Star Studios is evaluating different payment options for a building purchase using a discount rate of 6%. Each option's present value is calculated using relevant present value formulas. The company will then compare these present values to determine the most cost-effective payment option.
Explanation:To determine the present value (PV) for each purchase option provided to Star Studios by the seller, we need to use the present value formulas and apply the discount rate of 6%. We'll handle each option separately.
Option 1: Immediate payment of $1,460,000. The present value is simply the payment amount, as it is already in today's dollars, which is $1,460,000.
Option 2: Immediate payment of $460,000 and $136,000 annually for 10 years. We use the present value of an annuity formula to calculate the present value of the ten annual payments and add the immediate payment of $460,000 to this result to find the total present value.
Option 3: Ten annual installments of $180,000. The present value of an annuity formula is also used here to find the present value of the series of equal payments.
Option 4: A single future payment of $2,160,000 at the end of five years. We apply the present value of a single sum formula to discount the future payment back to the present value.
To compare the options fairly, Star Studios must calculate and then compare each option's present value to determine which is the most cost-effective choice, given their borrowing rate of 6%.
Bill operates a proprietorship using the cash method of accounting, and this year he received the following: $170 in cash from a customer for services rendered this year a promise from a customer to pay $186 for services rendered this year tickets to a football game worth $215 as payment for services performed last year a check for $184 for services rendered this year that Bill forgot to cash How much income should Bill realize on Schedule C
Answer:
$569
Explanation:
Cash from a customer for services rendered $170
Tickets to a football game worth $215
Check for services rendered $184
Total $569
Therefore Bill should realized income of $569 on Schedule C because Income is realized as property is received but the promise to pay is not property (unless accompanied by a note receivable).
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
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.
Randall Company manufactures chocolate bars. The following were among Randall's manufacturing costs during the current year: Wages Machine operators $ 300,000 Selling and Administrative personnel $ 75,000 Materials used Lubricant for oiling machinery $ 25,000 Cocoa, sugar, and other raw materials $ 225,000 Packaging materials $ 190,000 Randall's direct materials amounted to:
Answer:
$225,000
Explanation:
Direct materials:
Cocoa, sugar, and other raw materials $225,000
Therefore Randall's direct materials amounted to: $225,000 because the Direct materials costs include the costs of materials that can be easily and conveniently traced to products, such as the $225,000 of cocoa, sugar, and other raw materials.
While The lubricant for oiling machinery in the amount of $25,000 and the packaging materials in the amount of $190,000 would be classified as indirect materials because they are not easily and conveniently traced to products.
Answer:
$225,000 is the direct material cost
Explanation:
Direct cost is the cost of materials used in the production that is traceable to finished product such the flour used in making a loaf of bread,the cost of the flour is a direct material cost as the flour is traceable to the finished product-bread.
In this instance, the cocoa ,sugar and other raw materials are easily traced to the finished product- chocolate bar,hence the cost of cocoa,sugar and other materials,$225,000 is the direct material cost
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
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
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.
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
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?
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
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?
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.
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?
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.
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 ________.
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.
Initiating structure describes the following leadership behavior:
A. A leader who is task-oriented and directs subordinates' work
B. A leader who is sensitive to subordinates and respects their ideas, and feelings
C. A leader who seeks input from subordinates regarding important decisions
D. A leader who listens carefully to problems.
Answer:
The correct answer is A. A leader who is task-oriented and directs subordinates' work .
Explanation:
The starting structure: Refers to the measure by which the leader can define and structure his role and those of his subordinates, in the pursuit of goal achievement. It includes behavior that tries to organize work, work relationships, and goals.
Extensive research, based on these definitions, shows that leaders with high rates of starting structure and consideration (a "high - high" leader) tend to achieve high performance and subordinate satisfaction, more often than those who rate low either in consideration, starting structure or in both dimensions. It does not always result in positive consequences to high rates of truancy and turnover, as well as low levels of job satisfaction for workers performing routine tasks. In conclusion, the Ohio State studies emerged that "high - high style" generally produced positive results.
Initiating structure is a type of leadership behavior characterized by a leader who is task-oriented and directs the work of their subordinates. This approach can lead to high productivity levels.
Explanation:Initiating structure is a type of leadership behavior characterized by a leader who is task-oriented and directs the work of their subordinates. It is related to how a leader organizes and defines relationships within the group, and how they establish clear patterns of organization, channels of communication, and procedures. In this case, Option A is correct: 'A leader who is task-oriented and directs subordinates' work'. This approach can lead to high productivity levels and shows that the leader is actively involved in the work process.
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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
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
Analysts predicted earnings per share (EPS) for your company to be $0.XX at the close of 20XX. How does this compare to actual EPS for 20XX? If actual EPS is higher than the analysts’ prediction, what factors contributed to the success? If actual EPS is lower than the prediction, how will you explain the shortfall to your investors? Is there anything you did or could have done to meet/exceed the prediction?
Answer and Explanation:
Earnings per Share, EPS = Net Income dividend of preferred stock
Number of stock outstanding
EPS depends on the earnings and its dilution due to increase in preferred stock also it depends on the net income earned
When EPS is higher than analyst prediction,
this may be due to increase in the net income
or
payback of common stock or preferred stock
thereby leading to reduction in the number of stock outstanding
When EPS is lower than analyst prediction
this would be due to reduction in the net income
or
increase of stock or preferred stock due to fresh issue
Insurance against issues that could lead to reduction on income and inrease in the activities that will lead to net income increase can help meet or surpass analyst prediction
7. Fast Pizza hires college students who drive their own cars to deliver pizzas to customers. Fast Pizza is concerned that the company may be liable for damages caused by company employees while they are driving their cars on company business. Identify a liability coverage form that Fast Pizza could purchase to deal with this exposure.
Answer:
Business auto insurance
Explanation:
Liability coverage is a type of insurance cover that protects the purchaser from liabilities from lawsuits and other similar claims.
The purchaser is protected when the claim comes under what the liability insurance covers.
In this case FasbPizza can use vicarious liability.
Business auto insurance cover is used to cover a company for use of cars, trucks, and other vehicles in the course of carrying out its business. It covers both liability and damage incurred.
Coverage is for cars owned by business, leased, and owned by employees but used for company business
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
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 that produces pleasure boats has decided to expand one of its lines. Current facilities are insufficient to handle the increased workload, so the company is considering there alternatives, N (new location), S (subcontract), E (expand existing facilities). Alternative N would involve substantial fixed costs but relatively low variable costs: fixed costs would be $250,000 per year (for the new facility), and variable costs would be $500 per boat.a. Find the range of output for each alternative that would yield the lowest total cost.
A or more
B to
C to
b. Which alternative would yield the lowest total cost for an expected annual volume of 150 boats?
A
B
C
Answer:
(a) Alternative A = 401 or more
Alternative B = 0 to 33
Alternative C = 34 to 399
(b) Alternative C will yield the lowest total cost
Explanation:
Alternative A:
Fixed costs = FCa = $250,000
Variable costs per boat = VCa = $500
Alternative B:
Variable costs per boat = VCb = $2500
Alternative C:
Fixed costs = FCc = $50,000
Variable costs per boat = VCc = $1000
We have to find crossover point with the alternative which have nearest variable cost
Hence, we find crossover point between pair of Alternative A and C and pair of Alternative B & C
For A & C
Let the crossover point be x
FCa + VCa * x = FCc + VCc * x
250,000 + 500x = 50000 + 1000x
x = 400
Higher number is preferred for Alternative with higher fixed cost.
Hence, for alternative A, the range should be 400 or more
For alternative C, the range should be less than 400
For B & C
Let the crossover point be y
FCb + VCb * y = FCc + VCc * y
0 + 2500x = 50000 + 1000y
y = 33.33
Higher number is preferred for Alternative with higher fixed cost.
Hence, for alternative C, the range should be 34 or more
For alternative B, the range should be less than 33
As seen from above,
Alternative A = 401 or more
Alternative B = 0 to 33
Alternative C = 34 to 399
Indifference points of 33.33 and 400 are not included in the above answer.
b.
For an annual volume of 150 boats, this fall in the range of 34 to 399
Hence, Alternative C will yield the lowest total cost for an expected annual volume of 150 boats
Final answer:
Without the costs for alternatives S (subcontract) and E (expand existing facilities), we cannot calculate their output ranges or compare them to alternative N (new location). Only the costs for alternative N are given, where the fixed cost is $250,000 per year and the variable cost is $500 per boat. To determine which alternative would have the lowest total cost for 150 boats, information on all alternatives is necessary.
Explanation:
To find the range of output for each alternative that would yield the lowest total cost, we need to compare the three alternatives, N (new location), S (subcontract), and E (expand existing facilities), based on their cost structures. Unfortunately, the costs for alternatives S and E are not provided; thus, we cannot calculate the ranges of output for these alternatives. However, with the information given, we can analyze alternative N only.
For alternative N, the fixed costs are $250,000 per year, and the variable costs are $500 per boat. The total cost (TC) for producing x boats at this new location would be TC = $250,000 (fixed costs) + $500x (variable costs). Without information on the variable and fixed costs of the other two alternatives (S and E), it's not possible to determine the cost-minimizing range of output for those options or to identify which would yield the lowest total cost for an expected annual volume of 150 boats.
Analysis of Alternative N:
Total cost at 150 boats for alternative N: TC = $250,000 + ($500 × 150) = $250,000 + $75,000 = $325,000.
Without information on alternatives S and E, we cannot provide an answer for part b of the question, i.e., which alternative would yield the lowest total cost for an expected annual volume of 150 boats. Additional data would be required to conduct a full analysis and determine the most cost-effective alternative.
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
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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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 $ ____.
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.
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.
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.
American Products is concerned about managing cash efficiently. On average, inventories have an age of 80 days, and accounts receivable are collected in 40 days. Accounts payable are paid approximately 30 days after they arise. The firm has annual sales of about $30 million. Goods sold total $20 million, and purchases are $15 million.
a. Calculate the firm’s operating cycle.
b. Calculate the firm’s cash conversion cycle.
c. Calculate the amount of resources needed to support the firm’s cash conversion cycle.
d. Discuss how management might be able to reduce the cash conversion cycle.
a. The firm's operating cycle is 120 days. b. The firm's cash conversion cycle is 90 days. c. The amount of resources needed to support the firm's cash conversion cycle is $4.93 million. d. Management can reduce the cash conversion cycle by improving inventory management, accounts receivable management, and negotiating payment terms with suppliers.
Explanation:a. The operating cycle of a firm is the average time it takes for a company to convert its inventory into cash. In this case, the average age of inventory is given as 80 days and the average collection period for accounts receivable is 40 days. Adding these two together gives us the operating cycle: 80 + 40 = 120 days.
b. The cash conversion cycle is a measure of the time it takes for a company to convert its investments in inventory and accounts receivable into cash. To calculate it, we subtract the average payment period for accounts payable from the operating cycle. In this case, the average payment period for accounts payable is 30 days. So the cash conversion cycle would be 120 - 30 = 90 days.
c. The amount of resources needed to support the cash conversion cycle can be calculated by multiplying the average daily cost of goods sold by the cash conversion cycle. Here, the cost of goods sold is $20 million and the cash conversion cycle is 90 days. So the resources needed would be: $20 million * (90/365) = $4.93 million.
d. Management can reduce the cash conversion cycle by adopting strategies such as improving inventory management to reduce the average age of inventory, implementing efficient accounts receivable management to collect payments more quickly, and negotiating longer payment terms with suppliers to increase the average payment period for accounts payable.
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?
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
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:
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
Your aunt is thinking about opening a hardware store. She estimates that it would cost $300,000 per year to rent the location and buy the stock. In addition, she would have to quit her $45,000 per year job as an accountant. What is the opportunity cost of something
Answer:
Opportunity cost = $345,000
Explanation:
Given:
Total investment = $300,000
Give up job revenue = $45,000
Opportunity cost = ?
Computation of opportunity cost:
Opportunity cost refers to the price we are willing to lose to get something.
Opportunity cost = Total investment + Give up job revenue
Opportunity cost = $300,000 + $45,000
Opportunity cost = $345,000
The opportunity cost in this case is $45,000 per year.
The opportunity cost in this scenario is the value of the next best alternative that your aunt gives up by choosing to open the hardware store instead of continuing her job as an accountant.
Here's how we calculate it:
1. Annual Cost of Opening the Hardware Store:
- Rent and stock: $300,000 per year
2. Annual Income from Current Job:
- Salary as an accountant: $45,000 per year
Since your aunt would have to quit her job as an accountant to open the hardware store, the opportunity cost is the salary she gives up by not working as an accountant.
Therefore, the opportunity cost in this case is $45,000 per year. This represents the income she would have earned annually if she had continued working as an accountant instead of pursuing the hardware store venture.
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?
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
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.
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.
In "traditional channel systems," the channel members: A. consider traditional values-like cooperation and respect-as central to their relationship. B. have franchise contracts. C. usually have a common product-market commitment. D. make little or no effort to cooperate with each other. E. are integrated.
Answer:
D. make little or no effort to cooperate with each other.
Explanation:
When companies are promoting and transmitting their product from the point of production to the customer they use different channels.
The traditional channel is the normal brick and mortar stores that sell products to customers. However with the introduction of the internet a lot of stores have gone online.
Traditional stores make little effort to cooperates with one another, unlike online stores that collaborate to promote products.
Answer: D. make little or no effort to cooperate with each other.
Explanation: Channels of distribution are any series of firms or individuals who are involved in the flow of products from the producer to the end user or consumer. In "traditional channel systems," the channel members make little or no effort to cooperate with each other. Though traditional channel systems may exhibit little cooperation between channel members, they also buy and sell from each other with the producer setting the objectives for all channel members.
Calculating costs Kate is working for a consulting firm making $50,000 per year but considers starting her own consulting company. Kate has determined that to launch the business, she needs to invest $80,000 of her own funds. The annual cost of running the business will include $50,000 for the rent of the office space, $180,000 for employee wages, and $8,000 for materials and utilities. Kate plans to manage the business, which means that she will have to quit her current job. Suppose that the interest rate (or rate of return) on investments in the economy is 5%.
Kate's total implicit cost per year is_____ . Kate's total cost per year is______
Answer:
Implicit cost =$54,000
Total cost = $292,000.
Explanation:
The implicit cost is the sum of value of the next best alternative sacrificed in favour of a decision.
The implicit cost for Kate includes
The job salary to be lost = $50,000
Interests lost by not depositing the sum = (5%× 80,000)= $4,000
Implicit cost
= $50,000 +$4,000
=$54,000
Implicit cost =$54,000
Total cost
Total cost i the sum of implicit cost and accounting cost
Total cost = 50,000 + 180,000 +8000 + 54,000
Total cost = $292,000.
Contribution Margin Molly Company sells 37,000 units at $19 per unit. Variable costs are $11.59 per unit, and fixed costs are $109,700. Determine (a) the contribution margin ratio, (b) the unit contribution margin, and (c) income from operations. a. Contribution margin ratio (Enter as a whole number.) % b. Unit contribution margin (Round to the nearest cent.) $ per unit c. Income from operations $
Answer:
(a) Contribution margin ratio = 0.39, or 39%
(b) the unit contribution margin = $7.4 per unit
(c) income from operations = $164,470
Explanation:
Total revenue = 37,000 × $19 = $703,000
Total variable cost = 37,000 × $11.59 = $428,830
Margin = $703,000 - $428,830 = $274,170
(a) the contribution margin ratio
Contribution margin ratio = $274,170/$703,000 = 0.39, or 39%
(b) the unit contribution margin
Unit contribution margin = $19 - $11.59 = $7.4 per unit
(c) income from operations
Income from operations = $274,170 - $109,700 = $164,470
Which of the following intrinsic or extrinsic changes would result in an increase in stroke volume? Group of answer choices An increase in diastolic blood pressure A decrease in preload A decrease in ventricular compliance An increase in venous return Arterial constriction
Answer: An increase in diastolic blood pressure.
Explanation: Stroke volume is defined in cardiovascular physiology as the volume of blood that is pumped from the left ventricle per heart beat.
An increased diastolic blood pressure, which can also be called diastolic hypertension, is when the they extra strain on the heart and blood vessels.
An increased diastolic blood pressure increases the stroke volume, because when the diastolic blood pressure increases, it create an extra strain in the heart and blood vessels, which will cause the left ventricle to pump in more blood per beat.
Answer:
An increase in diastolic blood pressure
Explanation:
Stroke volume is defined as the volume of blood let out from the left ventricle in a single heartbeat.
Diastolic pressure is the pressure on the arterial wall between heartbeats.
As Stroke volume increases, end diastolic volume increase slightly. This increased disatolic volume leads to the Frank-Starling mechanism which contributes to the increased stroke volume (stroke volume increases when end-diastolic volume increases). Since pressure and volume are directly proportional, an increase in stroke pressure also leads to an increase in the diastolic pressure.
Baron Corporation has a target capital structure of 65 percent common stock, 10 percent preferred stock, and 25 percent debt. Its cost of equity is 9 percent, the cost of preferred stock is 4 percent, and the pretax cost of debt is 5 percent. The relevant tax rate is 21 percent.
a. What is the company’s WACC?
b. What is the aftertax cost of debt?
Answer:
WACC is 7.24%
After tax cost of debt is 3.95%
Explanation:
WACC=Ke*E/V+Kd*D/V*(1-t)+Kp*P/V
Ke is the cost of equity of 9% or 0.09
Kd is the cost of debt at 5% or 0.05
Kp is the of preferred stock of 4% or 0.04
E is the weight of equity of 65% 0r 0.65
D is the weight of debt of 25% 0.25
K is the weight of preferred stock of 10% or 0.10
t is the tax rate of 21% or 0.21
WACC=(0.09*0.65)+(0.05*0.25*1-0.21)+(0.04*0.10)
WACC=(0.09*0.65)+(0.05*0.25*0.79)+(0.04*0.10)
WACC=7.24%
after tax cost of debt=pretax cost of debt*(1-t)
=0.05*(1-0.21)
=0.0395=3.95%
Baker Mfg. Inc. (see Table 11.9) wishes to compare its inventory turnover to those of industry leaders, who have turnover of about 13 times per year and 8% of their assets invested in inventory.
a) What is Baker’s inventory turnover?
b) What is Baker’s percent of assets committed to inventory?
c) How does Baker’s performance compare to the industry leaders?
Table 11.9
ARROW DISTRIBUTING CORP.
Net revenue- $16,500
Cost of sales- $13,500
Inventory- $ 1,000
Total assets - $ 8,600
Baker MFg. Inc.
Net revenue- $27,500
Cost of sales- $21,500
Inventory- $ 1,250
Total assets- $16,600
Answer:
The answer is:
a. 17.2
b. 7.53%
c. Baker's performance is 0.47% lower than the industry performance
Explanation:
a. Baker's Inventory turnover = cost of sales/inventory
$21,500/$ 1,250
=17.2
b. Baker's Percentage of assets committed to inventory = (inventory/assets) x 100
($1,250/$16,600) x 100
7.53%
c. The industry's Percentage of assets committed to inventory is 8% whereas Baker's own 7.53%, meaning Baker's performance is 0.47% lower than the industry performance
Baker Mfg. Inc. has an inventory turnover of 17.2 times and 7.53% of its assets committed to inventory. Compared to the industry leaders with a turnover of 13 times and 8% of assets in inventory, Baker has a higher turnover and a slightly lower percentage of assets in inventory.
Explanation:The student is asking for help with calculating and analyzing inventory turnover and the percentage of assets committed to inventory for Baker Mfg. Inc., in order to compare it with industry leaders.
Inventory turnover is calculated by dividing the cost of sales by the average inventory. For Baker Mfg. Inc., the calculation is as follows:
Inventory Turnover = Cost of Sales / Inventory
= $21,500 / $1,250
= 17.2 times
To find the percentage of assets committed to inventory, we divide the inventory by the total assets and then multiply by 100 to get the percentage.
Percentage of Assets = (Inventory / Total Assets) × 100
= ($1,250 / $16,600) × 100
= 7.53%
In comparison to industry leaders with an inventory turnover of about 13 times per year and 8% of their assets invested in inventory, Baker Mfg. Inc. has a higher inventory turnover at 17.2 times, and a slightly lower percentage of assets committed to inventory at 7.53%.