Answer:
Transferred out units is 93,100 units
Explanation:
The number of physical units can be determined as follows:
opening inventory + newly introduced units - closing inventory
= 19,000 + 103,500 - 29,400. =93,100 units
Note that we have to deduct the closing inventory units because they represent the quantity of work that are yet to be completed as the end of the end of the period
Physical units transferred out to the next processing department is 93,100 units
Malcolm, a dealer in securities, is a 60 percent owner of the Real Partnership which on July 1, 2015, sold to him Acme Securities which it had held as an investment for three years. The basis of the securities to the Real Partnership was $40,000, and the sales price to Malcolm was $100,000.
On his 2015 federal income tax return, Malcolm should report income in the amount and character of:
a. $36,000 long-term capital gain.
b. $36,000 short-term capital gain.
c. $36,000 ordinary income.
d. $18,000 long-term capital gain.
e. $18,100 ordinary income.
Answer:
c. $36,000 ordinary income.
Explanation:
Data provided
Sales price to Malcolm = $100,000
Basis of the securities to the Real Partnership = $40,000
The computation of should report income in the amount and character of is shown below:-
The gain that arose = Sales price to Malcolm - Basis of the securities to the Real Partnership
= $100,000 - $40,000
= $60,000
But because Malcolm is the Real Partnership's 60 percent shareholder, he will declare income in the amount and character of $60,000 × 60% = $36,000 as ordinary income on his federal income tax return for 2015.
Suppose a seven-year, $ 1 comma 000 bond with a 7.8 % coupon rate and semiannual coupons is trading with a yield to maturity of 6.50 %.If the yield to maturity of the bond rises to 7.20 % (APR with semiannual compounding), what price will the bond trade for?
Answer:
The price of the bond is 1,072.19
Explanation:
The price at which the bond trades for can be computed using the pv formula in excel which tries to discount to present value all the cash inflows receivable from the bond into today's present worth.
=-pv(rate,nper,pmt,fv)
rate is the yield to maturity of 6.50% divided by 2 since the bond pays interest semi-annually i.e 3.25%
nper is the number of coupon payments the bond would pay which is 7 years multiplied by 2 i.e 14
pmt is the semi-annual interest of the bond which is $1000*7.8%/2=$39
the fv is the face value of the bond of $1000
=-pv(6.5%/2,14,39,1000)=$1,072.19
A manufacturer has budgeted sales for the first quarter of the next year to be 35 comma 000 units. The inventory in hand at the beginning of quarter is 3 comma 000 units. The desired ending inventory is 5 comma 000 units. Calculate the budgeted production for the quarter.
Answer:
Production= 37,000 units
Explanation:
Giving the following information:
Budgeted sales= 35,000 units
Beginning invnetory= 3,000
Desired ending inventory= 5,000
To calculate the required production, we need to use the following formula:
Production= sales + desired ending inventory - beginning inventory
Production= 35,000 + 5,000 - 3,000
Production= 37,000 units
Rockville Corporation is going to borrow $250,000 from its bank at an APR of 8.5 percent. The bank requires its customers to maintain a 10 percent compensating balance. What is the effective interest rate on this bank loan? Round to 4 decimal places and enter percentages as a decimal
Answer: 0.0944 ( 4 dp)
Explanation:
To calculate the effective interest rate we will go in stages.
First we calculate the compensated balance deposit of 10%,
= 250,000*10%
= $,25,000
Subtracting it from the loan amount will give us the effective borrowing.
Effective borrowing = 250,000-25,000
= $225,000
Then we find out the interest expense on the original amount which is,
Interest expense = Amount borrowed * Interest rate
= 250,000*8.5%
= $21,250
The reason we calculated the above is because we need that figure in the effective interest rate formula which goes like,
Effective interest rate = Interest expense / Effective borrowing amount
= 21,250/225,000
= 0.094444444
= 0.0944
Effective interest rate is 0.0944 ( 4 dp)
Answer:
9.4%
Explanation:
Compensating balance amount = $250,000 * 10% = $25,000
Interest expenses = $250,000 * 8.5% = 21,250
Effective interest rate = $21,250/($250,000 - $25,000) = 0.0944, or 9.4%
Therefor, the effective interest rate is 9.4%.
Note: The effective interest rate of 9.4% is higher than the APR of 8.5% because of the compensating balance.
Ace Hardware is adding a new product line that will require an investment of $ 1 comma 418 comma 000. Managers estimate that this investment will have a 10-year life and generate net cash inflows of $ 330 comma 000 the first year, $ 290 comma 000 the second year, and $ 230 comma 000 each year thereafter for eight years. Compute the payback period. Round to one decimal place.
Answer:
5.47 years
Explanation:
The computation of the payback period is shown below:
In year 0 = $1,418,000
In year 1 = $330,000
In year 2 = $290,000
In year 3 = $230,000
In year 4 = $230,000
In year 5 = $230,000
In year 6 = $230,000
In year 7 = $230,000
In year 8 = $230,000
In year 9 = $230,000
In year 10 = $230,000
If we add the first 5-year cash inflows, that will be $1,310,000 So we subtract the $1,310,000 from the $1,418,000, then the balance will be $108,000 as though we applied the six-year cash inflow to the original investment, and the cumulative sum exceeds. So, we subtract it And the cash inflow next year is $230,000
So, the payback period equal to
= 5 years + $108,000 ÷ $230,000
= 5.47 years
Vulcan Company’s contribution format income statement for June is as follows: Vulcan Company Income Statement For the Month Ended June 30 Sales $ 800,000 Variable expenses 300,000 Contribution margin 500,000 Fixed expenses 450,000 Net operating income $ 50,000 Management is disappointed with the company’s performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined the following: The company is divided into two sales territories—Northern and Southern. The Northern Territory recorded $300,000 in sales and $150,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $123,000 and $100,000 are traceable to the Northern and Southern Territories, respectively. The rest of the fixed expenses are common to the two territories. The company is the exclusive distributor for two products—Paks and Tibs. Sales of Paks and Tibs totaled $105,000 and $195,000, respectively, in the Northern territory during June. Variable expenses are 24% of the selling price for Paks and 64% for Tibs. Cost records show that $52,500 of the Northern Territory’s fixed expenses are traceable to Paks and $40,950 to Tibs, with the remainder common to the two products. Required: 1-a. Prepare contribution format segmented income statements for the total company broken down between sales territories. 1-b. Prepare contribution format segmented income statements for the Northern Territory broken down by product line.
Answer:
Vulcan Company Income Statement For the Month Ended June 30:
1-a) Income Statement between sales territories:
i) Northern territory income statement (see attachment)
Sales = $300,000
Variable cost = $150,000
Contribution = $150,000
Fixed cost = $236,500
Net Income = $(86,500)
ii) Southern Territory income statement (see attachment):
Sales = $500,000
Variable cost = $150,000
Contribution = $350,000
Fixed Cost = $213,500
Net Income = $136,500
1-B) Contribution format segmented income statements for the North:
Paks (see attachment):
Sales = $105,000
Variable cost = $25,200
Contribution = $79,800
Fixed cost = $124,025
Net Income = ($44,225)
Tibs (see attachment):
Sales = $195,000
Variable cost = $124,800
Contribution = $70,200
Fixed cost = $112,475
Net Income = ($42,275)
Explanation:
a) Fixed cost is determined as follows:
Northern Territory:
Traceable fixed cost = $123,000
Common fixed cost = $113,500 (450,000 - 123,000 - 100,000) /2
Total = $236,500 ($123,000 + $113,500)
Southern Territory:
Traceable fixed = $100,000
Common fixed cost = $113,500 (as above_
Total = $213,500 ($100,000 + $113,500)
b) Variable cost for Northern Paks and Tibs:
Paks = 24% of $105,000 = $25,200
Tibs = 64% of $195,000 = $124,800
c) Fixed cost for Northern Paks and Tibs:
Paks:
Traceable = $52,500
Common = $71,525 ($235,500 - 52,500 - 40,950) / 2
Total = $124,025
Tibs:
Traceable = $40,950
Common = $71,525 ($235,500 - 52,500 - 40,950) / 2
Total = $112,475
The income statement for Vulcan Company when segmented by sales territory reveals a segment margin of $27,000 for the Northern Territory and $250,000 for the Southern Territory. When further segmented by product line for the Northern Territory, Paks has a segment margin of $27,300 and Tibs is $29,250.
Explanation:To provide the Vulcan Company with accurate insights into its operations, contribution format segmented income statements are useful tools. A segmented income statement separates the company’s costs and profits by area of responsibility, whether that’s geographical (like Northern and Southern territories) or by product lines (like Paks and Tibs).
1-a. Segmented Income Statement by Sales Territories:
Northern Territory: Sales: $300,000, Variable Expenses: $150,000, Contribution Margin: $150,000, Traceable Fixed Expenses: $123,000, Segment Margin: $27,000
Southern Territory: Sales: $500,000, Variable Expenses: $150,000, Contribution Margin: $350,000, Traceable Fixed Expenses: $100,000, Segment Margin: $250,000
1-b. Segmented Income Statement for Northern Territory by Product Line:
Paks: Sales: $105,000, Variable Expenses: $25,200 (24% of Sales), Contribution Margin: $79,800, Traceable Fixed Expenses: $52,500, Segment Margin: $27,300
Tibs: Sales: $195,000, Variable Expenses: $124,800 (64% of Sales), Contribution Margin: $70,200, Traceable Fixed Expenses: $40,950, Segment Margin: $29,250
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The budgeted production of Capricorn, Inc. is 10,000 units per month. Each unit requires 20 minutes of direct labor to complete. The direct labor rate is $100 per hour. Calculate the budgeted cost of direct labor for the month. (Round any intermediate calculations to the nearest cent and your final answer to the nearest dollar.)
Answer:
The budgeted cost of direct labor for the month is $333,333.
Explanation:
This question can be solved using rules of three.
The direct labor rate is $100 per hour.
Each unit requires 20 minutes of direct labor to complete.
An hour has 60 minutes, so in an hour, 60/20 = 3 units can be made.
This means that the cost of 3 units is $100.
10,000 units per month.
How much do 10,000 units cost?
3 units - 100
10,000 units - $x
[tex]3x = 10000*100[/tex]
[tex]x = \frac{10000*100}{3}[/tex]
[tex]x = 333333[/tex]
The budgeted cost of direct labor for the month is $333,333.
Stech Co. is issuing $9 million 12% bonds in a private placement on July 1, 2017. Each $1,000 bond pays interest semi-annually on December 31 and June 30 of each year. The bonds mature in ten years. At the time of issuance, the market interest rate for similar types of bonds was 8%. What is the expected selling price of the bonds
Answer:
Expected selling price =$ 1,271.81
Explanation:
The price of a bond is the present value (PV) of the future cash inflows expected from the bond discounted using the yield to maturity.
These cash flows include interest payment and redemption value
The price of the bond can be calculated as follows:
Step 1
PV of interest payment
coupon rate - 12%, yield - 8%, years to maturity- 10 years
Semi-annual coupon rate = 12%/2 = 6%
Semi-annual Interest payment =( 6%×$1000)= $60
Semi annual yield = 8%/2 = 4%
PV of interest payment
= A ×(1- (1+r)^(-n))/r
A- interest payment, r- yield - 4%, n- no of periods- 2 × 10 = 20periods
= 60× (1-(1.04)^(-10×2))/0.04)
= 60× 13.59032634
=$815.41
Step 2
PV of redemption value (RV)
PV = RV × (1+r)^(-n)
RV - redemption value- $1000, n- 2×10 r- 4%
= 1,000 × (1+0.04)^(-2×10)
= $456.38
Step 3
Price of bond = PV of interest payment + PV of RV
= $815.41 + $456.38
= $ 1,271.81
Expected selling price =$ 1,271.81
Final answer:
The expected selling price of the $9 million 12% bonds is $940.62.
Explanation:
To calculate the expected selling price of the bonds, we need to calculate the present value of the future cash flows. The bonds pay semi-annual interest at a rate of 12% per year. The market interest rate for similar bonds is 8%. The bonds have a maturity of ten years. Using these figures, we can calculate the present value of the interest payments and the principal repayment at maturity.
To calculate the present value of the bond, we can use the formula:
PV = (C/2) * (1 - (1/(1+r)^n)) / r + (M/(1+r)^n)
Where PV is the present value of the bond, C is the periodic interest payment, r is the market interest rate, and n is the number of periods or years until maturity. M is the maturity value of the bond.
Substituting the values, we get:
PV = (60/2) * (1 - (1/(1+0.08)^(10*2))) / 0.08 + (1000/(1+0.08)^(10*2)) = $940.62
Mixed Costs and Cost Formula Ben Palman owns an art gallery. He accepts paintings and sculpture on consignment and then receives 20% of the price of each piece as his fee. Space is limited, and there are costs involved, so Ben is careful about accepting artists. When he does accept one, he arranges for an opening show (usually for 3 hours on a weekend night) and sends out invitations to his customer list. At the opening, he serves wine, soft drinks, and appetizers to create a comfortable environment for prospective customers to view the new works and to chat with the artist. On average, each opening costs $600. Ben has given as many as 20 opening shows in a year. The total cost of running the gallery, including rent, furniture and fixtures, utilities, and a part-time assistant, amounts to $120,000 per year.Required:
1. Assume that the cost driver is number of opening shows. Develop the cost formula for the gallery's costs for a year.
2. Using the cost formula developed above, what is the total cost for Ben in a year with 12 opening shows?
$
Using the cost formula developed above, what is the total cost for Ben in a year with 14 opening shows?
$
Answer:
$136,200 is the total costs for 14 opening shows
Explanation:
See attached file
Ballard Company uses the perpetual inventory system. The company purchased $9,700 of merchandise from Andes Company under the terms 3/10, net/30. Ballard paid for the merchandise within 10 days and also paid $420 freight to obtain the goods under terms FOB shipping point. All of the merchandise purchased was sold for $18,400 cash. The amount of gross margin for this merchandise is:
Answer:
$8,571
Explanation:
The computation of amount of gross margin is shown below:-
Total Purchase = Purchase - Purchase discount + Freight paid
= $9,700 - ($9,700 × 3%) + $420
= $9,700 - $291 + $420
= $9,829
Gross Margin = Sales - Total Purchase
= $18,400 - $9,829
= $8,571
Therefore for computing the Gross Margin we simply appied the above formula.
Livingston Fabrication has created the following aggregate plan for the next 5 months (see PDF): Assume that Livingston will have nothing in inventory at the end of July. Livingston employs 500 production assembly workers and it takes one production assembly worker 3 minutes to assemble one unit of finished good. (The unit is complete at that point.) Each production assembly worker can provide 160 hours of assembly time a month without requiring overtime pay. a. Livingston wants to complete this plan without working any overtime in assembly. How many additional production assembly workers does Livingston need to hire to accomplish this? When should they be hired? b. Using this production plan, how many units will be in inventory at the end of October? c. What will the average inventory level be each month?
Answer:
Explanation:
worker's production rate = 60/3 = 20units per hour
monthly capacity 160 x 20 = 3200 units.
capacity needed to produce 2000000 units
= 2000000/3200
= 625
therefore, since they already have 500 workers, they need to hire 125 more workers.
b) At the end of October they will have 2 million inventory.
c) Average inventory in each of the months has been listed in the attachment below.
ordan Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,200 containers follows. Unit-level materials $ 5,800 Unit-level labor 6,400 Unit-level overhead 3,900 Product-level costs* 9,600 Allocated facility-level costs 26,600 *One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Jordan for $2.80 each. Required Calculate the total relevant cost. Should Jordan continue to make the containers
Final answer:
Jordan Electronics should continue to make the containers, as the total relevant cost of making them ($19,300) is less than buying them from Russo Container Company ($25,760).
Explanation:
To calculate the total relevant cost for Jordan Electronics to decide whether to make or buy the shipping containers, we need to consider only the costs that will change based on the decision. The costs provided are as follows:
Unit-level materials: $5,800
Unit-level labor: $6,400
Unit-level overhead: $3,900
Product-level costs: $9,600 (only one-third is avoidable if buying, so the relevant portion is $3,200)
Allocated facility-level costs: $26,600 (non-relevant as they are likely fixed and allocated broadly across the company's products)
If Jordan Electronics buys the containers from Russo Container Company at $2.80 each for 9,200 containers, the total cost would be 9,200 containers × $2.80 = $25,760. Therefore, the relevant cost of buying is $25,760.
Now, let's calculate the relevant cost of making the containers:
Unit-level materials: $5,800
Unit-level labor: $6,400
Unit-level overhead: $3,900
Relevant product-level costs: $3,200
The total relevant cost of making the containers is $5,800 + $6,400 + $3,900 + $3,200 = $19,300. Since the cost of making ($19,300) is less than buying ($25,760), Jordan Electronics should continue to produce the containers in-house.
Jordan Electronics should purchase the containers from Russo Container Company as the total cost of purchasing ($25,760) is lower than the total relevant cost of making ($45,900).
1. Calculate the total unit-level costs for producing 9,200 containers:
Unit-level materials + Unit-level labor + Unit-level overhead = $5,800 + $6,400 + $3,900 = $16,100
2. Calculate the avoidable product-level costs:
One-third of product-level costs = $9,600 × (1/3) = $3,200
3. Calculate the total relevant cost of making the containers:
Total relevant cost = Unit-level costs + Avoidable product-level costs + Allocated facility-level costs
Total relevant cost = $16,100 + $3,200 + $26,600 = $45,900
4. Calculate the cost of purchasing containers from Russo Container Company:
Cost per container = $2.80
Total cost of purchasing 9,200 containers = Cost per container * Number of containers
Total cost of purchasing containers = $2.80 ×9,200 = $25,760
5. Compare the total relevant cost of making with the cost of purchasing:
Total relevant cost of making = $45,900
Total cost of purchasing = $25,760
Since the total cost of purchasing ($25,760) is lower than the total relevant cost of making ($45,900), Jordan Electronics should purchase the containers from Russo Container Company instead of continuing to make them.
Ahngram Corp. has 1,000 defective units of a product that cost $2.70 per unit in direct costs and $6.20 per unit in indirect cost when produced last year. The units can be sold as scrap for $3.70 per unit or reworked at an additional cost of $2.20 and sold at full price of $11.10. The incremental net income (loss) from the choice of reworking the units would be: Multiple Choice $2,200. $0. $8,900. $3,700. ($2,200).
Answer:
the incremental net income from reworking the units would be $8,900
Explanation:
Consider the incremental costs and revenues arising on reworking the units
Note : Manufacturing costs already incurred on the defective units are sunk costs and are therefore irrelevant for this decision.
Sales (1,000×$11.10) $11,100
Less Costs to of reworking (1,000×$2.20) ($2,200)
Net Income $8,900
Therefore, the incremental net income from reworking the units would be $8,900
Precision Parts, Inc., and Quik Fix Auto stores enter into a contract for a sale of specific autoparts. Precision Parts ships parts that do not meet the specifications. With respect to the entireshipment, Quik Fix Auto
(A) cannot reject it.
(B) can reject it.
(C) must accept it.
(D) must reject It
Answer:
(B) can reject it.
Explanation:
Since the shipment does not fully meet the agreed upon specifications, Quik Fix Auto may elect to reject the shipment, however, they are not obligated to do so. If Quik Fix Auto feels that the parts shipped could suffice even if they do not meet the specifications, they can reach an agreement and keep the shipment. Therefore, the answer is (B) can reject it.
Sunland Company expects to have a cash balance of $62,450 on January 1, 2017. These are the relevant monthly budget data for the first two months of 2017.
1. Collections from customers: January $87,450, February $162,450.
2. Payments to suppliers: January $56,450, February $91,450.
3. Wages: January $31,370, February $41,370. Wages are paid in the month they are incurred.
4. Administrative expenses: January $22,370, February $25,370. These costs include depreciation of $1,000 per month. All other costs are paid as incurred.
5. Selling expenses: January $16,370, February $21,370. These costs are exclusive of depreciation. They are paid as incurred.
6. Sales of short-term investments in January are expected to realize $13,370 in cash. Sunland Company has a line of credit at a local bank that enables it to borrow up to $25,000. The company wants to maintain a minimum monthly cash balance of $36,450.
Prepare a cash budget for January and February.
Answer:
Borrowing Amount required (to make ending balance =$36,450) for January is 0 and February is $14.850. Cash Budget prepared in explanation below.
Explanation:
Cash Budget for the month of January and February
Particulars January February
Opening Cash Balance 62,450 37,710
Add: Collections from Customers 87,450 162,450
Add: Sale of Short term Investments 13,370 0
Total Cash Available 163,270 200,160
Less: Payment to Suppliers (56,450) (91,450)
Less: Wages (31,370) (41,370)
Less: Administrative Expenses (21,370) (24,370)
Less: Selling Expenses (16,370) (21,370)
Total Payments Made (125,560) (178,560)
Total Cash after Payments 37,710 21,600
Add: Borrowings 0 14,850
Ending Cash Balance $37,710 $36,450
Please Note the Following:
1. Administrative Expenses have been reduced by $1,000 (as this was depreciation which is non-cash expense)
2. Borrowings in February has been added by $14,850 (in order to maintain company's minimum monthly cash balance of $36,450
3. All the totaling has been marked in Bold Letters
Answer:
CASH BUDGET FOR JANUARY FEBRUARY
Receipts
Cash collected from customers $87,450 $162,450
Sale of short term investment $13,370
Loan Received $14,850
Total Receipts $100,820 $177,300
Payments
Cash Paid to Suppliers $56,450 $91,450
Wages $31,370 $41,370
Admin expenses $21,370 $24,370
Selling Expenses $16,370 $21,370
Total Payments $125,560 $178,560
Cash Surplus/ Deficit -$24,740 -$1,260
opening balance( 01 Jan) $62,450 $37,710
Closing balance (31 Jan) $37,710 $36,450
Explanation:
Cash Budget is a statement used to determine how much cash a business have at the end of a period and is it sufficient or not. Only Cash items are included in the Cash budget.
The Admin expenses include depreciation therefore we minus it as it is not a cash item.
In order to maintain the minimum monthly cash balance the company had to take out a loan in February of $14,850.
ash Flows from Investing Activities During the year, Murray Company sold equipment with a book value of $125,000 for $175,000 (original purchase cost of $225,000). New equipment was purchased. Murray provided the following comparative balance sheets: Murray Company Comparative Balance Sheets At December 31, 20X1 and 20X2 20X1 20X2 Long-Term Assets Plant and equipment $1,000,000 $1,025,000 Accumulated depreciation (500,000) (525,000) Land 500,000 725,750 Required: Calculate the investing cash flows for the current year. Use a minus sign to indicate a cash outflow.
To calculate the cash flows from investing activities for Murray Company, we calculate the gain from the sale of equipment and the cash spent on new equipment purchases. The net cash inflow from investing activities is $150,000, resulting from a $175,000 inflow from the sale and a $25,000 outflow for purchases.
Calculating Investing Cash Flows
Calculating the cash flows from investing activities involves determining the cash spent on new investments and the proceeds from the sale of existing assets. The book value and sale price of the equipment provide a gain, influencing net cash flow. Moreover, changes in balance sheet items point to the purchase of new assets.
Sale of Equipment
Murray Company sold equipment with a book value of $125,000 for $175,000, which would result in a gain of $50,000 ($175,000 - $125,000). This gain impacts the net cash provided by investing activities.
Purchase of New Equipment
Comparing the balance sheets for two consecutive years, we see an increase in plant and equipment from $1,000,000 to $1,025,000, indicating a purchase of $25,000 ($1,025,000 - $1,000,000). Additionally, the accumulated depreciation increased by $25,000 ($525,000 - $500,000), which does not impact cash flows.
Investing Cash Flow Summary
The net cash used for investing activities is therefore calculated as the cash outflow for new equipment purchases minus the cash inflow from the sale of equipment. This is $25,000 (purchase) - $175,000 (sale proceeds), resulting in a net cash inflow from investing activities of $150,000.
Cody Enterprises purchased equipment for $64,000. In addition, shipping charges of $800 were incurred to obtain the equipment. The company paid $5,000 to construct a foundation and install the equipment. The equipment is estimated to have a residual value of $6,000 at the end of its 5-year useful life. Use the information above to answer the following question. Using the straight-line method, what is the book value of the equipment at the end of the third full year of use
Answer:
$12,760
Explanation:
The calculation of book value of the equipment at the end is shown below:-
Depreciation expense each year = Cost - Salvage ÷ Life
= ($64,000 + $800 + 5,000) - $6,000 ÷ 5
= $69,800 - $6,000 ÷ 5
= $63,800 - $1,200
= $12,760
Therefore for computing the depreciation each year we simply applied the above formula.
Suppose your company needs $12 million to build a new assembly line. Your target debt−equity ratio is .5. The flotation cost for new equity is 12 percent, but the flotation cost for debt is only 9 percent. Your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small.
a. What is your company’s weighted average flotation cost, assuming all equity is raised externally? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Weighed average flotation cost %
b. What is the true cost of building the new assembly line after taking flotation costs into account? (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to the nearest whole dollar, e.g. 1,234,567.)
True cost $
Answer: Weighted average floatation curve is 11.00%
True cost is $14,483,146.
Explanation:
Weighted average floatation cost is equal to weighted average of the floatation costs for debt and equity.
Let the equity be 1%
Given that debt to equity ratio is equal to 0.5%
Debt/Equity is 0.5
Debt/1= 0.5
Debt= 0.50 × 1.00 = 0.50
Assumed value:
For debt= 0.50
For equity = 1.00
Totals= 1.50
For weight (a):
Debt= 0.33
Equity= 0.67
Totals= 1.00
For costs(b)
Debt= 9%
Equity= 12%
Weighted cost (a) × (b)
Debt= 0.33 × 9= 2.97 appr= 3.00
Equity= 0.67 ×12= 8.04 appr= 8.00
Totals = 3. 00 + 8.00= 11.00%
B.
True cost is the defined as the difference between the market price of a product and the comprehensive cost of that product to society. The term is normally used to draw attention to missing or hidden or minute costs that are not found in the market price, even though it could theoretically apply to hidden benefits as well.
True cost is equal to total cost of new assembly line including floatation cost.
True cost × (1 - 11%) = $12,000,000
True cost × (1- 0.11)= $12,000,000
True cost × (0.89) = $12,000,000
True cost = $12,000,000/ 0.89
True cost= $13,483,146.
Final answer:
The weighted average flotation cost would be 12%, which is the flotation cost for new equity, since all funds are being raised through equity. The true cost of building the new assembly line, after accounting for flotation costs, is $13,636,364.
Explanation:
To calculate the weighted average flotation cost when all equity is raised externally, we first need to understand the proportion of funding that would come from equity and from debt based on the target debt-equity ratio of 0.5. This ratio indicates that for every dollar of equity, there is $0.5 of debt. However, because the company has decided to raise all of the $12 million through equity, the weight of the debt is 0 and the weight of the equity is 1. Therefore, the weighted average flotation cost would be the flotation cost for equity, which is 12%, since no debt will be issued.
Next, to calculate the true cost of building the new assembly line after taking into account flotation costs, we can use the following formula: True Cost = Required funds / (1 - Flotation Cost). Since the company is using only equity financing and the flotation cost is 12%, the true cost would be $12 million / (1 - 0.12) = $13.63636364 million. We need to round this to the nearest whole dollar, resulting in a true cost of $13,636,364.
If a bond is currently trading at its face (par) value, then it must be the case that: A. the bond's yield to maturity is equal to its coupon rate. B. the bond's yield to maturity is greater than its coupon rate.
Answer:
A) the bond's yield to maturity is equal to its coupon rate
Explanation:
If the bonds yield to maturity is equal to its coupon rate it means that the interest paid by the buyers on the face value of the bond is equal to the internal rate of return for the present value of future cash flow. Only in this scenario, a bond is traded at its face or par value.
Suppose government spending increases. True or False: The effect on aggregate demand would be larger if the Federal Reserve held the money supply constant in response than if the Fed were committed to maintaining a fixed interest rate.
Answer:
False
Explanation:
When the government increases spending, aggregate demand increases. This leads to increase in demand of money.
If federal reserve holds money supply constant in this case, interest rate will increase. This will lead to 'crowding out' of private investment; & the total effect of government investment increase on AD is lesser.
If government keeps the interest rate constant, the private investment 'crowding out' effect will not occur. No private investment crowding out effect, & the total effect of government investment increase on AD is lesser.
So; The effect on aggregate demand would be lesser if the Federal Reserve held the money supply constant in response than if the Fed were committed to maintaining a fixed interest rate.
Fees in 1st year Suppose Adrian and Clemens each Invest $10,000. Adrian Invests in an actively managed mutual fund that has an annual expense ratio (a fee charged by the investment manager of 1.3% Clemens Invests in a passively managed index fund linked to the S&P 500 that has an expense ratio of 0.2%. Both Investments earn a 7% rate of return
1. How much does each investor make on his investment with the 7% rate of return?
2. How much does Adrian pay in fees for his actively managed mutual fund? .
3. How much does Clemens pay in fees for the index fund?
4. At the end of the year, what's the total value (AFTER FEES) of Adrian's mutual fund?
5. What's the total value (AFTER FEES) of Clemens's index fund?
6. How much more value does Clemens's investment generate than Adrian's in one year's time?
Answer:
Task 1:
The answer is $700.
Task 2:
The answer is $130.
Task 3:
The answer is $20.
Task 4:
The answer is $10,570.
Task 5:
The answer is $110.
Explanation:
Task 1:How much does each investor make on his investment with the 7% rate of return?Solution:Adrian & Clemens makes [$10,000*0.07] on their investment = $700.
Task 2:How much does Adrian pay in fees for his actively managed mutual fund?Solution:Adrian owes to his broker = (10000*.013) = $130
Task 3:How much does Clemens pay in fees for the index fund?Solution:Clemens owes to his broker= ($10000*.002) = $20
Task 4:At the end of the year, what's the total value (AFTER FEES) of Adrian's mutual fund?Solution:Value of Adrian's stock = $10000+$570 (net of brokerage) = $10,570
Task 5:What's the total value (AFTER FEES) of Clemens's index fund?Solution:Value of clemens' stock = $10000+$680 (net of brokerage) = $10,680
Task 6:How much more value does Clemens' investment generate than Adrian's in one year's time?Solution:Clemens investment makes ($680-$570) than adrian's investment = $110
1. The amount each investor make on the investment is $700.
2 The amount paid in fees should be $130.
3. The amount paid in fees for the index fund is $20
4. The total value after fees should be $10,570
5. The total value after fees should be $10,680
6. The more value should be $110.
Calculation of the amount of each part:
1. The amount that each investor make should be
= 7% of $10,000
= $700
2. The amount paid in fees should be
= 1.3% of $10,000
= $130
3. The amount paid in fees for the index fund is
= 0.2% of $10,000
= $20
4. The total value after fees should be
= $10,000 + $570
= $10,570
5. The total value after fees should be
= $10,000 + $680
= $10,680
6. The more value should be
= $680 - $570
= $110
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On January 1, Year 3, Wayfarer Co.'s assets were $365,000 and its stockholders' equity was $153,000. During the year, assets increased $21,500 and liabilities decreased $23,000. Required: Determine the amount of stockholders' equity at December 31, Year 3.
Final answer:
Stockholders' equity at December 31, Year 3 is determined to be $197,500. This is calculated by adding the initial equity to the net increase in assets and decrease in liabilities over the year.
Explanation:
The calculation of stockholders' equity at the end of Year 3 can be determined using the basic accounting equation: Assets = Liabilities + Stockholders' Equity. We know that at the start of the year, Wayfarer Co. had assets of $365,000 and stockholders' equity of $153,000. During the year, assets increased by $21,500 and liabilities decreased by $23,000.
To find the stockholders' equity at the end of the year, we adjust the initial equity balance by the change in assets and liabilities. The new value of assets at year-end is $365,000 (beginning assets) + $21,500 (increase in assets) = $386,500. Given that liabilities decreased, this change will directly increase stockholders' equity. So, the change in equity is the increase in assets of $21,500 plus the decrease in liabilities of $23,000, totaling $44,500.
The new stockholders' equity is $153,000 (initial equity) + $44,500 (change in equity) = $197,500 at December 31, Year 3.
Which of the following statements are true regarding dividends? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)
A large stock dividend is a distribution of more than 25% of previously outstanding shares.
A stock dividend commonly indicates management's confidence that the company is doing well.
The account Paid-in Capital in Excess of Par Value is always credited when a large stock dividend is declared.
The payment date reflects the date a cash dividend is paid to stockholders.
Answer:
A large stock dividend is a distribution of more than 25% of previously outstanding shares.
The account Paid-in Capital in Excess of Par Value is always credited when a large stock dividend is declared.
Explanation:
A dividend is considering parsing or separating out profit sharing. A dividend has also, tax rate. For example, there is sometimes in the world situation where we get to see increasing of values of stock and in that time, shareholder can choose what he will do. He can sell the stock and if he does that, he will have to play a tax on capital gains.
So, if someone is sharing a dividend stock, he will be paid an amount of money that the company will earn in the meantime. Companies can device when and how will they pay their dividends.
Large stock dividends, the use of dividends as signals of corporate health, and the significance of the payment date in cash dividends are all correctly described statements. However, it's not always the case that the account Paid-in Capital in Excess of Par Value is credited when a large stock dividend is declared.
Explanation:The following statements are true:
A large stock dividend is indeed defined as a distribution of more than 25% of previously outstanding shares. The company issues additional shares to stockholders relative to the shares those stockholders already own. A stock dividend can indicate management's confidence in the company's well-being. It's a way of returning profits back to shareholders, which is often seen as a positive signal of the company's financial health. The payment date does reflect the day a cash dividend is paid to stockholders. It's the date on which the company actually dispatches the dividend to the shareholders.However, the statement that the account Paid-in Capital in Excess of Par Value is always credited when a large stock dividend is declared is not necessarily true. This account represents the amount received from the issue of stock that is above its par value, but whether it is credited or not depends on the specific accounting practices of the company.
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What two explanations of productivity growth does endogenous growth theory offer? A. population growth and increased saving B. population growth and technological innovation C. increased saving and technological innovation D. accumulation of human capital and technological innovation
Answer: D. Accumulation of human capital and technological innovation.
Explanation:
Endogenous growth theory is the belief that to achieve economic growth, there must be an incorporation of technological innovation, human capital, and knowledge or education. These factors are endogenous or internal.
Human capital encompasses all unseen qualities of people such as knowledge and skills that can be harnessed during labor to further economic growth.
The theory also stresses that investment into these internal factors would yield long-run or continuous returns. For example, new advances in technology would lead to new opportunities for economic growth.
In order to compare the efficiencies of media, Derek calculates the CPM for each. For Golf Digest, the circulation is 500,000 and the cost for a full page ad is $40,000. The CPM for Golf Digest is:
Answer:
$80
Explanation:
CPM is the short form for 'cost per a thousand impressions.' Cost per thousand is a marketing expression used to refer to the cost of reaching 1000 readers, viewers, listeners, or webpage visitors. CPM is, therefore, the cost of advertising to an audience of 1000 people.
The Golf Digest has a circulation of 500,000. The cost of advertising is $40,000, which means the cost of reaching 500,000 people $40,000.
To get CPM, we first divide 500,000 by 1,000
=500,000 / 1,000
=500
CPM will be
= $40,000/500
=$80
Crane WaterWorks manufactures snorkel gear. During the past month, Washington purchased 4,130 pounds of plastic to use in its dive masks, at a cost of $5,972. The standard price for the plastic is $1.433 per pound. The company actually used 4,060 pounds of the plastic to produce 18,500 dive masks.
a.Calculate crane waterworks direct materials price variance for the month.
Answer:
Direct material price variance= $53.69 unfavorable
Explanation:
Giving the following information:
Actual purchase= 4,130 pounds of plastic
Actual cost= $5,972 (total)
The standard price for the plastic is $1.433 per pound.
The company used 4,060 pounds of the plastic to produce 18,500 dive masks.
To calculate the direct material price variance, we need to use the following formula:
Direct material price variance= (standard price - actual price)*actual quantity
Actual price= 5,972/4,130= $1.446
Direct material price variance= (1.433 - 1.446)*4,130= $53.69 unfavorable
What performance criteria include a broad range of knowledge, skills, traits, and behaviors that are needed to perform a job successfully? A) credibilities B) competencies C) accomplishments D) future possibilities
Answer:
B). Competencies.
Explanation:
These are skill, qualities, knowledge and behavioural traits that makes an applicant worthy of a job.
They are often used as benchmarks to rate and evaluate candidates during the recruitment process, especially when reviewing application forms and at interview.
During the recruitment process, you will likely be asked competency based questions, and the recruiter will use your answers to determine your suitability.
You should therefore identify the key competencies of any given role at the beginning of the application process, and match your skills and experience to them.
An insurance company must make payments to a customer of $8 million in one year and $4 million in four years. The yield curve is flat at 9%. a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase?
Answer:
1.8356 years
Explanation:
The computation of the purchase of maturity bond is shown below:
Years (A) Payment PVF at 9% PV Weight (B) Duration (A × B)
1 $8,000,000 0.9174 $7,339,449.54 0.7215 0.7215
4 $4,000,000 0.7084 $2,833,700.84 0.2785 1.1142
$101,731,503.39 1 1.8356
ABC manufacturing co has estimated breakeven volume of 50,000 units for its new widget. If $unit variable cost is $23.00 and unit selling price is $25.00, what is the total fixed cost?
Answer:
$100,000
Explanation:
Data provided
Break-even volume = 50,000 units
Variable cost = $23.00
Unit selling price = $25.00
The computation of fixed cost is shown below:-
Contribution margin per unit = Selling price per unit - Variable expense per unit
= ($25 - $23)
= $2
Break even point = Fixed cost ÷ Contribution margin per unit
Fixed cost = Break even point × Contribution margin per unit
= 50,000 × 2
= $100,000
disadvantages of using the option of hiring additional personnel during periods of increasing demand and conducting layoffs during lower-demand periods for managing operating costs?
Answer:
The critical analysis of temporary staff hiring & firing, depending on demand is given below :
Explanation:
Hiring & firing personnel, during periods of peak demand & periods of lower demand respectively - can have many undermentioned advantages & disadvantages :
Advantages :
Fulfilment of consumer's demand in high demand periods. Cost saving during low demand periods Highly suitable for seasonal industries, with highly fluctuating demand. Temporary staff is cheaper for companies, it is to be availed with less perks, social security etcDisadvantages :
Incurring high temporary recruitment cost again & againConsistency & Quality of product or service might be compromised, as the labour indulged is fluctuating so muchEmployees might feel lack of job security & hence not associate belongingness with their job, company. It can reduce their incentive to work hard towards organisation objectives Prospective employees & hiring intermediaries might build a bad image of the company as an employer. It might create staff finding difficulties, when needed later.