Answer:
WACC of ABC Corporation is 91%
Explanation:
WACC = Kd * (1+T) * Debt/Debt+Equity + Ke * Debt/Equity
Kd = Cost of debt
T = Corporate tax rate
WACC = 0.08*(1-0.35)*(150m/150m+650m) + 0.10*(650m/150m+650m)
WACC = 0.08 *0.65*0.1875 + 0.10*0.8125
WACC = 0.00975 + 0.08125
WACC = 0.091
WACC = 91%
Therefore, the WACC of ABC Corporation is 91%
four (4) ways to harvest an investment in a business.
Answer:
Harvesting an investment in a business
Four ways to harvest:
a. Outright sale of a company or the investment
b. Issue of Initial Public Offering (IPO)
c. Gradual elimination of a product, especially after the cow stage.
d. Withdrawal of additional investment and earning of profits.
Explanation:
These strategies can be employed by a business to reap the fruits from an investment. The purpose for the investment and the risk profile of the investor determines the actual strategy or combination of strategies used by the investor.
Cash dividends of $45,000 were declared during the year. Cash dividends payable were $10,000 at the beginning of the year and $15,000 at the end of the year. The amount of cash for the payment of dividends during the year is
Answer:
$40,000
Explanation:
Dividend Payable
Opening Dividend $10,000
Add: Dividend Liability made $45,000
after Dividend declared
Less: Closing Dividend $15,000
Dividend to pay in Current year $40,000
Idaho Industries Inc. is considering a project that has an initial aftertax outlay or aftertax cost of $450,000. The respective future cash inflows from its fiveyear project for years 1 through 5 are $95,000 each year. Idaho expects an additional cash flow of $60,000 in the fifth year. The firm uses the IRR method and has a hurdle rate of 10%. Will Idaho accept the project? A. Idaho accepts the project because it has an IRR greater than 10%. B. Idaho accepts the project because it has an IRR greater than 5%. C. Idaho rejects the project because it has an IRR less than 10%. D. There is not enough information to answer this question.
Answer:
c
Explanation:
Internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested
IRR can be calculated using a financial calculator
Cash flow in year 0 = $-450,000
Cash flow each year from year 1 to 4 = $95,000
Cash flow in year 5 = $95,000 + $60,000 = $155,000
IRR = 5.62%
Idaho would reject the project because the IRR is less than the hurdle rate
To find the IRR 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 IRR button and then press the compute button.
Sweet Acacia Industries reported net income of $1.40 million in 2022. Depreciation for the year was $224,000, accounts receivable decreased $490,000, and accounts payable decreased $392,000.
Required:
Compute net cash provided by operating activities using the indirect approach.
Answer:
Net Cash flow from operating = $ 1,722,000
Explanation:
To determine the net cash flow from operating activities. We will adjust the net income as follows; all decrease in assets and increase in liabilities are added and all increase in assets and decrease in liabilities are subtracted.
All non- cash expenses would be added back and all non-cash income would be deducted from the net income. Notable here is depreciation a non-cash expense which must be added back to the net income
This principle is applied below:
$
Net Income 1,400,000
Adjustments:
Add depreciation expense 224,000
Add decrease in current asset 490,000
less decrease in current liabilities (392,000)
Net Cash flow from operating 1,722,000
Net Cash flow from operating = $ 1,722,000
The declaration, record, and payment dates in connection with a cash dividend of $77,000 on a corporation's common stock are October 1, November 7, and December 15.
Required:
Journalize the entries required on each date.
Answer:
Oct 1
Dr Cash Dividend $77,000
Cr Dividend Payable $77,000
Nov 7
No Entry required on the record date
Dec 15
Dr Dividend Payable $77,000
Cr Cash
Explanation:
Preparation of the Journal entries for each date
Based on the information given we were told that the cash dividend of the amount of $77,000 was a corporation's common stock are October 1, November 7, and December 15 which means that the transaction will be recorded as:
Oct 1
Dr Cash Dividend $77,000
Cr Dividend Payable $77,000
Nov 7
No Entry required on the record date
Dec 15
Dr Dividend Payable $77,000
Cr Cash
An asset has had an arithmetic return of 11.9 percent and a geometric return of 9.9 percent over the last 86 years. What return would you estimate for this asset over the next 8 years? 23 years? 39 years? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Answer:
11.74% ; 11.38%; 11.01%
Explanation:
Given the following :
Arithmetic return (Ar) = 11.9%
Geometric return (Gr) = 9.9%
N = 86 years = Past period
A) Return in the next 8 years
T = future period = 8 years
Return = (T - 1) / (N - 1) * Geometric average + (N - T) / (N - 1) * Arithmetic average.
Return = (8 - 1) / (86 - 1) * 0.099 + (86 - 8) / (86 - 1) * 0.119
(0.0823529 * 0.099) + (0.9176470 * 0.119)
= 0.1173529301
= 0.1173529301 * 100 = 11.74%
B) over the next 23 years
T = 23 years
Return = (T - 1) / (N - 1) * Geometric average + (N - T) / (N - 1) * Arithmetic average.
Return = (23 - 1) / (86 - 1) * 0.099 + (86 - 23) / (86 - 1) * 0.119
(0.2588235 * 0.099) + (0.7411764 * 0.119)
= 0.1138235181
= 0.1138235181 * 100 = 11.38%
C.) over 39 years
F = 39 years
Return = (T - 1) / (N - 1) * Geometric average + (N - T) / (N - 1) * Arithmetic average.
Return = (39 - 1) / (86 - 1) * 0.099 + (86 - 39) / (86 - 1) * 0.119
(0.4470588 * 0.099) + (0.5529411 * 0.119)
= 0.1100588121
= 0.1100588121 * 100 = 11.01%
The FREC is investigating a claim by a buyer that the broker had not given the proper disclosure to the buyer before the buyer purchased a home. The broker has paperwork dating back three years from the date of the signing of the document in question, and one year after the legal action of the case. Is the broker protected?
Answer:
No
Explanation:
The Florida Real Estate Commission was constituted in 1926. Members are appointed by the Governor.
The aim of FREC is to protect ye public from bad practices by brokers. They have the authority to impose disciplinary action on lisensees.
According to requirement of the FREC the broker is required to keep records of transactions 5 years after the transaction occurred and 2 years after any legal action.
In this case the broker kept his records 3 years after the transaction and 1 year after legal action.
So he is not protected from disciplinary action by the FREC
Caribou Gold Mining Corporation is expected to pay a dividend of $6 in the upcoming year. Dividends are expected to decline at the rate of 3% per year. The risk-free rate of return is 5%, and the expected return on the market portfolio is 13%. The stock of Caribou Gold Mining Corporation has a beta of .5. Using the constant-growth DDM, the value of the stock is _________. A. $150 B. $50 C. $100 D. $200
The question is incomplete. Here is the complete question.
Caribou Gold Mining Corporation is expected to pay a dividend of $6 in the upcoming year. Dividends are expected to decline at the rate of 3% per year. The risk-free rate of return is 5%, and the expected return on the market portfolio is 13%. The stock of Caribou Gold Mining Corporation has a beta of .5. Using the constant-growth DDM, the intrinsic value of the stock is _________. A. $150 B. $50 C. $100 D. $200
Answer:
$50
Explanation:
Caribou Gold mining corporation is expected to make a dividend payment of $6 next year
Dividend are expected to decline at a rate of 3%
= 3/100
= 0.03
The risk free rate of return is 5%
= 5/100
= 0.05
The expected return on the market portfolio is 13%
= 13/100
= 0.13
The beta is 0.5
The first step is to calculate the expected rate of return
= 0.05+0.5(0.13-0.05)
= 0.05+0.5(0.08)
= 0.05+0.04
= 0.09
Therefore, the intrinsic value of the stock using the constant growth DDM model can be calculated as follows
Vo= 6/(0.09+0.03)
Vo= 6/0.12
Vo= $50
Hence the intrinsic value of the stock is $50
Determine which of the following situations describe games and which describe decisions. In each case, indicate what specific features of the situation caused you to classify it as you did. (a) A group of grocery shoppers in the dairy section, with each shopper choosing a flavor of yogurt to purchase (b) A pair of teenage girls choosing dresses for their prom (c) A college student considering what type of postgraduate education to pursue (d) The New York Times and the Wall Street Journal choosing the prices for their online subscriptions this year (e) A presidential candidate picking a running mate
Answer:
Situation which describes:
1. Game:
(a) A group of grocery shoppers in the dairy section, with each shopper choosing a flavor of yogurt to purchase
(Because of the attribute of each shopper choosing a flavor of yogurt.)
2. Decisions:
(b) A pair of teenage girls choosing dresses for their prom. (The prom which date and time has been fixed already)
(c) A college student considering what type of postgraduate education to pursue. (Because of decision to be educated)
(d) The New York Times and the Wall Street Journal choosing the prices for their online subscriptions this year. (Due to the various financial ability of its reader)
(e) A presidential candidate picking a running mate ( Due to the election that is upcoming)
Explanation:
Shares in prince and nice have a beta of 0.9. The expected returns to the market are 10% and the risk free rate of return is 4%. What is the cost of equity capital for prince and nice?
Answer:
9.4%
Explanation:
using the CAPM formula, the cost of equity (Re) is:
Re = Rf + B(Rm - Rf)
Rf = risk free rate = 4%Rm = market risk = 10%B = beta = 0.9Re = 4% x [0.9 x (10% - 4%)] = 4% x (0.9 x 6%) = 4% x 5.4% = 9.4%
The cost of equity (Re) refers to the required rate of return that investors expect to receive from a certain investment, e.g. stocks or any particular project
How much will be in the Prepaid Insurance account at the end of the year, after the adjusting entries have been prepared and posted
Answer: $8,400
Explanation:
The $9,600 is for 2 years in advance. This can be apportioned per month at a rate of;
= 9,600/24
= $400 per month.
October to the end of the year is 3 months so;
= 400 * 3
= $1,200 will be recorded for the year.
Prepaid Insurance will therefore reduce to;
= 9,600 - 1,200
= $8,400
On January 2, 2019, Konrad Corporation acquired equipment for . The estimated life of the equipment is 5 years or hours. The estimated residual value is . If Konrad Corporation uses the units of production method of depreciation, what will be the debit to Depreciation Expense for the year ended December 31, 2020, assuming that during this period, the asset was used hours?
The question is incomplete. The complete question is,
On January 2, 2019, Konrad Corporation acquired equipment for $500,000. The estimated life of the equipment is 5 years or 18,000 hours. The estimated residual value is $14,000. If Konrad Corporation uses the units of production method of depreciation, what will be the debit to Depreciation Expense for the year ended December 31, 2020, assuming that during this period, the asset was used 6,000 hours?
A. $166,667
B. $97,200
C. $162,000
D. $171,333
Answer:
The depreciation expense for the year is $162000. Thus, option C is the correct answer
Explanation:
The depreciation expense is the systematic allocation of the cost of the asset over its estimated useful life. The depreciation can be calculated using various methods. Under the units of production method, the depreciation expense for the period is calculated using the following formula,
Depreciation expense = [(Cost - Residual value) / Total estimated production units] * Units produced in a particular period
Depreciation expense = [(500000 - 14000) / 18000] * 6000
Depreciation expense = $162000
As the leader of your newly formed 9-person team, one of your key concerns is that the team performs as a cohesive unit. Which of the following descriptions is most likely to indicate that your team is cohesive?
A. There is very little conflict between team members.
B. Team members prioritize the team’s goals over their own goals.
C. Whenever tackling a new team task, members typically divide into the same 3 subgroups.
D. Team members have no problem working independently or alone.
Answer:
b. Team members prioritize the team’s goals over their own goals.
Explanation:
Team cohesiveness is mostly seen in teams that perform highly. People in such teams are usually more likely to cooperate and they have an effective way of achieving their set objectives.
Team cohesiveness would have members of a team acting together rather than individually. It is an interpersonal relationship that is alive within members of the group and this pushes and motivates them to participate more and do what is necessary to achieve all of their objectives.
Menlo Company distributes a single product. The company’s sales and expenses for last month follow:
Total Per unit
Sales $314,000 $20
Variable expenses 219,800 14
Contribution margin 94,200 6
Fixed expenses 75,000
Net operating income 19,200
Required:
a. What is the monthly break-even point in unit sales and in dollar sales?
b. Without resorting to computations, what is the total contribution margin at the break-even point?
c. How many units would have to be sold each month to attain a target profit of S27,600?
d. Verify your answer by preparing a contribution format income statement at the target sales level.
e. Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms.
f. What is the company's CM ratio? If sales increase by $76,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?
Answer:
a) 12,500 units
b) $75,000
c) 17,100 units
d) total sales revenue $342,000
- variable costs = -$239,400
contribution margin = $102,600
- fixed expenses = $75,000
net income = $27,600
e) 20.38%
f.1) 30%
f.2) $22,800
Explanation:
Total Per unit
Sales $314,000 $20
Variable expenses $219,800 $14
Contribution margin $94,200 $6
Fixed expenses $75,000
Net operating income $19,200
break even point = fixed costs / contribution margin = $75,000 / $6 = 12,500 units
units needed to yield expected profits = (fixed costs + expected profits) / contribution margin = ($75,000 + $27,600) / $6 = 17,100 units
margin of safety = (current sales - break even point) / current sales = ($314,000 - $250,000) / $314,000 = 20.38%
contribution margin ratio = (total revenue - variable costs) / total revenue = ($314,000 - $219,800) / $314,000 = 30%
$76,000 x 30% = $22,800
The monthly break-even point in unit sales is 12,500 units. The total contribution margin at the break-even point is $75,000.
c) 17,100 units would have to be sold each month to attain a target profit of S27,600.
d) total sales revenue of $342,000
- variable costs = -$239,400
contribution margin = $102,600
- fixed expenses = $75,000
net income = $27,600
e) The company's margin of safety in percentage terms is 20.38%.
f.1) The company's CM ratio is 30%.
f.2) The Expected monthly net operating income to increase by $22,800.
The break-even threshold is reached when overall costs and total revenues are equal, leaving your small firm with no net benefit or loss. In other words, you've achieved the point in manufacturing when the income from a product matches the cost of manufacturing.
A formula known as net operating income (NOI) is used to assess the profitability of real estate assets that produce revenue. NOI is the sum of all property revenues less all running costs that are deemed to be reasonably reasonable.
On a property's income and cash flow statement, NOI is a before-tax statistic that does not include loan principal and interest payments, capital expenses, depreciation, or amortization. In other sectors, this term is known as "EBIT," which stands for "earnings before interest and taxes."
Learn more about net operating income here:
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Michigan Corporation manufactured inventory in the United States and sold the inventory to customers in Canada. Gross profit from sale of the inventory was $500,000. Title to the inventory passed FOB: Destination. How much of the gross profit is treated as foreign source income for purposes of computing Michigan Corporation’s foreign tax credit in the current year?
Answer:
50% of gross profit = $250,000
Explanation:
The Tax Cuts and Jobs Act of 2017 changed some aspects of Section 863(b), but aspects regarding US companies producing locally and exporting their production to foreign countries remains the same. US companies can allocate 50% of gross profit as foreign source income, while the other 50% must be allocated as domestic income due to production related activities.
If the economy is normal, Charleston Freight stock is expected to return 16.5 percent. If the economy falls into a recession, the stock's return is projected at a negative 11.6 percent. The probability of a normal economy is 70 percent while the probability of a recession is 30 percent. What is the variance of the returns on this stock
Answer:
Variance of the returns of this stock is 0.01658177
Explanation:
Mean return = 0.7 * 16.5% + 0.3*-11.6%
Mean return = 0.1155 - 0.0348
Mean return = 0.0807
Mean return = 8.07%
Variance of the return = 0.7 * (16.5%-8.07%)^2 + 0.3 * (-11.6%-8.07%)^2
Variance of the return = 0.7 * (8.43%)^2 + 0.3 * (-19.67%)^2
Variance of the return = 0.7 * (0.0843)^2 + 0.3 * (-0.1967)^2
Variance of the return = 0.0049745 + 0.011607267
Variance of the return = 0.01658177
The_________for a soft drink manufacturer would include other manufacturers of soft drinks, fruit juices, bottled water, sports drinks, caffeine-free colas, and dairy beverages.
a. competitive environment
b. technological environment
c. cooperative environment
d. economic environment
Answer:
The answer is A
Explanation:
Competitive environment is an environment where competitors compete with one another for customers.
For example, Westpac, NAB, Commonwealth Bank and ANZ are in the same competitive environment. These are banks in Australia.
Types of competition are perfect competition, monopoly, monopolistic competition, oligopoly etc.
UPS, a delivery services company, has a beta of , and Wal-Mart has a beta of The risk-free rate of interest is and the market risk premium is %. What is the expected return on a portfolio with 40% of its money in UPS and the balance in Wal-Mart?
The question is incomplete as it does not contain values. The following is the complete question.
UPS, a delivery services company, has a beta of 1.2, and Wal-mart has a beta of 0.8. The risk-free rate of interest is 4% and the market risk premium is 7%. What is the expected return a portfolio with 40% of its money in UPS and the balance in Wal-Mart?
Answer:
The expected return of the portfolio is Portfolio r = 0.1072 or 10.72%
Explanation:
The expected return of a portfolio is the weighted average of the individual stocks' expected returns that form up the portfolio.
The formula for portfolio's expected return is as follows,
Portfolio r = wA * rA + wB * rB + ... + wN * rN
Where,
w is the weight of each stock in the portfolior is the expected return of each stockTo calculate the expected return of the portfolio, we will first calculate the expected return of UPS and Wal Mart using the CAPM equation.
The formula for expected return under CAPM is,
r = rRF + Beta * rpM
Where,
rRF is the risk free raterpM is the risk premium of marketr UPS = 0.04 + 1.2 * 0.07
r UPS = 0.124 or 12.4%
r Wal Mart = 0.04 + 0.8 * 0.07
r Wal Mart = 0.096 or 9.6%
Portfolio r = 0.4 * 0.124 + 0.6 * 0.096
Portfolio r = 0.1072 or 10.72%
On January 1, 2018, Frontier World issues $40.7 million of 9% bonds, due in 20 years, with interest payable semiannually on June 30 and December 31 each year. The proceeds will be used to build a new ride that combines a roller coaster, a water ride, a dark tunnel, and the great smell of outdoor barbeque, all in one ride. rev: 11_03_2016_QC_CS-68413 Required: 1-a. If the market rate is 8%, calculate the issue price. (FV of $1, PV of $1, FVA of $1, and PVA of $1)
Answer:
$44,728,243.62
Explanation:
face value $40,700,000
coupon rate 9%, semiannual 4.5%
maturity 20 years x 2 = 40 periods
market interest rate 8%
issue price?
present value of face value = $40,700,000 / (1 + 4%)⁴⁰ = $8,477,364.12
present value of coupon payments = $1,831,500 x 19.793 (PV annuity factor, 4%, 40 periods) = $36,250,879.50
market price = $8,477,364.12 + $36,250,879.50 = $44,728,243.62
Journal entry to record issuance of the bonds:
January 1, 2018, bonds are issued at a premium
Dr Cash 44,728,243.62
Cr Bonds payable 40,700,000
Cr Premium on bonds payable 4,028,243.62
Kate is in the 15% tax bracket and has $29,000 available for investment during her current tax year. Assume that she remains in the same tax bracket over the next 11 years, and determine the accumulated amount of her investment after taxes if she puts the$29,000 into the following. (Round your answers to the nearest cent.)(a) a tax-deferred annuity that pays 4%/year, tax deferred for 11 years$ (b) a taxable instrument that pays 4%/year for 11 years
Answer and Explanation:
The computation is shown below:
a. The Accumulated amount of her investment atter taxes is
Before that first we have to determine the future value which is shown below:
As we know that
Future value = Present value × (1 + interest rate)^number of years
= $29,000 × (1 + 0.04)^11
= $44,644.17
And, the tax rate is 15%
So, the after tax value is
= $44,644.17 × (1 - 0.15)
= $37,947.54
b. Now for the second part it is
= Annual cash flows × Annuity factor at 3.4% for 11 years
= $29,000 × 10.638
= $308,502
Rather than crediting the Unearned rent account for $400 of prepaid rent received from a customer, which explains an alternate recording procedure to journalize this receipt?
Answer:
Record receipt with a credit to the rent revenue account
Any unused portion of the prepayment still existing at the end of the period will be transferred to the Unearned rent account
Explanation:
Prepaid rent is an income that is to be earned at a future date. Since income is normally recorded as a revenue when it is earned, we usually credit Unearned Rent account.
However financial statements are made at end of a defined period (for example monthly, quarterly, biannually, or yearly).
The journal entry can be credited to the Rent Revenue account directly. At the end of the period the amount earned is retained in the account, and the unearned portion of the prepaid rent is transferred to the Unearned Rent account.
So financial statements will only recognise earned income when prepared.
frolic Corporation has budgeted sales and production over the next quarter as follows: July August September Sales in units 41,500 53,500 ? Production in units 42,550 53,800 58,150 The company has 4,300 units of product on hand at July 1. 10% of the next month's sales in units should be on hand at the end of each month. October sales are expected to be 73,000 units. Budgeted sales for September would be (in units):
Answer:
56,500 units
Explanation:
The computation of Budgeted sales for September is shown below:-
we assume the no. of units sold in September be ‘x’
Budgeted Production production for September = Budgeted sale for September + desired ending inventory for September – Beginning Inventory for September
58,150 = x units + (73,000 × 10%) - (x units of Sept. × 10%)
58,150 = x + 7,300 - 0.10x
58,150 - 7300 = 0.9x
50,850 = 0.9x
x = 50850 ÷ 0.9
x = 56,500 units
A monopolist faces a
A. a two-tiered demand curve.
B. a perfectly elastic demand curve.
C. the market demand curve.
D. a perfectly inelastic demand curve.
Answer:
C
Explanation:
Which of the following is not a recommended guideline for designing and administering a compensation and reward system that will truly motivate organization members, inspire their best efforts, and sustain high levels of productivity?
A. Make the performance payoff a major, not minor, piece of the total compensation package
B. Keep the time between achieving the target performance outcome and the payment of the reward as short as possible
C. Maintain a 50-50 balance between monetary and non-monetary rewards and a 50-50 balance between positive and negative incentives
D. Make sure that the performance targets that each individual or team is expected to achieve involve outcomes that the individual or team can personally affect
E. Absolutely avoid skirting the system to find ways to reward effort rather than results
Answer: C. Maintain a 50-50 balance between monetary and non-monetary rewards and a 50-50 balance between positive and negative incentives.
Explanation:
Employees generally prefer to be paid for their hardwork and so would prefer that their rewards are more monetary in nature than not. As good as non-monetary rewards are, they should not be on equal footing with monetary rewards. If they are, it could demotivate employees who will feel they are not getting paid their fair share.
Negative incentives get the job done but more often than not fail to positively motivate employees in such a way that they will bring out their best efforts. Negative incentives are more like punishments or the threat of them and so if they are on equal footing with positive investments, organization members will not be as motivated.
If the capital stock is fixed and something happens to raise the marginal product of capital for any given quantity of capital, then the real rental price of capital will:
Answer: B) rise
Explanation:
The real rental price of capital refers to the cost of borrowing capital which is the interest payment on the capital less the capital gains made. As a result it is equal to the marginal product of capital which shows how much extra, a unit of capital enables the entity to produce.
Therefore, if marginal product of capital rises, as is the case in the question, so will the real rental price of capital.
"When The Bank of Bank County borrows funds from the Federal Reserve; the rate the Fed charges the commercial bank is called the _____ rate."
Answer: Bank Rate/ Discount Rate
Explanation:
The Bank Rate is the interest rate that the Fed as the country's Central Bank charges commercial banks when they borrow money from it. The loans given are usually short term in nature.
The Bank Rate is a very useful tool in Monetary Policy by the Central Bank. If the Fed for instance would like to increase Economic activity by injecting cash into the economy, they can lower the bank rate and thus encourage more banks to loan money from them which will then be loaned to the public. If the Fed wanted to decrease Economic activity, the reverse would hold true.
Your first baby was born yesterday and is healthy and strong. To guard against your premature death, you want to purchase a life insurance policy that will replace $58,000 of your annual income until your child is 20 years old. How much life insurance should you purchase, if you assume a 3% inflation rate
Answer:
assuming the interest rate is = 15% the life insurance should you should purchase = $497854.0773
Explanation:
Given that :
Annual income receipt = $58000
Assumption:
If we assume that the inflation rate π = 3% = 0.03
Also , let assume that the interest rate is = 15% = 0.15 since it is not given too
Then the effective interest rate = [tex]\dfrac{ (i-\pi)}{(1+\pi)}[/tex]
the effective interest rate = [tex]\dfrac{ (0.15-0.03)}{(1+0.03)}[/tex]
the effective interest rate = [tex]\dfrac{ (0.12)}{(1.03)}[/tex]
the effective interest rate = 0.1165
the effective interest rate = 11.65%
Since n = [tex]\infty[/tex]
The Principal amount of how much life insurance should you purchase is;
= Annual income receipt/the effective interest rate
= $58000/ 0.1165
= $497854.0773
For the following investments, identify whether they are: Trading debt securities. Available-for-sale debt securities. Held-to-maturity debt securities. None of the above. Each case is independent of the other.
(a) A bond that will mature in 4 years was bought 1 month ago when the price dropped. As soon as the value increases, which is expected next month, it will be sold.
(b) 10% of the outstanding stock of Farm-Co was purchased. The company is planning on eventually getting a total of 30% of its outstanding stock.
(c) Bonds were purchased in December of this year. The bonds are expected to be sold in January of next year.
(d) Bonds that will mature in 5 years are purchased. The company would like to hold them until they mature, but money has been tight recently and they may need to be sold.
(e) Preferred stock was purchased for its constant dividend. The company is planning to hold the preferred stock for a long time.
(f) A bond that matures in 10 years was purchased. The company is investing money set aside for an expansion project planned 10 years from now.
Answer:
(a) A bond that will mature in 4 years was bought 1 month ago when the price dropped. As soon as the value increases, which is expected next month, it will be sold. - Trading Debt Securities
Trading debt securities such as these are held only for a short time before they are sold with the goal being short term profit.
(b) 10% of the outstanding stock of Farm-Co was purchased. The company is planning on eventually getting a total of 30% of its outstanding stock. - None of the Above
This is an Equity Investment.
(c) Bonds were purchased in December of this year. The bonds are expected to be sold in January of next year. - Trading Debt Securities
Like the bond in (a), this is being held for a short while only and then it will be sold so it is a Trading debt security.
(d) Bonds that will mature in 5 years are purchased. The company would like to hold them until they mature, but money has been tight recently and they may need to be sold. - Available-for-sale debt securities
Available for sale debt securities are to be sold before maturity and therefore have no certain selling time. The bond above has no selling time as it might be sold at any point so it is an Available-for-sale debt security.
(e) Preferred stock was purchased for its constant dividend. The company is planning to hold the preferred stock for a long time. - None of the above.
This is an Equity investment as well.
(f) A bond that matures in 10 years was purchased. The company is investing money set aside for an expansion project planned 10 years from now. - Held-to-maturity debt securities.
Held to Maturity bonds are bought with no intention of selling and the company hopes to hold them till they mature like this bond which will be held for 10 years.
Annual demand for a product is 13,000 units; weekly demand is 250 units with a standard deviation of 40 units. The cost of placing an order is $100, and the time from ordering to receipt is four weeks. The annual inventory carrying cost is $0.65 per unit.a. To provide a 98 percent service probability, what must the reorder point be?b. Suppose the production manager is told to reduce the safety stock of this item by 100 units. If this is done, what will the new service probability be?
Answer:
a. Reorder point is 1,164 units to provide a 98 percent service probability.
b. the new service probability will be 79% if production manager reduces the safety stock by 100 units.
Explanation:
a. To provide a 98 percent service probability, what must the reorder point be?
This can be calculated as follows:
Step 1: Calculation of optimal order quantity
The optimal order quantity also known as economic order quantity (EOQ) using the following formula:
[tex]EOQ = \sqrt{\frac{2 *D*O}{C} }[/tex] ........................................... (1)
Where,
EOQ = Optimal order quantity = ?
D = Annual demands = 13,000
O = Ordering cost = $100
C = Carrying cost of annual inventory = $0.65 per unit
Substituting the values into equation (1), we have:
[tex]EOQ = \sqrt{\frac{2*13,000*100}{0.65} }[/tex]
[tex]EOQ = \sqrt{\frac{2,600,000}{0.65} }[/tex]
[tex]EOQ = \sqrt{4,000,000}[/tex]
EOQ = 2,000 units
Step 2: Calculation of standard deviation during the lead time
This can be calculated using the following formula:
[tex]SL = \sqrt{L*(S)^{2} }[/tex] ................................................. (2)
Where;
SL = Standard deviation during the lead time = ?
L = Lead time = 4
S = Standard deviation = 40
Substituting the values into equation (2), we have:
[tex]SL = \sqrt{4 *(40)^{2} }[/tex]
[tex]SL = \sqrt{4*1,600}[/tex]
[tex]SL =\sqrt{6.400}[/tex]
SL = 80
Also, z = 2.05 from the standard normal distribution
Step 3: Calculation of reorder point
Total calculate reorder point, we use the following formula:
R = (d * L) + (z * SL) ............................................ (3)
Where;
R = Reorder point = ?
d = Weekly demand = 250
L = Lead time = 4
z = 2.05
SL = Standard deviation during the lead time = 80
Substituting the values into equation (3), we have:
R = (250 * 4) + (2.05 * 80)
R = 1,000 + 164
R = 1,164 units
Therefore, reorder point is 1,164 units to provide a 98 percent service probability.
b. Suppose the production manager is told to reduce the safety stock of this item by 100 units. If this is done, what will the new service probability be?
ISS = Initial safety stock = z * SL = 2.05 * 80 = 164
If the safety stock is reduced by 100 units, we have:
NSS = New safety stock = ISS - 100 = 164 - 100 = 64
The new z (nz) can be obtained as follows:
NSS = nz * SL ................................................. (4)
Where;
NSS = 64
nz = new z = ?
SL = Standard deviation during the lead time = 80
Substituting the values into equation (4) and solve for nz, we have:
64 = nz * 80
nz = 64 / 80
nz = 0.80
For the new z, nz = 0.80, from Standard Normal distribution, the new service probability is 79%.
Therefore, the new service probability will be 79% if production manager reduces the safety stock by 100 units.
Vertical Analysis of Income Statement Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows: Current Year Previous Year Sales $4,000,000 $3,600,000 Cost of goods sold 2,280,000 1,872,000 Selling expenses 600,000 648,000 Administrative expenses 520,000 360,000 Income tax expense 240,000 216,000 a. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. Round to the nearest whole percentage. Innovation Quarter Inc. Comparative Income Statement For the Years Ended December 31 Current year Amount Current year Percent Previous year Amount Previous year Percent Sales $4,000,000 % $3,600,000 % Cost of goods sold (2,280,000) % (1,872,000) % $ % $ % Selling expenses $(600,000) % $(648,000) % Administrative expenses (520,000) % (360,000) % $ % $ % $ % $ % Income tax expense (240,000) % (216,000) % $ % $ % b. The vertical analysis indicates that the cost of goods sold as a percent of sales by 5 percentage points, while selling expenses by 3 percentage points, and administrative expenses by 3 percentage points. Thus, net income as a percent of sales by 5 percentage points.
Answer:
Innovation Quarter Inc.
a) Comparative Vertical Analysis of Income Statement
Current Year % Previous Year %
Sales $4,000,000 100% $3,600,000 100%
Cost of goods sold 2,280,000 57% 1,872,000 52%
Gross profit $1,720,000 43% $1,728,000 48%
Selling expenses 600,000 15% 648,000 18%
Administrative expenses 520,000 13% 360,000 10%
Income tax expense 240,000 6% 216,000 6%
After Tax Income $360,000 9% $504,000 14%
b. The vertical analysis indicates that the cost of goods sold as a percent of sales increased by 5 percentage points, while selling expenses decreased by 3 percentage points, and administrative expenses increased by 3 percentage points. Thus, net income as a percent of sales decreased by 5 percentage points.
Explanation:
Data and Calculations:
Vertical Analysis of Income Statement Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:
Current Year Previous Year
Sales $4,000,000 $3,600,000
Cost of goods sold 2,280,000 1,872,000
Selling expenses 600,000 648,000
Administrative expenses 520,000 360,000
Income tax expense 240,000 216,000
Innovation Quarter Inc. can use this vertical analysis to express the relationship between each line item and the sales revenue. The vertical analysis helps in ascertaining the percentage increases in each variable. With the analysis, the management of Innovation Quarter Inc. can undertake further investigations to learn the causes of the different performances and learn ways to control them.
