Answer: $106,205
Explanation:
Direct materials purchase-price variance = PPS pounds purchased * (Standard cost per pound - Actual cost per pound)
Standard cost per pound = Direct materials usage variance / [PPS used - (Actual number of units of Flex produced * (Budgeted usage of PPS / Budgeted units for Flex 10))]
= 28,860/ [48,000 - (4,900 * (53,100 / 5,900))]
= $7.40
Actual cost per pound:
= Total actual cost of PPS used / PPS Used
= 266,880 / 48,000
= $5.56
Direct materials purchase-price variance = 57,720 * (7.40 - 5.56)
= $106,205
Dwight Donovan, the president of Fanning Enterprises, is considering two investment opportunities. Because of limited resources, he will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the machine is expected to have a useful life of four years and no salvage value. Project B supports a training program that will improve the skills of employees operating the current equipment. Initial cash expenditures for Project A are $108,000 and for Project B are $48,000. The annual expected cash inflows are $51,270 for Project A and $20,675 for Project B. Both investments are expected to provide cash flow benefits for the next three years. Fanning Enterprises’ desired rate of return is 6 percent. (PV of $1 and PVA of $1) Use appropriate factor(s) from the tables provided.)
A. Compute the net present value of each project. Which project should be adopted based on the net present value approach?
B. Compute the approx. internal rate of return of each project. Which one should be adopted based on the internal rate of return approach?
The net present value of Project A is $29,045.32, and net present value of project B is $22,264.52. The project that should be adopted based on the net present value is project A.
What is net present value?Net present value is the present value of after-tax cash flows from an investment less the amount invested.
a. The net present value of Project A:
= Present value of cash inflows - Initial expenditure
= (51,270 x present value interest factor, 6%, 3 years) - 108,000
= 51,270 x 2.673012 - 108,000
= $29,045.32
The net present value of Project B:
= 20,675 × 2.673012 - 33,000
= $22,264.52
b. Calculation of Internal Rate of Return:-
The IRR has been calculated using the financial calculator.
The IRR of Project A is 16% and that of Project B is 14%.
IRR of project A is more than Project B, which means Project A's return is more than project B. As per IRR Approach Project A is better than Project B.
Therefore, as per IRR and net present value approach Project A should be selected.
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Communication which occurs via a mass
email would fall under which category?
A. a synchronous
C. horizontal
B. vertical
D. synchronous
Mass email communication is considered to be synchronous communication. The correct answer is option (d).
What is synchronous communication?Real-time communication among two or more parties is referred to as synchronous communication. A synchronous communication interaction is essentially a live, interactive conversation between two parties. A continuous and constant timed transmission of data blocks is referred to be synchronous. When a lot of data has to be transported fast from one place to another, these connections are employed.
Synchronous is a generic term used to describe events that take place simultaneously. Face-to-face conversation and video chatting are examples of synchronous communication since they entail real-time back and forth. Instant messaging, video conferencing, and phone calls are synchronous communication examples.
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George has the following capital gains and losses for 2019: $6,000 STCL, $5,000 28% gain, $2,000 25% gain, and $6,000 0%/15%/20% gain. Which of the following is correct: Question 28 options: A) The net capital gain is composed of $6,000 25% gain and $1,000 0%/15%/20% gain. B) The net capital gain is composed of $5,000 28% gain and $2,000 0%/15%/20% gain. C) The net capital gain is composed of $3,000 28% gain, $2,000 25% gain, and $2,000 0%/15%/20% gain. D) The net capital gain is composed of $1,000 28% gain and $6,000 0%/15%/20% gain. E) The net capital gain is composed of $1,000 25% gain and $6,000 0%/15%/20% gain.
Answer:
E) The net capital gain is composed of $1,000 25% gain and $6,000 0%/15%/20% gain.
Explanation:
Calculation to determine what the net capital gain is composed of
Based on the information information given the amount of $6,000 STCL will have to offsets the $5,000 28% gain which is represent the highest tax rate gain while -$1,000 of 25% gain which is the amount that remain as loss will as well offsets the next highest tax rate gain.
Hence
Net capital gain= $6,000 STCL - $5,000 28% gain
Net capital gain= - $1,000 of 25% gain
Therefore the net capital gain is composed of
$1,000 25% gain and $6,000 0%/15%/20% gain.
A firm suffering economic losses decides whether or not to produce in the short run on the basis of whether:_________
a. revenues from operating are sufficient to cover fixed plus variable costs
b. firms suffering economic losses will always shut down
c. Price cover minimum variable costs
d. revenues from operating are sufficient to cover fixed costs
Answer:
C
Explanation:
A firm is making economic losses if opportunity cost is greater than accounting profit.
In the short run, a firm should shut down if price is less than variable cost.
A short run is the period where all the factors of production are fixed
Fixed costs are costs that do not vary with output. e,g, rent, mortgage payments
If production is zero or if production is a million, Mortgage payments do not change - it remains the same no matter the level of output.
Hourly wage costs and payments for production inputs are variable costs
Variable costs are costs that vary with production
If a producer decides not to produce any output, there would be no need to hire labour and thus no need to pay hourly wages.
Selected Balance Sheet Information
Dec. 31, 2019 Dec. 31, 2018
Cash $20,000 $17,500
Accounts receivable 10,500 8,000
Inventory 18,000 21,000
Accounts payable 15,000 10,000
Income taxes payable 1,000 2,500
Burch Company Income Statement
For the year ended December 31, 2019
Sales $250,000
Cost of goods sold (160,000)
Depreciation expense (15,000)
Other expenses (35,000)
Income tax expense (12,000)
Net income $28,000
Required: Compute the net cash flows from operating activities using the indirect method.
Answer:
$47,000
Explanation:
Computation for the net cash flows from operating activities using the indirect method.
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $28,000
Adjustments to reconcile net income to
Net cash provided by operating activities
Depreciation expense $15,000
Increase in Accounts Receivable -$2,500 ($8,000-$10,500)
Decrease in inventory $3,000
($21,000-$18,000)
Increase in accounts payable $5,000
(15000-10000)
Decrease in income taxes payable -$1,500 ($1,000-$2,500)
Net cash flows from operating activities $47,000
Therefore the net cash flows from operating activities using the indirect method is $47,000
Outsourcing (Make-or-Buy) Decision
Assume a division of Hewlett-Packard currently makes 16,000 circuit boards per year used in producing diagnostic electronic instruments at a cost of $27 per board, consisting of variable costs per unit of $22 and fixed costs per unit of $5. Further assume Sanmina Corporation offers to sell Hewlett-Packard the 16,000 circuit boards for $27 each. If Hewlett-Packard accepts this offer, the facilities currently used to make the boards could be rented to one of Hewlett-Packard's suppliers for $25,000 per year. In addition, $3 per unit of the fixed overhead applied to the circuit boards would be totally eliminated. Calculate the net benefit (cost) to HP of outsourcing the component from Samina-SCI.
Answer:
If the company makes the units, it will save $7,000 per period.
Explanation:
Giving the following information:
Make in-house:
Number of units= 16,000
Variable cost per unit= $22
Avoidable fixed cost per unit= $3
Buy:
Number of units= 16,000
Buying price= $27
Rent= $25,000
First, we will determine the total cost of each option:
Make:
Total cost= 16,000*(22 + 3)= $400,000
Buy:
Total cost= 16,000*27 - 25,000= $407,000
If the company makes the units, it will save $7,000 per period.
Which of the following tasks is the project manager least likely to be involved
in?
O A. Monitoring the budget
B. Defining the project scope
C. Documenting important project changes
D. Running project meetings
What was the opening price of Dow Jones Industrial Average on Aug 02, 2017 in the format of XXXXX.XX?
ound Hammer is comparing two different capital structures: An all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 160,000 shares of stock outstanding. Under Plan II, there would be 110,000 shares of stock outstanding and $1.4 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes. a. If EBIT is $400,000, what is the EPS for each plan
Answer:EPS of Plan I = $2.50
EPS of Plan II = $2.75
Explanation:
Plan I Earning per share (EPS) = EBIT ÷ Number of shares
= $400,000 / 160,000 = $2.50
Plan II
Given that
debt outstanding = $1.4 million and interest rate on debt is 7percent
Interest = $1,400,000 × 7% = $98,000
Plan II's EPS= (EBIT - Interest ) ÷ Number of shares
= ($400,000 - $98,000 )/ 110,000
= 302,000/ 110,000=2.75
standards for all managers ethical responsibillities are covered in a companys
Standards for all managers' ethical responsibilities are covered in a company's code of ethics.
Coline has the following capital gain and loss transactions for 2020.
a. Short-term capital gain $6,700
b. Short-term capital loss (2,814)
c. Long-term capital gain (28%) 8,040
d. Long-term capital gain (15%) 2,680
e. Long-term capital loss (28%) (14,070)
After the capital gain and loss netting process, what is the amount and character of Coline's gain or loss?
Answer:
Net short-term capital gain; $536
Explanation:
Calculation to determine the amount and character of Coline's gain or loss
Net short-term capital gain= ([$6,700-$2,814] - [($8,040-$14,070)-$2,680])
Net short-term capital gain= $3,886-$3,350
Net short-term capital gain= $536
Therefore After the capital gain and loss netting process, the amount and character of Coline's gain will be NET SHORT-TERM CAPITAL GAIN of $536
Mountain Springs Water Company has two departments, Purifying and Bottling. The Bottling Department had 2,900 liters in beginning work in process inventory (30% complete). During the period, 59,110 liters were completed. The ending work in process was 5,180 liters (70% completed). All inventories are costed by the first-in, first-out method. What is the total equivalent units for direct materials (using the FIFO method) if materials were added at the beginning of the process?
Answer: 61,390 liters
Explanation:
If materials were added at the beginning, they will be 100% accounted for at the end of the process.
Equivalent Units = Units started and completed + Ending inventory
= Units completed - Beginning WIP + Ending inventory
= 59,110 - 2,900 + 5,180
= 61,390 liters
A bus company believes that its diesel fuel expenses might rise in the coming year and wants to create a hedge against the increase. The current price of diesel fuel is $3.50/gallon, and the company uses 10,000 gallons per month. The company purchased a futures contract for 10,000 gallons of diesel at $3.50/gallon to be delivered in six months. The price of the contract was $250.00. In six months, the spot price of diesel fuel is $3.85/gallon. The bus company accepted delivery of the contract commodity. What was the economic substance of the futures contract
Answer:
The contract produced savings of $3,250
Explanation:
Calculation to determine the economic substance of the futures contract
First step is to calculate the Increased in price of diesel fuel
Increase in diesel fuel price=$3.50/gallon to $3.85/gallon
Increase in diesel fuel price=.35/gallon
Second step is to calculate the amount saved by the firm
Amount saved=$0.35 × 10,000 gallons
Amount saved=$3,500
Now let determine the economic substance of the futures contract
Futures contract economic substance=$3,500 − $250
Futures contract economic substance=$3,250
Therefore the economic substance of the futures contract is $3,250
On January 2, 2021, L Co. issued at face value $22,500 of 2% bonds convertible in total into 1,500 shares of L's common stock. No bonds were converted during 2021. Throughout 2021, L had 1,500 shares of common stock outstanding. L's 2021 net income was $4,500. L's income tax rate is 20%. No potential common shares other than the convertible bonds were outstanding during 2021. L's diluted earnings per share for 2021 would be: Multiple Choice $1.50. $1.62. $1.65. $3.00.
Answer:
L's diluted earnings per share for 2021 would be $1.62.
Explanation:
Amount of increase in net income if bonds are converted = Total value of convertible bonds * Bond rate * (100% - Tax rate) = $22,500 * 2% * (100% - 20%) = $360
Total earnings available to Equity Shareholders = Net income + Amount of increase in net income if bonds are converted = $4,500 + $360 = $4,860
Number of common shares obtainable from convertible bonds = 1,500
Total number of shares outstanding = Number of shares of common stock outstanding during 2021 + Number of common shares obtainable from convertible bonds = 1,500 + 1,500 = 3,000
Diluted earnings per share = Total earnings available to Equity Shareholders / Total number of shares outstanding = $4,860 / 3,000 = $1.62
Marathon Company has 10,000 units of its product that were produced last year at a total cost of $150,000. The units were damaged in a rain storm because the warehouse where they were stored developed a leak in the roof. Marathon can sell the units as is for $2 each or it can repair the units at a total cost of $18,000 and then sell them for $5 each. Should Marathon sell the units as is or repair them and then sell them
Answer: Marathon should repair the units since an income of $12000 will be gotten.
Explanation:
Based on the information given, the following can be deduced:
Revenue when repaired = 10000 × $5 = $50000
Revenue if sold without repair = 10000 × $2 = $20000
Incremental revenue = $50000 - $20000 = $30000
Cost to repair = $18000
Incremental be Income = $30000 - $18000 = $12000
Therefore, Marathon should repair the units since an income of $12000 will be gotten.
There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,265 and is expected to generate the following cash flows: First Year Second Year Third Year Total Alpha Project $32,000 $22,500 $4,500 $59,000 Beta Project 8,000 23,000 27,627 58,627 A. Calculate the internal rate of return on both projects. Use the IRR spreadsheet function to calculate
Answer and Explanation:
The computation of the internal rate of return is shown below:
Year Alpha project Cash flows Beta project Cash flows
0 -$35,265 -$35,265
1 $32,000 $8,000
2 $22,500 $23,000
3 $4,500 $27,627
IRR 42% 25%
2. What was the reasons/motives of each contributors/authors behind developing such management theory
Explanation:
[tex]Cosθ[/tex]
Cos(θ)
hnberg Corporation had 540,000 shares of common stock issued and outstanding at January 1. No common shares were issued during the year, but on January 1, Ahnberg issued 160,000 shares of convertible preferred stock. The preferred shares are convertible into 320,000 shares of common stock. During the year Ahnberg paid $96,000 cash dividends on the preferred stock. Net income was $906,000. What were Ahnberg's basic and diluted earnings per share for the year
Answer: See explanation
Explanation:
Ahnbergs basic earnings per share will be calculated as:
= (Net Income - preferred dividends)/Weighted average shares outstanding
= ($906,000 - $96,000) / 540,000
= $810000 / 540000
= 1.50
The diluted earnings per share will be:
= Total Income - preferred dividends/(outstanding shares + Diluted Shares)
= 906000 / (96000 + 320000)
= 906000 / 416000
= 2.18
Jane plans on making flyers for the church bake sale. But she's running low on printer paper, so she takes home some paper from work to print them out. It's for
a good cause, but is this ethical?
Yes
No
It is not ethical for Jane to take papers from work to print flyers for the church bake sale. While the bake sale may be for a good cause, it is not appropriate for Jane to use resources from her work for personal gain or for the benefit of a third party.
Using company resources for personal or external purposes is generally considered to be a violation of ethical standards and workplace policies. In most cases, employees are expected to use company resources only for business-related purposes, and any personal use is strictly prohibited. This includes using company resources such as office supplies, equipment, and facilities for personal projects or for the benefit of a third party.
In addition to the ethical concerns, there may also be practical considerations to consider. For example, if Jane takes a significant amount of paper from work, it could potentially impact the company's operations or disrupt the workflow of her coworkers.
Overall, it is important for Jane to act responsibly and ethically in her use of company resources. Instead of taking papers from work, it would be more appropriate for her to purchase her own paper or seek permission from her employer before using company resources for personal purposes.
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_______involves streamlining the processes and communications between the buyer and supplier using software applications
Answer:supplier relationship management
Explanation:
Supplier relationship management concerns facilitating the operations and communications between the buyer and supplier using software applications.
What is supplier relationship management?Supplier relationship management (SRM) is the method of determining the providers or suppliers that are essential to a business and executing a system of managing connections with those critical suppliers.
The objective of SRM is to increase the importance of supplier connections and to streamline acquisition processes. Without an adequate SRM technique, buyers risk cut off supply chains, etc.
Therefore, Supplier relationship management is concerned with the facilitation of operations and communication between the buyers and the suppliers.
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(a) List the main functions of CU and ALU. [4]
(b) Write the logical steps taken by a computer system along with the roles of
its main units in each step while transforming input data to useful
information.
Answer:Controlling and arithematic operations
Explanation:
a) The main functions of the Control Unit (CU) and Arithmetic and Logic Unit (ALU) in a computer are:
Control Unit: The CU is responsible for controlling the overall operation of the computer. It fetches instructions from memory, decodes them, and then activates the necessary circuits to execute the instructions.
Arithmetic and Logic Unit: The ALU is the part of the computer that performs arithmetic and logical operations. It can add, subtract, multiply, and divide numbers, as well as perform logical operations such as AND, OR, and NOT.
b) Here are the logical steps taken by a computer system, along with the roles of its main units, in transforming input data to useful information:
Input: The input data is entered into the computer through some type of input device, such as a keyboard or a scanner.
Storage: The input data is stored in the computer's memory (e.g., RAM or hard drive) for processing.
Processing: The Control Unit fetches instructions from memory and decodes them. It then activates the necessary circuits in the Arithmetic and Logic Unit to perform the required operations on the input data.
Output: The processed data is sent to some type of output device, such as a display or printer, for presentation to the user.
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Kelly’s Kites began operations on 1/1/11. When preparing her budget for 2012, Kelly estimated in January that she would sell 5,000 kites to local beach shops, for $10 per kite. She estimated that sales would increase 5% each month from the prior month. All sales are made to the local beach shops on credit. Kelly estimates that 50% of the sales will be collected within the same month of the sale, 40% will be collected the following month, and 10% will be collected two months after the sale. Sales in November, 2011 were 3,500 kites, and in December 2011 were 4,000 kites.
a. Prepare the sales budget for the 1st quarter of 2012.
b. Prepare the cash receipts budget for the 1st quarter of 2012.
Answer:
Total sales for the Quarter1 is $157,630
Total cash receipts for Quarter1 is $148,315
Explanation:
SALES BUDGET
Jan Feb Mar Q1
Budgeted Sales units 5,000 5,250 5,513 15,763
Selling price per unit 10 10 10 10
Total Sales 50,000 52,500 55,130 1,57,630
EXPECTED CASH COLLECTIONS
Jan Feb Mar Q1
Nov month sales 3,500 3,500
Dec month sales 16000 4000 20000
Jan Month sales 25,000 20000 5000 50,000
Feb month sales 26250 21000 47,250
March month sales 27565 27,565
Total Cash Collections 44,500 50,250 53,565 1,48,315
A pen producer in a monopolistically competitive market recently changed ink suppliers which caused a decrease in total cost of production. Using the data collected below, which includes the firm's new cost schedule, what should this firm set price and quantity at to maximize profits on pen sales?
Costs of Production for Boxes of Pens
Price Quntity Total Revenue Total Cost Marginal Revenue Marginal Cost
$16 0 $50
$15 50 $750 $700 $15 $13
$14 100 $1,400 $1,350 $13 $12
$13 150 $1,950 $1,850 $11 $11
$12 200 $2,400 $2,350 $9 $10
$11 250 $2,750 $2,800 $7 $9
$10 300 $3,000 $3,200 350 $3 $7
Answer:
The firm should set price at $13 per pen and quantity at 150 to maximize profits on pen sales.
Explanation:
a) Data and Analysis:
Price Quantity Total Total Cost Marginal Marginal
Revenue Revenue Cost
$16 0 $50
$15 50 $750 $700 $15 $13
$14 100 $1,400 $1,350 $13 $12
$13 150 $1,950 $1,850 $11 $11
$12 200 $2,400 $2,350 $9 $10
$11 250 $2,750 $2,800 $7 $9
$10 300 $3,000 $3,200 $3 $7
b) The monopolistic competitor's profit-maximizing price and quantity will be at the point where the marginal revenue equals the marginal cost. In other words, producing 150 pens and selling each for $13, where MC = MR, the producer will maximize its profit.
Campbell Co. has net sales revenue of $1,340,000, cost of goods sold of $760,900, and all other expenses of $299,000. The beginning balance of stockholders' equity is $409,000 and the beginning balance of fixed assets is $370,000. The ending balance of stockholders' equity is $609,000 and the ending balance of fixed assets is $398,000. The fixed asset turnover ratio is closest to:
Answer:
3.50
Explanation:
Given the information above, we need to find first the Average fixed assets.
Average fixed assets = Fixed assets beginning balance + Fixed assets ending balance / 2
= ($370,000 + $398,000) / 2
= $384,000
Then , the fixed assets turnover will be calculated as;
Fixed assets turnover = Net revenue / Average net fixed assets
= $1,340,000 / $384,000
= 3.50
Therefore, Campbell Co. Fixed asset turnover ratio would be 3.50
Vijay Inc. purchased a three-acre tract of land for a building site for $310,000. On the land was a building with an appraised value of $125,000. The company demolished the old building at a cost of $12,600, but was able to sell scrap from the building for $1,610. The cost of title insurance was $880 and attorney fees for reviewing the contract were $410. Property taxes paid were $3,000, of which $170 covered the period subsequent to the purchase date. The capitalized cost of the land is:
Answer:
See below
Explanation:
Given the above information, the capitalised cost of the land is computed as seen below;
Alison's dress shop buys dresses from McGuire Manufacturing. Alison purchased dresses from McGuire on July 17 and received an invoice with a list price amount of $6,000 and payment terms of 1/10, n/30. Alison uses the net method to record purchases. Alison should record the purchase at: Group of answer choices
Answer:
$5,940
Explanation:
Purchase under Net method:
= Gross profit - Discount
= $6,000 - (1% of $6,000)
= $6,000 - $60
= $5,940
Therefore, Alison should record the purchase at $5,940.
Dextra Computing sells merchandise for $5,000 cash on September 30 (cost of merchandise is $3,000). Dextra collects 8% sales tax. Record the entry for the $5,000 sale and its sales tax. Also record the entry that shows Dextra sending the sales tax on this sale to the government on October 15.
Record the cash sales and 8 % sales tax
Answer:
Date General Journal Debit Credit
Sep 30 Cash $5,400
Sales $5,000
Sales taxes payable $400 ($5,000 * 8%)
Sep 30 Cost of goods sold $3,000
Merchandise inventory $3,000
Oct. 15 Sales taxes payable $400
Cash $400
Exxon has the following capital structure: the firm issued 6 million shares of common stock with the stock price in c), the firm also issued 1.5 million shares of preferred stock with $4.5 preferred dividend per share, currently, Exxon has $25 millions in debts with interest rate as 6.5%. Suppose the current preferred stock price is $6 per share and the current common stock price is as in question (c), and the corporate tax rate is 25%. What is the (after-tax) weighted average cost of capital for Exxon
Answer: some data is missing but I was able to find it online and that helped me resolve the problem .
answer : WACC = 15.76%
Explanation:
Given that the common stock price = $9 ( as seen in option C not attached above )
value of common stock = $9 * 6 * 10^6 = $54,000,000
cost of common equity = 10.93%
current preferred stock price = $6
value of preferred stock = $6 * 1,500,000 = $9,000,000
hence the cost of the preferred equity = $4.5 / $6 = 0.75 = 75%
interest rate of debts = 6.5%
value of debit = $25,000,000
Corporate tax rate = 25%
∴ The cost of the debit after tax = 6.5% * ( 1 - 25)% = 4.88%
The Total value = value of common stock + value of preferred stock + value of debit
= 54,000,000 + 9,000,000 + 25,000,00 = $88,000,000
Finally the weighted average cost of capital ( WACC )
[weight of debt * cost of debt after tax ] + [ weight of common equity * cost of common equity ] + [weight of preferred * cost of preferred ]
= [ (25/88) * 4.875 ] + [(54/88) * 10.933] + [ (9/88) * 75 ]
= 15.76%
Presented below is information related to Vaughn Company. Cost Retail Beginning inventory $252,960 $281,000 Purchases 1,368,000 2,097,000 Markups 93,700 Markup cancellations 15,700 Markdowns 36,900 Markdown cancellations 4,900 Sales revenue 2,243,000 Compute the inventory by the conventional retail inventory method. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answer to 0 decimal places, e.g. 28,987.) Ending inventory using conventional retail inventory method $enter the dollar amount of the ending inventory using conventional retail inventory method
Answer:
Conventional Retail Method
Cost Retail Cost to Retail ratio
Beginning Inventory 252,960 281,000
Add: Net Purchases 1,368,000 2,097,000
Add: Net Markups 78,000
2,456,000
Cost-to-retail Percentage 66.00% (1620960/2456000)
Less: Net Markdowns -32,000
Goods Available for Sale 1,620,960 2,424,000
Less: Net Sales -2,243,000
Estimated Ending Inventory at Retail $181,000
Estimated Ending Inventory at Cost = $181,000*66% = $119,460
Wizard Corp. needs to take out a one-year bank loan of $600,000 and has been offered loan terms by two different banks. One bank has offered a simple interest loan of 10% that requires monthly payments. The loan principal will be paid back at the end of the year. Another bank has offered 7% add-on interest to be repaid in 12 equal monthly installments.
Based on a 360-day year, what will be the monthly payment for each loan for November?
Value
Simple interest monthly payment 58,850.00
Add-on interest monthly payment 48,150.00
42,800.00
53,500.00
Choose the answer that best evaluates the following statement:
A bank loan officer has been approached by a start-up company that needs a five-year loan to purchase the equipment for its first project. The project will have a life of five years. At the end of five years, the equipment will be worthless. The founders of the company told the loan officer that they would be willing to pay a much higher interest rate on a simple interest loan rather than contracting to an add-on interest loan.
A. The loan officer should offer the company an add-on interest loan because there is a high risk that the company will not be able to repay the principal on the loan at the end of the project's life.
B. The loan officer should offer the company a simple interest loan. The bank will make more money in the long run, because it can charge a much higher interest rate.
Answer: a. $53500
b. A. The loan officer should offer the company an add-on interest loan because there is a high risk that the company will not be able to repay the principal on the loan at the end of the project's life.
Explanation:
a. Based on a 360-day year, the monthly payment for each loan for November will be:
Principal = $600,000
Interest rate = 10%
Simple interest = (P×R×T)/100
= (600000 × 10× 1) /100
= $60000
The simple interest per month which will also be thesame for Novemeber will be:
= 60000/12
= $5000
Since add on interest is 7%, then the interest will be:
= 7% × $600,000
= 0.07 × $600,000
= $42000
Therefore, the interest for month of November will be:
=(600000 +42000)/12
= $642000 / 12
= $53500
b. The answer that best evaluates the statement given is option B. It should be noted that since it's a startup company, there may be challenges in repaying the loan. Therefore, the best scenario will be that the loan should be given on add on interest basis.