Answer:
since the positive cash flows are blocked for one year, you have to adjust your cash flows:
year cash flow
0 -$160,000
1 $0
2 $348,400
3 $416,000
4 $306,800
5 $260,000
discount rate = 7%
using a financial calculator:
NPV = -$160,000 + $1,063,318.63 = $903,318.63
IRR = 102.94%
Begin by reviewing the labels for the change in stockholders' equity and then enter the amounts for each situation.
Three situations about Timmy Company's issuance of stock and declaration and payment of dividends during the year ended January 31, 2017. follow.
Requirements.
Begin by reviewing the labels for the change in stockholders' equity and then enter the amounts for each situation.
Situation A Situation B Situation C
Total stockholders' equity, January 31, 2016
Add: Issuance of stock
Net income
Less: Dividends declared
Net loss
Total stockholders' equity, January 31, 2017
For each situation, use the accounting equation and the statement of retained earnings to compute the amount of Timmy's net income or net loss during the year ended January 31 2017.
1. Timmy issued $13 million of stock and declared no dividends.
2. Timmy issued no stock but declared dividends of $17 million.
3. Timmy issued $20 million of stock and declared dividends of $27 million.
Answer:
Note: The missing part of the question is
" 2017'million 2016'million
Total asset 77 50
Total liability 18 13"
Solution:
Stockholders Equity at year end
2017 2016
Assets 77 50
Less: liabilities -18 -13
Equity at end 59 37
Note: Situation 1, 2 and 3 is the same as question 1, 2 and 3
Situation 1 Situation 2 Situation 3
$'million $'million $'million
Total stockholders Equity 37 37 37
Jan 31 ,2016
Add: Issuance of stock 13 0 20
Less: dividend declared 0 -17 -27
Net income 9 39 29
Total stockholders Equity 59 59 59
January 31,2017
Rob and Lori purchased a home for $350,000 with an additional $5,000 in related purchase costs and then added a garage at a cost of $25,000. They sold the home for $450,000 and paid $28,000 in selling costs. How much was adjusted basis?
Answer: $380,000
Explanation:
To calculate the adjusted basis, we add the original cost, to the improvement cost and and then deduct depletion and depreciation cost.
From the scenario, since Rob and Lori purchased a home for $350,000 with an additional $5,000 in related purchase costs and then added a garage at a cost of $25,000 and then sold the home for $450,000 and paid $28,000 in selling costs.
The adjusted basis will be:
= $350,000 + $5,000 + $25,000
= $380,000
If a municipality is expecting to receive federal funding for mass-transit programs, it could borrow against the expected funds to be received by issuing:_____.
A. BANs.
B. TANs.
C. GANs.
D. CLNs.
Answer:
Option C (GANs) is the correct answer.
Explanation:
GAN refers to "Grant Anticipation Notice". This can indeed be distributed by a municipality or community to "move forward" as well as make the proper use of another government grant extra funds expected future economic in the years ahead. Those other state grant monies are being used for investments in mass transportation, energy efficiency, including environmental regulations.The other three alternatives are not related to the given instance. So that the above would be the appropriate one.
Harvey’s Hardware is thinking about starting a line of lawnmowers to serve its customer base in the summer. The lawnmowers would be priced at $100 and Harvey the manager believes that they would sell 3 units. They have the following estimated costs.
Units Produced Labor Cost Total cost
0 0 100
1 50 150
2 100 200
3 200 300
4 350 450
What is the marginal cost of producing the third unit?
a. $400
b. $300
c. $200
d. $100
Answer:
Harvey's Hardware
Marginal cost of producing the third lawnmowers:
d. $100
Explanation:
Harvey's marginal cost for producing the third unit of lawnmowers is the additional cost that resulted when the total cost increased from $200 to $300. However, it can be deciphered from the case that the marginal cost for Harvey, which it is supposed to be a variable cost, is traceable to the direct labor costs. This implies that the fixed cost element for Harvey in the production of the lawnmowers has been relatively fixed at $100. It does not vary with the volume of production, while the direct labor costs vary with the volume of lawnmowers produced by Harvey.
When convertible preferred stock is converted into common stock:______.
a. cash is debited.
b. a gain or loss can be recognized.
Answer:
b. a gain or loss can be recognized.
Explanation:
Convertible preferred stock is an option for shareholders with preferred shares where they have the choice of converting their preferred shares to common shares. The conversion is best done at a time when the common stock is above the conversion price. At this time, the stockholder can make a profit or gain. But if the common share is below the conversion price, the shareholder would most likely record a loss if he converts.
One disadvantage of this conversion process is that, once the preferred stock is converted to the common stock, the preferred shareholder gives up his rights as a preferred shareholder which includes no fixed dividends and higher claims on assets.
Imagine that Eveready has developed solar rechargeable batteries that cost only slightly more to produce than the rechargeable batteries currently available. These solar batteries can be recharged by sunlight up to five times, after which they are to be discarded. Unfortunately, the production process cannot be patented, so competitors could enter the market within a year. Which of the following is the best description of the product life cycle of this product?
a. Long, level beginning, and rapid ascent
b. High initial sales followed by slow decline
c. High introductory sales followed by rapid decline
d. Rapid growth followed by rapid decline
e. Moderately slow introduction, followed by modest growth, gradually leveling off
Answer: Moderately slow introduction, followed by modest growth, gradually leveling off
Explanation:
The product life cycle is the time a product takes from the introduction stage to the decline stage when it's off the market.
Based on the above scenario, the product life cycle of this product will be moderately slow introduction, followed by modest growth, gradually leveling.
This is because since it's a new product, there will be a slow introduction as people will just be getting used to the product, then as customers begin to buy the product and it's brand becomes known, there'll be a modest growth before it levels off.
The Busby Corporation had a share price at the start of the year of $26.20, paid a dividend of $0.56 at the end of the year, and had a share price of $29.00 at the end of the year. Which of the following is closest to the rate of return of investments in companies with equal risk to The Busby Corporation for this period?
A) 5%
B) 7%
C) 9%
D) 13%
Answer:
D) 13%
Explanation:
Calculation for the percentage that is closest to the rate of return of investments
First step is to find the balance amount of the share price using this formula
Share price =(End of the year Share price + End of the year dividend)-Start of the year Share price
Let plug in the formula
Share price =($29.00+$0.56)-$26.20
Share price =$29.56-$26.20
Share price =$3.36
Second step is to find the rate of return of investments
Using this formula
Rate of return of investments= Share price/Start of the year Share price
Rate of return of investments
Let plug in the formula
Rate of return of investments=$3.36/$26.20
Rate of return of investments=0.13*100
Rate of return of investments=13%
Therefore the percentage that is closest to the rate of return of investments in companies with equal risk to The Busby Corporation for this perio will be 13%
A company has net income of $925,000; its weighted-average common shares outstanding are 185,000. Its dividend per share is $0.70, its market price per share is $93, and its book value per share is $83.50. Its price-earnings ratio equals:
Answer:
$18.60
Explanation:
Calculation for the price-earnings ratio
Using this formula
Price-Earnings Ratio = Market Price per Share/ Earnings per share
The Earnings per share will be Net Income/(Weighted-Average Common Shares Outstanding)
Let plug in the formula
Price-Earnings Ratio = $93 / ($925,000 / 185,000)
Price-Earnings Ratio=$93/5
Price-Earnings Ratio=$18.60
Therefore the price-earnings ratio will be $18.60
Bryce Co. sales are $801,000, variable costs are $465,100, and operating income is $287,000. What is the contribution margin ratio
Answer:
Contribution margin ratio= 0.42
Explanation:
Giving the following information:
Bryce Co. sales are $801,000
Variable costs are $465,100
Operating income is $287,000.
To calculate the contribution margin ratio, we need to use the following formula:
contribution margin ratio= (sales - variable cost) / sales
contribution margin ratio= (801,000 - 465,100) / 801,000
contribution margin ratio= 0.42
When auto manufacturer BMW purchased the RollsRoyce brand name, BMW had to hire and train a new staff of assembly workers. The new workers were paid per hour, worked a total of hours, and produced cars. BMW budgeted for a standard labor rate of per hour and direct labor hours per car. What is the direct labor rate variance for the RollsRoyce division?
Complete Question:
When auto manufacturer BMW purchased the Rolls-Royce brand name, BMW had to hire and train a new staff of assembly workers. The new workers were paid $25 per hour, worked a total of 7,500 hours, and produced 2,000 cars. BMW budgeted for a standard labor rate of $27 per hour and 1.25 direct labor hours per car.
What is the direct labor rate variance for the Rolls-Royce division?
Answer:
$15,000 Favorable Variance
Explanation:
As we know that:
Labor Rate Variance = (Actual Rate per Hour − Standard Rate per Hour) * Actual Hours Worked
If we consider the parenthesis elements in the formula, we can decide whether the variance is favorable or adverse. If the actual cost is higher than the budget (standard) then the variance (difference) is adverse and vice versa.
Here
Actual rate per hour is $25 per Hour
Standard rate per hour is $27 per Hour
Actual Hours Worked are 7,500 Hour
By putting values, we have:
Labor Rate Variance = ($25 − $27) * 7,500 Hrs
Labor Rate Variance = ($2 per share) * 7,500 Hrs
Labor Rate Variance = $15,000 Favorable
As the actual labor rate is lower than the standard rate hence the variance is favorable.
Firm J has net income of $77,605, sales of $935,000, and average total assets of $467,500. Required: Calculate Firm J’s margin, turnover, and return on investment (ROI).
Answer:
Firm J's margin= 8.3%
Firm J's turnover= 2
Firm J's ROI= 16.6%
Explanation:
Form J has a net income of $77,605
The sales is $935,000
The average total assets is $467,500
Firm J's margin can be calculated as follows
Margin= Net income/sales
= $77,605/$935,000
= 0.083×100
= 8.3%
Firm J's turnover can be calculated as follows
Turnover= Sales/Average Total assets
= $935,000/$467,500
= 2
Firm J's return on investment can be calculated as follows
ROI= Net income/Average Total assets
= $77,605/$467,500
= 0.166×100
= 16.6%
Hence Firm J's margin, turnover and return on investment is 8.3%, 2 and 16.6% respectively.
If you could purchase IBM stock and simultaneously sell the stock for $5 more, you would be involved in one type of economic activity?a. indifference principleb. arbitragec. carry traded. marked to markete. none of the above
Answer:
arbitrage
Explanation:
Arbitrage can be defined as an act or process of buying buying and selling an asset simultaneously. Purchasing IBM stock and selling it for 5 dollar more simultaneously is an example of arbitrage. Such a seller is going to cash in on the price difference in buying and selling this stock. It is simply taking advantage of the difference in price that is gotten from buying and reselling this stock at 5dollars.
Stenson, Inc., imposes a payback cutoff of three years for its international investment projects. Assume the company has the following two projects available.
Year Cash Flow A Cash Flow B
0 –$48,000 –$ 93,000
1 18,500 20,500
2 24,800 25,500
3 20,500 33,500
4 6,500 247,000
What is the payback period for each project?
Answer:
Project A 2.22 years
Project B 3.05 years
Explanation:
Calculation for the payback period for each project
Project A
First step is to calculate for the amount received in 2 years
Amount received=$18,500+24,800
Amount received =$43,300
Second step is to calculate for the amount not received
Amount not received =$48,000-$43,300
Amount not received =$4,700
Third step is to find out when the remaining amount will be received.
=$4,700/$20,500
=$0.22 years
Last step
Payback period=2+0.22 years
Payback period =2.22 years
The payback period for project A will be 2.22 years
Project B
First step is to calculate for the amount received in 3 years
Amount received=$20,500+$25,500+$33,500
Amount received =$79,500
Second step is to calculate for the amount not received
Amount not received =$93,000-$79,500
Amount not received =$13,500
Third step is to find out when the remaining amount will be received.
=$13,500/$247,000
=$0.05 years
Last step
Payback period=3+0.05 years
Payback period =3.05years
The payback period for project B will be 3.05 years
The firm has a target debt-equity (D/E) ratio of 0.76. Its cost of equity is 15.3 percent, and its pretax cost of debt is 9 percent. What is the WACC given a tax rate of 21 percent
Answer:
11.76%
Explanation:
The computation of the Weighted average cost of capital (WACC) is shown below:
= Weightage of debt × cost of debt × ( 1 - tax rate)+ (Weightage of common stock) × (cost of common stock)
= (0.76 ÷ 1.76 × 9%) × ( 1 - 21%) + (1 ÷ 1.76 × 15.3%)
= 3.07% + 8.69%
= 11.76%
Hence, the WACC is 11.76%
We simply multiplied the weight of capital stucture with its cost
The Closed Fund is a closed-end investment company with a portfolio currently worth $200 million. It has liabilities of $3 million and 5 million shares outstanding.Required:a. What is the NAV of the fund? b. If the fund sells for $36 per share, what is its premium or discount as a percent of NAV?
Answer and Explanation:
The computation is shown below:
a. NAV of the fund is
= (Portfolio amount - liabilities) ÷ (outstanding shares)
= ($200 - $3) ÷ ($5)
= $39.40
b. The premium or discount as a percent of NAV is
= (Price - net asset value) ÷ (net asset value)
= ($36 - $39.40) ÷ ($39.40)
= -0.086
This represents the discount of 8.6%
We applied the above formulas
Suppose the Federal Reserve purchases $1,000,000 worth of foreign assets.
a. if the Federal Reserve purchases the foreign assets with 51,000,000 in currency, show the effect of this open market operation, using T-accounts. What happens to the monetary base?
b. if the Federal Reserve purchases the foreign assets by selling 51,000,000 in T-bills, show the effect of this open market operation, using T-accounts. What happens to the monetary base?
Answer:
A. Federal Reserve
Assets Liabilities
Foreign Assets $1,000,000 Currency in circulation $51,000,000
The federal liabilities increase by $51,000,000 in currency because it uses that money to purchase foreign assets which increase the foreign assets category by an equivalent amount. The monetary base is defined as the sum of currency circulating in the public and commercial banks reserve with the central bank
Since, the currency in circulation has increased. Thus, the monetary base will increase by $51,000,000
B. Federal Reserve
Assets Liabilities
Securities T-bill - $51,000,000
Foreign Assets $1,000,000
The federal is basically swapping T-bills with foreign assets. It did not use currency to make this purchase and the composition of assets changes, but the total does not.
Thus, the monetary base does not change
Consider a basket of consumer goods that costs $90 in the United States. The same basket of goods costs CNY 105 in China.
Holding constant the cost of the basket in each country, compute the real exchange rates that would result from the two nominal exchange rates in the following table.
Cost of Basket in U.S (Dollars) Cost of Basket in China (Yuan) Nominal Exchange Rate (Yuan per dollar) Real Exchange Rate (Baskets of Chinese goods per basket of U.S goods)
90 105 7.00
90 105 10.50
Answer:
The real exchange rates that would result from the two nominal exchange rates are:
For the first row in the table RER is 6.
For the second row in the table RER is 9.
Note: See the attached excel file for the table.
Explanation:
Note: The table in the question is merged together. It is therefore sorted before answering the question. See the attached excel file for the sorted table.
The answer to the explanation to the answer is now provided as follows:
The real exchange rate (RER) between the the currencies of two counties can be described as the multiplication of the nominal exchange and the ratio of baskets of goods between these two countries.
RER can can therefore be calculated using the following formula:
RER = (e * P*) / P ................................. (1)
Where, from the question;
e = Nominal exchange rate or Yuan per dollar
P* = Cost of Basket in U.S (Dollars)
P = Cost of Basket in China (Yuan)
For the first row in the table:
e = Nominal exchange rate or Yuan per dollar = 7
P* = Cost of Basket in U.S (Dollars) = $90
P = Cost of Basket in China (Yuan) = 105
Substituting the values into equation (1), we have:
RER = (7 * 90) / 105
RER = 630 / 105
RER = 6
For the second row in the table:
e = Nominal exchange rate or Yuan per dollar = 10.50
P* = Cost of Basket in U.S (Dollars) = $90
P = Cost of Basket in China (Yuan) = 105
Substituting the values into equation (1), we have:
RER = (10.50 * 90) / 105
RER = 945 / 105
RER = 9
The real exchange rates that should lead from the two nominal exchange rates should be 6 and 9.
Calculation of the real exchange rate:RER = (e * P*) / P ................................. (1)
Here,
e = Nominal exchange rate or Yuan per dollar
P* = Cost of Basket in U.S (Dollars)
P = Cost of Basket in China (Yuan)
So,
e = Nominal exchange rate or Yuan per dollar = 7
P* = Cost of Basket in U.S (Dollars) = $90
P = Cost of Basket in China (Yuan) = 105
Now
RER = (7 * 90) / 105
RER = 630 / 105
RER = 6
Now
e = Nominal exchange rate or Yuan per dollar = 10.50
P* = Cost of Basket in U.S (Dollars) = $90
P = Cost of Basket in China (Yuan) = 105
So,
RER = (10.50 * 90) / 105
RER = 945 / 105
RER = 9
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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
A firm has a market value equal to its book value. Currently, the firm has excess cash of $1,200 and other assets of $7,800. Equity is worth $9,000. The firm has 600 shares of stock outstanding and net income of $760. What will the new earnings per share be if the firm uses its excess cash to complete a stock repurchase?
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
Which one of the following conditions is not a requirement for an item to be recorded as a liability on a company's balance sheet?
a) It involves a probable future sacrifice of economic resources by the company.
b) It reduces the market value of the company.
c) It involves a probable future sacrifice to another entity.
d) It a present obligation, arising from a past transaction or event.
Answer:
c) It involves a probable future sacrifice to another entity.
Explanation:
A Liability is defined by the Conceptual Framework as Present Obligation of the entity as a result of past event, the settlement of which will result in the outflow of future economic benefits from the entity.
Additionally liabilities are meant to reduce the market value of the company.
Location Score
Factor
(100 points each) Weight A B C
Convenience .15 89 78 84
Parking facilities .20 75 93 98
Display area .18 92 90 87
Shopper traffic .27 92 93 82
Operating costs .10 93 97 84
Neighborhood .10 90 96 95
1.00
a.
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
b.
Determine which location alternative (A, B, or C) should be chosen on the basis of maximum composite score.
B
C
A
Answer and Explanation:
The computation of composite score for each location is shown below:-
Composite score for A is
= 0.15 × 89 + .20 × 75 + 0.18 × 92 + 0.27 × 92 + 0.10 × 93 + 0.10 × 90
= 88.05
Composite score for B is
= 0.15 × 78 + .20 × 93 + 0.18 × 90 + 0.27 × 93 + 0.10 × 97 + 0.10 × 96
= 90.91
Composite score for C is
= 0.15 × 84 + .20 × 98 + 0.18 × 87 + 0.27 × 82 + 0.10 × 84 + 0.10 × 95
= 87.90
Therefore for computing the composite score for each location we simply multiply weight with A location and in the same manner of A, B and C
b. The maximum composite score from A, B and C is B
You are an investor who wants to form a portfolio that lies to the right of the "optimal" minimum standard deviation portfolio on the efficient frontier. You must: 0 / 1 puntos Invest only in risky securities. Borrow money at the risk-free rate, invest in the minimum standard deviation portfolio and, in addition, only in risky securities. Borrow money at the risk-free rate and invest everything in the minimum standard deviation portfolio. Invest only in risk-free securities.
Answer:
Correct Answer:
invest in the minimum standard deviation portfolio and, in addition, only in risky securities.
Explanation:
For an investor aiming to invest in a portfolio so that, his minimum standard deviation would lie towards the optimal right, he or she would need to invest in extremely risky securities. And, also, there will be need to maintain minimum standard deviation portfolio.
Under Armour uses its website to sell its products, but Nathan Shriver, art director of Interactive, believes that what the website does, and what advertising does not do, is make the brand
Answer:
This question is incomplete, the options are missing. The options are the following:
a) Friendlier to the customer
b) Recognizable in retail stores
c) Seem special compare to off-label gear
d) Part of the consumer's daily life
e) Seem of higher quality than Nike
And the correct answer is the option D: Part of the consumer's daily life.
Explanation:
To begin with, when Nathan Shriver says that he believes that the website and advertising of the company does is to make the brand more part of the consumer's daily life refers that in the end it is that action what truly makes the company to increase its sales due to the fact that thanks to the marketing campaigns now the brand is more important in the life of the consumers and more due to the fact that those advertising make them understand that the use of Under Armour's products is essential to every day training and movement that the clients might face.
A 12-year, 5% coupon bond pays interest annually. The bond has a face value of $1,000.__________ Fill in the blank, read surrounding text. % is the percentage change in the price of this bond if the yield to maturity rises to 6% from the current yield to maturity of 4.5%
Answer:
12.38% decrease
Explanation:
Given the following parameters
6%
Number of years = 12
Market yield I= 6 === 4.5
Present Value = 916.16 == 1045.59
PMT (annuity payment) = 50 (5%x1000)
Future value = 1000
Therefore, to solve for the percentage change, we have in the price of this bond in this situation, we have (916.16-1045.59) / 1045.59 = -0.1238
Hence, 12.38% decrease is the percentage change in the price of this bond if the market yield rises to 6% from the current yield of 4.5%,
The percentage change in the price of this bond will be -12.38%.
The price of the bond at 4.5% is calculated thus:
Yield to maturity = 4.50%Years left to maturity = 12Annual coupon rate = 5%Face value = $1000.Annual coupon payment = $50Price of the bond at 4.5% = $1045.59The price of the bond at 6.0% is calculated thus:
Yield to maturity = 6.00%Years left to maturity = 12Annual coupon rate = 5%Face value = $1000.Annual coupon payment = $50Price of the bond at 6.0% = $916.16The percentage change in price will be:
= (916.16 - 1045.59) / 1045.59
= -12.38%
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If the region or country where a company is located is experiencing a labor shortage, what should the company's management do
Answer:
In a situation where the company established in a region or country is experiencing a labor shortage, the best action to be taken would be to employ labourers from other regions or countries and moved them towards their location. This approach is adopted mostly by construction and hospitality industries.
Explanation:
Sloan Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,040. The freight and installation costs for the equipment are $610. If purchased, annual repairs and maintenance are estimated to be $420 per year over the four-year useful life of the equipment. Alternatively, Sloan can lease the equipment from a domestic supplier for $1,460 per year for four years, with no additional costs. Prepare a differential analysis dated December 3, to determine whether Sloan should lease (Alternative 1) or purchase (Alternative 2) the machine. (Hint: This is a "lease or buy" decision, which must be analyzed from the perspective of the machine user, as opposed to the machine owner.) If an amount is zero, enter "0". Use a minus sign to indicate a loss.
Answer:
Sloan Corporation
Differential Analysis:
Cost of Alternative 1 (Lease) - $1,460.00
Cost of Alternative 2 (Buy) = $1,332.50
Choose Alternative 2, purchase the equipment, and there will be a cost saving of $127.50 per year.
Explanation:
Buy Decision:
Cost of purchase = $3,040
Freight-in 610
Total cost $3,650
Annual equipment cost = $912.50
Annual Repair cost = 420.00
Total annual cost to buy = $1,332.50
Cost of Lease per year = $1,460
Sloan Corporation's differential analysis of the lease or buy decision shows that it would be more profitable to purchase the equipment than to lease. With a purchase decision, the cost savings will be $127.50 per year. By undertaking this differential analysis, Sloan Corporation is able to determine the alternative that will serve its best interest, especially in terms of cost.
Portage Bay Enterprises has $1 million in excess cash, no debt, and is expected to have free cash flow of $11 million next year. Its FCF is then expected to grow at a rate of 5% per year forever. If Portage Bay's equity cost of capital is 10% and it has 4 million shares outstanding, what should be the price of Portage Bay stock?
Answer:
=$55.25
Explanation:
Value of Equity= FCF / (k - g)
value of equity=$11/(10%-5%)=$220 million
total value of the firm(all equity)=value of equity+cash
value of equity=$220 million+$1 million
share price value=value of total equity/shares outstanding
share price value=$221 million/4 million=$55.25
Alternatively:
Value of equity=$11/(1+10%)^1+$11*(1+5%)/(10%-5%)/(1+10%)^1=$220 million
A company estimates that it can sell 5,000 headphone each week if it prices each set of headphones at $20. However, its weekly number of sales will increase by 1000 units for each $1 decrease in price. At what price is revenue maximum? What is the maximum revenue and how many sets of headphones should the company expect to sell? Write your conclusions in a sentence.
Answer:
At what price is revenue maximum?
$13 and $12 per unit (maximum revenue $156,000)What is the maximum revenue and how many sets of headphones should the company expect to sell?
$156,000Write your conclusions in a sentence.
When the price is higher than $12 per unit, demand is elastic, which means any decrease in price will result in a larger proportional increase in quantity demanded. This in turn increases total revenue. Below $12 per unit, demand is inelastic, which means that a decrease in price will result in a smaller increase in quantity demanded.Explanation:
price quantity demanded total revenue
$20 5000 $100000
$19 6000 $114000
$18 7000 $126000
$17 8000 $136000
$16 9000 $144000
$15 10000 $150000
$14 11000 $154000
$13 12000 $156000
$12 13000 $156000
$11 14000 $154000
$10 15000 $150000
$9 16000 $144000
$8 17000 $136000
$7 18000 $126000
$6 19000 $114000
$5 20000 $100000
$4 21000 $84000
3 22000 $66000
2 23000 $46000
1 24000 $24000
A PHLX Jan 80 Swiss Franc Call contract is quoted at 2 when the Swiss Franc closes at 77. The contract is:_______
Answer:
Out the money.
Explanation:
A PHLX Jan 80 Swiss Franc Call contract is quoted at 2 when the Swiss Franc closes at 77. The contract is out the money.
An out the money ultimately implies that an option only has an extrinsic value but no intrinsic value. The extrinsic value of an option refers to the difference between its intrinsic value and the market value (premium). An extrinsic value is affected by the volatility in the market and its time value. The intrinsic value of an asset refers to the calculated, true or real value of an asset and is solely affected by internal factors.
A call is out the money when the strike price is greater than or above the underlying price of an asset. This simply means that, it's market value (price) has fallen below its strike price.
In this scenario, the market price of the call is 77 while its strike price is 80; thus, the call option is out the money by 3.
In its first year, a project is expected to generate earnings before interest and taxes of $237,884 and its depreciation expense is expected to be $87,882. If the company’s tax rate is 35%, what is the project’s expected net operating profit after taxes for the year?
Answer:
Net operating income= $242,506.6
Explanation:
Giving the following information:
Earnings before interest and taxes= $237,884
Depreciation expense= $87,882.
Tax rate= 35%
To calculate the net operating profit, we need to use the following structure:
EBIT= 237,884
Tax= (237,884*0.35)= (83,259.4)
Depreciation= 87,882
Net operating income= 242,506.6
