The Sisyphean Company has a bond outstanding with a face value of $ 1 comma 000$1,000 that reaches maturity in 1515 years. The bond certificate indicates that the stated coupon rate for this bond is 8.98.9% and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is 7.67.6%, then the price that this bond trades for will be closest to:
Answers
Answer:
$1,108.51
Explanation:
For computing the price of the bond we need to apply the present value formula i.e to be shown in the attachment below:
Given that,
Future value = $1,000
Rate of interest = 7.67% ÷ 2 = 3.835%
NPER = 15 years × 2 = 30 years
PMT = $1,000 × 8.9% ÷ 2 = $44.5
The formula is shown below:
= -PV(Rate,NPER,PMT,FV,type)
So, after applying the above formula, the price of the bond is $1,108.51
Related Questions
Baseball Corporation is preparing its cash budget for January. The budgeted beginning cash balance is $19,100. Budgeted cash receipts total $188,500 and budgeted cash disbursements total $190,200. The desired ending cash balance is $31,100. To attain its desired ending cash balance for January, the company should borro
Answers
Answer: $13,700
Explanation:
From the question, we are informed that Baseball Corporation is preparing its cash budget for January. The budgeted beginning cash balance is $19,100. Budgeted cash receipts total $188,500 and budgeted cash disbursements total $190,200. The desired ending cash balance is $31,100.
To attain its desired ending cash balance for January, the company should borrow $13,700.
The solution has been attached.
A small town is served by many competing supermarkets, which all have the same constant marginal cost. Use the black point (plus symbol) to show the competitive price and quantity in this market. Then use the green area (triangle symbol) to shade the area representing consumer surplus in the market for groceries, and use the purple area (diamond symbol) to shade the area representing producer surplus.
Answers
Answer and Explanation:
From the diagram in the picture (please find attached) we see that the competitive price and quantity lies at the marginal cost( which the producer cannot go below). The consumer surplus lies just below the demand curve(the downward sloping curve with) and the producer surplus is above the marginal cost. Note the producer surplus is the difference between what the supplier is willing to sell and how much he actually sells, the marginal cost is the lowest the supplier would want to sell. This applies to the consumer surplus too
The producer surplus region was indicated with vertical strokes in the diagram attached
Assume that Denis Savard Inc. has the following accounts at the end of the current year. 1.Common Stock14.Accumulated Depreciation-Buildings. 2.Discount on Bonds Payable.15.Cash Restricted for Plant Expansion. 3.Treasury Stock (at cost).16.Land Held for Future Plant Site. 4.Notes Payable (short-term).17.Allowance for Doubtful Accounts. 5.Raw Materials18.Retained Earnings. 6.Preferred Stock (Equity) Investments (long-term).19.Paid-in Capital in Excess of Par-Common Stock. 7.Unearned Rent Revenue.20.Unearned Subscriptions Revenue. 8.Work in Process.21.Receivables-Officers (due in one year). 9.Copyrights.22.Inventory (finished goods). 10.Buildings.23.Accounts Receivable. 11.Notes Receivable (short-term).24.Bonds Payable (due in 4 years). 12.Cash.25.Noncontrolling Interest. 13.Salaries and Wages Payable. Prepare a classified balance sheet in good form
Answers
Answer:
Denis Savard Inc
Classified Balance sheet
Amount$ Amount$ Amount$
Assets
Current Assets
Cash xxx
Less Cash Restricted for Plant xxx xxx
Expansion
Accounts Receivable xxx
Less Allowance for Doubtful debt xxx xxx
Notes Receivable xxx
Receivables-Officers xxx
Inventory
Finished goods xxx
Work in Process. xxx
Raw Materials xxx xxx
Total Current Assets xxx
Stockholders Equity
Common Stock xxx
Add Paid-in Capital in Excess of xxx
Par-Common Stock.
Total paid in capital xxx
Add Retained Earnings. xxx
Total paid in capital and retained earnings xxx
Less Treasury Stock (at cost) xxx
Total Stockholders Equity xxx
Total Liability and Stockholders Equity xxx
Liability and Stockholders Equity
Current Liability
Salaries and Wages Payable. xxx
Unearned Subscriptions Revenue. xxx
Unearned Rent Revenue. xxx
Total Current Liability. xxx
Long term liabilities
Bonds Payable (due in 4 years) xxx
Less Discount on Bonds Payable xxx xxx
Total Long term liabilities. . xxx
Long term Investment
Preferred Stock (Equity) Investments. xxx
Land Held for Future Plant Site.. xxx
Cash Restricted for Plant Expansion. xxx
Total Long term Investment. xxx
Property, Plants and Equipment
Building. xxx
Less Accumulated Depreciation xxx xxx
- Buildings
Total Property, Plants and . xxx
Equipment
Intangible Assets
Copyrights. . xxx
Total Intangible Assets. . xxx
Total Assets. . xxx
What must be the first cost of Alternative B to make the two alternatives equally attractive economically at an interest rate of 8% per year
Answers
Answer:
The answer is "21,622.98".
Explanation:
In the given question some information is missing, which can be defined in the given attachment.
To calculate the first cost we first subtract B cost is to X.
NPV = Cash Flow of the sum of PV amount
[tex]PV = \frac{Flow of cash} {(1+i)^n} \\\\ \ Calculating \ the \ NPV \ of \ option \ A: \\\\[/tex]
[tex]= \frac{-16600}{(1 + 0.08)^0}-\frac{2400}{(1 + 0.08)^1}-\frac{2400}{(1 + 0.08)^2} -\frac{2400}{(1 + 0.08)^3}-\frac{2400}{(1 + 0.08)^4}[/tex]
[tex]= \frac{-16600}{1}-\frac{2400}{1.08}-\frac{2400}{1.16}-\frac{2400}{1.25}-\frac{2400}{1.36}[/tex]
[tex]=-16600-2222.22-2068.96-1920-1764.70\\\\=-24,575.88[/tex]
The value of Option A or NPV = -24,575.88
The value of Option B or NPV:
[tex]=-\frac{X}{(1 + 0.80)^0}-\frac{1000}{(1 + 0.08)^1} -\frac{1000}{(1 + 0.08)^2}-\frac{1000}{(1 + 0.08)^3}-\frac{1000}{(1 + 0.08)^4} \\\\ =-\frac{X}{(1.80)^0}-\frac{1000}{(1.08)^1} -\frac{1000}{(1.08)^2}-\frac{1000}{(1.08)^3}-\frac{1000}{(1.08)^4}[/tex]
[tex]= -\frac{X}{1}-\frac{1000}{1.08}-\frac{1000}{1.16}-\frac{1000}{1.25}-\frac{1000}{1.36}\\\\= -X -555.55-862.06-800-735.29\\\\=-X -2952.9[/tex]
The value of Option B or NPV = -X -2952.9
As demanded
In Option B the value of NPV = In Option A the value of NPV
[tex]-X -2952.9= -24,575.88\\\\-X= -21,622.98\\\\X=21,622.98\\[/tex]
The payroll clerk and the purchasing agent working for a factory are not technically part of the manufacturing industry. True False
Answers
Answer:False
Explanation:
It wouldn’t run with out them
BPR is part of the larger discipline of ________, which consists of methods, tools, and technology to support and continuously improve business processes.
Answers
Answer:
Business process management.
Explanation:
Business process re-engineering (BPR) is part of the larger discipline of business model optimization, which consists of methods, tools, and technology to support and continuously improve business processes.
The main purpose of business process re-engineering (BPR) is to remove any unnecessary process which does not add value to a business, then to simplify and automate other processes left so as to reduce costs, cycle time, and labor.
Hence, this would ensure that the business is running smoothly without any downtime, backlogs or inefficiency.
Annual Worth and Capital Recovery Calculations U S. Steel is considering a plant expansion to produce austenitic, precipitation hardened, duplex, and martensitic stainless steel round bars that is expected to cost $13 million now and another $10 million 1 year from now. If total operating costs will be $1.2 million per year starting 1 year from now, and the estimated salvage value of the plant is virtually zero, how much must the company make annually in years 1 through 10 to recover its investment plus a return of 15% per year?
Answers
Answer:
$5,601,632
Explanation:
we must first calculate the present value of the required investments and the annual costs:
initial investment = $13,000,000 + $10,000,000/1.1 = $22,090,909
annual costs = $1,200,000 x 5.0188 (PV annuity factor, 15%, 10 periods) = $6,022,560
present value of initial investment + annual costs = $28,113,469
we must calculate an annuity that has a present value = $28,113,469 with a 15% discount rate and 10 years:
annuity = $28,113,469 / 5.0188 = $5,601,631.67 ≈ $5,601,632
Neutrino Industries stock trades at $49 per share and there are 120 million shares outstanding. The management would like to raise $400 million in an SEO. If the underwriter charges 6% of gross proceeds, how many shares must it sell?
Answers
Answer:
Neutrino Industries must sell 8.68 million shares to raise $400 million.
Explanation:
To calculate this, let B represents the number of shares Neutrino Industries must sell. Therefore, we have:
Gross proceeds = $49 * B, or $49B
Underwriter charges = 6% * $49B = $2.94B
To raise $400 million, we deduct the underwriter charges from gross proceeds and solve for B as follows:
$49B – $2.94B = $400,000,000
$46.06B = 400,000,000
B = 400,000,000 / 46.06
B = 8,684,324.79 shares, or 8.68 million shares.
Therefore, Neutrino Industries must sell 8.68 million shares to raise $400 million.
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
Answers
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
Part 1 Household consumption, which accounts for about _______% of the economy, grew at a 4.2% annualized rate during the second quarter of 2016.
Part 2 Which component of GDP would cause the largest increase in GDP if it increased by 5%
Answers
Answer:
1) Household consumption, which accounts for about 68%* of the economy, grew at a 4.2% annualized rate during the second quarter of 2016.
*Data obtained from federal government sources.
2) Since household/consumer spending (consumption) represents almost 70% of the nation's GDP, any change will cause a major change in the total GDP. E.g. if consumption increases by 5%, then the whole economy will grow by 5% x 68% = 3.4%.
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.
Answers
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.
A cafeteria serving line has a coffee urn from which customers serve themselves. Arrivals at the urn follow a Poisson distribution at the rate of 3.0 per minute. In serving themselves, customers take about 14 seconds, exponentially distributed. a. How many customers would you expect to see, on average, at the coffee urn? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Answers
Answer: 3 customers.
Explanation:
Given the following :
Arrival rate of customers = 3 customers per minute
Service time = 14 seconds
Then if service time is 14 seconds, the service rate per minute will be 60/14 = 4.29 = 4 (nearest whole number)
Service rate = 4 customers per minute.
Number of customers at coffee urn(Nc) :
Nc = (arrival rate) /(service rate - arrival rate)
Nc = (3) / (4 - 3)
Nc = 3 / 1
Nc = 3
Therefore, average number of customers expected at coffee urn = 3
The employer amount of FICA taxes that Red Mountain is required to pay is equal to the amount that it withholds from its employees. Assume no other payroll taxes are incurred at this time. What is Red Mountain's total expense with regards to this payroll
Answers
Answer:
$189,000
Explanation:
The computation of total expense with regards to this payroll is shown below:-
Total expense = Salaries and wages earned by employees + Employer's portion of FICA taxes
= $180,000 + $9,000
= $189,000
Therefore for computing the total expenses with regards to this payroll we simply applied the above formula and we ignore all other values as they are not relevant.
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
Answers
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
Oriole Company had $197,000 of net income in 2019 when the selling price per unit was $152, the variable costs per unit were $90, and the fixed costs were $571,800. Management expects per unit data and total fixed costs to remain the same in 2020. The president of Oriole Company is under pressure from stockholders to increase net income by $99,200 in 2020.
Required:
a. Compute the number of units sold in 2019.
b. Compute the number of units that would have to be sold in 2020 to reach the stockholders’ desired profit .
c. Assume that Oriole Company sells the same number of units in 2020 as it did in 2019. What would the selling price have to be in order to reach the stockholders’ desired profit level?
Answers
Answer:
Instructions are below.
Explanation:
Giving the following information:
Net income= $197,000
Selling price per unit= $152
Unitary variable cost= $90
Fixed costs= $571,800
Desired profit= 99,200 + 197,000= $296,200
First, we need to calculate the number of units sold:
Contribution margin per unit= 152 - 90= $62
Total contribution margin= net income + fixed costs
Total contribution margin= 197,000 + 571,800= $768,800
Units sold= total contribution margin / unitary contribution margin
Units sold= 768,800/62= 12,400 units
Now, to determine the number of units to be sold, we need to use the following formula:
Break-even point in units= (fixed costs + desired profir) / contribution margin per unit
Break-even point in units= (571,800 + 296,200) / 62
Break-even point in units= 14,000 units
Finally, we need to determine the selling price for 12,400 units and the desired profit of $296,200.
12,400= 868,000 / (selling price - 90)
-1,116,000 + 12,400selling price= 868,000
12,400 selling price = 1,984,000
selling price= $160
The "added worker" effect would cause the labor force to __________ during a recession. Group of answer choices increase decrease remain unchanged either increase or decrease
Answers
Answer: Increase
Explanation:
The Added Worker effect refers to a scenario where more family members typically women, enter the job market when the principal breadwinner in the household becomes unemployed. This is done to increase the income streams of the household to cushion the effect of the breadwinner becoming unemployed.
In a recession, more people will lose jobs so more members of a family will join the job market looking to give their households more income streams so the labor force will increase in size.
You are scheduled to receive $35,000 in two years. When you receive it, you will invest it for 6 more years at 7 percent per year. How much will you have in 8 years?
Answers
Answer:
$52,526
Explanation:
In two years i have $35,000.
the amount invested thus the Principle amount is $35,000
Pv = $35,000
r = 7 %
PMT = $0
n = 6
Fv = ?
Note that The 8 th year is the sixth year of this investment.
FV = PV × (1 + r) n
= $35,000 × ( 1 + 0.07) 6
= $52,525.56
= $52,526
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.)
Answers
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 daysA 4% loan of $20,000 is to be repaid by level annual installments. The principal in the 4th installment is $450. Find the amount of each installment.
Answers
Answer:
Explanation:
Please note that this question we have to do by hit and trail method. Every annual payment has 2 components,
Interest and Principal repayment
Interest is higher at the beginning and principal repayment is lower. We have not been given the time for the loan.
So i will tell you how to calculate the Total annual installment by hand
and then we will make table of payments to see if we are getting 450 principal repayment in month 4
We will do 3-4 iterations to get the answer
Loan Amount = 20,000
Rate = 4%
Principal repayment in year 4 = 450
Let say time = n years
Annual installment = Loan amount * ( rate * ( 1+rate ) ^n ) / ( ( 1 + rate ) ^n -1 )
assume n = 25 years
Annual installment = 20,000 * ( 0.04* ( 1.04 ) ^ 25 ) / ( ( 1.04 ) ^25 -1 ) = 1280.24
Banks often estimate inflation. You can see what they think inflation will be if you know how much they charge for loans and how much they expect to earn. Suppose the nominal interest rate is 7% and the real interest rate is 2%. Given these interest rates, the bank thinks inflation will be_________ %
Answers
Answer:
5%
Explanation:
To find the answer, we use the Nominal Interest Rate formula:
Nominal Interest Rate = Real Interest Rate + Inflation Rate
Now, we plug the amounts into the formula, and confirm that the answer is correct:
7% = 2% + 5%
As we can see, the nominal interest rate is the sum of the real interest rate and the inflation rate. Therefore, banks will estimate the nominal interest rate taking into account the expected inflation rate.
Absolute Manipulation Manufacturing's (AMM) standards anticipate that there will be 4 pounds of raw material used for every unit of finished goods produced. AMM began the month of May with 3,500 pounds of raw material, purchased 18,700 pounds for $16,830 and ended the month with 1,900 pounds on hand. The company produced 4,700 units of finished goods. The company estimates standard costs at $1.30 per pound. The materials price and efficiency variances for the month of May were:
Answers
Answer:
Instructions are below.
Explanation:
Giving the following information:
Standard:
Quantity= 4 pounds per unit
Cost= $1.3 per pound
Actual:
Purchase= 18,700
Used= 3,500 + 18,700 - 1,900= 20,300
Cost= 16,830/18,700= $0.9 per pound
Units produced= 4,700 units
To calculate the direct material price and quantity variance, we need to use the following formulas:
Direct material price variance= (standard price - actual price)*actual quantity
Direct material price variance= (1.3 - 0.9)*18,700
Direct material price variance= $7,480 favorable
Direct material quantity variance= (standard quantity - actual quantity)*standard price
Direct material quantity variance= (4*4,700 - 20,300)*1.3
Direct material quantity variance= $1,950 unfavorable
When a manager uses relationships and formal authority to cause other people in the organization to change their behavior, the manager is _____________.
Answers
Answer:
answer choices?
Explanation:
what are the answer choices
Ted failed to disaffirm a contract during his minority or within a reasonable time after reaching majority. The contract was automatically:
Answers
Answer:
Ratified
Explanation:
Bagwell's net income for the year ended December 31, Year 2 was $175,000. Information from Bagwell's comparative balance sheets is given below. Compute the cash paid for dividends during Year 2. At December 31 Year 2 Year 1 Common Stock, $5 par value $500,000 $450,000 Paid-in capital in excess of par 948,000 853,000 Retained earnings 688,000 582,000 A. $95,000. B. $201,000. C. $69,000. D. $79,000. E. $50,000.
Answers
Answer:
C. $69,000
Explanation:
Computation of the cash paid for dividends during Year 2
First step is to calculate the difference in Retained earnings for Year 2 and Year 1
Retained earnings =$688,000-$582,000
Difference in retained earnings =$106,000
Second step is to calculate for the cash paid for dividends during Year 2
Using this formula
Cash paid dividend = Year 2 Net income- Retained earnings difference
Let plug in the formula
Cash paid dividend=$175,000-$106,000
Cash paid dividend =$69,000
Therefore the cash paid for dividends during Year 2 will be $69,000
You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 2 million shares of stock. Since then, you have sold an additional 1 million shares of stock to angel investors. You are now considering raising capital froma venture capital firm. This venture capital firm would invest $6 million and would receive 3 million newly issued shares in return.
Suppose you sold the 1 million shares to the angel investor for $500,000. What was the post-money valuation of your shares immediately following the angel investor's investment?
A. 1.0$ million
B. 500,000$
C. 2.5$ million
D. 2.0$ million
Answers
Answer:
A. $1.0 million
Explanation:
total shares outstanding immediately after you sold stocks to the angel investors = 2 million (your own) + 1 million (angel investors) = 3 million
the angel investors paid $500,000 for 1 million stocks, that means that your 2 million shares are worth twice as much = $500,000 x 2 = $1,000,000
the company's total value = $1,000,000 + $500,000 = $1,500,000
Under a job-order costing system, the dollar amount transferred from Work in Process to Finished Goods is the sum of the costs charged to all jobs:___________.
A) started in process during the period.
B) in process during the period.
C) completed and sold during the period.
D) completed during the period.
Answers
Answer:
D) completed during the period.
Explanation:
The jobs that have been completed are transferred from Work In Process Account to the Finished Goods Inventory Account.
It is from this Finished Goods Inventory that the Cost of Sales would be determined for those jobs sold.
The Mixing Department of Complete Foods had 62,000 units to account for in October. Of the 62,000 units, 38,000 units were completed and transferred to the nest department, and 24,000 units were 20% complete. All of the materials are added at the beginning of the process. Conversion costs arc added evenly throughout the mixing process and the company uses the weighted-average method.
Compute the total equivalent units of production for direct materials and conversion costs for October.
Answers
Answer:
The total equivalent units of production are as follows:
For direct materials = 62,000 units
For conversion costs = 42,000 units
Explanation:
These can be computed by preparing statements of equivalent units as follows:
Statement of Equivalent Units (EU) (Weighted average)
For October
For Materials
Particulars Units (a) Complete (%) (b) EU (c = a * b)
Transferred 38,000 100% 38,000
Ending WIP 24,000 100% 24,000
Total 62,000 62,000
Statement of Equivalent Units (EU) (Weighted average)
For October
For Conversion Costs
Particulars Units (a) Complete (%) (b) EU (c = a * b)
Transferred 38,000 100% 38,000
Ending WIP 24,000 20% 4,800
Total 62,000 42,000
Conclusion
The total equivalent units of production are as follows:
For direct materials = 62,000 units
For conversion costs = 42,000 units
A university bookstore buys mechanical pencils from a wholesaler. The wholesaler offers discount for large order quantity per shipment according to the following price schedule:
Order Quantity Price Per Unit
1 to 200 $4.00
201 to 1,000 $3.60
1,001 to 2,000 $3.40
2,001 and greater $3.25
The bookstore expects an annual demand of 2,500 units. It costs $10 to place an order, and the annual cost of holding a unit in stock is 30% of the unit’s procurement price. Determine the best order quantity.
Answers
Answer:
226 units
Explanation:
Formula : [tex]\sqrt{\frac{2 * Annual Demand * Ordering Cost}{Holding Cost}[/tex]
[tex]\sqrt{\frac{2*2500*10}{0.3*3.25} }[/tex] = 226
The economic order quantity is the minimum amount of inventory that a seller must keep to demand and lower the holding cost. The reorder point is the inventory management system in which a certain level of inventory is set as a trigger for reordering the stock. Ordering cost is determined by the number of order placed.
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. %
Answers
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 controller of Bridgeport Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:
September October November
Sales $250,000 $300,000 $315,000
Manufacturing costs 150,000 180,000 185,000
Selling and administrative expenses 42,000 48,000 51,000
Capital expenditures _ _ 200,000
The company expects to sell about 10% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent $50,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in January, and the annual property taxes are paid in December. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month.
Current assets as of September 1 include cash of $40,000, marketable securities of $75,000, and accounts receivable of $300,000 ($60,000 from July sales and $240,000 from August sales). Sales on account for July and August were $200,000 and $240,000, respectively. Current liabilities as of September 1 include $40,000 of accounts payable incurred in August for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $55,000 will be made in October. Bridgeport’s regular quarterly dividend of $25,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $50,000.
Required:
1. Prepare a monthly cash budget and supporting schedules for September, October, and November. Enter all amounts as positive values except for overall cash decrease and deficiency which should be indicated with a minus sign.
Bridgeport Housewares Inc.
Cash Budget
For the Three Months Ending November 30
September October November
Estimated cash receipts from:
Cash sales $ $ $
Total cash receipts $ $ $
Less estimated cash payments for:
Manufacturing costs $ $ $
Selling and administrative expenses
Capital expenditures
Other purposes:
Income tax
Dividends
Total cash payments $ $ $
$ $ $
Less cash balance at beginning of month
Cash balance at end of month $ $ $
Plus minimum cash balance
Excess or (deficiency) $ $ $
2. The budget indicates that the minimum cash balance (will or will not) be maintained in November. This situation can be corrected by (inevesting or borrwing) and/or by the (purchase or sale) of the marketable securities, if they are held for such purposes. At the end of September and October, the cash balance will (exceed or be sort of) the minimum desired balance.
Answers
Answer:
Bridgeport Housewares Inc.
1. Monthly Cash Budget with supporting schedules for September, October, and November:
a. Cash Budget for September, October, and November:
September October November
Beginning balance $40,000 $111,0000 $137,500
Cash receipts 253,000 259,500 288,000
Total cash available $293,000 $370,500 $425,500
Cash Payments:
Payment for manufacturing costs 140,000 130,000 135,000
Income tax 55,000
Dividend 25,000
Selling & administrative expenses 42,000 48,000 51,000
Capital expenditures _ _ 200,000
Total cash payment $182,000 $233,000 $411,000
Balance $111,000 $137,500 $14,500
Minimum Cash Balance 50,000 50,000 50,000
Cash to invest or borrow $61,000 $87,500 -$35,500
b. Supporting Schedules:
i) Cash Collections:
September October November
10% Cash Sales, month of sales $25,000 $30,000 $31,500
Sales on account: 90%
70% following month of sales 157,500 189,000
30% 2nd month following sale 67,500
30% of July Sales 60,000
70% of August 168,000
30% of August 72,000
Total cash receipts $253,000 $259,500 $288,000
2. The budget indicates that the minimum cash balance (will or will not) be maintained in November. This situation can be corrected by (investing or borrowing) and/or by the (purchase or sale) of the marketable securities, if they are held for such purposes. At the end of September and October, the cash balance will (exceed or be sort of) the minimum desired balance.
Explanation:
a) Data and Calculations:
1. Budget Information:
September October November
Sales $250,000 $300,000 $315,000
Manufacturing costs 150,000 180,000 185,000
Selling and administrative expenses 42,000 48,000 51,000
Capital expenditures _ _ 200,000
2. Cash Collections:
September October November
10% Cash Sales, month of sales $25,000 $30,000 $31,500
Sales on account: 90%
70% following month of sales 157,500 189,000
30% 2nd month following sale 67,500
30% of July Sales 60,000
70% of August 168,000
30% of August 72,000
Total cash receipts $253,000 $259,500 $288,000
3. Manufacturing Costs:
Manufacturing costs 150,000 180,000 185,000
less Depreciation, insurance, &
property tax expenses 50,000 50,000 50,000
Remainder 100,000 130,000 135,000
4. Remainder of Manufacturing costs:
80% paid in the month incurred 80,000 104,000 108,000
Remainder 20%, month following 20,000 26,000 27,000
August manufacturing cost: 40,000
Payment for manufacturing costs $140,000 $130,000 $135,000
5. Cash Payments:
Payment for manufacturing costs 140,000 130,000 135,000
Income tax 55,000
Dividend 25,000
Selling & administrative expenses 42,000 48,000 51,000
Capital expenditures _ _ 200,000
Total cash payment $182,000 $233,000 $411,000
Other relevant information:
Current assets as of September 1:
Cash of $40,000
Marketable securities of $75,000
Accounts receivable of $300,000 ($60,000 from July sales and $240,000 from August sales). Sales on account for July and August were $200,000 and $240,000, respectively
Current Liabilities:
September 1 Accounts payable = $40,000 incurred in August for manufacturing costs.
Selling and administrative expenses are paid in cash in the period they are incurred.
Income tax = $55,000 October
Quarterly Dividend of $25,000 in November
Minimum cash balance of $50,000 monthly
b) When Bridgeport Housewares Inc prepares budgeted monthly cash budgets, important highlights are indicated. For instance, it becomes easier for the management of Bridgeport to know when to borrow cash to meet the minimum cash balance or in the alternative sell off some marketable securities. It is also easier for Bridgeport to understand that it can be having excess cash which should not be allowed to sit idle, but can be invested in marketable securities. The cash budgets and their preparation also help Bridgeport to be better prepared to exert the required efforts to generate sales revenue in order not to jeopardize its liquidity position. It can also help Bridgeport to understand that the capital expenditure could have been paid for instalmentally starting from September or so instead of lumping the sum in November. There are many other insights garnered from the cash budgets and their preparation.