Answer:
Explanation:
Please note that this question we have to do by hit and trail method. Every annual payment has 2 components,
Interest and Principal repayment
Interest is higher at the beginning and principal repayment is lower. We have not been given the time for the loan.
So i will tell you how to calculate the Total annual installment by hand
and then we will make table of payments to see if we are getting 450 principal repayment in month 4
We will do 3-4 iterations to get the answer
Loan Amount = 20,000
Rate = 4%
Principal repayment in year 4 = 450
Let say time = n years
Annual installment = Loan amount * ( rate * ( 1+rate ) ^n ) / ( ( 1 + rate ) ^n -1 )
assume n = 25 years
Annual installment = 20,000 * ( 0.04* ( 1.04 ) ^ 25 ) / ( ( 1.04 ) ^25 -1 ) = 1280.24
What is the difference in the present worth between an investment of $10,000 per year for 50 years and an investment of $10,000 per year forever at an interest rate of 10% per year
Answer:
Difference in Present Value = $ 851.86
Explanation:
The fist scheme is an annuity. A series of fixed cash flow occurring annually for certain period of time. We can determine the present value of the annuity using the formula below:
PV = A × (1- (1+r)^(-n) )/r
10,000 × (1- 1.10^(-50))/0.1 =99,148.14
The second scheme is a perpetuity . A series of fixed cash inflow occurring for the unforeseeable future
PV = A × 1/r
PV = 10,000× 1/0.1= 100,000
Difference in PV = 100,000 - 99,148.14= 851.855
Difference in Present Value = $ 851.86
Flip's Pizzeria Inc. has the following financial items for the current year: Advertising Expenses $35,000 Cost of Goods Sold $400,000 Other Operating Expenses $300,000 Sales $2,735,000 Cost of Equipment purchased during the year (10 year estimate useful life, 0 salvage value) $325,000 Calculate Flip's taxable liability for the current year.
Answer:
we must determine the taxable income:
Sales $2,735,000
Cost of Goods Sold $400,000
Advertising Expenses $35,000
Other Operating Expenses $300,000
taxable income = $2,000,000
assuming the current corporate income tax rate (21%), current tax liability = $2,000,000 x 21% = $420,000
Since the question did not include any specific tax rate, I used the current one. But if the complete question includes some other tax rate, just multiply the taxable income by it.
Garcia Company issues 10%, 15-year bonds with a par value of $230,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 8%, which implies a selling price of 117 1/4. The effective interest method is used to allocate interest expense.
1. Using the implied selling price of 117 1/4, what are the issuer's cash proceeds from issuance of these bonds.
2. What total amount of bond interest expense will be recognized over the life of these bonds?
3. What amount of bond interest expense is recorded on the first interest payment date?
Answer:
A.$269,675
B.$305,325
C.$10,787
Explanation:
Requirement A Cash proceeds
Cash proceeds can find out by multiplying par value with the selling price
Cash proceeds = Par Value x Selling price
Cash proceeds = $230,000 x 117.25%
Cash proceeds = $269,675
Requirement B Interest Expense
Bond interest expense =Total repayment -Amount borrowed(REQ.A)
Bond interest expense = $575,000(w) - $269,675
Bond interest expense = $305,325
Workings
Semi-annual interest expense = $230,000 x 10% x 6/12
Semi-annual interest expense = $11,500
Total payment would be 30 for 15 years
Total payment = $11,500 x 30
Total payment = $345,000
Total repayment = Par value + $345,000
Total repayment = $230,000 + $345,000
Total repayment = $575,000
Requirement C Bond interest expense on the first interest payment date
Bond interest Expense = $269,675(REQ.A) x 8% x 6/12
Bond interest Expense = $10,787
On January 1, Beckman, Inc., acquires 60 percent of the outstanding stock of Calvin for $54,480. Calvin Co. has one recorded asset, a specialized production machine with a book value of $10,000 and no liabilities. The fair value of the machine is $78,000, and the remaining useful life is estimated to be 10 years. Any remaining excess fair value is attributable to an unrecorded process trade secret with an estimated future life of 4 years. Calvin’s total acquisition date fair value is $90,800.
At the end of the year, Calvin reports the following in its financial statements:
Revenues 65,550 Machine 13,590 Common stock 10,000
Expenses 29,250 Other assets 27,710 Retained earnings 31,300
Net income 36,300 Total assets 41,300 Total equity 41,300
Dividends paid 5,000
Required:
Determine the amounts that Beckman should report in its year-end consolidated financial statements for noncontrolling interest in subsidiary income, noncontrolling interest, Calvin’s machine (net of accumulated depreciation), and the process trade secret.
Answer:
Beckman noncontrolling interest in subsidiary income $10,520
Calvin Machine (net of accumulated depreciation) $71,200
Explanation:
To calculate noncontrolling interest in subsidiary's income;
Revenue $65,550
Expenses $39,250 (29,250 + $6,800 + $3,200)
Net Income $26,300
Noncontrolling percentage = 40%
NonControlling Income = $10,520
Depreciation of Machine = [tex]\frac{Fair value of Machine - Book value}{estimated useful life}[/tex]
[tex]\frac{78,000 - 10,000}{10 years}[/tex] = 6,800 per annum
Amortization of trade secrets = [tex]\frac{Fair Value Total - Machine value}{Useful life}[/tex]
Amortization of trade secrets = [tex]\frac{90,800 - 78,000}{4 years}[/tex]
= 3,200
Blaser Corporation had $275,000 in invested assets, sales of $330,000, income from operations amounting to $33,000 and a desired minimum rate of return of 7.5%. The ROI for Blaser Corporation is
Answer:
Return on Investment (ROI) = 10%
Explanation:
Return on Investment (ROI) is the proportion of operating assets that earned as profit by a business entity.
It is determined by dividing the operating income by operating assets.
ROI is used to evaluate the performance of a business entity by comparing the entity's ROI to the opportunity cost of capital.
The opportunity cost of capital is the minimum rate of return that would be make Blaser corporation to be indifferent between investing the money in its business and an alternative investment outlet.
ROI = Operating income /Operating assets × 100
= 33,000/330,000 × 100= 10%
Return on Investment (ROI) = 10%
Steve Madison needs $353,100 in 10 years.How much must he invest at the end of each year, at 9% interest, to meet his needs?
Answer:
$23,241.07
Explanation:
To determine the annual annuity, this formula would be used
PV = FV / annuity factor
Annuity factor = {[(1+r)^n] - 1} / r = (1.09^10 - 1 ) / 0.09 = 15.192930
$353,100 / 15.192930 = $23,241.07
Worley Company buys surgical supplies from a variety of manufacturers and then resells and delivers these supplies to hundreds of hospitals. Worley sets its prices for all hospitals by marking up its cost of goods sold to those hospitals by 5%. For example, if a hospital buys supplies from Worley that had cost Worley $100 to buy from manufacturers, Worley would charge the hospital $105 to purchase these supplies.
For years, Worley believed that the 5% markup covered its selling and administrative expenses and provided a reasonable profit. However, in the face of declining profits Worley decided to implement an activity-based costing system to help improve its understanding of customer profitability. The company broke its selling and administrative expenses into five activities as shown below:
Activity Cost Pool (Activity Measure) Total Cost Total Activity
Customer deliveries (Number of deliveries) $ 500,000 5,000 deliveries
Manual order processing (Number of manual orders) 248,000 4,000 orders
Electronic order processing (Number of electronic orders) 200,000 12,500 orders
Line item picking (Number of line items picked) 450,000 450,000 line items
Other organization-sustaining costs (None) 602,000
Total selling and administrative expenses $ 2,000,000
Worley gathered the data below for two of the many hospitals that it serves—University and Memorial (both hospitals purchased a total quantity of medical supplies that had cost Worley $30,000 to buy from its manufacturers):
Activity
Activity Measure University Memorial
Number of deliveries 10 25
Number of manual orders 0 30
Number of electronic orders 15 0
Number of line items picked 120 250
Required:
Compute the total revenue that Worley would receive from University and Memorial.
Answer is complete and correct
Total Revenue
University $ 31,500
Memorial $ 31,500
Answer:
Worley CompanyComputation of Total Revenue from University and Memorial:
Total Cost = $38,541.00
Mark-up (5%) $1,927.05
Total Revenue $40,468.05
Explanation:
a) Data and Calculations:
Activity Cost Pool (Activity Measure) Total Cost Total Activity
Customer deliveries (Number of deliveries) $ 500,000 5,000 deliveries
Manual order (Number of manual orders) 248,000 4,000 orders
processing
Electronic order (Number of electronic orders) 200,000 12,500 orders
processing
Line item picking (Number of line items picked) 450,000 450,000 line items
Other organization-sustaining costs (None) 602,000
Total selling and administrative expenses $ 2,000,000
Data on University and Memorial Hospitals:
Activity Measure University Memorial
Number of deliveries 10 25
Number of manual orders 0 30
Number of electronic orders 15 0
Number of line items picked 120 250
Activity Rates:
Customer deliveries (Number of deliveries) $ 500,000/5,000 = $100
Manual order (Number of manual orders) 248,000/4,000 = $62
processing
Electronic order (Number of electronic orders) 200,000/12,500 = $16
processing
Line item picking (Number of line items picked) 450,000/450,000 = $1
Other organization-sustaining costs (None) 602,000
Cost of Selling and Administrative Expenses to the two hospitals:
Activity Measure University Memorial Total Total Cost
Number of deliveries 10 25 35 $3,500
Number of manual orders 0 30 30 $1,860
Number of electronic orders 15 0 15 $240
Number of line items picked 120 250 370 $370
Total Selling and Administrative Expenses $5,970
Cost of medical supplies = $30,000
Selling and administrative expenses = $5,970
Fixed costs = $2,571
($5,970/$1,398,000 x $602,000)
Total Cost = $38,541
Mark-up (5%) $1,927.05
Selling price $40,468.05
b) The case stated that both University and Memorial had purchased a total quantity of medical supplies that had cost Worley $30,000 to buy from its manufacturers. This implies that each hospital did not buy supplies that had cost Worley $30,000 for each. Based on this assumed fact from the case, the total revenue that Worley would collect from the two hospitals after keying in the selling and distribution and head office fixed costs, to get a total cost of $38,541.00 and adding the 5% markup, the revenue that Worley would receive would be $40,468.05 ($38,541 x 1.05).
Impact of 2020 lockdown on world's business economy?
Today (year 0), a new 7-megawatt (MW) solar panel farm is constructed at a direct cost of $10 million. The indirect cost of 10% of the direct cost was spent. Four years from today, a smaller 6-MW solar farm will be added to the existing farm. The cost indices of today and after 4 years are 400 and 600 respectively. If the cost-capacity factor is 0.75 for solar panel construction, what is the estimated total capital investment (direct indirect) for the smaller 6-MW farm
Answer:
14.70 m
Explanation:
The computation of estimated total capital investment (direct indirect) for the smaller 6-MW farm is shown below:-
Cost of 6MW plant = Cost of 7MW today × (Index today ÷ Index in past) × (Capacity of 6MW plant ÷ Capacity of 7MW plant )^Cost capacity factor
= = 1.1 × 10m × (600 ÷ 400) × (6 ÷ 7)^0.75
= 14.6985
or
= 14.70 m
So, for computing the cost of 6MW plant we simply applied the above formula.
Since stock prices will shift in response to unpredictable future news, these prices will tend to follow what mathematicians call _________________.
Answer:
a random walk with a trend
Explanation:
This model assumes that in each period the stock prices would take a random step away from what was its previous value.
Stock prices cannot be predicted therefore they are a random walk. Future prices cannot be predicted by what used to be the prices in the past. Stock prices change in response to unpredictable future news, hence they follow a random walk with a trend.
WACC and Cost of Common Equity
Kahn Inc. has a target capital structure of 45% common equity and 55% debt to fund its $10 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 12%, a before-tax cost of debt of 10%, and a tax rate of 25%. The company's retained earnings are adequate to provide the common equity portion of its capital budget. Its expected dividend next year (D1) is $3, and the current stock price is $34.
A. What is the company's expected growth rate?
B. If the firm's net income is expected to be $1.6 billion, what portion of its net income is the firm expected to pay out as dividends?
Answer:
A. What is the company's expected growth rate?
current stock price = expected dividend / (required rate of return - growth rate)
$34 = $3 / (12% - g)
12% - g = $3 / $34 = 8.82%
growth rate = 12% - 8.82% = 3.18%
B. If the firm's net income is expected to be $1.6 billion, what portion of its net income is the firm expected to pay out as dividends?
WACC = (equity x Re) + [debt x cost of debt x (1 - tax rate)]
12% = (45% x Re) + (55% x 10% x 0.75) = 0.45Re + 4.125%
0.45Re = 12% - 4.125% = 7.875%
Re = 7.875% / .45 = 17.5%
growth rate = (net income / equity) x (1 - dividend payout ratio)
3.18% = ($1.6 billion / $4.5 billion) x (1 - dividend payout ratio)
3.18% = 0.3556 x (1 - dividend payout ratio)
1 - dividend payout ratio = 3.18 / 0.3556 = 0.089
dividend payout ratio = 1 - 0.089 = 0.911
this means that the company distribute 91.1% of its net income to its stockholders
Which of the following is a factor that influences the business cycle?
interest rates on loans
tax rebates
political elections
import fees
Answer:
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Explanation:
answer:is...... Interest rates on loan's...
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MERLINE MANUFACTURING Income Statement For Month Ended December 31, 2017
Sales $1,420,000
Cost of goods sold 600,000
Gross profit 820,000
Operating expenses Sales commissions (10%) 142,000
Advertising 224,000
Store rent 25,200
Administrative salaries 46,000
Depreciation—Office equipment 56,000
Other expenses 13,200
Total expenses 506,400
Net income $313,600
Management expects December’s results to be repeated in January, February, and March of 2018 without any changes in strategy. Management, however, has an alternative plan. It believes that unit sales will increase at a rate of 10% each month for the next three months (beginning with January) if the item's selling price is reduced to $127 per unit and advertising expenses are increased by 15% and remain at that level for all three months. The cost of its product will remain at $60 per unit, the sales staff will continue to earn a 10% commission, and the remaining expenses will stay the same.
Required:
Prepare budgeted income statements for each of the months of January, February, and March that show the expected results from implementing the proposed changes. (Enter your final answers in whole dollars.)
Answer:
Merline Manufacturing
MERLINE MANUFACTURING Budgeted Income Statement For Months of January, February, and March, 2017
December January February March
Sales $1,420,000 $1,397,000 $1,536,700 $1,690,370
Cost of goods sold 600,000 660,000 726,000 798,600
Gross profit 820,000 $737,000 $810,000 $891,770
Operating expenses:
Sales commissions (10%) 142,000 139,700 153,670 169,037
Advertising 224,000 257,600 257,600 257,600
Store rent 25,200 25,200 25,200 25,200
Administrative salaries 46,000 46,000 46,000 46,000
Depreciation—
Office equipment 56,000 56,000 56,000 56,000
Other expenses 13,200 13,200 13,200 13,200
Total expenses 506,400 537,700 551,670 567,037
Net income $313,600 $199,300 $258,330 $324,733
Explanation:
a) Data:
MERLINE MANUFACTURING Income Statement For Month Ended December 31, 2017
December
Sales $1,420,000
Cost of goods sold 600,000
Gross profit 820,000
Operating expenses:
Sales commissions (10%) 142,000
Advertising 224,000
Store rent 25,200
Administrative salaries 46,000
Depreciation—Office equipment 56,000
Other expenses 13,200
Total expenses 506,400
Net income $313,600
b) Calculations:
Sales:
January = $1,420,000/$142 x 1.1 x $127 = $1,397,000
Sales unit = 11,000 (10,000 x 1.1)
February = 11,000 x 1.1 x $127 = $1,536,700
Sales unit = 12,100 (11,000 x 1.1)
March = 12,100 x 1.1 x $127 = $1,690,370
Sales unit = 13,310 12,100 x 1.1)
c) Advertising = $224,000 x 1.15 = $257,600
d) Cost of goods sold:
January = $660,000 (11,000 x $60)
February = $726,000 (12,100 x $60)
March = $798,600 (13,310 x $60)
e) Sales commission for each month is 10% of sales for the month.
f) Budgeted income statements are summaries for a period based on estimated incomes and expenses. They are useful in helping management to make projections and production decisions that will achieve desired outcomes. From these budgeted statements, management may decide to retain the December selling price and units and not increase advertising costs since the achieved net income did not improve over December's performance until March.
During the month of March, Karen Company's employees earned wages of $68,000. Withholdings related to these wages were $5,202 for Social Security (FICA), $14,700 for federal income tax, $6,300 for state income tax, and $900 for union dues. The company incurred no cost related to these earnings for federal unemployment tax, but incurred $2,000 for state unemployment tax.
Required:
Prepare the necessary March 31 journal entry to record wages expense and wages payable. Assume that wages earned during March will be paid during April.
Answer:
Journal entry to record wages expense and wages payable
Explanation:
As the company incurred no cost related to these earnings for federal unemployment tax so it would be excluded from wages and salaries expense
Entry DEBIT CREDIT
Salaries and wages Expense $68,000
Social Security(FICA) $5,202
Federal income tax $14,700
State income tax $6,300
union dues $900
Salaries and wages payable $40,898
Sampson Co. sold merchandise to Batson Co. on account, $46,000, terms 2/15, net 45. The cost of the merchandise sold is $38,500. Batson Co. paid the invoice within the discount period. Assume both Sampson and Batson use a perpetual inventory system.
Required:
Prepare the entries that both Sampson and Batson Companies would record.
Answer:
Sampson Company
Dr Accounts Receivable -Batson Co.45,080
Cr Sales 45,080
Dr Cost of Merchandise Sold38,500
Cr Merchandise Inventory38,500
Dr Cash 45,080
Cr Accounts Receivable-Batson Co.45,080
Batson Company
Dr Merchandise Inventory45,080
Cr Accounts Payable - Sampson Co.45,080
Dr Accounts Payable -Sampson Co.45,080
Cr Cash45,080
Explanation:
Preparation of the Journal entries for both Sampson and Batson Companies would record
Based on the information given we were told that Sampson Company sold merchandise to Batson Company At the amount of $46,000 with 2/15 term while the merchandise was sold at the amount of $38,500 and since we are Assuming that both of them uses a perpetual inventory system this means the transaction will be recorded as:
Journal Entries for Sampson Company
Dr Accounts Receivable -Batson Co.45,080
Cr Sales 45,080
(2%*46,000=920)
(45,000-920=45,080)
Dr Cost of Merchandise Sold38,500
Cr Merchandise Inventory38,500
Dr Cash 45,080
Cr Accounts Receivable-Batson Co.45,080
Journal Entries for Batson Company
Dr Merchandise Inventory45,080
Cr Accounts Payable - Sampson Co.45,080
(2%*46,000=920)
(45,000-920=45,080)
Dr Accounts Payable -Sampson Co.45,080
Cr Cash45,080
(2%*46,000=920)
(45,000-920=45,080)
You own two different energy drink brands with similar elasticities: "Blue Cow" and "600 minute energy." If you reduce the price on "Blue Cow", you can only increase your total sales if
Answer: b. Prices for “600 minute energy” are reduced
Explanation:
The drinks have similar elasticities so they are substitutes. This means that reducing the price of one will cause people to demand less of the other drink. By reducing the price of "Blue Cow", there will be less demand for "600 minute energy".
To increase total sales therefore, the effects of the decrease in the price of Blue Cow must be counteracted. To do so, the price of 600 minute energy must be reduced as well. This way people will demand the two drinks more. This reduction will draw in people buying other drinks apart from these 2 thereby increasing total sales.
Jansen Company reports the following for its ski department for the year 2019. All of its costs are direct, except as noted.
Sales $610,000
Cost of goods sold 435,000
Salaries 113,000 ($25,000 is indirect)
Utilities 15,600 ($5,700 is indirect)
Depreciation 54,400 ($17,400 is indirect)
Office expenses 29,600 (all indirect)
1. Prepare a departmental income statement for 2019.
2. & 3. Prepare a departmental contribution to overhead report for 2019. Based on these two performance reports, should Jansen eliminate the ski department?
Answer:
1.
Jansen Company
Departmental Income Statement—Ski Department
For Year Ended 2019
Sales 610,000
Less : Cost of goods sold 435,000
Gross profit 175,000
Less; Expenses
Salaries 113,000
Utilities 15,600
Depreciation 54,400
Office expenses 29,600 212,600
Operating loss $37,600
2.
Jansen Company
Departmental Income Statement—Ski Department
For Year Ended 2019
Sales 610,000
Less : Cost of goods sold 435,000
Gross profit 175,000
Less; Direct Expenses
Salaries 88,000 (113,000 - 25,000)
Utilities 9,900 (15,600 - 5,700)
Depreciation 37,000 (54,400 - 17,400)
Total Direct Expenses 134,900
Contribution to overhead $40,100
They should not eliminate the Ski Department because it would contribute $40,100 to overhead.
Which of the following is NOT a goal of operations management? (A) Understanding the drivers of customer utility (B) Match supply with demand (C) Make a profit while providing customers what they want *D) Provide great products at low prices to customers
Answer:
The answer is A.
Explanation:
Operations management involves all activities which produce and deliver goods and services. Operation is a core function in any organization.
The primary objective of operations management is to make use of the organizational resources to generate or produce goods and services.
All options except option A(Understanding the drivers of customer utility) are goals of operation management
Bruno's Lunch Counter is expanding and expects operating cash flows of $31,700 a year for 6 years as a result. This expansion requires $110,300 in new fixed assets. These assets will be worthless at the end of the project. In addition, the project requires $7,800 of net working capital throughout the life of the project. What is the net present value of this expansion project at a required rate of return of 11 percent
Answer:
the net present value of this expansion project is - $9,190.14.
Explanation:
Net Present Value is calculated by taking the Present Day (discounted) Value of all future net cash flows based on the cost of capital and subtracting the initial cost of investment.
Summary for Bruno's Lunch Counter cash flows for the Project are :
Year 0 = - $110,300
Year 1 = $31,700 - $7,800 = $23,900
Year 2 = $23,900
Year 3 = $23,900
Year 4 = $23,900
Year 5 = $23,900
Year 6 = $23,900
Use the financial calculator to input the values as follows
CF0 = - $110,300
CF1 = $23,900
CF2 = $23,900
CF3 = $23,900
CF4 = $23,900
CF5 = $23,900
CF6 = $23,900
P/yr = 1
r = 11 %
Net Present Value will be - $9,190.1453
A company makes a product that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $200,000 per year. Its operating results for last year were as follows: Sales $ 2,080,000 Variable expenses 1,040,000 Contribution margin 1,040,000 Fixed expenses 200,000 Net operating income $ 840,000 The company president wants to add new features to the product, which will increase the variable expenses by $1.90 per unit. She thinks that the new features, combined with some increase in marketing spending, would increase this year's sales by 25%. How much could the president increase this year's fixed marketing expense and still earn the same $840,000 net operating income as last year
Answer:
The president could increase this year's fixed marketing expense and still earn the same $840,000 net operating income as last year if the increase in fixed marketing expense does not exceed in total amount than $198,250.
Explanation:
a) Data and Calculations:
Income Statement Last Year's This Year's
Sales $ 2,080,000 $2,600,000 ($2,080,000 x 1.25)
Variable expenses 1,040,000 1,361,750 (32,500 x $41.90)
Contribution margin 1,040,000 $1,238,250
Fixed expenses 200,000 398,250 ($198,250)
Net operating income $ 840,000 $840,000
Business level strategy addresses two related issues: what businesses should a corporation compete in and how can these businesses be managed so that they create synergy.
Answer:
This statement is false, because it is the CORPORATE level strategy that addresses these two related issues.
Explanation:
The corporate level strategy can be defined as the strategy whose focus is to create synergy to effectively manage its competing business units and which constitute the organizational whole. Therefore, at this strategic level, the focus is to establish a focus to maximize profitability and positioning in a diverse organization.
Suppose investors can earn a return of 2% per 6 months on a Treasury note with 6 months remaining until maturity. The face value of the T-bill is $10,000. What price would you expect a 6-month maturity Treasury bill to sell for?
Answer:
Price of treasury bill = $9,803.92
Explanation:
The price of the treasury note would be the present value of the future receivable on maturity discounted at the rate of return of 2% per six-month.
The formula is FV = PV × (1+r)^(n)
PV = Present Value- ?
FV - Future Value, - 10,000
n- number of years- 1/2
r- interest rate - 2%
PV = 10,000 × (1.02)^(-1)
PV = 9,803.92
Price of treasury bill = $9,803.92
The constant growth valuation formula has dividends in the numerator. Dividends are divided by the difference between the required return and dividend growth rate as follows:
P0=D1/(rs−g)
If you were analyzing the consumer goods Industry, for which kind of company in the industry would the constant growth model work best?
a. Young companies with unpredictable earnings
b. Mature companies with relatively predictable earnings
c. All companies
A company’s perpetual preferred stock pays an annual dividend of $2.10 per share. The preferred stock’s market value is $36.04 per share and the company’s tax rate is 30%. If the flotation costs for preferred stock are 6%, what is the company’s annual cost of new preferred stock financing? Question 4 options: 1) 5.87% 2) 7.25% 3) 6.54% 4) 6.20% 5) 5.41%
Answer:
6.20%
Explanation:
The company’s annual cost of new preferred stock financing is the annual dividend payable on the preferred stock divided by the net price of the stock
annual dividend is $2.10
net price=market price*(1-flotation cost %)
net price=$36.04 *(1-6%)
net price=$ 33.88
company’s annual cost of new preferred stock financing=$2.10/$33.88
company’s annual cost of new preferred stock financing==6.20%
Suppose that on January 1, the cost of borrowing French francs for the year is 18%. During the year, U.S. inflation is 5%, and French inflation is 9%. At the same time, the exchange rate changes from FF 1 = $0.15 on January 1 to FF 1 = $0.10 on December 31. What was the real U.S. dollar cost of borrowing francs (real interest rate in U.S.) for the year?
Answer:
-25.08%.
Explanation:
Given that, during the year, the franc devalued by (0.15 - 0.10)/0.15 = 33.33%.
Then, the nominal dollar cost of borrowing French francs, therefore, was 0.18(1 - 0.3333) - 0.3333 = -21.33%.
Thus, for each dollar's worth of francs borrowed on January 1, it cost only $1 - $0.2133 = $0.7867 to repay the principal plus interest.
Also, with U.S. inflation of 5% during the year, the real dollar cost of repaying the principal and interest is $0.7867/1.05 = $0.7492.
Subtracting the original $1 borrowed, it shows that the real dollar cost of repaying the franc loan is -$0.2508 or a real dollar interest rate of -25.08%.
In order to achieve the target for the nominal interest rate established by the monetary policy rule, the central bank adjusts:
Answer: C. the money supply.
Explanation:
The Money Supply in an economy can be adjusted to influence interest rates due to the indirect relationship that exists between them. This means that when there is a high money supply, interest rates are lower and vice versa.
The Central Bank controls how much money is in the economy by using Open Market operations that buy or sell government securities as well as reserve requirements on banks.
Prepare journal entries to record the following four separate issuances of stock.
1. A corporation issued 8,000 shares of $20 par value common stock for $192,000 cash.
2. A corporation issued 4,000 shares of no-par common stock to its promoters in exchange for their efforts, estimated to be worth $33,000. The stock has a $1 per share stated value.
3. A corporation issued 4,000 shares of no-par common stock to its promoters in exchange for their efforts, estimated to be worth $33,000. The stock has no stated value.
4. A corporation issued 2,000 shares of $75 par value preferred stock for $183,000 cash.
Answer:
1.
DR Cash $192,000
CR Common stock. $160,000
CR Paid-in capital in excess of par value - Common stock $32,000
Working
Common Stock = $20 * 8,000
= $160,000
Paid-in capital in excess of par value - Common stock = 192,000 - 160,000
= $32,000
2
DR Organization expenses $33,000
CR Common stock, $4,000
CR Paid-in capital in excess of stated value - common stock $29,000
Working
Common Stock = 1 * 4,000
= $4,000
Paid-in capital in excess of stated value, common stock = 33,000 - 4,000
= $29,000
3
DR Organization expenses $33,000
CR Common stock $33,000
4
DR Cash $183,000
CR Preferred stock $150,000
CR Paid-in capital in excess of par value - preferred stock $33,000
Working
Preferred Stock = 75 * 2,000
= $150,000
Paid-in capital in excess of par value - preferred stock = 183,000 - 150,000
= $33,000
On July 1, 2015, Pryce Co. issued 1,000 of its 10%, $1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, 2015 and mature on April 1, 2025. Interest is payable semiannually on April 1 and October 1. What amount did Pryce receive from the bond issuance
Answer:
$1,015,000
Explanation:
the issuer will receive = $1,000 x 99% = $990 for each bond
$990 x 1,000 bonds = $990,000
the issuer will also receive accrued interests = $1,000 x 10% x 3/12 months = $25 per bond
$25 x 1,000 bonds = $25,000
in total, the issuer will receive $990,000 + $25,000 = $1,015,000
For much of the 1990s, the U.S. economy was experiencing long-run economic growth, low unemployment, and a stable inflation rate. Which of the following would give rise to these outcomes?
A. an increase in aggregate demand and short-run aggregate supply
B. a decrease in aggregate demand and short-run aggregate supply
C. a decrease in aggregate demand and an increase in short-run aggregate supply
D. an increase in aggregate demand and a decrease in short-run ag
Answer: . an increase in aggregate demand and short-run aggregate supply
Explanation:
From the question, we are informed that during the 1990s, the economy of the United States was experiencing long-run economic growth, low unemployment, and a stable inflation rate.
The reason for this is due to an increase in aggregate demand and short-run aggregate supply. This two factors will lead to the long run economic growth which the United States experienced.
Think about your decision to buy the textbook for this course. You paid $250 for the book, but you would have been willing to pay $500 to use the book for the semester. Suppose that at the end of the semester you could keep your textbook or sell it back to the bookstore. Once you have completed the course, the book is worth only $90 to you. The bookstore will pay you 50% of the original $250.
Required:
How much total value have you gained?
Answer:
$285
Explanation:
the total value is the total surplus i gained from this transaction
total surplus is the sum of producer and consumer surplus.
Consumer surplus is the difference between the willingness to pay of a consumer and the price of the good.
Consumer surplus = willingness to pay – price of the good
$500 - $250 = $250
Producer surplus is the difference between the price of a good and the least price the seller is willing to sell the product
Producer surplus = price – least price the seller is willing to accept
(0.5 x $250) - $90 = $35
total surplus = $250 + $35 = $285