Answer:
$96,154.20
Explanation:
We are to find the future value of the annuity
The formula for calculating future value = A (B / r)
B = [(1 + r)^n] - 1
A = Amount
R = interest rate
N = number of years
[(1.08)^9 - 1 ] / 0.08 = 12.487558
12.487558 x $7,700 = $96,154.20
Jim and Kay Ross contributed to the support of their two children, Dale and Kim, and Jim's widowed parent, Grant. During the year, Dale, a 19-year-old full-time college student, earned $5,500 as a babysitter. Kim, a 23-year-old bank teller, earned $12,000. Grant received $5,000 in dividend income and $4,000 in nontaxable Social Security benefits (dividends, but not social security benefits, will be included in Grant's gross income). Kim and Grant currently reside with Jim and Kay. Dale's main place of residence is with Jim and Kay, and he is currently on a temporary absence to attend school. How many dependents can Jim and Kay claim on their joint income tax return?
Answer: 1 dependent
Explanation:
Only Dale can be claimed as a dependent as he is a qualifying child who is under 24 and is a full time student.
Kim cannot be claimed as a dependent as Kim is above the age of 19. To be a qualifying child for dependency, Kim would have to be less than 19 or less than 24 were Kim a full time student.
Grant also does not qualify as a dependent under the Qualifying relative designation as Grant's gross income of $5,000 exceeds the limit of $4,200 that Grant would have to be making less than in 2019 to be claimed as a qualifying relative.
Ultimate Butter Popcorn issues 5%, 15-year bonds with a face amount of $58,000. The market interest rate for bonds of similar risk and maturity is 5%. Interest is paid semiannually. At what price will the bonds issue
Answer:
So, the bonds will issue at par which means that they will issue at their face value of $58000
Explanation:
If the coupon rate paid by the bond and the market interest rates are same, the bonds are always issued at par. We can check this through the following.
To calculate the price of the bond, we need to first calculate the coupon payment per period. We assume that the interest rate provided is stated in annual terms. As the bond is a semi annual bond, the coupon payment, number of periods and semi annual YTM will be,
Coupon Payment (C) = 0.05 * 1/2 * 58000 = $1450
Total periods (n)= 15 * 2 = 30
r or YTM = 5% * 1/2 = 2.5% or 0.025
The formula to calculate the price of the bonds today is attached.
Bond Price = 1450 * [( 1 - (1+0.025)^-30) / 0.025] + 58000 / (1+0.025)^30
Bond Price = $58000
Suppose the price level and value of the U.S. Dollar in year 1 are 1 and $1, respectively. Instructions: Round your answers to 2 decimal places. a. If the price level rises to 1.35 in year 2, what is the new value of the dollar?
Answer:
0.74
Explanation:
Data provided in the question
Price level = 1.35
According to the given situation, the computation of the new value of the dollar is shown below:-
The New value of the dollar = 1 ÷ Price level
= 1 ÷ 1.35
= 0.74074
or
= 0.74
Therefore for computing the new value of the dollar we simply applied the above formula.
A stock is selling today for $40 per share. At the end of the year, it pays a dividend of $2 per share and sells for $44. a. What is the total rate of return on the stock?
Answer:
The total rate of return on the stock is 14%.
Explanation:
The sources of income from a stock are dividends and increase in its value. Therefore, the total rate of return on stock is calculated by dividing the addition of appreciation in the of the stock and dividends paid by the original stock price.
Therefore, the total rate of return on the stock can be calculated using the following formula:
Total rate of return = [(P1 - Po) + D] / Po .......................... (1)
Where;
P1 = Ending stock price = $44
Po = Initial stock price = $40
D = Dividend paid = $2
Substituting the values into equation (1), we have:
Total rate of return = [(44 - 40) + 2] / 44
Total rate of return = [4 + 2] / 44
Total rate of return = 6 / 44
Total rate of return = 0.14, or 14%
Venture Capital Corporation loans Wally $15,000 to start a new business.Wally does not pay,but Venture fails to sue within the time prescribed by the applicable statute of limitations.Wally's promise to pay the debt even though recovery is barred:_________
A) needs new consideration.
B) needs no consideration.
C) is unenforceable regardless of any consideration.
D) needs legally sufficient and adequate consideration.
Answer:
B) needs no consideration.
Explanation:
In this scenario, Wally's promise to pay the debt even though recovery is barred needs no consideration. This is mainly due to the fact that the Corporation failed to sue within the statute of limitation that was set. Meaning they can no longer sue Wally in order to recover the loan that was given to him. If they were to try and sue Wally now the lawsuit would just be dismissed with no consideration given.
Gi Gi's Dance Studio provided $280 of dance instruction and rented out its dance studio to the same client for another $165. The client paid immediately. Identify the general journal entry below that Gi Gi's will make to record the transaction.
Answer:
General Journal entry for GI is given below
Explanation:
General journal entry for GI's for its dance studio and the dance instructions would be
Entry DEBIT CREDIT
Cash $445
Renta income $165
Services provided $280
NOTE: As GI's is receiving cash for providing services and the studio, cash would be debited and Rental income and Services revenue would be credited.
Two mutually exclusive projects have an initial cost of $60,000 each. Project A produces cash inflows of $30,000, $37,000, and $20,000 for Years 1 through 3, respectively. Project B produces cash inflow of $80,000 in Year 2 only. The required rate of return is 10 percent for Project A and 11 percent for Project B. Which project(s) should be accepted and why
Answer:
Project A should be accepted because the NPV is higher. this means that project A is more profitable than project B
Explanation:
Net present value van be used to determine which project should be accepted.
Net present value is the present value of after tax cash flows from an investment less the amount invested.
NPV can be calculated using a financial calculator
For project A :
Cash flow in year 0 = $-60,000
Cash flow in year 1 = $30,000
Cash flow in year 2 = $37,000
Cash flow in year 3 = $20,000
I = 10%
NPV = $12,877.54
For project B :
Cash flow in year 0 = $-60,000
Cash flow in year 1 = $0
Cash flow in year 2 = $80,000
Cash flow in year 3 = $0
I = 11%
NPV = $4,929.79
Project A should be accepted because the NPV is higher. this means that project A is more profitable than project B
To find the NPV using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
Given the following information. Which of the statements below can you support with this information?
Maximum capacity (labor hours): 480 hours per week
Effective capacity ratio: 85 %
Actual time worked: 380 hours per week over the last two weeks
On-time delivery %: 75 percent of the jobs are being completed on time
a. More capacity needs to be added in the short term to improve performance in the system.
b. We need to look at variability in the rate at which jobs enter the shop.
c. Our workforce is not working hard enough.
d. Our workforce may be waiting on delayed arrivals of inputs needed to do the work.
Describe the reasons why you selected the specific option(s) that you did.
Answer:
d. Our workforce may be waiting on delayed arrivals of inputs needed to do the work.
Explanation:
There are two possible sources for 25% of the jobs not being delivered on time:
we have a problem with inputs required (materials or labor)we have a problem with the capacity of our facilityIf we followed Juran's Law, we can simply assume that the problem here has to do with our productive system (like 85% of production errors). Two clear problems are obvious:
only 380 hours worked out of total of 480 hours per week ⇒ why didn't anyone work during the remaining 100 hours? Is there a delay with the inputs or we don't have enough workers?only 85% of the facility's capacity is being used ⇒ why only 85% of the effective capacity ratio? If we are finishing jobs late, why do we have 15% of unused capacity?Obviously we cannot answer these questions just be reading two paragraphs, but that is what should be answered in order to solve the issues.
An invoice of $600 for merchandise purchased is showing 3/15, n/30 as terms of credit. If the invoice is paid on or before the fifteenth day after the invoice date, the amount to be paid is ________.
Answer:
Amount Payable or paid = $582
Explanation:
The terms of purchase state that the buyer will be entitled to a 3% cash discount if the payment for the purchases is made within 15 days of the purchase or invoice date.
Thus, if the payment is made on or within the fifteen days of invoice date, the cash discount that will be received is,
Discount = 600 * 0.03 = $18
So, the amount that will be payable for the merchandise will be,
Amount Payable or paid = 600 - 18 = $582
Japanese tourists come to experience the magic of Disney World and other attractions around Orlando, Florida. These tourists are:___________
[A] contributing to the United States’ deficit balance of payments.
[B] helping increase the balance of payments for Japan.
[C] exporting products and services back to Japan.
[D] further decreasing the United States’ balance of payments.
[E] helping the United States’ balance of payments.
Answer:
Option E, helping the United States’ balance of payments, is the right answer.
Explanation:
Option “E” is the correct answer because the balance of payment records all the transactions that occurred between the home country and the rest of the word. Therefore, if the foreign tourist spends in the country that means they are helping the balance of payment. This will increase the country’s surplus and the ability to pay the expenses because tourism is helping to generate revenue.
"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.
Discounted payback period. Given the following two projects and their cash flows, LOADING..., calculate the discounted payback period with a discount rate of %, %, and %. What do you notice about the payback period as the discount rate rises? Explain this relationship. With a discount rate of %, the cash outflow for project A is:
Answer:
the numbers are missing, so I looked for a similar question:
Cash Flow A B
Cost $10,000 $105,000
Cash flow year 1 $3,571 $21,000
Cash flow year 2 $3,571 $10,500
Cash flow year 3 $3,571 $42,000
Cash flow year 4 $3,571 $31,500
Cash flow year 5 $3,571 $5,250
Cash flow year 6 $3,571 $0
With a discount rate of 5%, 10% & 15%
Discounted cash flows for project A:
5% 10% 15%
Cost $10,000
Cash flow year 1 $3,571 $3,401 $3,246 $3,105
Cash flow year 2 $3,571 $3,239 $2,951 $2,700
Cash flow year 3 $3,571 $3,085 $2,683 $2,348
Cash flow year 4 $3,571 $2,938 $2,439 $2,042
Cash flow year 5 $3,571 $2,798 $2,217 $1,775
Cash flow year 6 $3,571 $2,665 $2,016 $1,544
discounted payback period:
5% = 3.09 years
10% = 3.46 years
15% = 3.9 years
The higher the discount rate, the longer the discounted payback period.
Discounted cash flows for project B:
5% 10% 15%
Cost $105,000
Cash flow year 1 $21,000 $20,000 $19,091 $18,261
Cash flow year 2 $10,500 $9,524 $8,678 $7,940
Cash flow year 3 $42,000 $36,281 $31,555 $27,616
Cash flow year 4 $31,500 $25,915 $21,515 $18,010
Cash flow year 5 $5,250 $4,114 $3,260 $2,610
discounted payback period:
5% = more than 5 years, the project's NPV is negative -$9,166.37
10% = more than 5 years, the project's NPV is negative -$20,901.42
15% = more than 5 years, the project's NPV is negative -$30,563.54
The depreciation method that allocates an equal portion of the total depreciable cost for a plant asset to each unit produced is called:
Answer:
Accelerated depreciation
Explanation:
The term that is being described in the question is known as an Accelerated depreciation. In other words, this is a depreciation method where an asset loses its book value at a much more rapid pace than more traditional methods. This method is mostly used in accounting or for income tax purposes because it allows for a greater deduction in the first couple of years of the asset's life cycle.
Answer:
The units-of-production depreciation method
Explanation:
The units-of-production depreciation method assigns an equal amount of expense to each unit produced or service rendered by the asset.
On January 1, Parson Freight Company issues 9.0%, 10-year bonds with a par value of $3,400,000. The bonds pay interest semiannually. The market rate of interest is 10.0% and the bond selling price was $3,168,967. The bond issuance should be recorded as:
Answer:
January 1
Cash $3168967 Dr
Discount on Bonds Payable $231033
Bonds Payable $3400000 Cr
Explanation:
The issuance of bond on January 1 is at a discount as the coupon rate paid by the bond is less than the market interest rate. In such case the bond is issued at a lower value than its par/face value. The discount on bonds payable is the difference between the face value and the cash received on issuance.
The entry to record the issues include a debit to cash account as cash is received, a debit to the discount on bonds payable account for the amount of discount and a credit to bonds payable account as liability is created as a result of the issuance of the bonds.
Discount = 3400000 - 3168967 = 231033
You have been given the following return information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is 0.97.
Year Fund Market Risk-Free
2008 -15.2% -24.5% 1%
2009 25.1 19.5 3
2010 12.4 9.4 2
2011 6.2 7.6 4
2012 -1.2 -2.2 2
What are the Sharpe and Treynor ratios for the fund?
Answer:
Sharpe ratio = 0.20
Treynor ratio = –0.005
Explanation:
Note: See the attached excel file for the calculations of average rate of returns, standard deviations and beta used in the calculation below.
a. Calculation of Sharpe ratio
Sharpe ratio refers to a investment measurement that employed to measure the an investment actual that has been adjusted for the risk associated with the investment.
Sharpe ratio can be calculated using the following formula:
Sharpe ratio = (Average fund rate - Average Risk Free rate) / Standard deviation of fund rate = (5.46% - 2.40%) / 15.05% = 0.20
a. Calculation of Treynor ratio
Treynor ratio refers to investment measurement that is calculated to show the risk of certain investments after the volatility of the market has been taking into consideration.
Treynor ratio can be calculated using the following formula:
Treynor ratio = (Average market return rate - Average Risk Free rate) / Beta = (1.96% - 2.40%) / 87.53% = –0.005
A firm has a required return of 14.2% and a beta of 1.63. If the risk-free rate is currently 5.4%, what is the expected return to the market? Assume that CAPM is correct.
Answer:
10.8%
Explanation:
Required rate of return = Risk free rate + Beta x ( Expected rate - Risk free rate )
14.2% = 5.4% + 1.63 x ( market rate - 5.4% )
14.2% - 5.4% = 1.63 x ( market rate - 5.4% )
8.8% / 1.63 = market rate - 5.4%
5.4% = market rate - 5.4%
Market rate = 5.4% + 5.4%
Market rate = 10.8%
Market rate = 10.8%
ABC uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $393,500 ($594,000), purchases during the current year at cost (retail) were $3,408,000 ($5,193,600), freight-in on these purchases totaled $159,500, sales during the current year totaled $4,666,000, and net markups were $414,000. What is the ending inventory value at cost
Answer:Ending Inventory at Cost= $981,248.40
Explanation:
Cost Retail
Beginning inventory $393,500 $594,000
purchases $3,408,000 $5,193,600
freight in $159,500,
net markups $414,000
Total $3,961,000 $6,201,600
Sales $4,666,000
Ending Inventory at Retail:=(Beginning inventory + purchases +net markups - Sales during the current year
594,000 + $5,193,600 + $414,000- $4,666,000, = $1,535,600
Cost to Retail Ratio:( Beginning inventory + purchases+freight in)/ (Beginning inventory + purchases +net markups )
=($393,500 + $3,408,000 +$159,500,) ÷ (594,000 + $5,193,600 + $414,000) =$3,961,000/$6, 201, 600= 0.638= 0.639
Ending Inventory at Cost: Ending Inventory at Retail x Cost to Retail Ratio
$1,535,600 x 0.639 = $981,248.40
Which of the following is an advantage of the corporate form of business? A. limited liability of stockholders B. less degree of government regulation C. separation of ownership and management D. low start-up costs
Answer: Limited liability of stockholders
Explanation:
Limited liability in a corporate fo.of business means that the shareholders will be legally responsible for debts of a company based on the on their share's nominal value.
This is an advantage of the corporate form of business along with the easy generation of huge equity.
Your estimate of the market risk premium is 9%. The risk-free rate of return is 3.7% and General Motors has a beta of 1.7. According to the Capital Asset Pricing Model (CAPM), what is its expected return?
Answer:
19%
Explanation:
The market risk premium is 9%
The risk free rate of return is 3.7%
General motors have a beta of 1.7
Therefore, using the capital asset pticing model the expected return can be calculated as follows
= 3.7% + 1.7×9%
= 3.7% + 15.3%
= 19%
Hence the expected return is 19%
Sue Helms Appliances wants to establish an assembly line to manufacture its new product, the Micro Popcorn Popper. The goal is to produce five poppers per hour. The tasks, task times, and immediate predecessors for producing one Micro Popcorn Popper are as follows:
Task Performance time(minutes) Predecessor
A 8 -
B 10 A
C 8 A,B
D 10 B,C
E 8 C
F 4 D,E
a. The theoretical minimum number of workstations is:___________
b. The assignment of tasks to workstations should be:________
Were you able to assign all the activities to workstations equivalent to the theoretical minimum workstation ?
c. The efficiency of the assembly line is:________
Answer:
Please see explanation below.
Explanation:
a. Cycle time = Production time available per hour / Units required per hour
= 60 / 5
= 12minutes
Minimum number of workstations = Sum of the task time / Cycle time
Sum of task time
= 8 + 10 + 8 + 10 + 8 + 4
= 48
The theoretical minimum number of work stations is
= 48 / 12
= 4
b. In order to assign the tasks to the work station, events that precede the task must be considered together with the time taken to complete each task.
°Task A This task is assigned to work station 1 and no task would further be assigned to work station 1, otherwise it will exceed the cycle time.
°Task B. This next task will be assigned to work station 2, no additional task will be assigned to station 2.
Task C is assigned to workstation 3, hence can no longer accept any other assigned task.
°Task D is the next task and will be assigned to work station 4, and we cannot assign any more task to work station 4.
°Task E and F will not be assigned as there are no more available stations.
Task Time Workstation
A. 8 1
B. 10 2
C. 8 3
D. 10 4
E. 8 -
F. 4 -
Please note that due to the theoretical minimum number of work station, which is 4, it will not be possible to assign task to all the workstations hence task E and F remains unassigned.
C. Efficiency of the assembly line
Efficiency ;
= Sum of task times / Actual number of work stations × cycle time
Although the actual number of required workstation is 5 but we cannot assign task E and F due to the theoretical minimum number of workstation. Therefore, additional work station will be required and there are 5 work stations in total.
= 48 ÷ (5 × 12) × 100
= 80%
The theoretical minimum should be = 4
The efficiency of the assembly line should be 80 percent
The production time = 60
The units that are required per hour = 5
[tex]cycle time = \frac{minutes in one hour}{units needed in a day} \\\\cycle time=\frac{60}{5}[/tex]
= 12
The workstation = 8+10+8+10+8+4
= 48
[tex]The minimum number = \frac{48}{12} \\\\= 4[/tex]
The efficiency of the assembly line
[tex]\frac{48}{5*60} \\\\= 0.8\\\\0.8*100 = \\\\80percent[/tex]
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Burnett Corp. pays a constant $8.15 dividend on its stock. The company will maintain this dividend for the next 12 years and will then cease paying dividends forever. If the required return on this stock is 11 percent, what is the current share price
Answer:
$52.91
Explanation:
With regards to the above, we will apply the dividend discount model to come up with the price for share.
Under the dividend discount model, the price for share represents the present value of all its future dividend discounted at the required rate of return.
Since the share has 12 annual equal dividend payments of 8.15 each year, while the required rate is 11%, we can apply the below annuity to arrive at the share price.
(8.15/0.11) × [ 1- 1.11^(-12) ] = $52.91
Therefore, the current share price is $52.91
Jack, an employee of Desert Sky, Inc., has gross salary for May of . The entire amount is under the OASDI limit of $118,500 and thus subject to FICA. He is also subject to federal income tax at a rate of %. Which of the following is a part of the journal entry for accrual of the employer payroll taxes? (Assume a FICAOASDI Tax of % and FICAMedicare Tax of %.) Jack's income to date exceeds the FUTA and SUTA tax income limits
Answer:
Credit to Cash for $4,995 is correct
Explanation:
here is a complete question
has a gross salary for May of $7,000. The entire amount is under the OASDI limit of $118,500 and thus subject to FICA. He is also subject to federal income tax at a rate of 21%. Which of the following is a part of the journal entry to record the disbursement of his net pay? (Assume a FICA-OASDI Tax of 6.2 % and FICA-Medicare Tax of 1.45%. Round the final answer to the nearest dollar.) A. debit to Cash for $4,995 B. debit to FICA Tax Payable of $4,995 O C. debit to Employee Income Tax Payable of $4,995 D. credit to Cash for $4,995
The computation of the amount that becomes the part for accrual the employer payroll taxes is shown below:
Gross Pay $7,000
Less: Deductions
Federal Income tax $1,470 ($7000 × 21%)
FICA-OASDI tax $434 ($7000 × 6.2%)
FICA-Medicare tax $102 ($7,000 × 1.45%)
Total Deductions 2006
Net pay $4,995
The risk-free rate of return is 3.2 percent and the market risk premium is 4.6 percent. What is the expected rate of return on a stock with a beta of 2.12
Answer:
12.95%
Explanation:
The risk free rate of return is 3.2%
The market risk premium is 4.6%
The beta is 2.12
Therefore, the expected rate of return on a stock can be calculated as follows
= 3.2% + (2.12×4.6%)
= 3.2% + 9.752
= 12.95%
Hence the expected rate of return on a stock is 12.95%
A company developed the following per-unit standards for its product: 2 gallons of direct materials at $8 per gallon. Last month, 2200 gallons of direct materials were purchased for $16720. The direct materials price variance for last month was
Answer:
$880 favorable
Explanation:
The computation of direct materials price variance for last month is shown below:-
Direct material price variance = Actual quantity × (Standard price - Actual price)
= 2,200 × ($8 - ($16,720 ÷ 2,200)
= 2,200 × ($8 - 7.6)
= 2,200 × $0.4
= $880 Favorable
Therefore for computing the direct materials price variance for last month we simply applied the above formula.
Torque corporation is expected to pay a dividend of $1 in the upcoming year. dividends are expected to grow at a rate of 6% per year. the risk free rate of return is 5% and the expected return on the market portfolio is 13%. the stock of torque corporation has a beta of 1.2. what is the return you should require on torque stock?a) 12%,
b) 14.6%,
c) 15.6%,
d) 20%
Answer:
The required rate of return on stock is 14.6% and option b is the correct answer.
Explanation:
The required rate of return is the minimum return that investors demand/expect on a stock based on the systematic risk of the stock as given by the beta. The expected or required rate of return on a stock can be calculated using the CAPM equation.
The equation is,
r = rRF + Beta * (rM - rRF)
Where,
rRF is the risk free rate rM is the return on market
r = 0.05 + 1.2 * (0.13 - 0.05)
r = 0.146 or 14.6%
Additional short-term borrowings $ 20,000
Purchase of short-term investments 5,000
Cash dividends paid 16,000
Interest paid 8,000
Compute cash flows from financing activities using the above company information. (Amounts to be deducted should be indicated by a minus sign.)
Answer:
Cash flow from from financing activities = $(4,000)
Explanation:
The cash flow from financing activities includes that entails any or a combination of the following; issuance and redemption of stocks , issuance and redemption of debts and payment of interest and/or dividend, and receipt of dividend and or interest.
Kindly note that the purchase of short term investment is not a financing activity but rather an investing activity
Cash flow $
Short term borrowing 20,000
Cash dividend paid (16,000)
Interest paid (8,000)
Total Cash flow (4000)
Cash flow from from financing activities = $(4,000)
A customer sells short 100 shares of ABC at $17 as the initial transaction in a new margin account. The customer must deposit:_______.
A. $750.
B. $1,500.
C. $2,000.
D. $3,000.
Answer: $2,000
Explanation:
Regulation T which governs such actions in the investment market would only require that the customer deposit 50% of the total amount to be called which would be;
= 50% * (100 * 17)
= $850
However, as this is a new margin account, there is a set minimum that must be reached to enable it to be open. That minimum is $2,000.
You short-sell 200 shares of Rock Creek Fly Fishing Co., now selling for $50 per share. If you want to limit your loss to $2,500, you should place a stop-buy order at ____. A. $37.50 B. $62.50 C. $56.25 D. $59.75
Answer:
The answer is B. $62.5
Explanation:
A stop order is an order to either buy or sell a stock immediately the stock price reaches a certain price. This particular price is called stop price.
A buy stop order is an order to buy a stock immediately the its price reaches a certain stop price. When stop price is above the current market price, a buy stop order is made.
Let's now go back to the question;
Stop buy order will be placed at:
($2,500 / 200 shares) + $50
= $12.5 + $50
= $62.5
An increase in input prices causes:___________
a) the market supply to shift inward, driving the equilibrium price downward.
b) the market supply to shift outward, leading to a higher equilibrium price.
c) the market supply to shift inward, driving the equilibrium price higher.
d) the supply curve to decrease and the demand curve to decrease.
Answer: the market supply to shift inward, driving the equilibrium price higher.
Explanation:
An increase in input prices will result into a rise in the production costs. This will result in a leftward shift of the supply curve.
Therefore, the market supply will shift inward, driving the equilibrium price higher. This simply means that there will be lesser supply of the product and hence, increase in price.
Sound Systems (SS) has 200,000 shares of common stock outstanding at a market price of $37 a share. SS recently paid an annual dividend in the amount of $1.20 per share. The dividend growth rate is 4 percent. SS also has 4,500 bonds outstanding with a face value of $1,000 per bond that are selling at 99 percent of par. The bonds have a 6 percent coupon and a 6.7 percent yield to maturity. If the tax rate is 34 percent, what is the weighted average cost of capital?
Answer:
the weighted average cost of capital is 6.31 %
Explanation:
Weighted Average Cost of Capital (WACC) is the return required by the providers of long term permanent source of capital to the firm.
WACC = Ke × (E/V) + Kp × (P/V) + Kd × (D/V)
Ke = Cost of equity
= $1.20 / $37.00 + 0.04
= 0.0724 or 7.24 %
E/V = Weight of Equity
= (200,000 × $37) ÷ (200,000 × $37 + 4,500 × $1,000 × 99%)
= $7,400,000 ÷ ($7,400,000 + $4,455,000)
= 62.42 %
Kd = Cost of Debt
= Interest × (1 - tax rate)
= 6.70 % × (1 - 0.34)
= 4.42 %
D/V = Weight of Debt
= (4,500 × $1,000 × 99%) ÷ (200,000 × $37 + 4,500 × $1,000 × 99%)
= $4,455,000 ÷ ($7,400,000 + $4,455,000)
= 37.28 %
Therefore,
WACC = 7.24 % × 62.42 % + 4.42 % × 37.28 %
= 6.31 %
