Answer:
The restaurant's profit per meal= consumers WTP for per meal - ATC per meal = $13 - $10 = $3
Given that restaurants sells 240 meals per day at this price the profit is
= $3 * 240 = $720
A) The size of the firms profit is $ 720.
B) As it can be seen that firm is making profit so there will be an entry into the industry since the other firms will try to capture some of the economic profit.
Also, the entry of other firms will reduce the demand for the restaurant which will lead the demand curve to shift to the left.
C) Now, the allocative efficient output level in long-run equilibrium is 200 meals. In the long-run, restaurant charges $11 per meal for 180 meal and the marginal cost of 180th meal is $9.
Thus, the size of the economic profits in the long run is always zero in monopolistic competitive market.
D) The dead-weight loss for the firm is exactly equal to $40 because the difference between the Marginal Benefit as given by the demand curve i.e., $11 and the Marginal Cost as given by the MC curve is $9, so the difference is equal to $2 ($11 - $9) for all the units between 180th and 200th.
Thus, the dead-weight loss is = $2 * (200-180)
= $2 * 20
= $40
Hence the dead-weight loss is $40.
The monopolistically competitive restaurant makes a profit of $720 which signals potential entry of more restaurants to the market. In the long-run equilibrium, if the restaurant charges $11 per meal and the marginal cost of the meal is $9, the company would make an economic profit of $360. The Deadweight loss to society if this firm is producing less than the allocatively efficient quantity will be exactly $40.
Explanation:a. In the case of the monopolistically competitive restaurant, the firm's total cost per meal is $10, while the price at which consumers are willing to pay is $13. Therefore, the profit per meal is the difference between the price and the cost, which is $3. Total profit is then $3 multiplied by the number of meals served, or $3 x 240 = $720, so this restaurant firm is making a profit of $720.
b. As the restaurant is making a profit, this is a signal for entry in the long run, implying that more restaurants will open up and start providing meals to customers. This competition will push prices down and move the restaurant's demand curve left, as it won't be able to command such high prices with more competition.
c. If in the long-run equilibrium this restaurant serves 180 meals at $11 and the marginal cost of the 180th meal is $9, then profit per meal is $2. The entire economic profit of the firm in this case will be $2 x 180 = $360.
d. Assuming the allocatively efficient output level in long-run equilibrium is 200 meals, but the company only produces 180 meals, the difference in production is 20 meals. If the price charged is $11 and the marginal cost is $9, then the total deadweight loss is $2 X 20 = $40. Therefore, the deadweight loss for this firm is exactly $40, not less or greater.
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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.
California Surf Clothing Company issues 1,000 shares of $1 par value common stock at $18 per share. Later in the year, the company decides to Purchase 100 shares at a cost of $21 per share.
Record the transaction if California Surf reissues the 100 shares of treasury stock at $40 per share.
Answer:
The answer is given below;
Explanation:
Cash (100*40) Dr.$4,000
Treasury Stock,Common 100*21 Cr.$2,100
Paid in Capital, treasury stock 100*(40-21) Cr.$1,900
On January 1, 2014, Pharoah Company purchased a copyright for $2356000, having an estimated useful life of 16 years. In January 2018, Pharoah paid $381000 for legal fees in a successful defense of the copyright.
(a) Copyright amortization expense for the year ended December 31, 2018, should be __________.
O $147250.
O $0.
O $171063.
O $179000.
Answer:
The correct is the last option,$179,000
Explanation:
The initial amortization expense=$2356000/16=$147.250
After four years additional expense was recorded for $381,000 which need to be added to the carrying value of the copyright
Carrying value=$2356000-($147.250*4)=$1,767,000.00
Plus additional qualifying expense =$381,000
Total carrying amount =$2,148,000.00
Remaining useful life =1 years
Revised amortization =$2,148,000.00/12 years=$179,000
The revised amortization from 2018 onward is $179,000
The last option is the correct answer
In a recent study for the National Bureau of Economic Research (NBER), four researchers looked at the effect of generous unemployment benefits on the local unemployment rate. They compared the unemployment situation in adjoining counties, which happened to lie in two different states that had different laws regarding the amount and duration of unemployment benefits. (Re-read the section on "A Natural Experiment of History" in Chapter 8 of the test to understand how the NBER research is based on a "natural experiment") The authors of the NBER study found that the unemployment rate "rises dramatically in the border counties belonging to the states that expanded unemployment benefit duration" during the Great Recession. Why might this be so? With the longer duration of unemployment benefits, firms needed to keep wages high to attract people to work. This caused downward wage rigidity, leading to persistent higher unemployment. The longer duration of unemployment benefits encouraged those workers who were unemployed to seek work sooner to avoid having their skills diminish, which increased the time for job search, leading to higher unemployment The longer the duration of benefits, the lower the wages become that firms will offer new workers. This caused upward wage rigidly, causing unemployment to rise dramatically. All of the above.
Answer:
With the longer duration of unemployment benefits, firms needed to keep wages high to attract people to work. This caused downward wage rigidity, leading to persistent higher unemployment
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.
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
Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit, which affect the cost of asset of sale for the buyer as well as the seller. Consider this case: Purple Turtle Group buys on terms of 3.5/15, net 60 from its chief supplier. If Purple Turtle receives an invoice for $2,100.98, what would be the true price of this invoice?
Answer:
$2,027.45
Explanation:
Some companies trade on credit instead of cash. These companies allow their customers to pay later for purchases made today. These firms also provide a benefit to their customers with credit terms to pay earlier than the deadline and get discount on the actual invoice price.
In the given scenario, Purple Turtle Group has purchase goods and received an invoice of $2,100.98 with credit terms of 3.5/15, net 60. This means that the payment is due to be paid in next 60 days with a 3.5% discount if the payment is made within next 15 days. The actual invoice price will be then,
$2,100.98 * (100% - 3.5%) = $2,027.45
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.
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
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
Randy Rouser completes landscaping work on Nina Tothill’s yard, and Nina writes a $1,750 check from her account at Small Bank. The check is written as payable to Randy Rouser. Randy needs to pay house repair bills, so he indorses the check and delivers it to Christina Caliss, a professional plumber, for value received. Christina in turn deposits the check in her account at Large Bank. Large Bank quickly returns the check to Christina with a mark stating that the check has insufficient funds. Christina wants to know whether Randy or Nina can be held liable for the check. Advise Christina on what she needs to know in order to answer that question.
Answer: Christina can hold Randy liable for the check
Explanation:
In this scenario it is important to note 2 things.
1. Nina PAID Randy.
2. Randy PAID Christina.
The point is that Randy is the one who had a contract with Nina. Even though Nina is the one who's check was not honored, Christina has NO CONTRACT with Nina. This means she cannot hold her liable.
As far as Christina is concerned, the check came from Randy and so she should hold him liable.
Randy on his part can then go back to Nina and hold her liable because he is the one who had a contract with her.
If you need any clarification do comment.
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.
Erin knows exactly what benefits she will receive when she retires. She has worked for the organization for 20 years and will receive 65% of the average of her two highest years of pay. Erin’s retirement plan is a ________ plan.
Answer:
defined benefit
Explanation:
A defined benefit plan is a type of pension plan in which the employees continue to receive a specified amount of money from the company after retirement. This benefit plan is subject to tax deduction.
A defined benefit plan is calculated by the employees salary, age and the period of time the individual worked in the company.
A defined budget plan makes it easy for the individual to budget their various expenses during their retirement period.
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
The annual report for Sneer Corporation disclosed that the company declared and paid preferred dividends in the amount of $180,000 in the current year. It also declared and paid dividends on common stock in the amount of $2.80 per share. During the current year, Sneer had 1 million common shares authorized; 380,000 shares had been issued; and 172,000 shares were in treasury stock. The opening balance in Retained Earnings was $880,000 and Net Income for the current year was $380,000. Required: 1. Prepare journal entries to record the declaration, and payment, of dividends on (a) preferred and (b) common stock. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
Answer and Explanation:
The journal entries are shown below:
a. For preferred stock
Preferred dividend $180,000
To Preferred dividend payable $180,000
(Being the dividend declared is recorded)
Preferred dividend payable $180,000
To Cash $180,000
(Being the payment is recorded)
a. For common stock
Common dividend $582,400
To Common dividend payable $582,400
(Being the dividend declared is recorded)
Common dividend payable $582,400
To Cash $582,400
(Being the payment is recorded)
The computation is shown below:
= (380,000 shares - 172,000 shares) × $2.80
= $582,400
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.
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.
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
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.
In 2017, Eraser Corp had Revenue of $200 million, Cost of Goods Sold of $100 million (this includes Depreciation of $50 million), Sales General and Admin Expenses of $50 million, and faced a tax rate of 21%. Assume that no money was spent on Capital Expenditures or on additional Net Working Capital. According to our recipe, what should be the after-tax cash flow generated by Eraser Corp in 2017 (in millions)
Answer:
The after-tax cash flow generated by Eraser Corp in 2017 should be $89.5 million
Explanation:
Net income before tax = Revenue - Cost of Goods Sold - Sales General and Admin Expenses = $200 million - $100 million - $50 million = $50 million
Eraser Corp faced a tax rate of 21%,
Tax paid = 21% x $50 million = $10.5 million
No money was spent on Capital Expenditures or on additional Net Working Capital.
The after-tax cash flow generated by Eraser Corp in 2017 = Net income before tax + Depreciation expense - Tax = $50 million + $50 million - $10.5 million = $89.5 million
Note: Depreciation expense is Non-Cash Expenses, so it does not include in Cash Flow.
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.
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.
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.
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%
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.
calculate the price elasticity of demand when the price of a barrel of gosum berries rises from $10 to $20. What kind of elasticity is this value that you computed for the price elasticity of demand and what does it mean for how demand will change based on a change in price within this price range
Answer:
PED = -0.176 or 0.176 in absolute terms. It is price inelastic, since PED < 1.
Explanation:
the quantity demanded for a price of $10 is 900 barrels.
the quantity demanded for a price of $20 is 800 barrels.
Using the midpoint method for calculating PED:
PED = {(Q2 - Q1) / [(Q2 + Q1) / 2]} / {(P2 - P1) / [(P2 + P1) / 2]}
PED = {(800 - 900) / [(800 + 900) / 2]} / {($20 - $10) / [($20 + $10) / 2]}
PED = (-100 / 850) / ($10 / $15) = -0.1176 / 0.6667 = -0.176
Price elasticity of demand measures how much does the quantity demanded of a good or service vary as a result form a 1% change in its price.
PED < 1, price inelastic. A 1% change in price will result in a proportionally smaller change in quantity demanded. PED > 1, price elastic. A 1% change in price will result in a proportionally larger change in quantity demanded. PED = 1, price unitary. A 1% change in price will result in a proportionally equal change in quantity demanded.The price elasticity of demand measures how demand changes with changes in price. In this scenario, if the price of gosum berries increases by 100% and demand decreases by 50%, the price elasticity of demand would be -0.5, which means demand is price inelastic. This means consumers will still purchase gosum berries even when prices rise.
Explanation:The price elasticity of demand quantifies how sensitive the demand of a product is to changes in its price. To calculate this, we would need to know by how much the quantity demanded changed as a result of the price change. Unfortunately, without this information, we cannot compute the exact price elasticity of demand in this example. However, let me explain how it would work if we had the necessary data.
Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. For example, if the price increased from $10 to $20, that would be a 100% increase in price. If, as a result of this price increase, the quantity demanded goes down by, say, 50%, then the price elasticity of demand would be -50%/100% = -0.5.
This negative value represents the inverse relationship between price and demand - as the price increases, the demand decreases. As for the kind of elasticity, if the price elasticity of demand is absolute value less than 1 (as in this example), we refer to it as price inelastic.
This means that demand is not very sensitive to price changes - a 1% increase in price leads to less than a 1% decrease in quantity demanded. In other words, consumers will continue to buy the product even if the price increases, suggesting that gosum berries are likely necessary goods for the consumers.
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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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On January 1, 2016, Hobart Mfg. Co. purchased a drill press at a cost of $30,500. The drill press is expected to last 10 years and has a residual value of $5,500. During its 10-year life, the equipment is expected to produce 500,000 units of product. In 2016 and 2017, 22,500 and 79,000 units, respectively, were produced.
Required:
Compute depreciation for 2016 and 2017 and the book value of the drill press at December 31, 2016 and 2017, assuming the straight-line method is used.
2016 2017
Depreciation:
Book Values:
Answer:
Depreciation expense in 2016 and 2017 is $2,500
Book value in 2016 = $28,000
Book value in 2017 = $25,500
Explanation:
Straight line depreciation expense = (Cost of asset - Salvage value) / useful life
($30,500 - $5,500) / 10 = $2,500
The deprecation expense each year of its 10 year useful life would be $2,500.
Book value in 2016 = $30,500 - $2,500 = $28,000
Book value in 2017 = $28,000 - $2,500 = $25,500
I hope my answer helps you
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