Answer: $1.46
Explanation:
Earnings per share = Net Income/Number of shares
Value of shares at current = 9,000/600
= $15 a share
Excess cash is $1,200.
Using that, the following number shares can be purchases;
= 1,200/15
= 80 shares
New number of shares = 600 - 80
= 520 shares
New EPS
= 760/520
= $1.46
In the past year, TVG had revenues of $3 million, cost of goods sold of $2.5 million, and depreciation expense of $200,000. The firm has a single issue of debt outstanding with book value of $1 million on which it pays an interest rate of 8%. What is the firm’s times interest earned ratio?
Answer:
TVG
Times Interest Earned Ratio (TIER) = Earnings Before Interest & Taxes divided by Interest Expense
= $300,000/$$80,000 = 3.75 times
Explanation:
a) TVG Income Statement:
Revenue $3,000,000
Cost of goods sold 2,500,000
Gross profit $500,000
Depreciation 200,000
EBIT $300,000
Interest Expense 80,000
Pre-tax Income $220,000
b) TVG's TIER shows the number of times that its earnings before interest and taxes covers the interest expense. It shows the ability of the TVG to settle its maturing debt obligations from current earnings. It is an important financial performance measure which potential investors in TVG will use to gauge the ability of TVG to meet financial obligations from the earnings it generates.
MAD’s target capital structure is 60 percent debt and 40 percent equity. The yield to maturity on the company’s new debt will be 10 percent. MAD’s beta is 1.7, the risk free rate is 4% and the required market return is 12%. If the company’s tax rate is 30 percent, then which of the projects will be accepted?
Answer: D) Projects A and C
Explanation:
The projects to be taken should have a higher IRR than the company's Weighted Average Cost of Capital.
Cost of Equity
= Risk free rate + beta( market return - risk free rate)
= 4% + 1.7 (12% - 4%)
= 17.6%
After tax cost of debt
= Yield ( 1 - tax rate)
= 10% * ( 1 - 30%)
= 7%
WACC = (Weight of debt * after tax cost of debt) + (weight of equity * cost of equity)
= (0.6 * 7% ) + ( 0.4 * 17.6%)
= 4.2% + 7.04%
= 11.24%
Projects A and C both have IRR higher than the company's WACC and so should be accepted.
The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and is not expected to for the next five years. Its latest EPS was $10, all of which was reinvested in the company. The firm’s expected ROE for the next five years is 20% per year, and during this time it is expected to continue to reinvest all of its earnings. Starting in year 6, the firm’s ROE on new investments is expected to fall to 15%, and the company is expected to start paying out 40% of its earnings in cash dividends, which it will continue to do forever after. DEQS’s market capitalization rate is 15% per year. a. What is your estimate of DEQS’s intrinsic value per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year? (Round your dollar value to 2 decimal places.) Because there is (Click to select) , the entire return must be in (Click to select) . c. What do you expect to happen to price in the following year? (Round your dollar value to 2 decimal places.)
Answer:
a) $94.88
b) in 1 year, the intrinsic price of the stocks should increase to $109.11
Explanation:
year dividend EPS
0 0 $10
1 0 $12
2 0 $14.40
3 0 $17.28
4 0 $20.736
5 0 $24.8832
6 $11.45 $28.61568
growth rate up to year 5 = 20%
ROE growth rate starting year 6 = 15%
dividend growth rate starting year 6 = 15% x (1 - 40%) = 9%
cost of equity = 15%
horizon value at year 5 = $11.45 / (15% - 9%) = $190.83
current intrinsic value per stock = $190.83 / 1.15⁵ = $94.88
intrinsic price in 1 year = $190.83 / 1.15⁴ = $109.11
The estimate of DEQS’s intrinsic value per share is $94.88. Also, in 1 year, the intrinsic price of the stocks will increase to $109.11.
Based on the information given, the dividend and the earnings per share are given below:
year dividend EPS
0 0 $10
1 0 $12
2 0 $14.40
3 0 $17.28
4 0 $20.736
5 0 $24.88
6 $11.45 $28.616
Growth rate up to year 5 = 20%ROE growth rate starting year 6 = 15%Cost of equity = 15%Therefore, the dividend growth rate starting year 6 will be:
= 15% x (1 - 40%)
= 15% × 60%
= 9%
Therefore, the horizon value at year 5 will be:
= $11.45 / (15% - 9%)
= $11.45 / 6%
= $190.83
Then, the current intrinsic value per stock will be:
= $190.83 / 1.15⁵
= $94.88
The intrinsic price in 1 year will be:
= $190.83 / 1.15⁴
= $109.11
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The following accounts are from last year's books of Sharp Manufacturing: Raw Materials Bal 0 (b) 154,800 (a) 166,000 11,200 Work In Process Bal 0 (f) 513,200 (b) 132,400 (c) 168,800 (e) 212,000 0 Finished Goods Bal 0 (g) 464,000 (f) 513,200 49,200 Manufacturing Overhead (b) 22,400 (e) 212,000 (c) 26,400 (d) 156,800 6,400 Cost of Goods Sold (g) 464,000 Sharp uses job-order costing and applies manufacturing overhead to jobs based on direct labor costs. What is the amount of direct materials used for the year
Answer:
$132,400
Explanation:
Based on the information given we were told that Sharp make use of job order costing as well as applies manufacturing overhead to jobs which are often based on the direct labor costs, which simply means the amount of direct materials that is been used for the year will be a debit amount of $132,400 in the work in process .
Therefore the amount of direct materials used for the year will be $132,400
A vendor at a carnival sells cotton candy and caramel apples for $2.00 each. The vendor is charged $60 to set up his booth. Furthermore, the vendor’s average cost for each product he produces is approximately $0.80.
a. Write a linear cost function representing the cost C(x) (in $) to the vendor to produce x products.b. Write a linear revenue function representing the revenue R(x) (in $) for selling x products.c. Determine the number of products to be produced and sold for the vendor to break even.d. If 60 products are sold, will the vendor make money or lose money?
Answer with its Explanation:
Requirement A. The cost function is equal to variable cost for "x" units and fixed cost which remains fixed. Hence:
Cost Function = C(x) = $60 + $0.8x
Requirement B. The revenue for any units "x" sold can be calculated by simply multiplying "x" with sales price per unit. Which means that:
Revenue Function = R(x) = $2 * x = $2x
Requirement C. Now we have to find the breakeven quantity and this could be calculated using the following formula:
Breakeven Point = Fixed Cost / (Selling Price per Unit - Variable Cost Per Unit)
By putting values we have:
Breakeven Point = $60 / ($2 - $0.8) = 50 units
Requirement D. As the number of units are above breakeven point (No profit and loss position), hence making sales above 50 units will generate profit for the company.
The profit for the company would be:
Total Profit = Contribution per unit * Units above Breakeven point
Total Profit = ($2 - $0.8) * 10 Units = $12
Suppose that short-term municipal bonds currently offer yields of 4%, while comparable taxable bonds pay 5%. Which gives you the higher after-tax yield if your combined tax bracket is:
Answer:
1.Taxable bonds
2Taxable bonds
3.They have the same after-tax yield
4.
municipal bond
Explanation:
The missing tax brackets are zero,10%,20% and 30%
Zero % tax rate:
municipal bond pays 4%
taxable bonds after tax yield=5%*(1-0)=5%
10% tax rate
municipal bond pays 4%
taxable bond after tax yield=5%*(1-10%)=4.5%
20% tax rate
municipal bond pays 4.0%
taxable bond after tax yield=5%*(1-20%)=4.0%
30% tax rate
municipal bond pays 4.0%
taxable bond after tax yield=5%*(1-30%)=3.50%
Explain how growth in the demand for Australia's natural resources would affect the demand for Australian dollars in the foreign exchange market. Explain how the supply of Australian dollars would change.
Answer:
The question here is that of the balance of trade and the principles of demand and supply.
According to the Economics principles of demand and supply, when demand is high, prices follow in the same direction and the currency appreciates in value.
So, on one hand, when the demand for Australia's natural resources increases, because the legal tender recognised within Australia's borders is its own currency, trading partners are forced to convert from their currency into the Australian dollars thus creating an increased demand for the currency.
On the other hand, if the value of a countrys imports is more than the value of its export transactions, the opposite would happen, that is, its currency depreciates or loses value.
Cheers!
On November 1, Alan Company signed a 120-day, 10% note payable, with a face value of $11,700. What is the adjusting entry for the accrued interest at December 31 on the note
Answer:
Debit interest expense, $195; Credit interest payable, $195
Explanation:
The adjusting entry for the accrued interest at December 31 on the note is:
General Journal Debit Credit
Interest expense $195
($11,700 * 10% * 60/360)
Interest payable $195
Some towns limit the number of hours that liquor stores can sell alcohol on Sundays. This restriction could actually help liquor stores by
Answer: decreasing sales and increasing prices.
Explanation:
From the question, we are informed that some towns limit the number of hours that liquor stores can sell alcohol on Sundays. This restriction could actually help liquor stores reduce their sales and thereby lead to the increment of prices.
Since there has been a reduction I the number of hours, it means lesser alcohol will be sold and this can invariably lead to price increase.
Due Diligence refers to diligently monitoring the interview for lies or half-truths the interviewee might include. Select one: True False
Answer: False
Explanation:
Due diligence is a review, audit or an investigation that is performed in order to confirm certain facts. Due diligence also involves looking at the financial records of w company before having a transaction with the company in order to ascertain some facts.
Due Diligence is not diligently monitoring the interview for lies or half-truths the interviewee might include. This is false.
n January 1, 1987, three 100 par value bonds with 6% annual coupons will mature at the end of 1, 2, and 3 years, respectively. The redemption value of each bond is 100. You are given that the prices for these bonds on January 1, 1987 are: Maturity Date Price December 31, 1987 101.92 December 31, 1988 102.84 December 31, 1989 105.51 These prices are based on an interest rate of i in 1987, j in 1988, and k in 1989. Determine j.
Answer:
j = 4.52%
Explanation:
face value = $100, with 6% annual coupons
bond₁ matures in 1 year (December 31, 1987), market price $101.92
bond₂ matures in 2 years (December 31, 1988), market price $102.84
bond₃ matures in 3 years (December 31, 1989), market price $105.51
we must determine the market interest rate (j) for bond₂, and to do this we will use the approximate yield to maturity formula:
YTM = {coupon + [(face value - market price)/n]} / [(face value + market price)/2]
YTM = {6 + [(100 - 102.84)/2]} / [(100 + 102.84)/2] = 4.58 / 101.42 = 0.045158 = 4.52%
Since the bonds are sold at a premium, it means that the coupon rate is higher than the market rate.
Jackson Industries uses a standard cost system in which direct materials inventory is carried at standard cost. Jackson has established the following standards for one unit of product: Standard Quantity or Hours Standard Price or Rate Standard Cost Per Unit Direct materials 6 pounds $4.30 per pound $25.80 Direct labor 2.40 hours $5.00 per hour $12.00 During May, Jackson purchased 145,600 pounds of direct material at a total cost of $655,200. The total factory wages for May were $258,800, 90 percent of which were for direct labor. Jackson manufactured 21,000 units of product during May using 122,800 pounds of direct material and 50,900 direct labor-hours. The price variance for the direct material acquired by Jackson Industries during May is:
Answer:
Direct material price variance= $29,120 unfavorable
Explanation:
Giving the following information:
Standard: Direct materials 6 pounds $4.30 per pound $25.80
Actual= Jackson purchased 145,600 pounds of direct material at a total cost of $655,200.
To calculate the direct material price variance, we need to use the following formula:
Direct material price variance= (standard price - actual price)*actual quantity
Actual price= 655,200/145,600= $4.5
Direct material price variance= (4.3 - 4.5)*145,600
Direct material price variance= $29,120 unfavorable
Hawley company makes decorative wedding cakes. The company is considering buying the cakes rather than baking them, which will allow it to concentrate on decorating. The company averages 100 wedding cakes per year and incurs the following costs from baking wedding cakes.
Direct materials $550
Direct labor 950
Variable manufacturing overhead 150
Fixed manufacturing overhead 1,125
Total manufacturing cost $2,775
Number of cakes / 100
Cost per cake $28
Fixed costs are primarily the depreciation on kitchen equipment such as ovens and mixers. Hawley expects to retain the equipment. Hawley can buy the cakes for 28$.
1. Should Hawley make the cakes or buy them? Why?
2. If Hawley decides to buy the cakes, what are some qualitative factors that Hawley should also consider?
1. Should Hawley make the cakes or buy them? Why? (For the Difference column, use a minus sign or parentheses only when the cost of outsourcing exceeds the cost of making the cakes in-house.)
Make Outsource Difference
Cake costs cakes cakes (make—outsource)
Variable costs:
Direct materials
Direct labor
Variable manufacturing overhead
Purchase cost
Total differential cost of cakes
Hawley (should, should not) continue to make the cakes. Outsourcing will (decrease, increase) profits.
2. If Hawley decides to buy the cakes, what are some qualitative factors that Hawley should also consider?
A. Qualitative factors include considering sunk costs andmanager's opinions.
B. Qualitative factors include separating fixed and variable costs.
C. Qualitative factors include quality and on-time delivery.
D. Qualitative factors include contribution margins of the various products produced.
Answer:
1. Continue to Make the Cakes. Because the Cost of Outsourcing is greater that the cost of making by $1,150.
2. C. Qualitative factors include quality and on-time delivery.
Explanation:
Analysis of the Make or Buy Decision
Make Outsource Difference
Cake costs cakes cakes
Variable costs:
Direct materials $550 $0 $550
Direct labor $950 $0 $950
Variable manufacturing overhead $150 $0 $150
Fixed manufacturing overhead $1,125 $1,125 $0
Purchase cost $0 $2,800 ($2,800)
Total differential cost of cakes $2,275 $3,925 ($1,150)
Qualitative Factors.
Are non-monetary factors that need to be considered in decision making.
On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What amount of interest expense will be included in the first annual payment
Answer:
Interest expense = $20,000
Explanation:
Loan Amortization: A loan repayment method structured such that a series of equal periodic installments will be paid for certain number of periods to offset both the loan principal amount and the accrued interest.
The annual installment is computed as follows:
Annual installment= Loan amount/annuity factor
Annual installment is already given as = 37,258 (already given)
Interest payment = interest rate × Loan balance at the beginning of the year
DATA
Interest rate = 8%
Loan balance at the beginning of the year = $250,000
Interest expense = 8%× 250,000 = $20000
Principal paid = Annual installment - Interest = 37,258-20,000 = 17,258 (this is not required but to explain the concept)
Interest expense = $20,000
Net sales$688,500 $450,000 Cost of goods sold 337,364 133,200 Determine the 2016 and 2017 trend percents for net sales using 2016 as the base year.
Answer:
Trend- % change in sales = 34.64%
Explanation:
Trend analysis entails determining the performance of a business over time by comparing its performance data from one period to another. The aim of trend analysis is to identify the behavior of a set of ratios over a period of time by comparing them across different years.
To determine the trend for a particular data, we use the formula below
% Change in variable =
(Current year figure - Previous year figure)/Previous year figure × 100
DATA
Current year figure for sales (2017) - 450,000
Previous year figure for sale (2016) - 688,500
% change in sales = (450,000 -688,500)/688,500 × 100 = 34.64%
% change in sales = 34.64%
This implies that the company made sales in 2017 which is 34.64% less than that made in 2016
Division A had ROI of 15% last year. The manager of Division A is considering an additional investment for the coming year. What step will the manager likely choose to take
Answer: c.Reject the investment if it returns less than 15% ROI.
Explanation:
Additional investments should yield incremental returns if they are to be accepted. In the previous year, Division A had an Return on Investment of 15%, when an additional investment is being considered, it must bring in more than that 15% if it is to be accepted.
Therefore, if an investment is to give a less than 15% ROI, it should be rejected as it is not bringing additional returns for the Division.
"A customer who is short 1 ABC Jan 65 Call wishes to create a "short call spread." The second option position that the customer must take is:"
Answer:
long 1 ABC Jan 75 Call
Explanation:
This type of customer (or investor) is bearish about the market, i.e. he/she believes that the stock prices will drop. The investor will try to create a net credit position (the credit spread = $75 - $65). The maximum possible profit is created when the stock price falls below $65, and the maximum possible loss would occur if the price went above $75. This investor is a net seller, since it is a short call spread.
Location Score
Factor
(100 points each) Weight A B C
Convenience .15 86 77 83
Parking facilities .20 70 88 98
Display area .18 86 90 94
Shopper traffic .27 90 88 89
Operating costs .10 86 91 96
Neighborhood .10 90 86 84
1.00
Using the above factor ratings, calculate the composite score for each location. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)
Location Composite Score
A
B
C
Answer:
Location Composite Score
A 84.28
B 86.81
C 91.00
Explanation:
Calculation for the composite score for each location Using the above factor ratings
A
Factor Weight A
Convenience .15 ( .15*86 )=12.90
Parking facilities .20 (.20*70)=14.00
Display area .18 (.18*86)=15.48
Shopper traffic .27 (.27*90)=24.30
Operating costs .10 (.10*86 )=8.60
Neighborhood .10 (.10* 90 )=9.00
Total 1.00= 84.28
B
Factor Weight B
Convenience .15 (.15* 77)=11.55
Parking facilities .20 ( .20* 88)=17.60
Display area .18 (.18* 90)=16.20
Shopper traffic .27 (.27*88 )=23.76
Operating costs .10 (.10* 91)=9.10
Neighborhood .10 (.10*86 )=8.60
Total 1.00 = 86.81
C
Factor Weight C
Convenience .15 (.15* 83)=12.45
Parking facilities .20 (.20*98)=19.60
Display area .18 (.18*94)=16.92
Shopper traffic .27 (.27*89)=24.03
Operating costs .10 (.10*96)=9.60
Neighborhood .10 (.10*84)=8.40
Total 1.00 = 91.00
Therefore the composite score for each location is:
Location Composite Score
A 84.28
B 86.81
C 91.00
Based on the above calculation C is the best because it has the highest composite score of 91.00.
On November 7, Mura Company borrows $370,000 cash by signing a 90-day, 8%, $370,000 note payable. 1. Compute the accrued interest payable on December 31. 2. & 3. Prepare the journal entry to record the accrued interest expense at December 31 and payment of the note at maturity on February 5.
Answer:
At 31 December, the Interest for 54 days accrues as follows :
Interest expense $17,740 (debit)
Note Payable $17,740 (credit)
On payment February 5, the Interest expense will be capitalized in the Note Payable as follows :
Note Payable $407,473 (debit)
Cash $407,473 (credit)
Explanation:
AT, November 7, When Mura Company borrows the money :
Cash $370,000 (debit)
Note Payable $370,000 (credit)
At 31 December, the Interest for 54 days accrues as follows :
Interest expense $17,740 (debit)
Note Payable $17,740 (credit)
Interest expense calculation = $370,000 × 8% × 54/90
= $17,740
At February 5, the interest for 60 days accrues as follows :
Interest expense $19,733 (debit)
Note Payable $19,733 (credit)
Interest expense calculation = $370,000 × 8% × 60/90
= $19,733
On payment February 5, the Interest expense will be capitalized in the Note Payable as follows :
Note Payable $407,473 (debit)
Cash $407,473 (credit)
Note Payable Calculation = $370,000 + $19,733 + $17,740
$407,473
Which of the following is NOT one of the four levels of culture? A. Profit B. artifacts C. espoused values D. enacted values
Answer:
A. Profit
Explanation:
Culture is the shared characteristics and knowledge of a group of people that affects different aspects of their lives like language, religion, social traits, arts, and music.
Levels of culture are:
- Artefacts: these are physical manifestation of a culture like dress code, office allocation, awards, and ceremonies.
- Assumptions: are unconscious alignment with expected behaviour.
- Espoused value: these are stated values to be adhered to
- Enacted values: behaviours that are exhibited as a guide to others in a group
Northwest Fur Co. started 2021 with $105,000 of merchandise inventory on hand. During 2021, $510,000 in merchandise was purchased on account with credit terms of 3/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $8,900. Merchandise with an invoice amount of $3,700 was returned for credit. Cost of goods sold for the year was $362,000. Northwest uses a perpetual inventory system. What is ending inventory assuming Northwest uses the gross method to record purchases
Answer:
The ending inventory by using the gross method is $243,011
Explanation:
Purchases = Net purchases + Freight inwards
Purchases = 491,111 + 8,900
Purchases = 500,011
When Net purchase = Gross Purchase - Purchase return - Discount
Net purchase = 510,000 - 3,700- 15,189
Net purchase = 491,111
Working
Discount = (Purchases - Purchase return) × Discount rate
Discount = (510,000 - 3,700) * 3%
Discount = 15,189
Ending inventory = Beginning inventory + Purchases− Cost of good sold
Ending inventory = (105,000 + 500,011) - 362,000
Ending inventory = $243,011
Thus, the ending inventory by using the gross method is $243,011.
Sally Eason put $4,000 in her deductible IRA this year. If Sally is in the 25 percent marginal tax bracket, the government actually contributed ____ of that amount for her. Group of answer choices
Answer: $1000
Explanation:
From the question, we are informed that Sally Eason put $4,000 in her deductible IRA this year and that Sally is in the 25 percent marginal tax bracket.
Based on the above information, the government contributed:
= 25% × $4,000
= 25/100 × $4,000
= 0.25 × $4,000
= $1000
Ultimate Sportswear has $150,000 of 8% non-cumulative, non-participating, preferred stock outstanding. Ultimate Sportswear also has $550,000 of common stock outstanding. In the company's first year of operation, no dividends were paid. During the second year, the company paid cash dividends of $35,000. This dividend should be distributed as follows:
a. $8,750 preferred: $26,250 common.
b. $0 preferred: $35,000 common.
c. $12.000 preferred: $23.000 common.
d. $19.000 preferred: $16.000 common
e. $17,500 preferred; $17,500 соmmоn.
Answer:
c. $12,000 preferred: $23,000 common
Explanation:
Calculation of how the Dividend should be distributed
First step is to calculate for preferred stock outstanding
Preferred stock outstanding=$150,000 * 8% non-cumulative
Preferred stock outstanding=$12,000
Second step is to calculate for common stock outstanding
Using this formula
Common stock outstanding = Cash Dividend-Preferred stock outstanding
Let plug in the formula
Common stock outstanding=$35,000-$12,000
Common stock outstanding=$23,000
Therefore Preferred stock outstanding will be $12,000 while Common stock outstanding will be $23,000
Just how strong the competitive pressures are from substitute products depends on: Select one: a. Whether the available substitutes are products or services b. The speed with which buyer needs and expectations are changing c. Whether attractively priced substitutes are readily available and the ease with which buyers can switch to substitutes d. Whether the producers of substitutes have ample budgets for new product R
Answer: c. Whether attractively priced substitutes are readily available and the ease with which buyers can switch to substitutes
Explanation:
Substitute products are the product that can be used in place of another identical product e.g butter and margarine.
Just how strong the competitive pressures are from substitute products depends on whether attractively priced substitutes are readily available and the ease with which buyers can switch to substitutes.
Suppose a jar of orange marmalade that is ultimately sold to a customer at The Corner Store is produced by the following production process: Name of Company Revenues Cost of Purchased Inputs Citrus Growers Inc. $0.75 0 Florida Jam Company $2.00 $0.75 The Corner Store $2.50 $2.00 What is the value added of Florida Jam Company
Answer:
$1.75
Explanation:
Value added is calculated by subtracting the difference of revenue and the cost of inputs.
value added of Florida Jam Company = $2.50 - $0.75 = $1.75
Gabriele Enterprises has bonds on the market making annual payments, with eleven years to maturity, a par value of $1,000, and selling for $982. At this price, the bonds yield 7.6 percent.
Required:
What must the coupon rate be on the bonds?
Answer:
The answer is 7.35 percent
Explanation:
N(Number of periods) = 11years
I/Y(Yield to maturity) = 7.6 percent
PV(present value or market price) = $982
PMT( coupon payment) = ?
FV( Future value or par value) = $1,000.
We are using a Financial calculator for this.
N= 11; I/Y = 7.6; PV = -$982; FV= $1,000; CPT PV= $73.52
Therefore, coupon rate is ($73.52/$1,000) x 100 percent
=7.35 percent
Break-even EBIT (with and without taxes). Alpha Company is looking at two different capital structures, one an all-equity firm and the other a levered firm with $ million of debt financing at % interest. The all-equity firm will have a value of $ million and shares outstanding. The levered firm will have shares outstanding. a. Find the break-even EBIT for Alpha Company using EPS if there are no corporate taxes. b. Find the break-even EBIT for Alpha Company using EPS if the corporate tax rate is %. c. What do you notice about these two break-even EBITs for Alpha Company? a. What is the break-even EBIT for Alpha Company using EPS if there are no corporate taxes?
Complete Question:
Alpha company is looking at two different capital structures, one an all-equity firm and the other a leverages firm with $2 million of debt financing at 8% interest. The all-equity firm will have a value of $4 million and 400,000 shares outstanding. The leveraged firm will have 200,000 shares outstanding.
a. Find the break even EBIT for Alpha company using EPS if there are no corporate taxes.
b.Find the break even EBIT for Alpha company using EPS if the corporate tax rate is 30%
c. What do you notice about these two break-even EBITs for Alpha company?
Answer:
Alpha Company
a. Break-even EBIT, using EPS without taxes:
= (EBIT - Interest 1) * (1 - taxes)/No. of shares = (EBIT - Interest 2) * (1 - taxes)/No. of shares
With alternative 1, there are no taxes, so:
= (EBIT - Interest 1)/No. of shares = EBIT - Interest 2)/No. of shares
= (EBIT - 0)/400,000 = EBIT - ($2,000,000 x 8%)/200,000
= (EBIT/400,000( = (EBIT - $160,000)/200,000
cross-multiplying:
EBIT200,000 = EBIT$64,000,000,000
dividing by 200,000:
EBIT = $64,000,000,000/200,000
EBIT = $320,000
b. Break-even EBIT, using EPS with taxes:
= (EBIT - Interest 1) * (1 - taxes)/No. of shares = (EBIT - Interest 2) * (1 - taxes)/No. of shares
= {(EBIT - $0) * (1 - 0.30)}/400,000 = {(EBIT - $160,000) * (1 - 0.30)}/200,000
= EBIT/400,000 = (EBIT - $112,000)/200,000
cross-multiplying:
= EBIT 200,000 = EBIT $44,800,000,000
EBIT = $44,800,000,000/200,000
= $224,000
c. The two break-even EBITs are not the same. When there are taxes, the break-even EBIT is $224,000, less by $96,000.
Explanation:
a) Data:
Alternative 1: All Equity:
No. of shares = 400,000
Value of shares = $4,000,000
Debt = $0
Interest on Debt = $0
Alternative 2: Equity + Debt:
No. of shares = 200,000
Value of shares = $2,000,000
Debt = $2,000,000
Interest on Debt = 8% or $160,000
b) Alpha's break-even EBIT is the point when the EBIT under alternative 1 are equal to the EBIT under alternative 2. This implies that under these given alternative financing options, the earnings before interest and taxes are before no matter the alternative chosen.
Apply the integration-responsiveness framework to describe which global strategy Hollywood studios followed originally, and how their strategic positioning has changed over time. Explain how and why.
Answer is given below :
Explanation:
Global integration refers to the coordination of the organization’s value chain operations within countries, achieving efficiency, synergy and cross-fertilization between countries so that equality between countries is maximized. Between global integration and local accountability, the integration-accountability framework is called to help managers develop a deeper understanding of the business. We can say at the outset or at the outset that an export strategy that applies to Hollywood is used when a company focuses primarily on its domestic operations. It is not intended to expand globally, but to export certain products to take advantage of international opportunities. It does not seek to adapt its products to international markets. It is not interested in responding to specific situations in other countries or formulating a unified world strategy. Hollywood not only produced films and shows that catered to the needs of its native business aimed at American Western culture, but as the industry began to expand it began to adopt a multi-national strategy. Multi dimensional strategy follows products or processes for specific situations in each country. In the initial example, Lincoln should use a multi-year strategy to adapt its manufacturing methods to the conditions of each country where electric factories are built. Retailers often use multicultural strategies because they must cater to local customer tastes. Hollywood has started producing Indian films like Kung Fu Panda, Karate Kids, Oscar Winning Slumdog Millionaire.The global strategy that Hollywood studios followed at first was the international strategy.
It should be noted that the global strategy that Hollywood studios followed originally was the international strategy where identical movies were showed in foreign countries.
This has changed now as there are different movies that are filmed and in different versions. Also, it isn't in the control of the government to edit out any part.
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https://brainly.com/question/17104121
You find a zero coupon bond with a par value of $10,000 and 21 years to maturity. The yield to maturity on this bond is 4.3 percent. Assume semiannual compounding periods.What is the price of the bond?
Answer:
Price of bond $4,092.49
Explanation:
Computation the price of the bond
Using this formula
Price of bond=Par value*1/(1+YTM/2)^(2*time period)
Where,
Par value=$10,000
1/(1+YTM/2)=1/(1+0.043/2)
(2*time period)=(2*21 years)
Let plug in the formula
Price of bond=$10,000*1/(1+0.043/2)^(2*21)
Price of bond=$10,000*1/(1.0215)^42
Price of bond=$10,000*(0.97895252)^42
Price of bond=$10,000*0.4092497467
Price of bond=$4,092.49
Therefore the price of the bond will be $4,092.49
Booher Book Stores has a beta of 1.0. The yield on a 3-month T-bill is 3% and the yield on a 10-year T-bond is 6%. The market risk premium is 4.5%, and the return on an average stock in the market last year was 10.5%. What is the estimated cost of common equity using the CAPM
Answer:
Cost of equity = 10.5%
Explanation:
The capital asset pricing model is a risk-based model. Here, the return on equity is dependent on the level of reaction of the the equity to changes in the return on a market portfolio. These changes are captured as systematic risk. The magnitude by which a stock is affected by systematic risk is measured by beta.
Under CAPM, Ke= Rf + β(Rm-Rf)
Rf-risk-free rate (long-term i.e 10 year treasury bill rate), β= Beta, Rm= Return on market., Ke- Return on equity (cost of equity)
This model can be used to work out the cost of equity as follows:
Ke= Rf + β (Rm-Rf)
Rf- 6%, β= 1.0, Rm- 10.5, E(r)- ?
Ke = 6% + 1.0× (10.5 -6)% = 10.5%
Ke = 10.5%
Cost of equity = 10.5%
