or technology if the cost of the lower-skilled labor becomes too high.
Options (a), (b), and (c) are less likely because higher minimum wages can create barriers to entry for less experienced workers, reduce opportunities for on-the-job training, and potentially increase unemployment among demographics such as teenagers who typically fill lower-skilled positions.
A business operated at 100% of capacity during its first month and incurred the following costs: Production costs (17,400 units): Direct materials $174,800 Direct labor 229,200 Variable factory overhead 253,700 Fixed factory overhead 97,800 $755,500 Operating expenses: Variable operating expenses $133,900 Fixed operating expenses 46,700 180,600 If 2,000 units remain unsold at the end of the month, the amount of inventory that would be reported on the variable costing balance sheet is
a.$90,989
b.$86,839
c.$75,600
d.$107,598
Answer:
a.$90,989
Explanation:
Under variable costing balance sheet, only the variable cost of unsold units, is added to the unsold inventory held in hand.
Also the fixed cost is charged to income statement fully.
Thus, cost for 2,000 units unsold, as on the variable balance sheet.
Direct Material = [tex]\frac{174,800}{17,400} \times 2,000[/tex] = $20,092
Direct Labor = [tex]\frac{229,200}{17,400} \times 2,000[/tex] = $26,345
Variable Factory Overhead = [tex]\frac{253,700}{17,400} \times 2,000[/tex] = $29,161
Variable Operating Expenses = [tex]\frac{133,900}{17,400} \times 2,000[/tex] = $15,391
Total = $90,989
Rodriguez Company pays $325,000 for real estate plus $17,225 in closing costs. The real estate consists of land appraised at $240,000; land improvements appraised at $96,000; and a building appraised at $144,000. Required: 1. Allocate the total cost among the three purchased assets. 2. Prepare the journal entry to record the purchase.
Answer:
1. Allocated cost to three purchased assets as followed:
Land: $171,112.5
Land improvements: $68,445
Building: $102,667.5
2. The entry to record the purchase:
Dr Land $171,112.5
Dr Land improvements $68,445
Dr Building $102,667.5
Cr Cash $342,225
Explanation:
Working note on the allocation of cost to purchased asset:
- Total cost of asset : 325,000 + 17,225 = $342,225
- Percentage of value of each assets in the three assets:
+ Land = 240,000 / (240,000 + 96,000 + 144,000) = 50%; Land improvement : 96,000 / (240,000 + 96,000 + 144,000) = 20% ; Building: 144,000 / (240,000 + 96,000 + 144,000) = 30%.
- Allocation of cost will be based on the percentage of value of each asset as followed:
Land = 342,225 x 50% = $171,112.5; Land Improvements = 342,225 x 20% = $68,445; Building : 342,225 x 30% = $102,667.5.
Mary, Susan, and Sarah are running a beach boutique on the board walk of Ocean City. Their favorite product is a red lifeguard hoody. Mary believes it will sell 316 times next season. Susan forecasts sales of 500, and Sarah forecasts 203 What would be the result of a simple forecast combination? (Round to two decimal places)
Answer:
simple forecast combination = 339.66
Explanation:
given data
Mary sell = 316
Susan sell = 500
Sarah sell = 203
to find out
What would be the result of a simple forecast combination
solution
we get simple forecast combination will be express here as
simple forecast combination = ( Mary sell + Susan sell + Sarah sell ) ÷ 3 ....................1
put here value we get
simple forecast combination = [tex]\frac{316+500+203}{3}[/tex]
simple forecast combination = 339.66
The double-entry system requires that each transaction must be recorded a. in two sets of books. b. in a journal and in a ledger c. in at least two different accounts. d. first as a revenue and then as an expense. 11. An accountant has debited an asset account for $1,500 and credited a liability What can be done to complete the recording of the transaction? a. Credit another asset account for S700. b. Credit another liability account for $800. c. Dredit an equity accont for $700. d. Dredit an equity accont for $800. account for $700.
Answer:
Credit an equity account for $800
Explanation:
We assume that the accountant has debited an asset account for $1,500 and credited a liability account for $700 so we have to credit the equity account for $800 to balance the accounting equation
In every balance sheet, the accounting equation has used that means
Total assets = Total liabilities + Shareholder equity
In mathematically,
$1,500 = $700 + $800
$1,500 = $1,500
Balanced both sides of the balance sheet.
On January 1, 2017, Hannigan Company issued bonds with a face value of $600,000. The bonds carry a stated interest of 7% payable each January 1. 1. Prepare the journal entry for the issuance assuming the bonds are issued at 97. 2. Prepare the journal entry for the issuance assuming the bonds are issued at 102.
Answer:
Explanation:
The journal entries are shown below:
Cash A/c Dr $582,000 ($600,000 × 0.97)
Discount on Bonds Payable A/c Dr $18,000
To Bonds payable A/c $600,000
(Being the issuance of the bond is recorded and the remaining balance is debited to the discount on bond payable account)
Cash A/c Dr $612,000 ($600,000 × 1.02)
To Bonds payable A/c $600,000
To Premium on bonds payable A/c $12,000
(Being the issuance of the bond is recorded and the remaining balance is credited to the premium on bond payable account)
Final answer:
Journal entries for bond issuance at different prices must reflect the sale at either a discount or premium. For a bond sold at a discount, the company records the cash received and a debit to Discount on Bonds Payable. When issued at a premium, the entry includes the cash received and a credit to Premium on Bonds Payable.
Explanation:
When dealing with the issuance of bonds by a company, it's important to understand the accounting treatment for the sale of bonds at different prices, whether at a discount or a premium. The issuance at a discount (at 97) or at a premium (at 102) affects the journal entries made by the company.
Issuance at a Discount
1. If the bonds are issued at 97, the company receives only 97% of the face value. The journal entry to record this transaction would be:
Debit Cash $582,000 (600,000 x 0.97)
Debit Discount on Bonds Payable $18,000 (Face value - Cash received)
Credit Bonds Payable $600,000 (Face value of the bonds)
Issuance at a Premium
2. If the bonds are issued at 102, the company receives more than the face value. The journal entry to record this transaction would be:
Debit Cash $612,000 (600,000 x 1.02)
Credit Bonds Payable $600,000 (Face value of the bonds)
Credit Premium on Bonds Payable $12,000 (Cash received - Face value)
For illustrative purposes, imagine a local water company issued a $10,000 bond with a 6% rate. If you consider buying this bond a year before maturity when the market rate is 9%, you would expect to pay less than the face value because the interest rate is lower than the market rate. To calculate the price to pay, you would discount the bond's future cash flows, which consist of one year of interest plus the principal at the new interest rate of 9%.
It is important to identify and use only incremental cash flows in capital investment decisions:A) because they are the simplest to identify.B) only when the stand-alone principle fails to hold.C) because ultimately it is the change in a firm's overall future cash flows that matter.D) in order to accommodate unforeseen changes that might occur.E) whenever sunk costs are involved.
Answer:
C) because ultimately it is the change in a firm's overall future cash flows that matter.
Explanation:
Under capital budgeting decisions, decisions are made with respect to addressing the questions like what is the benefit of selecting the project and investing on it.
If the answer to above question is raised income, then the project is selected. Accordingly the raised income in cash terms will be measured by increase in cash flows, that is incremental cash flows.
In simplest terms additional cash flows.
There are three forms of the efficient market theory. Tests that have found there are no patterns in share price changes provide evidence for the ____ form of the theory. Evidence for the ____ form of the theory is provided by tests that look at how rapidly markets respond to new public information, and evidence for the ____ form of the theory is provided by tests that look at the performance of professionally managed portfolios.
Answer:
Weak; Semistrong; Strong.
Addison company will issue a zero-coupon bond this coming month. The projected yield for the bond is 7%. If the par value of the bond is $1,000, what is the price of the bond using a semiannual convention if:
a. the maturity is 20 years
b. the maturity is 30 years
c. the maturity is 50 years
d. the maturity is 100 years
Answer:
If the bond is zero coupon then there only be one lump sum payment at the end of the bond period and we will have to discount is back using the yield of the bond to find its present value or price. Because the convention is semi annual we will divide interest by 2 to find the semi annual interest rate and to number of periods we will multiply years by 2 because of semi annual convention.
Yield= 7/2= 3.5%
a. the maturity is 20 years
We have to discount 1,000 20 years back which means 40 periods back as 20*2= 40
1,000/1.035^40=252.5725
The present value of a zero coupon $1000 bond will be $252.5725 when the yield is 7% and maturity is 20 years.
b. the maturity is 30 years
We have to discount 1,000 30 years back which means 60 periods back as 30*2= 60
1000/1.035^60=126.93
The present value of a zero coupon $1000 bond will be 126.93 when the yield is 7% and maturity is 30 years.
c. the maturity is 50 years
We have to discount 1,000 50 years back which means 100 periods back as 50*2= 100
1000/1.035^100= 32.06
The present value of a zero coupon $1000 bond will be $32.06 when the yield is 7% and maturity is 50 years.
d. the maturity is 100 years
We have to discount 1,000 100 years back which means 200 periods back as 50*2= 200
1000/1.035^200= 1.02
The present value of a zero coupon $1000 bond will be $1.02 when the yield is 7% and maturity is 100 years.
Explanation:
Final answer:
To find the price of a zero-coupon bond, you calculate the present value of its par value using the formula for the present value of a single future cash flow. The zero-coupon bond prices depend on the yield and number of periods until maturity, with longer maturities resulting in lower bond prices at the same yield.
Explanation:
To calculate the price of a zero-coupon bond using a semiannual convention, we apply the formula for the present value of a single future cash flow, which in this case is the par value of the bond that will be received at maturity. The formula is: Present Value = Future Value / (1 + r)n, where 'r' is the yield (or discount rate) per period, and 'n' is the total number of periods until maturity.
For a bond with a yield of 7% per annum compounded semiannually, the period rate r is 7% divided by 2, which is 3.5% or 0.035. For each maturity scenario, we must calculate the number of semiannual periods (n) involved.
For a 20-year maturity, there are 40 semiannual periods (20 years x 2).
For a 30-year maturity, there are 60 semiannual periods (30 years x 2).
For a 50-year maturity, there are 100 semiannual periods (50 years x 2).
For a 100-year maturity, there are 200 semiannual periods (100 years x 2).
Plugging into the formula, calculate the price (Present Value) of the bond for each maturity:
a. 20-year maturity bond price: PV = $1,000 / (1 + 0.035)40
b. 30-year maturity bond price: PV = $1,000 / (1 + 0.035)60
c. 50-year maturity bond price: PV = $1,000 / (1 + 0.035)100
d. 100-year maturity bond price: PV = $1,000 / (1 + 0.035)200
Using a calculator, we find:
a. 20-year bond price: $258.42
b. 30-year bond price: $159.10
c. 50-year bond price: $65.85
d. 100-year bond price: $4.34
Suppose you are contemplating the purchase of a commercial lawn mower at a cost of $10,000. The expected lifetime of the machine is three years. You can lease the asset to a local business for $4,000 annually (payable at the end of each year) for three years. The lessee is responsible for the upkeep and maintenance of the machine during the three-year period.
If you can borrow (and lend) money at an interest rate of 8 percent, will the investment be a profitable undertaking?
Yes
No
Is the project profitable at an interest rate of 12 percent? Provide calculations in support of your answer.
Yes
No
Answer:
At the interest rate of 8%, The answer is Yes. The investment is profitable.
At the interest rate of, the answer is No. The investment is not profitable
Explanation:
For the investment to be profitable, its NPV discounted at the interest rate should be greater than the initial cost of investment of $10,000.
For scenario 1, the interest rate is 8%, the NPV is:
NPV = (4,000/0.08) x ( 1- 1.08^-3) = $10,308.4; which is greater than $10,000. Thus, the investment is profitable
For scenario 2, the interest rate is 12%, the NPV is:
NPV = (4,000/0.12) x ( 1 - 1.12^-3) = 9,607.3; which is lower than $10,000. Thus, the investment is unprofitable.
Travis & Sons has a capital structure that is based on 40 percent debt, 5 percent preferred stock, and 55 percent common stock. The pretax cost of debt is 7.5 percent, the cost of preferred is 9 percent, and the cost of common stock is 13 percent. The tax rate is 39 percent. The company is considering a project that is equally as risky as the overall firm. This project has initial costs of $325,000 and annual cash flows of $87,000, $279,000 and $116,000 over the next three years, respectively. What is the net present value of this project? (Note: you won’t be required to find the NPV for the exam, but I want you to do this homework problem to be sure you understand that the WACC is the appropriate discount rate when evaluating projects).
Answer:
First we have to find the Weighted average cost of capital of the firm. The formula for that is
(Cost of equity * percentage of equity) + (cost of preferred stock * percentage of preferred stock) + (cost of debt * percentage of debt*(1-tax rate)).
We put the values given to us in the question in this formula to find the weighted average cost of capital of the firm.
(0.55*0.13)+(0.05*0.09)+(0.40*0.075*(1-0.39))
= 0.0943= 9.43%
The Weighted average cost of capital of the firm is 9.43%, because the company is considering a project which is equally as risky as the overall firm, we can use the weighted average cost of capital is the internal rate of return of the project, so the internal rate of return of the project (WACC) is 9.43%.
Now in order to find the present value of the project we will discount the cash flows of the project using the IRR
Cash flow 0 = -325,000+
Cash flow 1= 87,000/1.0943
Cash flow 2= 279,000/1.0943^2
Cash flow 3= 116,000/1.0943^3
NPV= 76,011
The present value of the project is 76,011 when we discount the cash flows using an IRR or 9.43% which is also the WACC of the firm
Explanation:
Wallace Container Company issued $100 par value preferred stock 10 years ago. The stock provided a 7 percent yield at the time of issue. The preferred stock is now selling for $63. What is the current yield or cost of the preferred stock? (Disregard flotation costs.) (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
Answer: kp = D/Po
D = 0.07 X $100 = $7
kp = 7/63
kp = 11.11%
Explanation: The dividend paid on the preferred stock is 7 percent of the par value and the current market price is $63. Thus, the cost of preferred stock can be obtained by dividing the dividend paid by the current market price of the preferred stocks.
The current yield or cost of the preferred stock is 11.11%.
What is a Preferred stock?Preferred stock is frequently purchased by speculators who want to hold stocks without overexposing their portfolio to risk. Preferred stock also has attractive incentive status; as a result, financial firms and big businesses.
The stock is issued at a par value of $100.
The preferred stock was issued 10 years ago.
At the time of issue, the stock had a 7% yield.
The selling price at this point in time is $63.
The current yield or cost of the preferred stock is 11.11%.
current yield = stock yield/stock at par value
= 0.07 X $100
= $7
This will be taken with respect to the selling price of the commodity:
= 7/63
= 11.11%
The market price of said preferred stock is currently $63, and the dividend is 7 percent of said par value. As a result, the value of the preferred stock could be calculated by dividing each dividend payout by the preferred stock's current market price.
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Leo received $7,500 today and will receive another $5,000 two years from today. He will invest these funds when he receives them and expects to earn a rate of return of 11.5 percent. What value does he expect his investments to have five years from today?
Answer:
Value of Investment= Principal (1+Rate of return)^Number of periods
For the first investment the principal is 7,500, the rate of return is 11.5% and the number of periods are 5 so the value of the investment will be
7,500 (1+0.115)^5=12,925
For the second investment the principal is 5,000, the rate of return is 11.5 and the number of periods are 3 as the 5,000 is invested two years from today.
5,000*(1+0.115)^3=6,931
Total value of investments = 12,925 +6,931 = $19,856
Final answer:
Leo's total investment after five years, with the $7,500 invested for the full duration and the $5,000 invested after two years, both at an 11.5% interest rate, is calculated by finding the future value of each amount separately and summing them.
Explanation:
Leo received an amount of $7,500 today, and he will receive another $5,000 two years from today. He intends to invest these amounts immediately upon receipt at an annual interest rate of 11.5%. We need to calculate the future value of these investments five years from today.
For the initial $7,500 investment, it will be invested for the entire five years. The future value (FV) of this investment can be found using the formula FV = PV *[tex](1 + r)^t[/tex], where PV is the present value, r is the annual interest rate, and t is the number of years.
FV of $7,500 after 5 years = $7,500 * [tex](1 + 0.115)^5[/tex]
Next, for the $5,000 he will receive two years from today, this amount will only be invested for three years (since it's received two years from today and we want the value five years from today). So we calculate:
FV of $5,000 after 3 years = $5,000 * [tex](1 + 0.115)^3[/tex]
Lastly, we add both future values together to determine the total future value of Leo's investments after five years.
The future value of the $7,500 invested for five years and the $5,000 invested for three years, both at the annual interest rate of 11.5%, will be the sum total of both individual future values.
One major difference between a merchandiser’s master budget and a manufacturer’s master budget is that A : a merchandiser does not include direct materials, direct labor, and manufacturing overhead budgets, whereas a manufacturer does. B : a merchandiser does not include a sales budget, whereas a manufacturer does. C : a manufacturer does not include a sales budget, whereas a merchandiser does. D : a manufacturer does not include direct materials, direct labor, and merchandising overhead budgets, whereas a merchandiser does.
Answer:
A
Explanation:
A merchandise prepares a budget in line with the Trading profit and loss Account, while a Manufacturer prepares a budget in line with the Manufacturing and profit and loss account.. under the Manufacturing account we have prime cost which consist of direct labor, direct material and direct expenses. then add it to Manufacturing overheads.
Benton Company's sales budget shows the following expected total sales: Month Sales January $ 25,000 February $ 30,000 March $ 35,000 April $ 40,000 The company expects 80% of its sales to be on account (credit sales). Credit sales are collected as follows: 25% in the month of sale, 72% in the month following the sale with the remainder being uncollectible and written off.
The total cash receipts during April would be:
Answer:
Total Cash inflows from sales = $36640
Explanation:
given data
Month Sales
January $25,000
February $30,000
March $35,000
April $40,000
to find out
The total cash receipts during April
solution
first we get here Cash sales of April month that is express as
Cash sales of April month = $40,000 × 30%
Cash sales of April month = $40,000 × 0.30
Cash sales of April month = $12000
and
now we get collection from credit sale of April that is
collection from credit sale = ( $40000× 70% ) × 25%
collection from credit sale = ( $40000× 0.70 ) × 0.25
collection from credit sale = $7000
and
Collection from Credit sales of March that is
Collection from Credit sales = ( $35000× 70% ) × 72%
Collection from Credit sales = ( $35000× 0.70 ) × 0.72
Collection from Credit sales = $17640
so
Total Cash inflows from sales will be
Total Cash inflows from sales = $12000 + $7000 + $17640
Total Cash inflows from sales = $36640
The tiny South Pacific island country of Maroji produces a lot of milk and milk-based products.
To protect this industry, Maroji mandates that only designated trading companies can import cheese, each of which is allocated the right to import a maximum number of pounds of cheese each year.
By doing this, Maroji controls the amount of imported cheese. This is an example of a(n) :a. import quotab. import dutyc. import tariffd. subsidye. local content requirementPlease explain answer.
Answer:
It is an example of an import quota
Explanation:
An import quota is a ceiling on the physical or monetary amount of a product that a firm can import.
In this question, only a few firms can import cheese, and each firm has a ceiling on the amount of cheese they can import per year. The limit is expressed in physical terms (pounds of cheese). The logic behind import quotas is protect local industries, however, they oftern result either in shortages or in higher prices for consumers.
Crater HVAC Systems is preparing its statement of cash flows (indirect method) for the year ended March 31, 2018. To follow, in no particular order, is a list of items that will be used in preparing the company's statement of cash flows. Identify each item as an operating activity addition to net income; an operating activity subtraction from net income; an investing activity; a financing activity; or an activity that is not used to prepare the cash flows statement.
Answer:
a. an operating activity subtraction from net income
b. a financing activity
c. an operating activity subtraction from net income
d. an operating activity addition to net income
e. an operating activity addition to net income
f. Direct cash flow method - an operating activity addition to net income
g. Investing activity
h. not used to prepare the cash flows statement.
i. Financing activity
j. an operating activity addition to net income
k. an operating activity addition to net income
l. an operating activity subtraction from net income
m. an operating activity addition to net income
n. an operating activity addition to net income
Explanation:
Requirement A
a. Increase in inventory:
Inventory requires in day to day to activities. Therefore, it is related to operating activities despite being a balance sheet item. However, as it is similar to working capital, also that is required to deduct from net income. Hence, it is an operating activity item that needs subtraction from net income.
Requirement B & C
b. Issuance of common stock:
As the common stock is the capital of shareholders'. Shareholders finance it. Therefore, a new stock issuance means the company finances it.
c. Decrease in Accrued liabilities
The decrease in current liability means the firm pays cash to its payable. It means there is a cash outflow. Therefore, it will be deducted from net income in the operating activity section.
Requirement D
d. Net income
After deducting the operating expenses, other income/expenses, and interest & taxes from Gross profit, we get net income. As cash flow cannot be found directly from net income, we need to adjust the net income. The cash flow statement starts with the net income, and all the items are adjusted with the net profit.
Requirement E
e. Decrease in prepaid expenses
When we pay cash in advance for any expenses, it is prepaid expenses. When the time becomes over for that increases, it becomes a reasonable expense. Therefore, the cash outflow becomes an average balance. As there will be no cash outflow, it will add to the net income under the operating activities.
Requirement F & G
f. collection of cash from customers
It is an operating activity. However, in the direct method of cash flow statement, it is required. Therefore, it is added back to the net income as there is cash inflow.
g. purchase of equipment with cash
The cash is outflown when purchasing a piece of equipment with money. As the company uses the machine for many years, it is an investing activity for a firm.
Requirement H & I
h. retained earnings
It is only required to determine the dividend. It is not necessary to prepare the cash flow statement.
i. Payment of dividends
If a firm pays dividends, the cash is decreasing. Again, as the shareholders' get a bonus, and they are the company owners, paying a dividend to them will go to the finance section. Therefore, it is a financing activity with cash outflow.
Requirement J & K
j. increase in accounts payable
The increase in accounts payable means the cash is not disbursed to them. Therefore, it will be added to net income under operating activity.
k. decrease in accounts receivable
The decrease in accounts receivable mean they have paid us the amount. Therefore, there is a cash in-flow. So, it will be added to the net income under operating activity.
Requirement L
l. Gain on sale of a building
When we sale any non-current assets, we have to measure its book value or market value. If the sale exceeds the book value, there is an additional profit from the sale. It will be subtracted from the net income under the operating activity because the income is already added during the preparation of the income statement.
Requirement M & N
m. Loss on sale of land
When the book value of the land exceeds the sale value, there exists a loss. The loss will be added back to the net income under the operating activity.
n. Depreciation expense
It is a non-cash item that is subtracted in the income statement. Any non-cash item should be added to net income during the preparation of the cash flow statement as those items cannot generate cash.
What is commonly presented or described in the Cash Flow Statement includes the amount of cash received, such as cash income and cash investment from the owner as well as the amount of cash issued by the company, such as expenses to be incurred, debt payments, and taking prives.
Further Explanation
Cash flow statement has the meaning as a financial statement that presents information about cash receipts and disbursements of a company during a period.
In the cash flow financial statements both in goods and services companies, there are 3 parts, namely:
Cash operating activities
Examples of cash operating activities are payment and receivable income, payment of salaries, operating expenses, and so forth. The statements of cash from operating activities consist of the main activities or operations of a company which directly impacts cash.
Cash investing activities
It is a financial cash statement relating to the acquisition of the sale and purchase of fixed assets or permanent assets.
Cash funding activities
Cash flow financial statements relating to the owner's investments, lending funds, and taking money by the owner.
In general, there are five steps that can be used as a way to prepare cash flow financial statements, namely:
Calculate the increase/decrease that occurred on cash Calculate and report net cash used in operating activities, using the direct method or indirect method. Calculate and report net cash used in investment activities Calculate and report net cash used by funding activities Calculate the flow and add up the net cash from the combined net cash used by operating, investing and financing activities with the initial cash balance (as proof of similarity to the ending cash balance).
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Detail
Class: College
Subject: Business
Keyword: Cash, Flows, Invest