Answer:
Inventory turnover= 6.7
Explanation:
Giving the following information:
cost of goods sold= $10,351,500
The average inventory for the year amounted to $1,545,000.
To calculate the inventory turnover, we need to use the following formula:
Inventory turnover= Cost of goods sold/ average inventory
Inventory turnover= 10,351,500 / 1,545,000
Inventory turnover= 6.7
A firm always has a competitive disadvantage when its return on invested capital is:_________
A. 2 percent or lower in a declining industry.
B. declining steadily over two or more years.
C. about the same as its closest competitor.
D. below the industry average.
Answer:
A firm always has a competitive disadvantage when its return on invested capital is:_________
D. below the industry average.
Explanation:
A firm's competitive disadvantage shows when the return on investment is below the industry average. For instance, let us assume that Niposte, Inc. operates in the paper milling industry and that its return on investment of 10% falls below the industry average of 15%, then one can conclude that Niposte, Inc. is not favored in this industry. The cause of such a situation for Niposte, Inc. may be that the ability of its management to turn revenue into profits for stockholders is hampered with excessive costs. This is because the return on investment is a profitability ratio that shows how Niposte, Inc. and its competitors are performing in terms of generating profit from revenue through efficient management of operating costs.
Identify the number of fims present, the type of product, and the appropriate market model in the following scenario.
In a small town, there are four providers of broadband Internet access: a cable company the phone company, and two satellite companies. The Internet access offered by all four providers is of the same speed. Almost everyone in the city already has broadband, so any potential new company would have to engage in a price war with the existing companies and would be unlikely to cover its costs for years, if ever.
Answer:
No of Firms Present - 4 firms / few firms
Type of Product - Standadized Product
All the companies are offering a standadized product of broadband Internet access of the same speed.
Appropriate Market Model - Oligopoly
An Oligopoly is a concentrated market structure where a few firms dominate the market and offer the same products. Gaining entrance into this type of market is considered hard as the existing firms are already very entrenched and dislodging them will require a huge cash outlay. The Broadband internet market in this town is therefore an Oligopoly.
14. Your opportunity cost of funds can be expressed as 6% per year, compounded quarterly. Assume now that the internship pays $8,000 per month (paid at the end of the month.) What is the value today of the salary
Answer:
$7,960.4
Explanation:
Here
Yearly rate is 6% which means that quarterly rate would be 1.5% which is one fourth of yearly rate (6% * 1/4).
Monthly internship is $8,000.
Now by using the present value model, we have:
Present Value = Future Value / (1 + r)^t
Here t will be one third (1/3) as we are calculating the present value of a salary and the rate that we are using is quarterly which means one month is one third of a quarter (1/3).
This Implies that:
Present Value = $8,000 / (1 + 1.5%)^(1/3)
= $7,960.4
Tan Corporation issued $600,000,000 of 7% bonds on November 1, 2015, for $644,636,000. The bonds were dated November 1, 2015, and mature in 10 years, with interest payable each May 1 and November 1. The effective-interest rate is 6%. Prepare Tan’s December 31, 2015, adjusting entry. Use effective rate method of amortization
Answer:
Interest Expense $6,446,360
Interest Payable $7,000,000
Explanation:
Interest Expense for the year =
Issued amount * Effective interest rate * [tex]\frac{Remaining months in the year}{Total months in the year}[/tex]
$644,636,000 * 0.06 * 2/12 = $6,446,360
Interest Payable =
Face Value of the bond * Interest rate * [tex]\frac{Remaining months in the year}{Total months in the year}[/tex]
$600,000,000 * 0.07 * 2/12 = 7,000,000
Pecan Corporation’s controller has just finished preparing a consolidated balance sheet, income statement, and statement of changes in retained earnings for the year ended December 31, 20X4. Pecan owns 60 percent of Sandy Corporation’s stock, which it acquired at underlying book value on May 7, 20X1. At that date, the fair value of the noncontrolling interest was equal to 40 percent of Sandy Corporation’s book value. You have been provided the following information:
Consolidated net income for 20X4 was $271,000.
Sandy reported net income of $70,000 for 20X4.
Pecan paid dividends of $25,000 in 20X4.
Sandy paid dividends of $15,000 in 20X4.
Pecan issued common stock on April 7, 20X4, for a total of $150,000.
Consolidated wages payable increased by $7,000 in 20X4.
Consolidated depreciation expense for the year was $21,000.
Consolidated accounts receivable decreased by $32,000 in 20X4.
Bonds payable of Pecan with a book value of $204,000 were retired for $200,000 on December 31, 20X4.
Consolidated amortization expense on patents was $13,000 for 20X4.
Pecan sold land that it had purchased for $142,000 to a nonaffiliate for $134,000 on June 10, 20X4.
Consolidated accounts payable decreased by $12,000 during 20X4.
Total purchases of equipment by Pecan and Sandy during 20X4 were $295,000.
Consolidated inventory increased by $16,000 during 20X4.
There were no intercompany transfers between Pecan and Sandy in 20X4 or prior years except for Sandy’s payment of dividends. Pecan uses the indirect method in preparing its cash flow statement.
Pecan uses the indirect method in preparing its cash flow statement.
Required:
A. What amount of dividends was paid to the noncontrolling interest during 20X4?
B. What amount will be reported as net cash provided by operating activities for 20X4?
C. What amount will be reported as net cash used in investing activities for 20X4?
D. What amount will be reported as net cash used in financing activities for 20X4?
E. What was the change in cash balance for the consolidated entity for 20X4?
n investor has $100,000 invested in an account that earns 5% annually. The investor wishes to withdraw $12,000 per year. If the investor withdraws $12,000 annually, the account will be fully depleted in:
Answer:
11 years
Explanation:
For computing, the number of years or the account will be fully depleted we need to apply the NPER formula i.e to be shown in the attachment below:
Given that,
Present value = $100,000
Future value = $0
PMT = $12,000
Rate of interest = 5%
The formula is shown below:
= NPER(Rate;PMT;-PV;FV;type)
The present value come in negative
So, after applying the above formula, the number of years in which the account is depleted is 11 years
Schedule of Cash Collections of Accounts Receivable OfficeMart Inc. has "cash and carry" customers and credit customers. OfficeMart estimates that 30% of monthly sales are to cash customers, while the remaining sales are to credit customers. Of the credit customers, 25% pay their accounts in the month of sale, while the remaining 75% pay their accounts in the month following the month of sale. Projected sales for the next three months are as follows: October $133,000 November 166,000 December 243,000 The Accounts Receivable balance on September 30 was $89,000. Prepare a schedule of cash collections from sales for October, November, and December. Round all calculations to the nearest whole dollar.
Answer:
Instructions are below.
Explanation:
Giving the following information:
Sales:
30% on cash
70% on account
Sales on account:
25% in the month of the sale
75% in the following month
October $133,000
November 166,000
December 243,000
The Accounts Receivable balance on September 30 was $89,000.
Cash collection October:
Sales on cash= 133,000*0.30= 39,900
Sales on account from October= (133,000*0.7)*0.25= 23,275
Sales on account September= 89,000
Total cash collection= $152,175
Cash collection November:
Sales on cash= 166,000*0.30= 49,800
Sales on account from October= (166,000*0.7)*0.25= 29,050
Sales on account October= (133,000*0.7)*0.75= 69,825
Total cash collection= $148,675
Cash collection December:
Sales on cash= 243,000*0.30= 72,900
Sales on account from October= (243,000*0.7)*0.25= 42,525
Sales on account October= (166,000*0.7)*0.75= 87,150
Total cash collection= $202,575
One reason for not requiring a balanced federal budget at all times is that with a balanced-budget rule:_________.
a. the distorting features of the tax system are minimized.
b. it is possible to shift the burden of a war from current to future generations.
c. expenditures are not limited because, if the government wants to raise expenditures, it just raises taxes.
d. in a recession the automatic stabilizing powers of our system of taxes and transfers could not work.
Answer:
d. in a recession the automatic stabilizing powers of our system of taxes and transfers could not work.
Explanation:
A balanced government expenditure is when government spending equals government revenue.
most times, the government doesn't have a balanced budget. it either has a surplus or a deficit.
When there is a recession, automatic stabilisers - progressive tax and transfer payment - may not be adequate to lift the economy out of recession. So, the government would have to spend more than it receives from taxes to revive the economy. in this case there would be a deficit
Integrated Potato Chips just paid a $2.7 per share dividend. You expect the dividend to grow steadily at a rate of 6% per year.
Required:
a. What is the expected dividend in each of the next 3 years?
b. If the discount rate for the stock is 12%, at what price will the stock sell today?
c. What is the expected stock price 3 years from now?
Answer:
a.
D1 = $2.862 rounded off to $2.86
D2 = $3.03372 rounded off to $3.03
D3 = $3.2157432 rounded off to $3.22
b.
Price today is $47.7
c.
3 years from now the price will be $56.81
Explanation:
a.
The dividend growth is expected to be constant forever. Thus, the dividend for such a stock will be calculated as follows,
Dn = D0 * (1+g)^n
Where,
D0 is the most recently paid dividendg is the constant growth raten is the number of periods/yearsD1 = 2.7 * (1+0.06)^1 = $2.862 rounded off to $2.86
D2 = 2.7 * (1+0.06)^2 = $3.03372 rounded off to $3.03
D3 = 2.7 * (1+0.06)^3 = $3.2157432 rounded off to $3.22
b.
The constant growth model of DDM will be used to calculate the price of the stock today. The formula for the stock price today under this model is,
P0 = D1 / (r - g)
Where,
r is the required rate of return or discount rateP0 = 2.862 / (0.12 - 0.06)
P0 = $47.7
c.
To calculate the price of the stock 3 years from now, we will use the constant growth model. However, instead of using D1, we will use D4 to calculate the P3 or price 3 years from now.
P3 = 2.7 * (1+0.06)^4 / (0.12 - 0.06)
P3 = $56.81
The income from operations and the amount of invested assets in each division of Beck Industries are as follows: Income from Operations Invested Assets Retail Division $138,000 $690,000 Commercial Division 138,600 770,000 Internet Division 64,500 430,000 Assume that management has established a 10% minimum acceptable return for invested assets. a. Determine the residual income for each division. Retail Division Commercial Division Internet Division Income from operations $138,000 $138,600 $64,500 Minimum acceptable income from operations as a percent of invested assets Residual income $ $ $ b. Which division has the most residual income
Answer:
a. Minimum acceptable income from operations as of 10% of invested assets
Retail Division = $690,000 * 10% = $69,000
Commercial Division = $770,000 * 10% = $77,000
Internet Division = $430,000 * 10% = $43,000
Residual Income = Income from Operation - Minimum acceptable income from operations as of 10 percent of invested assets
Retail Division Residual Income = $138,000 - $69,000
= $69,000
Commercial Division Residual Income = $138,600 - $77,000
= $61,600
Internet Division Residual Income = $64,500 - $43,000
= $21,500
b. Retail Division has the most Residual Income with the amount of $69,000
Alonso T. Corporation uses the weighted-average method in its process costing system. In their first processing department, the company worked on 1,050 equivalent units of production with respect to conversion costs in April. Additional information for April is: Beginning inventory 230 units 40% complete Started 1,345 units Completed and transferred out 700 units Q: The % of completion of the ending inventory in work-in-process with respect to conversion cost is: A: % (enter % amount, not decimal; ex. 22, not 0.22)
Answer:
The % of completion of the ending inventory in work-in-process with respect to conversion cost is: 40%.
Explanation:
First determine the Physical Units of Closing Work In Process
Physical Units of Closing Work In Process Calculation
Physical Units of Closing Work In Process = 230 + 1,345 - 700
= 875
Calculation of Equivalent Units of Production
(To determine Equivalent units of Closing Work In Process)
Conversion Cost
Units Completed and Transferred (700 × 100%) = 700
Units in Closing Work In Process (Balancing figure) = 350
Equivalent Units of Production = 1,050
Percentage Completion = Equivalent Units of Closing Work In Process / Physical Units of Closing Work In Process × 100
= 350 / 875 × 100
= 40%
The % of completion of the ending inventory in work-in-process with respect to conversion cost is: 40%.
Bundy Car Mechanic Inc. uses a job-order costing system. The company applies all of its overhead costs to jobs using a predetermined overhead rate based on direct labor-hours. At the beginning of the year, it made the following estimates:
Direct labor-hours required to support estimated output 46,000
Fixed overhead cost $805,000
Variable overhead cost per direct labor-hour $1.00
During the year, a customer brought in her car for repairs. The following information was available with respect to the car's repairs:
Direct materials $719
Direct labor cost $177
Direct labor—hours used 7
If Bundy sets its selling prices by adding a markup percentage of 30% of its total job cost, then how much would Bundy have charged this customer for her car's repairs?
Answer:
Selling price= $1,336
Explanation:
Giving the following information:
Direct labor-hours required to support estimated output 46,000
Fixed overhead cost $805,000
Variable overhead cost per direct labor-hour $1.00
First, we need to calculate the predetermined overhead rate:
Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Predetermined manufacturing overhead rate= (805,000/46,000) + 1
Predetermined manufacturing overhead rate= $18.5 per direct labor hour
Now, we can calculate the total cost:
Direct materials $719
Direct labor cost $177
Direct labor—hours used 7
Total cost= 719 + 177 + 18.5*7= $1,027.7
Finally, the selling price:
Selling price= 1,027.7*1.3= $1,336
True or False: Your friend thinks that the stock price of KnowItAll Corp. will decline. He decides to write and sell an option without buying the stock. He says that he will buy the stock when his option buyer exercises the option. This is an example of a naked option. This statement is
Answer:
True
Explanation:
In the case of naked options, the seller does not own any stock which is underlying Also the payoff related call option shows the difference between the price of the stock and the strike price
Therefore in the given situation, since he decides to write and sell without purchasing the stock but the purchased could be done when the option is exercised
So by the above explanation, the given statement is true
Assignment Content Potential risk factors are found in every project. Although individual projects have different risks, there are several common risk factors. Create either a list or chart of 5 common potential risks. In 1 to 2 sentences, briefly explain why each of these risks are so common. How are they measured? Why are these important to consider when evaluating an organization’s strategic plan? Submit your list or chart.
Answer and Explanation:
The common risk factors into the project are shown below :-
a. Most of the projects are at risk from the budget. In which the organisation estimates the budget is inaccurate or less for the project.
b. One of the important risk organizations that the project faces is that there is a conflict between the parties concerned. That could affect the project.
c. Technology risks one of the threats, too. Where service outrage interferes with or affects a project.
d. We face the threat of schedule even during the project. Where it's not finishing the project on time. That will improve the company's costs.
e. In the project health and safety is a common threat that each organisation or initiative has to face and make the threat a priority.
All those risks are normal, Since expense, technology, and manpower are important in any project period. That allows us to finish the tasks and how that affects other factors. It can represent a risk to the project.
There are plenty of risks in the project which are normal to some of them. Measuring all of those threats. We need to audit the project in a timely manner by analyzing the project situation and that we can also do a project performance management to evaluate all the project risks.
Understanding these risks can be a powerful and significant consideration for the company in the strategic preparation of the organisation.
Through taking those risks into account. Organization can accurately foresee the potential problems, the project situations.
It should help the company overcome the problem as quickly as possible. That helps save the business time and costs.
If a financial asset has an expected return that is greater than what is necessary to compensate for its risk, what will bring the return back in line with equilibrium
Answer:
what will bring the excess return back in line with equilibrium is a decrease in the expected returns on the asset
Explanation:
Here in the particular question, we are interested in knowing what will bring the return back in line with equilibrium if a financial asset has an expected return greater than what is necessary to compensate for its risk.
What we need to understand is that If the expected return generated by a financial asset is greater than what is required for compensating the asset's risk, the demand for the financial asset will start rising exponentially such that the price of the financial asset will increase
This in subsequently cause a decrease in the expected returns generated by the financial asset. This process will continue till the excess return being generated by the asset stops to exist and the asset's price becomes at par with the asset's risk-return profile
uppose Boyson Corporation's projected free cash flow for next year is FCF 1 = $150,000, and FCF is expected to grow at a constant rate of 6.5%. If the company's weighted average cost of capital is 11.5%, what is the value of its operations?
Answer:
Firm's corporate value is $3,000,000
Explanation:
Future cash flow = $150,000
Expected growth rate 6.5%
Weighted average cost of capital = 11.5%
Therefore, Firm's total corporate value = Future cash flow / Cost of capital - Growth rate
= $150,000 / 11.5% - 6.5%
= $3,000,000
Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills. The information below refers to these assets. What is the expected return on Bo's complete portfolio?
Answer:
The expected return on Bo's complete portfolio will be "10.32%".
Explanation:
The given question is incomplete. Please find attachment of the complete question.
According to the question, the given values are:
Port's expected return,
[tex]R_p=12 \ percent[/tex]
T-bill's expected return,
[tex]R_t=3.6 \ percent[/tex]
Port's weight,
[tex]W_p=80 \ percent \ i.e.,\ 0.80[/tex]
T-bill's weight,
[tex]W_t=20 \ percent \ i.e., \ 0.20[/tex]
Now,
The Bo's complete portfolio's expected return will be:
⇒ [tex]W_p\times R_p+W_t\times R_t[/tex]
On substituting the given values, we get
⇒ [tex]0.80\times 12 \ percent+0.20\times 3.6 \ percent[/tex]
⇒ [tex]10.32 \ percent[/tex]
Note: percent = %
What would you pay for a bond that pays an annual coupon of $70, paid semiannually, par value, matures in 6 years, and has a yield to maturity of 8%
Answer:
Price per bond is $953.77
Explanation:
The price to be paid for the bond can be computed using pv excel function as below:
=-pv(rate,nper,pmt,fv)
rate is the yield to maturity of 8%
nper is number of coupons that the bond would pay i.e 6 annual coupons in 6 years
pmt is the annual coupon of $70
fv is the face value of $1000 by default
=-pv(8%,6,70,1000)=$953.77
Ruritania is calculating its balance of payments for the year. All transactions for the year are listed below (all amounts are expressed in US dollars). Ruritania received weapons worth $200 from the US under its military program; no payment is necessary. A Ruritanian firm exported $400 of cloth. A Ruritanian resident is paid $10 in interest on a loan to a foreigner. Foreign tourists visited Ruritania and spent $100 in traveler’s checks. Ruritanian investors invested $200 overseas and received $50 in interest on the investment that same year. A Japanese construction firm received a $150 installment payment for work done in Ruritania. Calculate Ruritania’s current account (CA) and Financial Account (FA) balances. What change in the official reserve (OR) account is implied such that the balance of payments balances?
Answer:
Ruritania
Calculation of Balance of Payments for the year:
2. Current Account:
Savings from weapons $200
Export of Cloth = $400
Interest received = $10
Foreign tourism = $100
Investment interest = $50
Installment payment = ($150)
Balance in current = $610
2. Financial Account
Foreign investment = ($200)
3. The official reserve account:
Export of Cloth = $400
Interest received = $10
Foreign tourism = $100
Investment interest = $50
Installment payment = ($150)
Foreign investment = ($200)
Balance in OR account $190
The official reserve account would increase by $540 and decrease by $390. So, the change in the official reserve account is $190 balance. Note that the $200 cost savings for weapons is not received as a foreign exchange and as such would not included in the computation of the official reserve balance.
Explanation:
The current account of a Ruritania measures the trade surplus or deficit and other income, and savings.
Ruritania's financial account deals financial assets claims and liabilities, for instance, direct and portfolio investments.
The official reserve account of Ruritania deals with the receipts and payments of foreign exchange. It is part of the capital account.
A $200 petty cash fund has cash of $20 and receipts of $177. The journal entry to replenish the account would include a credit to Group of answer choices Cash for $20 Cash Short and Over for $3 Petty Cash for $190 Cash for $180
Answer: Cash for $180
Explanation:
The Petty Cash balance should be at a certain level necessary to cover petty cash expenses of the company. In this case that amount is $200. $20 is already in cash in the account and so will need to be topped up to get to $200.
= 200 - 20
= $180
$180 will take the balance back to $200. The Cash account would be credited of this $200 and the Petty Cash would be debited.
you texpect to receive a payout from a trust fund in 3 years. The payout will be for $11000. You plan to invest the money at an annual rate of 6.5 percent until the account is worth $19000. how many years do you have to wait from today?
Answer:
11.68 years
Explanation:
For computing the number of years first we have to applied the NPER formula i.e to be shown in the attachment below:
Given that,
Present value = $11,000
Future value = $19,000
Rate of interest = 6.5%
PMT = $0
The formula is shown below:
= NPER(Rate;PMT;-PV;FV;type)
The present value come in negative
So, after applying the above formula, the number of years is 8.68
Now after 3 years, it would be
= 8.68 + 3
= 11.68 years
A pension plan that promises employees a fixed annual pension benefit, based on years of service and compensation, is called a(n)The journal entry a company uses to record accrued vacation privileges for its employees at the end of the year is
Answer:
1. Defined Benefit Plan
2. debit Vacation Pay Expense; credit Vacation Pay Payable
Explanation:
1. With a Defined Benefit Plan, employers promise to pay employees a pension based on factors like years of service and salary. The plan will be sponsored by the employer and will be managed by the company.
2. As the Vacation is an expense, it will need to be debited to an expense account being the Vacation Pay Expense account. It will also be credited to the Vacation Pay Payable to reflect that this is a liability that the company must fulfil.
Which type of data is represented in the following statement? 42% of customers who purchase a warranty plan use the warranty services before the warranty expires
A. Secondary research data
B. Qualitative data
C. Quantitive data
D. Primary research data
The kind of data is represented in the statement mentioned above is Secondary research data. Thus, option A is correct,
What is research?Research is defined as the creation of new knowledge and/or the creative use of pre-existing knowledge to develop original ideas, methods, and comprehensions. This might entail combining and evaluating previous research to develop novel and creative discoveries.
Research questions must be open-ended and not have simple yes-or-no responses or be settled by readily available facts. They should instead demand the writer's investigation and analysis.
Secondary research include summarizing, collating, and/or synthesizing prior findings. Secondary research differs from primary research in that primary research involves data generation, whereas secondary research analyzes data from primary research sources. Therefore, it can be concluded that option (A) is correct.
Learn more about research here:
https://brainly.com/question/8343832
#SPJ5
Answer:
C: Quantitative
Explanation: I say so
You place an order for 1,600 units of Good X at a unit price of $53. The supplier offers terms of 2/30, net 50. a-1. How long do you have to pay before the account is overdue? a-2. If you take the full period, how much should you remit? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b-1. What is the discount being offered? (Enter your answer as a percent.) b-2. How quickly must you pay to get the discount? b-3. If you do take the discount, how much should you remit? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) c-1. If you don’t take the discount, how much interest are you paying implicitly? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) c-2. How many days’ credit are you receiving? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
Answer:
a-1. How long do you have to pay before the account is overdue?
50 daysa-2. If you take the full period, how much should you remit?
if you pay after the discount period (first 30 days) but before the 50th day, you must pay $84,800b-1. What is the discount being offered?
2% if you pay within 30 daysb-2. How quickly must you pay to get the discount?
you have up to 30 days to pay the invoice and still get the discountb-3. If you do take the discount, how much should you remit?
$83,104c-1. If you don’t take the discount, how much interest are you paying implicitly?
$1,696c-2. How many days’ credit are you receiving?
the total credit period is 50 daysTwo co-workers at Nortel came up with an idea for renting software over the Internet. Nortel’s top management liked the idea and set up a special division called Channelware devoted to taking the idea and making a new product. The establishment of a new company and assigning the employees in the division the task of making an idea a reality requires which management function?
Clarissa wants to fund a growing perpetuity that will pay $ 9 comma 000 per year to a local museum, starting next year. She wants the annual amount paid to the museum to grow by 6% per year. Given that the interest rate is 9%, how much does she need to fund this perpetuity?
Answer:
$300,000.00
Explanation:
The present value of a growing perpetuity can be computed using the below present value formula specifically meant for growing annuity:
Present value=cash flow/interest rate-growth rate
cash flow is the initial amount per year which is $9000
interest rate is 9%
growth rate of the annuity payment is 6%
present value=$9000/(9%-6%)=$300,000.00
What would happen in the market for loanable funds if the government were to increase the tax on interest income?
Answer:
Interest rates would rise.
Explanation:
There would be a decrease in the amount of loanable funds borrowed.
if the government were to increase the tax on interest income, a reduction in the amount of funds borrowed would happen because the cost of borrowing would then become higher and people would have to pay more than they would have paid for every amount borrowed
Consider a four-year project with the following information:
initial fixed asset investment = $470,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $30; variable costs = $20; fixed costs = $160,000; quantity sold = 77,000 units; tax rate = 30 percent.
1. What is the degree of operating leverage at the given level of output?
2. What is the degree of operating leverage at the accounting break-even level of output?
Answer and Explanation:
1. The computation of the Degree of operating leverage is
= Quantity sold × (Price - Variable cost) ÷ (Quantity sold × (Price - Variable cost) - Fixed cost)
where,
Fixed cost = $160,000 + $470,000 ÷ 4
= $277,500
Now the degree of operating leverage is
= 77000 × ($30 - $20) ÷ ($77,000 × ($30 - $20) - $277,500)
= 1.56
2. The Accounting Break-even level of output is
The break even point is
= Fixed cost ÷ (Price - Variable cost)
= $277500 ÷ ($30 - $20)
= $27,750
As the degree of operating leverage could not be calculated as the denominator comes to zero
Situational Software Co. (SSC) is trying to establish its optimal capital structure. Its current capital structure consists of 30% debt and 70% equity; however, the CEO believes that the firm should use more debt. The risk-free rate, rRF, is 6%; the market risk premium, RPM, is 7%; and the firm's tax rate is 40%. Currently, SSC's cost of equity is 15%, which is determined by the CAPM. What would be SSC's estimated cost of equity if it changed its capital structure to 50% debt and 50% equity? Round your answer to two decimal places. Do not round intermediate steps. %
Answer:
The estimated cost of equity is 10.3%
Explanation:
Step 1: Find Levered Beta
The CAPM formula would be used here to find the Levered Beta. CAPM formula is given as under:
Ke = Rf + Beta * (MRP - Rf)
Current Cost of Equity of company is ke and is 15%,
Risk free rate is Rf and is 6%
Market risk premium is 7%
15% = 6% + Beta* (7% - 6%)
Levered Beta = 9
Step 2: Find the Unlevered Beta
As we know that existing Debt to Equity ratio is (30 / 70), we can use the following formula to calculate the unlevered beta:
Unlevered Beta = Levered Beta / (1 + (1-t) * D/E)
Simply by putting values, we have:
Unlevered Beta = 1.2 / (1 + (1 - 40%) * 30/70) = 7.16
Step 3: Calculate levered beta on new debt to equity ratio
Now
New Debt to Equity Ratio is 1 (50 / 50)
As we know that:
Levered Beta = Unlevered Beta * (1 + (1-t) * Debt / Equity)
Levered Beta = 7.16 * (1 - 40%) * 1) = 4.3
Step 4: Use CAPM formula to calculate Cost of equity on new gearing
Using CAPM formula, we have:
Ke = Rf + Beta * (MRP - Rf)
Ke = 6% + 4.3 * 1% = 10.3%
The following present value factors are provided for use in this problem. 1 0.9259 0.9259 2 0.8573 1.7833 3 0.7938 2.5771 4 0.7350 3.3121 Cliff Co. wants to purchase a machine for $40,000, but needs to earn an 8% return. The expected year-end net cash flows are $12,000 in each of the first three years, and $16,000 in the fourth year. What is the machine's net present value?
Answer:
$2,685.64
Explanation:
Net present value is the present value of after tax cash flows from an investment less the amount invested.
NPV can be calculated using a financial calculator
Cash flow in year 0 = $-40,000
Cash flow each year from year 1 to 3 = $12,000
Cash flow in year 4 = $16,000
I = 8%
NPV = $2,685.64
To find the NPV using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute