Answer: Credit Allowance for Uncollectible Accounts $1,908
Explanation:
The Allowance for Uncollectible Accounts is an account where an estimate of receivables that may not be received is recorded. It is the result of companies being proactive in collection management so as not to overstate assets because there will always be a risk of customers defaulting.
The allowance/estimate is made by the company and then reduced from the Receivables account. That amount removed is credited to the Allowance for Uncollectible Accounts.
= 21,200 * 9%
= $1,908
Suppose a stock has an expected return of 12% and a standard deviation of 6%. What is the likelihood that this stock returns between 12% and 18%
Answer: 34.13%.
Explanation:
Given : Expected return : [tex]\mu=12\%=0.12[/tex]
Standard deviation: [tex]\sigma=6\%=0.06[/tex]
Let x be the stock returns.
Then, the probability that stock returns between 12% and 18%:
[tex]P(0.12<x<0.18)=P(\dfrac{0.12-0.12}{0.06}<\dfrac{x-\mu}{\sigma}<\dfrac{0.18-0.12}{0.06})\\\\=P(0<Z<1)\ \ \ [\because z=\dfrac{x-\mu}{\sigma}]\\\\=P(Z<1)-P(Z<0)\\\\=0.8413-0.5\ \ \ \text{[By z-table]}\\\\=0.3413[/tex]
Hence, the likelihood that this stock returns between 12% and 18% is 34.13%.
At one point, Kodak had 90% of the film market, and 85% of the camera market in the United States. It was almost a monopoly. Ironically, this may have hurt them in the global market, i.e. outside the US. This speaks to what aspect of the diamond of national competitive advantage
Answer: Strategy and rivalry
Explanation:
Porter's Diamond Theory of National Competitive Advantage intends to explain to companies how they can gain a competitive advantage in an industry.
Under the Strategy and Rivalry section, it is shown that a company tends to benefit more when it has strong domestic competitions because it can then develop efficient strategies to help it compete in this domestic market and thus survive this competition.
These strategies learnt, can then be implemented on the global stage when the company attempts to become a multinational firm. Kodak as a virtual monopoly in the US market, did not have to worry about competition and so did not develop the strategies that would enable them compete with other companies outside the US when they tried to break into the markets of other countries.
Consider the market for meekers in the imaginary economy of Meekertown. In the absence of international trade, the domestic price of a meeker is $23. Suppose that the world price for a meeker is $24. Assume that Meekertown is too small to influence the world price for meekers once they enter meeker the international market. If Meekertown allows free trade, then it will _______________ meeker.
When a country is too small affect the world price, allowing for free trade will always increase total surplus in that country, regardless of whether it imports or exports as a result of international trade.
a. True
b. False
Answer:
Export
true
Explanation:
Because the price of meekers in meekertown is lower than the world price for meekers, meekers from meekertown are cheaper. so if free trade is allowed, other countries would want to purchase meekers from meekertown because it is cheaper.
So, meekertown would export meekers if free trade is allowed.
When a country is too small affect the world price, allowing for free trade will always increase total surplus in that country, regardless of whether it imports or exports as a result of international trade.
this is so because if the country is efficient in production of a good (producing at a lower price when compared to the world price), export of the good would increase thus increasing producer surplus. if on the other hand, the country is inefficient in producing a good and the country allows for free trade, the country can import the good. this would increase consumer surplus.
The relationship between financial leverage and profitability Pelican Paper, Inc., and Timberland Forest, Inc., are rivals in the manufacture of craft papers. Some financial statement values for each company follow. Use them in a ratio analysis that compares the firms' financial leverage and profitability.
Items Pelican Paper, INC Timberland Forest, INC
Total assets $10,000,000 $10,000,000
Total equity 9,000,000 5,000,000
Total Debt 1,000,000 5,000,000
Annual Interest 100,000 500,000
Total Sales 25,000,000 25,000,000
EBIT 6,250,000 6,250,000
Earnings available for
common stockholders
3,690,000 3,450,000
A) Calculate the following debt and coverage ratios for the two companies. Discuss their financial risk and ability to cover the costs in relation to each other.
1. debt ratio
2. times interest earned ratio
B) Calculate the following profitability ratios for the two companies. Disuss their profitability relative to one another.
1. Operating profit margin
2. Net profit margin
3. Return on total assets
4. Return on common equity
C) In what way has the larger debt of Timberland Forest made it more profitable than Pelican Paper? What are the risks that Timberland's inestors undertake when they choose to purchase its stock instead of Pelicans?
Answer:
Pelican Paper, Inc., and Timberland Forest, Inc.
Financial leverage and profitability Ratio Analysis
A. Computation of debt and coverage ratios:
1. debt ratio = Total debt to Total assets x 100
Pelican = $1,000,000/$10,000,000 x 100
= 10%
Timberland =v$5,000,000/$10,000,000 x 100
= 50%
2. times interest earned ratio = EBIT/Interests
Pelican = $6,250,000/$100,000
= 62.5 times
Timberland = $6,250,000/$500,000
= 12.5 times
A discussion of their financial risk and ability to cover the costs:
Pelican Paper's financial leverage is 10% compared to Timberland's 50%, showing that debt creditors finance and lay claim to half of the company's assets. This is very high and not attractive to potential investors and creditors. Timberland has already hampered its ability to borrow more as it is highly leveraged. Whereas Pelican Paper can meet its debt obligations and pay its interest expenses 62.5 times from current earnings, these pale in comparison with Timberland's 12.5 times, further jeopardizing its opportunities for more debt financing.
B. Calculation of the profitability ratios:
1. Operating profit margin = EBIT/Sales x 100
Pelican Paper = $6,250,000/$25,000,000 x 100 = 25%
Timberland = $6,250,000/$25,000,000 x 100 = 25%
2. Net profit margin = (EBIT less Interest)/Sales x 100
Pelican Paper = ($6,250,000 - $100,000)/$25,000,000 x 100
= $6,150,000/$25,000,000 x 100 = 24.6%
Timberland = ($6,250,000 - $500,000)/$25,000,000 x 100
= $5,750,000/$25,000,000 x 100 = 23%
3. Return on total assets = EBIT/Total Assets x 100
Pelican Paper = $6,250,000/$10,000,000 x 100
= 62.5%
Timberland = $6,250,000/$10,000,000 x 100
= 62.5%
4. Return on common equity = Earnings available to Common Stockholders/Equity x 100
Pelican = $3,690,000/$9,000,000 x 100
= 41%
Timberland = $3,450,000/$5,000,000 x 100
= 69%
A discussion of their profitability relative to one another:
The two companies make the same level of operating profit margin at 25%, but Pelican's net profit margin of 24.6% is better than Timberland's 23%. They show that Pelican's management has better ability to control expenses than Timberland's.
The returns on assets are similar for both companies, but Timberland performed better than Pelican Paper in terms of the return on equity. This shows that Timberland with ROE of 69% is making larger returns for its common stockholders than Pelican because it is leveraging debts, whose interests are tax-deductible, and also using less equity in generating the returns.
C. The larger debt of Timberland has made it more profitable than Pelican Paper because the debt interests are deductible from EBIT before tax expense is computed and it reduces the tax burden for the company, thus making it to pay less tax and saving more profits for distribution to its stockholders.
However, this higher return to the investors in Timberland also comes with higher risks, as the investors are exposed to debt risks, higher pressure to satisfy debt creditors, heightened interference and oversight from creditors since they own half of the assets of the company, and an increased threat of business takeover in case of debt default.
Explanation:
a) Data:
Items Pelican Paper, INC Timberland Forest, INC
Total assets $10,000,000 $10,000,000
Total equity 9,000,000 5,000,000
Total Debt 1,000,000 5,000,000
Annual Interest 100,000 500,000
Total Sales 25,000,000 25,000,000
EBIT 6,250,000 6,250,000
Earnings available for common
stockholders 3,690,000 3,450,000
b) Ratio computation and analysis help companies to compare their performances and positions with competitors. They can spot risks facing a company and even point out ways to address such business risks.
Robert Company properly applies the equity method to its investment in Margit Corporation, At the end of the current year, the fair value of Robert Company's investment increased. Robert Company should
Answer:
Do nothing
Explanation:
The value of the investment would be increased by taking the their share of net income and reducing the value of investment by dividends received by the ordinary shares holder (Company). This means that the equity method doesn't includes fair value method in valuing the Investments.
So Robert Company can't increase the the investment value if the fair value of the investment has change as it will be considered a change in policy and change in policy would have a retrospective effect.
The owner of Kat Motel wants to develop a time standard for the task of cleaning a cat cage. In a preliminary study, she observed one of her workers perform this task six times, with the following results:Observation 1 2 3 4 5 6Time (secs) 109 117 117 128 125 129Required:What is the normal time for this task if the employee worked at a 32 percent slower pace than average and an allowance of 14 percent of job time is used?
Answer:
Standard Time = 206.6 secs
Explanation:
In order to calculate the time for this task if the employee worked at a 32 percent slower pace than average, we need to calculate the normal time first by using the following formula
Normal Time = Average element-time / performance rating
Average element time = Sum of observations / No. of observations
Average element time = 109 +117 +117 +128 +125 +129 / 6
Average element time = 725/6 = 120.83
Performance rating = 100 - 32 = 68%
Normal Time = 120.83 / 0.68 = 177.7 secs
Standard Time = Normal Time / (1-Allowance)
Standard Time = 177.7 / (1-0.14)
Standard Time = 206.6 secs
You are trying to explain to your friends the importance of using real GDP to measure economic health over time, but some of them still insist that nominal GDP is equally good. Use the data given below to show your friends the difference between real and nominal GDP.
Nominal GDP (millions of dollars)= $10,000
Price Level (GDP Deflector)= 92
Required:
What is real GDP given the nominal GDP and price level (GDP deflator)?
Answer: $10,869.57
Explanation:
The Nominal GDP is the total amount of final goods and services produced in a country within a period, usually a year. It is calculated using the current year's prices.
Real GDP adjusts the Nominal GDP for price changes by using the price level of a certain base year.
The GDP Deflator is the price level of the current year and can be useful in calculating how much the prices have risen or fallen from the prices of the base year.
The formula is;
(Nominal GDP/Real GDP)*100 = GDP Deflator
Making Real GDP the subject;
Real GDP = (Nominal GDP/GDP Deflator)*100
= (10,000/ 92) * 100
= $10,869.57
b. Suppose Tom has $5 to spend on Batman and Superman comic books (nothing else matters to Tom). If Tom wants to maximize his utility, how many of each should he buy
Answer:
But 1 Batman comics book, and 2 Superman comics book
Explanation:
Remember, Tom has only $5 to spend on the two books, with the goal of deriving maximum utility. Thus, if he spends on 2 quantity of Superman comics he deeives total marginal utility of 150 (58+92). Then, he may proceed to Batman comics, which gives him a marginal utility of 40.
The Donut Stop acquired equipment for $11,000. The company uses straight-line depreciation and estimates a residual value of $2,200 and a four-year service life. At the end of the second year, the company estimates that the equipment will be useful for four additional years, for a total service life of six years rather than the original four. At the same time, the company also changed the estimated residual value to $1,200 from the original estimate of $2,200.
Required:
Calculate how much the donut stop should record each year for depreciation in years 3 to 6?
Answer:
$1350
Explanation:
Straight line depreciation expense = (Cost of asset - Salvage value) / useful life
depreciation expense under the initial assumptions
($11,000 - $2,200) / 4 = $2200
Accumulated depreciation at the end of year 2 = $2200 x 2 = $4400
Book value at the beginning of year 3 = $11,000 - $4400 = $6600
Depreciation expense using the new assumptions
($6600 - $1200) / 4 = $1350
Transactions are typically processed either [A] all together for a defined time window (e.g. end of a day or week) or [B] processed as each transaction occurs. The second method [B] is called ________ processing.
Answer: real time processing
Explanation:
Real time processing is when transactions are processed as each transaction occurs. In real time processing, the transactions are processed in a little period of time.
Good examples of real-time processing systems are traffic control systems. Real time processing is different from the batch processing which involves when transactions are processed all together for a defined time window.
Depletion Down Deep Mining Co. acquired mineral rights for $81,250,000. The mineral deposit is estimated at 65,000,000 tons. During the current year, 17,550,000 tons were mined and sold.
a. Determine the depletion rate. If required, round your answer to two decimal places. $ per ton
b. Determine the amount of depletion expense for the current year. $ Feedback
c. Journalize the adjusting entry on December 31 to recognize the depletion expense. Dec. 31
Depletion Expense Accumulated Depletion"
Answer and Explanation:
The computation is shown below:
a. For depletion rate
= Acquired mineral rights ÷ estimated mineral deposits
= $81,250,000 ÷ 65,000,000 tons
= $1.25
b. For the amount of depletion expense for the current year is
= Depletion rate × current year mined
= $1.25 × 17,550,000 tons
= $21,937,500
c. The journal entry is shown below:
Depletion Expense $21,937,500
To Accumulated Depletion $21,937,500
(Being the depletion expense is recorded)
For recording this we debited the depletion expense as it increased the expense and credited the accumulated depletion as it reduced the assets
All of the following are employer payroll taxes except: Multiple Choice Social Security tax equal to that withheld from employees. Medicare tax equal to that withheld from employees. State unemployment tax. Federal unemployment tax. Federal income tax equal to that withheld from employees.
Answer: Federal income tax equal to that withheld from employees.
Explanation:
Federal Income Tax equal is a withholding Tax that the employer takes from an Employee's salary and pays it directly to the Government in form of income taxes.
It will therefore count towards the Income Taxes that the person is to pay during the year.
This is an Employee Payroll Tax because it comes from the Employees's salary.
The company has a bank loan and has incurred (but not recorded) interest expense of $3,500 for the year ended December 31, 2018. The company must pay the interest on January 2, 2019.
Answer:
The journal entry to record accrued interests:
December 31, 2018, accrued interests on bank loan
Dr Interest expense 3,500
Cr Interest payable 3,500
The journal entry to record the interest payment:
January 2, 2019, accrued interests paid
Dr Interest payable 3,500
Cr Cash 3,500
Carter's preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $45.00, what is its nominal (not effective) annual rate of return?
Answer:
8.89%
Explanation:
The answer is 8.89%
Here is how we arrived at this.
Dividend = 1$ times 4
= $4 annually
Then we calculate for the nominal rate of return.
This is equal to dividend / price.
= $4/ $45
= 0.0889
To convert this to percentage
0.089 x 100
= 8.89% is the nominal annual rate of return.
debits to Work in Process—Roasting Department for Morning Brew Coffee Company for August, together with information concerning production, are as follows: Work in process, August 1, 1,000 pounds, 20% completed $2,800* *Direct materials (1,000 X $2.6) $2,600 Conversion (1,000 X 20% X $1) 200 $2,800 Coffee beans added during August, 31,000 pounds 79,050 Conversion costs during August 33,748 Work in process, August 31, 1,600 pounds, 30% completed ? Goods finished during August, 30,400 pounds ? All direct materials are placed in process at the beginning of production. a. Prepare a cost of production report, presenting the following computations: Direct materials and conversion equivalent units of production for August. Direct materials and conversion costs per equivalent unit for August. Cost of goods finished during August. Cost of work in process at August 31.
Answer:
Costs per Equivalent Unit Materials 2.5515 Conversion 1.1576
Cost of goods finished during August. $ 112759.83
Work In Process Ending Costs $ 4638.05
Explanation:
The equivalent units are found by adding the percent of ending WIP to the completed units.
Equivalent Units
Particulars Units % of Completion Equivalent Units
Materials Conversion Materials Conversion
End. WIP 1600 100 30 1600 480
Completed 30400 100 100 30400 30400
Equivalent Units 32000 30880
Costs Accounted For:
Costs Materials Conversion
Beg. WIP $2600 200
Costs Added 79050 33748
Total Costs 81650 35748
Equivalent Units 32000 30880
Costs per Equivalent 81650/32000 35748/30880
Unit = 2.5515 1.1576
Cost of goods finished during August. $ 112759.83
Materials = 2.5515 * 30400= 77567.5
Conversion = 1.1576 * 30400= 35192.33
Total Costs of finished Goods = 112759.83
Work In Process Ending Costs $ 4638.05
Materials = 2.5515 * 1600= 4082.4
Conversion = 1.1576 * 480= 555.648
Total Costs :
Finished Goods + Work In Process Ending Costs = 112759.83+4638.05
= 117 397.88 ≅117398.0
Costs Accounted For
Materials Costs + Conversion Costs = (81650 +35748) 117398.0
Note: The CPR is correct when both the total costs calculated and accounted for are equal.
ABC Gardening operates a commercial plant nursery where it propagates plants for garden centers throughout the region. ABC Gardening has $ 3.5 million in assets. Its yearly fixed costs are $ 470 comma 000, and the variable costs for the potting soil, container, label, seedling, and labor for each gallon-sized plant total $ 1.60. ABC Gardening's volume is currently 500 comma 000 units. Competitors offer the same quality plants to garden centers for $ 3.30 each. Garden centers then mark them up to sell to the public for $ 8 to $ 9, depending on the type of plant.
Requirement 1. Nature Place owners want to earn a 10% return on the company's assets. What is Nature Place's target full cost? Calculate the target full cost for Nature Place. Select the formula labels and enter the amounts. Less: Target full cost.
Requirement 2. Given Nature Place's current costs, will its owners be able to achieve their target profit? Calculate Nature Place's current total full cost.
Requirement 3. Assume that Nature Place has identified ways to cut its variable costs to $1.50 per unit. What is its new target fixed cost? Will this decrease in variable costs allow the company to achieve its target profit?
Requirement 4. Nature Place started an aggressive advertising campaign strategy to differentiate its plants from those grown by other nurseries. Nature Place doesn't expect volume to be affected, but it hopes to gain more control over pricing. If Nature Place has to spend $94,000 this year to advertise and its variable costs continue to be $1.50 per unit, what will its cost-plus price be? Do you think Nature Place will be able to sell its plants to garden centers at the cost-plus price? Why or why not? Determine its cost-plus price.
Answer:
ABC Gardening / Nature Place
1. Nature Place's target full cost, with return on assets = 10%
Sales revenue = $1,650,000 (500,000 x $3.30)
Expected Return on Asset = $350,000 ($3.5 million x 10%)
Target full cost = $1,300,000
Fixed cost = $470,000
Variable cost = $830,000 ($1.66 x 500,000)
2. Nature Place's current total full costs; will its owners achieve their target profit:
Sales revenue = $1,650,000 (500,000 x $3.30)
Current full costs:
Variable cost = $800,000 (500,000 x $1.60)
Fixed costs = $470,000
Current full costs = $1,270,000
Current profit = $380,000
Target profit = $350,000
Excess over target = $30,000
The owners will achieve target profit and make an excess of $30,000
3. With variable costs cut to $1.50 per unit, New target fixed cost. Will it achieve its target profit?
Sales revenue = $1,650,000 (500,000 x $3.30)
Variable costs = $750,000 (500,000 x $1.50)
Annual Fixed costs = $470,000
Profit = $430,000
It will exceed its target profit of $350,000 by $80,000.
4.Advertising cost of $94,000 with variable costs of $1.50 per unit, cost-plus price:
Variable costs = $750,000 (500,000 x $1.50)
Annual Fixed costs = $564,000 ($470,000 + 94,000)
Total cost = $1,314,000
Cost plus = $1,664,000 ($1,314,000 + $350,000)
Cost plus price = $3.33 ($1,664,000/500,000)
Do you think Nature Place will be able to sell its plants to garden centers at the cost-plus price?
It will not be able to sell to garden centers at the cost-plus price.
Why or why not?
The garden centers currently buy at $3.30, a little less than its cost-plus price with advertising cost of $94,000. It will be losing $15,000 if it sells its products to garden centers at their current buying price.
Explanation:
a) Data:
Assets = $3.5 million
Target profit on assets = $350,000 = ($3.5 million x 10%)
Annual Fixed costs = $470,000
Variable costs = $1.60
Volume = 500,000
Competitors price to garden centers = $3.30 each
Selling price to the public = $8 to $9
Total costs and Profit:
Sales revenue = $1,650,000 (500,000 x $3.30)
Variable costs = $800,000 (500,000 x $1.60)
Annual Fixed costs = $470,000
Profit = $380,000
b) In target profit costing, the starting point for calculating costs is the selling price and the target profit. When the profit is deducted from the selling price, a full cost per unit is determined. This determined figure will be the ceiling for costs. Any overrun negatively affects the target profit. Instead of overrunning the target cost, management must work toward a full cost that is less than the established target cost.
Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will ______ in total as the number of units produced increases.
Answer:
Decrease
Explanation:
Absorption costing includes both variable and fixed manufacturing costs in determining product cost.
As the number of units produced increases, unit fixed costs decrease because there are as much units to absorb the Fixed Costs.
In total however, the Fixed costs remain constant within relevant range.
Which of the following is the surest way to verify the reliability of information from a new or unknown source?
1. Determine how well the material fits the goals of the research
2. Decide if the author is known and published in a variety of fields
3. Look for bias in the writing
4. Corroborate the information with other sources
5. Determine the purpose of the material
Answer:
4. Corroborate the information with other sources
Explanation:
The surest way to verify the reliability of information from a new or unknown source is to corroborate the information with other sources.
This simply means that, if you got an information (data) from a new source such as newspaper, website, television, books, radio or anywhere else, you should confirm the credibility and reliability of these information by verifying from one or more sources.
Hence, if the information gotten from a new source is in tandem or accordance with what you find elsewhere, then that information is accurate, reliable and credible.
Answer:
4.
Explanation:
The best way to verify the reliability of information from an unknown source would be to Corroborate the information with other sources. To corroborate means to take an action or information to make it more certain/valid. This is done by gathering similar information from various unconnected sources that provide the same information as the original source.
You are cautiously bullish on the common stock of the Wildwood Corporation over the next several months. The current price of the stock is $50 per share. You want to establish a bullish money spread to help limit the cost of your option position. You find the following option quotes: Wildwood Corp Underlying Stock price: $50.00 Expiration Strike Call Put June 45.00 8.50 2.00 June 50.00 4.50 3.00 June 55.00 2.00 7.50 Ignoring commissions, the cost to establish the bull money spread with calls would be ________. Group of answer choices
Answer:
650
Explanation:
A call option is an option to buy a product or asset at a stated price at a later date. The risk of call option is capped at premium for buying the option. Wildwood corporation will incur cost of 650 to establish the bull money spreads with calls.
8.5 +4.5 = 13
13 * $50.00 = $650
Gonyo Inc., which produces and sells a single product, has provided the following contribution format income statement for December appears below:
Sales (5,000 units) $ 330,000
Variable expenses 175,000
Contribution margin 155,000
Fixed expenses 104,900
Net operating income $50,100
Required:
Redo the company's contribution format income statement assuming that the company sells 5,200 units.
Net Operating Income _______.
Answer:
Net income= 56,300
Explanation:
Giving the following information:
Fixed expenses 104,900
First, we need to determine unitary values:
Selling price= 330,000/5,000= $66
Unitary variable expenses= 175,000/5,000= $35
Now, we can redo the contribution margin income statement for 5,200 units:
Sales= 66*5,200= 343,200
Total variable cost= 35*5,200= (182,000)
Total contribution margin= 161,200
Fixed costs= (104,900)
Net income= 56,300
The payroll register of Patel Engineering Co. indicates $2,640 of social security withheld and $660 of Medicare tax withheld on total salaries of $44,000 for the period. Federal withholding for the period totaled $7,920. Retirement savings withheld from employee paychecks were $2700 for the period.
Provide the journal entry for the period's payroll. If an amount box does not require an entry, leave it blank.
Salaries Expense 44,000
Social Security Tax Payable 2,640
Medicare Tax Payable 660
Employees Federal Income Tax Payable
Retirement Savings Deductions Payable
Salaries Payable
Answer:
DR Salary Expense $44,000
CR Social Security Taxes Payable $2,640
CR Medicare Taxes Payable $660
CR Federal Withholding Taxes Payable $7,920
CR Retirement Contribution Payable $2,700
CR Salaries Payable $30,080
(To record Salaries expense and payables)
You have a $4 million portfolio consisting of a $100,000 investment in each of 20 different stocks. The portfolio has a beta of 1.1. You are considering selling $100,000 worth of one stock with a beta of 0.9 and using the proceeds to purchase another stock with a beta of 1.4. What will the portfolio’s new beta be after these transactions? Show your work.
Answer:
1.1125
Explanation:
the relative weight of the stocks that you are selling is $100,000/$4,000,000 = 0.025 = 2.5% of the portfolio
this means that their effect on the portfolio's beta was 0.9 x 0.025 = 0.0225
the new stocks that you want to purchase have a beta of 1.4 and their relative effect on the portfolio's beta will be 1.4 x 0.025 = 0.035
the difference between both stocks = 0.035 - 0.0225 = 0.0125
that means that the portfolio's new beta = 1.1 + 0.0125 = 1.1125
App Holdings is expected to pay dividends of $1.50 every six months for the next three years. If the current price of App Holdings stock is $22.60, and App Holdings' equity cost of capital is 18%, what price would you expect App Holdings' stock to sell for at the end of three years
Answer:
The answer is $34.36
Explanation:
FV = PV x (1 + R x ((1 + r))^T = $22.6 x (1 + {($1.5 / $22.60) x [1 + (18% / 2)]}^6 = $34.36
Suppose Sally borrows $1,000 from Harry for one year and agrees to pay a nominal interest rate of 8%. When she borrows the money, both she and Harry expect an inflation rate of 6%.
1. The expected real interest rate on the loan is_______%.
2. Suppose that when Sally pays back the loan after one year, the actual inflation rate turns out to be 4%. The actual real interest rate on the loan is______%.
3A. If the inflation rate turned out to be higher than expected, then_______.
3B. But if inflation turned out to be lower than expected, then_______.
Answer:
1. 1,89%
2. 3,85%
3A. A Lower real rate will be obtained, and Harry is in worse off position
3A. A Higher real rate will be obtained, and Harry is in better off position
Explanation:
Real Interest Rate is the Nominal Return that has been adjusted with the Inflation rate.
The effect of the inflation is to reduce the value of money over time.
If Inflation rate was 6%
Real Interest Rate = ( 1 + nominal return) / (1 + Inflation rate) - 1
= ( 1 + 0.08) / ( 1 + 0.06) - 1
= 0.0189 or 1,89%
If Inflation rate was 4%
Real Interest Rate = ( 1 + nominal return) / (1 + Inflation rate) - 1
= ( 1 + 0.08) / ( 1 + 0.04) - 1
= 0.0385 or 3,85%
53. [LO 11.4] At the beginning of year 1, Lisa and Marie were equal shareholders in LM Corporation, an S corporation. On April 30, year 1, Lisa sold half of her interest to Shelley. On August 8, year 1, Marie sold her entire interest to George. On December 31, year 1, the corporation reported net income of $50,000. How is this income allocated to Lisa, Marie, Shelley, and George
Answer:
• Lisa $16,611
• Marie $15,070
• Shelley $8,391
• George $9,933
Explanation:
Daily allocation of $50,000 net reported net income
= $50,000/365
= $137 per day
• Income allocated to Lisa would be ;
Since Lisa and Marie are equal shareholders; meaning both would have 50% stake each in the business. Moreover, since Lisa sold half of her stake I.e 50% ÷ 2 = 25% to Shelley, her share would be;
(50% × 120 × 137) + (25% × 245 × 137) = $16,611
° Note Jan 1 to April 30 is 120 days, while the balance is 365 days - 120 days hence 245 days
• Income allocated to Marie would be;
Since Marie have 50% stake in the business and also sold her entire interest to George, her share will be;
50% × 220 × 137 = $15,070
°Note Jan 1 to August 8 is 220 days
• Income allocated to Shelley would be;
Since Shelly bought 25% out of the 50% stake that Lisa have in the business, her share will be;
25% × 245 × 137 = $8,391
°Note 245 days will be applied to Shelly's share which represent the number of days she purchased part of Lisa's interest in the business. I.e. 365 days - 120 days = 245 days
• Income allocated to George would be;
Since George purchased the whole 50% of Marie's stake in the business, his share of profit will be;
50% × 145 × 137 = $9,933
° Note 145 days will also be applied to George which represent the balance of days with which he purchased Marie's whole stake in the business. I.e 365 days - 220 days = 145 days
Assume that factory space freed up by purchasing the part from an outside source can be used to manufacture another product that can be sold for $ profit. If Harvey Automobiles makes the part, what will its operating income be?
Complete Question:
Harvey Automobiles uses a standard part in the manufacture of several of its trucks. The cost of producing 40,000 parts is $130,000, which includes fixed costs of $70,000 and variable costs of $60,000. The company can buy the part from an outside supplier for $3 per unit, and avoid 30% of the fixed costs.
Assume that factory space freed up by purchasing the part from an outside source can be used to manufacture another product that can be sold for $13,000 profit. If Harvey Automobiles makes the part, what will its operating income be?
A. 156,000 greater than if the company bought the part
B. 26,000 less than if the company bought the part
C. 26,000 greater than if the company bought the part
D. 62,000 greater than if the company bought the part
Answer:
Option C. 26,000 greater than if the company bought the part
Explanation:
Option A: In House manufacturing of 40,000 parts:
Variable Cost is always Relevant and is ($60,000)
The Fixed cost is always irrelevant unless it is specific fixed cost related to the decision. Hence Fixed cost is irrelevant here.
Option B: If we purchase from outsiders
The purchase cost of the product is variable cost hence it is relevant as it is always relevant.
Purchase Cost = $3 * 40,000 parts ($120,000)
The decrease or increase in the cost or income, due to a decision is always relevant. The decrease in cost is Opportunity income or benefits and is given as under:
Decrease in Fixed cost by 30% = $70,000 * 30% $21,000
Now the additional profit that will arise as we can manufacture additional parts of another Product B. This is only possible if we free factory space by purchasing parts of Product A from outsiders. This additional manufacturing of Product B parts will generate profit of $13,000 and thus is a relevant income here. It is also referred to as Opportunity Income.
Opportunity Income $13,000
Total Relevant Cost ($86,000)
DecisionThe cost of option A is lower from Option B by $26000 ($86000 - $60000). Hence the operating income would be higher by $26,000 if the company manufactures in-house rather purchasing 40,000 parts from outsiders.
Option C is correct option here.
Saint Nick Enterprises has 17,500 shares of common stock outstanding at a price of $69 per share. The company has two bond issues outstanding. The first issue has 7 years to maturity, a par value of $1,000 per bond, and sells for 101.5 percent of par. The second issue matures in 21 years, has a par value of $2,000 per bond, and sells for 106.5 percent of par. The total face value of the first issue is $250,000, while the total face value of the second issue is $350,000. What is the capital structure weight of debt
Answer:
total weight of debt = 0.343 or 34.3%
Explanation:
stock's market value = 17,500 x $69 = $1,207,500
bond₁'s market value = $250,000 x 101.5% = $256,750
bond₂'s market value = $350,000 x 106.5% = $372,750
total market value of the firm = $1,837,000
weighted capital structure:
market value weight
stocks $1,207,500 0.657
bond₁ $256,750 0.140
bond₂ $372,750 0.203
total $1,837,000 1
total weight of debt = 0.343 or 34.3%
Consider a country that is operating under a system of flexible exchange rates. If the central bank in this country imposes an expansionary monetary policy, it would be likely to experience:_________
I. a depreciation of its currency;
II. short-term capital outflows;
III. an appreciation of its currency.
Answer:
i a depreciation of its currency;
Explanation:
A flexible exchange rate is when exchange rate is determined by the forces of demand and supply.
an expansionary monetary policy is a policy where the monetary authorities increase the money supply in the economy.
If exchange rate is flexible and an expansionary monetary policy is carried out, the supply of money would exceed its demand. as a result, the value of money would fall. this is known as depreciation
A contractual arrangement between a parent company and an individual or firm that allows them to operate a certain type of business under an established name and according to specific rules is called
Answer:
Franchise
Explanation:
A contractual arrangement between a parent company and an individual or firm that allows them to operate a certain type of business under an established name and according to specific rules is called franchise.
For instance, Mr Biggs could give the authority to an individual or group of people which would enable them to do the same business in another geographical location.
Hence, franchise is a license that allows individuals or group of people knowledge, processes, trademarks to provide a service.
What dividend per share would be reported in the financial press for a stock that currently has 4.5% dividend yield and the most recent stock price was $75
Answer: $3.38
Explanation:
Dividend Yield of a stock refers to the dividend paid by the company expressed in terms of a percentage of the current value of the company's stock.
The Dividend therefore is;
= 75 * 4.5%
= $3.375
= $3.38