Answer:
Delta is responsible for insuring $200,000 / $1,600,000 = 1/8 of the building
Eversafe is responsible for 1 - 1/8 = 7/8
the loss = $1,600,000 x 40% = $640,000
Delta will pay 1/8 x $640,000 = $80,000
Eversafe will pay $640,000 - $80,000 = $560,000
in order for Eversafe to pay:
$600,000, the total loss = $685,714, or 42.86% of the building$700,000, the total loss = $800,000, or 50% of the building$720,000, the total loss = $822,857, or 51.43% of the building$800,000, the total loss = $914,286, or 57.14% of the buildingThe Clifford Corporation has announced a rights offer to raise $17 million for a new journal, the Journal of Financial Excess. This journal will review potential articles after the author pays a nonrefundable reviewing fee of $6,000 per page. The stock currently sells for $42 per share, and there are 2.9 million shares outstanding. a. What is the maximum possible subscription price? What is the minimum? (Leave no cells blank - be certain to enter "0" wherever required.) b. If the subscription price is set at $34 per share, how many shares must be sold? How many rights will it take to buy one share? (Do not round intermediate calculations. Round your rights needed answer to 2 decimal places, e.g., 32.16.) c. What is the ex-rights price? What is the value of a right? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) d. A shareholder with 2,000 shares before the offering has no desire (or money) to buy additional shares offered as rights. What is his portfolio value before and after the rights offer? (Do not round intermediate calculations and round your answers to nearest whole number, e.g., 32.)
Answer:
A.Maximum possible subscription price $42 per shares
Minimum price $0
B.Number of new shares $500,000
Numbers of right needed 5.8
C.Ex-rights price $40.82
Value of a right $1.18
D.Portfolio value before the right offer $84,000
Portfolio value after the right offer $84,000
Explanation:
A.
The maximum possible subscription price based on the information given will be $42 per Shares
The minimum price will be anything that is greater or higher that $0
B. Calculation for how many shares must be sold
Using this formula
Number of new shares =Journal of Financial Excess amount /Subscription price per share
Let plug in the formula
Number of new shares=$17,000,000/ $34 per share
Number of new shares=$500,000
Calculation for how many rights will it take to buy one share
Using this formula
Numbers of right needed=Shares Outstanding/Number of new Shares
Let plug in the formula
Numbers of right needed=$2,900,000/$500,000
Numbers of right needed=5.8
C. Calculation for the ex-rights price
Using this formula
Ex-rights price=(Numbers of right needed*Maximum possible subscription price +Subscription price per share)/(Numbers of right needed+ One shares)
Let plug in the formula
Ex-rights price=(5.8*$42+$34)/(5.8+1)
Ex-rights price=$277.6/6.8
Ex-rights price=$40.82
Calculation for the value of a right
Using this formula
Value of a right =maximum possible subscription price-Ex-rights price
Let plug in the formula
Value of a right=$42-$40.82
Value of a right=$1.18
D. Calculation for What is his portfolio value before the right offer
Using this formula
Portfolio value before the right offer= Shareholders Shares *Maximum possible subscription price
Let plug in the formula
Portfolio value before the right offer=2,000*42
Portfolio value before the right offer=$84,000
Calculation for What is his portfolio value after the right offer
Using this formula
Portfolio value after the right offer=(Shareholders Shares*Ex-rights price) +(Shareholders Shares*Value of a right)
Let plug in the formula
Portfolio value after the right offer=(2,000*40.82)+(2,000*1.18)
Portfolio value after the right offer=$81,640+$2,360
Portfolio value after the right offer=$84,000
Sunny Day Manufacturing Company is considering investing in a one-year project that requires an initial investment of $450,000. To do so, it will have to issue new common stock and will incur a flotation cost of 2.00%. At the end of the year, the project is expected to produce a cash inflow of $550,000. The rate of return that Sunny Day expects to earn on its project (net of its flotation costs) is:____________
White Lion Homebuilders has a current stock price of $22.35 per share, and is expected to pay a per-share dividend of $2.03 at the end of next year. The company's earnings' and dividends' growth rate are expected to grow at the
constant rate of 8.70% into the foreseeable future. If White Lion expects to incur flotation costs of 5.00% of the value of its newly-raised equity funds, then the flotation-adjusted (net) cost of its new common stock (rounded to two decimal places) should be:_________
Sunny Day Manufacturing Company Co.'s addition to earnings for this year is expected to be $420,000. Its target capital structure consists of 50% debt, 5% preferred, and 45% equity. Determine Sunny Day Manufacturing Company's retained earnings breakpoint: ___________
a. $840,000
b. $980,000
c. $933,333
d. $886,666
Answer:
A lot to read and check but I will get back to you soon
In Year 1 Jorge buys a home for $200,000, making a down payment of $40,000 and taking out a loan from the bank for $160,000 to finance the balance. In Year 5 the remaining loan balance is $130,000 while the home has increased in value to $270,000. Jorge refinances with a loan company that agrees to lend 125% of the value of the home, or $337,500, using $130,000 to repay the bank loan and providing $207,500 in cash. Jorge immediately spends $10,000 of the cash on a lavish vacation to the Bahamas, and $20,000 to pay down credit cards.
How much of the $337,500 home equity loan balance is allowable for calculating the home mortgage interest deduction on Jorge’s Year 5 tax return?
a. $270,000
b. $240,000
c. $230,000
d. $220,000
Answer:
Under current tax law, no option is correct. Before 2018, option C would have been right.
Explanation:
Currently under the Tax Cuts and Jobs Act (from Jan. 2018 until Dec. 2025) you can only deduct interests on mortgages used to purchase, build or improve your home. In this case, Jorge will only be able to deduct the interests paid on the $130,000 he owed for the first mortgage.
Interests on home equity loans will again be deductible (up to $100,000) starting Jan. 2026.
The HIJ bond has a current price of $800, a maturity value of $1,000, and matures in 5 years. If interest is paid semi-annually and the bond is priced to yield 8%, what is the bond's annual coupon rate
Answer:
Explanation:
The coupon rate is defined as the interest rate paid on a bond by its issuer for the term of the security.
Hence,
Par Value = $800
Face Value = $1,000
N = 5 x 2 = 10
Since the interest is semi annual
i = 8% / 2 = 4%
CF = $15.34
Coupon = $30.68 per year or 3.068%
If a corporation issues shares of $1 par value common stock for , the journal entry would include a credit to:
The question is incomplete. The complete question is,
If a corporation issues 10,000 shares of $1 par value common stock for $9000, the journal entry would include a credit to:
A) Common Stock for $9000.
B) Paid-in Capital in Excess of Par—Common for $9000.
C) Common Stock for $10,000.
D) Retained Earnings for $10,000
Answer:
The common stock is credited for $10000. Thus option C is the correct answer
Explanation:
The journal entry to record the issuance of shares below par value will be,
Cash 9000 Dr
Paid in Cap in excess of par-Common stock 1000 Dr
Common stock 10000 Cr
Thus, the common stock is credited for the complete amount of $10000.
The cash received is $9000 and there is a shortage of $1000 which is adjusted by debited the paid in capital in excess of par account.
Your estimate of the market risk premium is %. The risk-free rate of return is %, and General Motors has a beta of . According to the Capital Asset Pricing Model (CAPM), what is its expected return?
Answer:
The correct option is option A) 16.4%.
Explanation:
Note: This question is not complete as all the important data are omitted from it. The complete question is therefore provided before answering the question as follows:
Your estimate of the market risk premium is 9%. The risk-free rate of return is 3.8% and General Motors has a beta of 1.4. According to the Capital Asset Pricing Model (CAPM), what is its expected return?
Options:
A) 16.4%
B) 17.2%
C) 14.8%
D) 15.6%
The question is now answered as followed:
Capital asset pricing model (CAPM) can be described as a model that is employed to compute a theoretical required rate of an asset in order decide whether or not to add assets a portfolio of investment that is well-diversified.
According to the Capital Asset Pricing Model (CAPM), the expected return can be calculated using the following formula:
Expected return = Risk-free rate + (Beta * Market ris premium) .......... (1)
Where;
Risk-free rate of return = 3.8%
Market risk premium = 9%
Beta = 1.4
Substitute the values into equation (1), we have:
Expected return = 3.8% + (1.4 * 9%) = 16.40%
Therefore, the correct option is option A) 16.4%.
The three conditions that characterize difficult managerial decisions concerning resources, capabilities, and core competencies are
Answer:
uncertainty, complexity, and intra-organizational conflicts.
Explanation:
Managerial decisions define that any decision that can be taken for the benefit of the organization also these types of decision set targets for the income of the company moreover it decides what type of product should be sell and the hiring of employees who should be into the organization or who should not be in the organization etc.
According to the given situation, Management decisions on capital, expertise, and core competencies are disputes of uncertainty, complexity, and intra-organizational existence.
If you were given a personality test as part of an employment application process, would you answer the questions honestly or would you attempt to answer the questions based upon your image of "correct" way to answer? what implications does your response has for the validity of personality testing?
Explanation:
Personality tests are sold on the promise that they are valid (they measure what they say they will measure) and reliable (they produce consistent results). “Many studies over the years have proven the validity of the MBTI instrument,” says the Myers & Briggs FoundationPsychologists seek to measure personality through a number of methods, the most common of which are objective tests and projective measures.Objective tests, such as self-report measures, rely on an individual's personal responses and are relatively free of rater bias.Hope it will help you.I would answer some questions honestly but if there are some questions which i can't tell the truth i will tell some lies. because if u really like this job and don't want to loose it, it's ok to give wrong answers just for once! That's my opinion. :p. But be careful u might get in trouble if they find out ur lying!
If a company uses straight-line depreciation, the annual average investment can be calculated as: (Check all that apply.)
Answer: beg book value +the salvage value) / 2.
(the sum of annual average book values) ÷ asset’s life
(beg book value +the end book value) ÷ 2.
Explanation:
Depreciation is simply when an asset begin to wear and tear and thereby its value is reduced.Straight line depreciation is calculated when the difference between the cost of an asset and the expected salvage value is divided by the number of years it is projected to be used.
Using this method, the annual average investment can be calculated as:
• beg book value +the salvage value) / 2.
• (the sum of annual average book values) ÷ asset’s life
• (beg book value +the end book value) ÷ 2.
Jay owns Gatsby Islands and wants to convey it to his good friends, Nick and Daisy. Nick lives next door to Jay while Daisy lives across the waters. He conveys an interest in Gatsby Islands "to Nick as tenants by the entirety." Two months later, he makes a corresponding conveyance to Daisy. Jay created the following:_______
a. tenancy in common
b. severalty community property
c. joint tenancy with rights of survivorship
d. tenancy by entirety
Answer:
Correct Answer:
c. joint tenancy with rights of survivorship
Explanation:
The property Jay owes on Gatsby Island belongs to him but he wishes to share th ownership with his 2 good friends. His conveyance of the message to both which reads "tenants by the entirety" shows that he and his friends has equal ownership and rights to the Gatsby Island property.
In the event that either him or one of the friends dies, the full title of the property automatically passes to the surviving person.
5. Suppose that a firm is in an industry which has a very rapid rate of growth (in sales and output), and is characterized by technological change and innovation. Firms attempt to maximize profits causing new firms to enter the industry attracted by profit potential. The result is that profits are competed away, leading to even greater innovation and change. Is there a limit to this continuous change
Answer:
If we use high tech industry as our subject here, I would say that there is no limit to continuous change. We can look at he last 45 years and ever since Steve Jobs developed the Apple I, PCs have continuously evolved into different products and their rate of technological evolution has currently increased. Any modern smartphone is hundreds of times more powerful than the first PCs, they are even more powerful than huge computers that existed back then. Currently high tech companies are trying to develop AI, and who knows what after. The only problem is that project lives tend to be very short, but that is part of the game. The profit margins of the firms that are successful are huge, just look at how Apple became the first company to be worth more than 2 trillions.
To arrive at an accurate balance on a bank reconciliation statement, a credit memorandum from the bank for the collection of a note and interest should be
Answer:
Must be added to the book balance.
Explanation:
The correct treatment would be to add this value to book balance because the bank has increased our bank balance by the note and interest amount. This must be accounted for as increase in the book balance because we have borrowed money and also that yearly interest income was also added to our bank checking account.
Hence it must be added to cash book balance in order to reconcile with the bank balance.
Webb, Inc. uses a flexible budget for manufacturing overhead based on machine hours. Variable manufacturing overhead costs per machine hour are as follows: Indirect labor $5.00 Indirect materials 2.50 Maintenance .50 Utilities .30 Fixed overhead costs per month are: Supervision $1,200 Insurance 400 Property taxes 600 Depreciation 1,800 The company believes it will normally operate in a range of 4,000 to 8,000 machine hours per month. During the month of August, 2019, the company incurs the following manufacturing overhead costs: Indirect labor $28,000 Indirect materials 16,200 Maintenance 2,800 Utilities 1,900 Supervision 1,440 Insurance 400 Property taxes 600 Depreciation 1,860 Prepare a flexible budget report, assuming that the company used 6,000 machine hours during August.
Answer:
Variable overhead costs per machine hour:
Indirect labor $5.00 Indirect materials $2.50 Maintenance $0.50 Utilities $0.30Total $8.30Fixed overhead costs:
Supervision $1,200 Insurance $400 Property taxes $600 Depreciation $1,800 Total $4,000Flexible Actual Spending
budget expenses variances
Variable costs:
Indirect labor $30,000 $28,000 $2,000 FIndirect materials $15,000 $16,200 $1,200 UMaintenance $3,000 $2,800 $200 FUtilities $1,800 $1,900 $100 UTotal $49,800 $48,900 $900 FFixed costs:
Supervision $1,200 $1,440 $240 UInsurance $400 $400 $0Property taxes $600 $600 $0Depreciation $1,800 $1,860 $60 UTotal $4,000 $4,300 $300 UTotal costs $53,800 $52,300 $600 F
Predatory pricing is considered an anti-competitive practice, and is considered illegal under competition laws. Which of the following best describes predatory pricing?
A. Predatory pricing requires one company to aquire the assets of another.
B. One business chooses to put another out of business by pricing its product below the level another competing business must be at to make a profit.
C. Predatory pricing occurs when a firm colludes with one or more firms to fix prices or output.
D. Predatory pricing is when a business sends someone out to change the price of another company's product so it is higher than its own.
Answer:
B
Explanation:
Predatory pricing is when a company sets the price of its goods or services too low with the aim of eliminating the competition. Predatory pricing is illegal and it violates antitrust law.
Predatory pricing occurs when a firm colludes with one or more firms to fix prices or output. This is an example of collusion and they usually occur in an oligopoly
Masterson, Inc., has 3.6 million shares of common stock outstanding. The current share price is $85.50, and the book value per share is $9.25. The company also has two bond issues outstanding. The first bond issue has a face value of $73 million, a coupon rate of 5.3 percent, and sells for 95.7 percent of par. The second issue has a face value of $45 million, a coupon rate of 5.9 percent, and sells for 104.9 percent of par. The first issue matures in 23 years, the second in 11 years. The most recent dividend was $4.04 and the dividend growth rate is 4.3 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 23 percent.
1. What is the company's cost of equity?
2. What is the company's aftertax cost of debt?
3. What is the company's weight of equity?
4. What is the company's weight of debt?
5. What is the company's WACC?
Answer:
1. 9.03 %
2. 7.56 %
3. 72.45 %
4. 27.55 %
5. 8.63 %
Explanation:
Cost of equity is the return that is required by holders of Common Stocks
Cost of equity = Recent year`s dividend / Current Market Price + Expected Growth Rate
= $4.04 / $85.50 + 0.043
= 0.0903 or 9.03 %
1st bond issue
PV = $69,861,000
Pmt = ($73,000,000 × 5.30%) ÷ 2 = - $1,934,500
p/y = 2
n = 23 × 2 = 46
Fv = 0
i = ?
Cost of the 1st Bond Issue, i is : 2.1571 %
After tax cost = 2.1571 % × 77 %
= 1.66%
2nd Bond Issue
PV = $47,205,000
Pmt = ($45,000,000 × 5.90%) ÷ 2 = - $1,327,500
p/y = 2
n = 11 × 2 = 22
Fv = 0
i = ?
Cost of the 2nd Bond Issue, i is : 7,6681 %
After tax cost = 7,6681 % × 77 %
= 5.90%
Total Cost of Debt = 1.66% + 5.90%
= 7.56 %
Market Values :
Market Value of Equity = 3,600,000 shares × $85.50
= $307,800,000
Market Value of Bonds
1st Issues = $69,861,000
2nd Issue = $47,205,000
Total = $117,066,000
Weight of equity = Market Value of Equity ÷ Total Market Value
= $307,800,000 ÷ ($307,800,000 + $117,066,000)
= 72.45 %
Weight of debt = Market Value of Bonds ÷ Total Market Value
= $117,066,000 ÷ ($307,800,000 + $117,066,000)
= 27.55 %
WACC = Weighted Cost of Debt + Weighted Cost of Equity
= 27.55 % × 7.56 % + 72.45 % × 9.03 %
= 8.63 %
"ABC corporation is trading in the market for $51. The corporation declares a 25% stock dividend. After the ex date, the holder of 1 ABC Jan 50 Call will have:"
Answer:
1 ABC Jan 50 call
Explanation:
Based on the information given we were told that the Corporation was trading for the amount of $51 with a declare stock dividend of 25 percent, this means that After the ex date which is the day in which the stock will begin to trade without the monetary worth of the following dividend payment , which means that the holder of the 1 ABC Jan 50 call will have still have 1 ABC Jan 50 call.
Samm Corp. purchased a plot of land for $100,000. The cost to raze a building on the property amounted to $50,000 and Samm received $10,000 from the sale of scrap materials. Samm built a new plant on the site at a total cost of $800,000 including excavation costs of $30,000. What amount should Samm capitalize in its land account?
a. $150,000.
b. $140,000.
c. $130,000.
d. $100,000.
Answer:
$140,000
Explanation:
Sam corporation purchased a plot of land for $100,000
The cost to raze a building on the property is $50,000
Sam received $10,000 from the sale of scrap materials
$800,000 was spent by Sam to build a new plant in the site
The excavation costs was $30,000
Therefore, the amount that Samm should capitalize in its land account can be calculated as follows
= cost of land+ cost to raze a building on the property - sale of scrape materials
= $100,000 + $50,000 - $10,000
= $150,000-$10,000
= $140,000
Hence Samm should capitalize $140,000 in its land account.
Barry Cuda is considering the purchase of the following Builtrite bond: $1000 par, 3 1/4% coupon rate, 10 year maturity that is currently selling for $940. If Barry purchases this bond, what would his approximate yield to maturity be?
Answer:
Yield to Maturity = 3.97%
Explanation:
The yield to maturity is the discount rate that equates the price of the bond to the present value of its future cash flow receivable from it.
The yield on the bond can be determined as follows using the formula below:
YM = C + F-P/n) ÷ 1/2 (F+P)
YM-Yield to maturity-
C- annual coupon
F- Face Value
P- Current Price
DATA
Coupon = coupon rate × Nominal value = 1,000 × 3 1/4%= 32.5
Face Value = 1000
YM-?, C- 32.5, Face Value - 1,000, P-940
YM = (32.5+ (1000-940)/10) ÷ ( 1/2× (1000 + 940) )
YM = 0.0397 × 100 = 3.97%
Yield to Maturity = 3.97%
g An increase in taxes when the economy is above full employment ______ aggregate demand and real GDP, and the price level ______.
Answer:
C. decreases; falls
Explanation:
As we know that
The rise in taxes results in low disposable income for individuals that lowered the spending of the consumer also the consumer spending is an element of the aggregate demand so ultimately it declines that result the curve to shift leftward or downward
Due to this, the real GDP also falls, and the price level too
Hence, the correct option is c.
When recording journal entries for production costs using a standard cost accounting system, the debit to Work in Process Inventory account is for the ______ amount.
Answer: Actual amount
Explanation:
Standard Costing deviates from traditional accounting in that it is not based on historical costs of a good. In standard cost accounting, the actual costs are put in place of standard costs and then the variance between the two will be recorded and used for analysis.
The debit to the Work in Process Inventory account under a standard cost accounting system will be the actual amount.
Union Local School District has bonds outstanding with a coupon rate of 4.5 percent paid semiannually and 20 years to maturity. The yield to maturity on these bonds is 3.8 percent and the bonds have a par value of $10,000. What is the dollar price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Answer:
$10,974.45
Explanation:
coupon rate 4.5%, semiannual = 2.25%
20 years until maturity = 40 periods
market rate 3.8%, semiannual = 1.9%
par value $10,000
market price of the bonds = PV of par value + PV of coupon payments
PV of par value = $10,000 / (1 + 1.9%)⁴⁰ = $4,710.13
PV of coupon payments = $225 x 27.84144 (PV annuity factor, 1.9%, 40 periods) = $6,264.32
market value = $4,710.13 + $6,264.32 = $10,974.45
Answer:
The dollar price of the bond is $10,974.45.
Explanation:
The dollar price of the bond, PV, can be determined as follows :
N = 20 × 2 = 40
PMT = ($10,000 × 4.5%) ÷ 2 = $225
P/YR = 2
YTM = 3.80 %
FV = $10,000
PV = ?
Using a Financial Calculator, the dollar price of the bond, PV is $10,974.45.
Akers Company sold bonds on July 1, 2017, with a face value of $100,000. These bonds are due in 10 years. The stated annual interest rate is 6% per year, payable semiannually on June 30 and December 31. These bonds were sold to yield 8%. By July 1, 2018, the market yield on these bonds had risen to 10%.
Required:
What was the bonds' market price on July 1, 2018?
Answer:
Price of bond= $75,075.58
Explanation:
The value of the bond is the present value(PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV).
Value of Bond = PV of interest + PV of RV
The value of the bond for Akers Company can be worked out as follows:
Step 1
PV of interest payments
Semi annul interest payment
= 6% × 100,000 × 1/2 = 3000
Semi-annual yield = 10%/2 = 5% per six months
Total period to maturity (in months)
= (2 × 10) = 20 periods
PV of interest =
3000 × (1- (1+0.05)^( -20)/) 0.05 = 37,386.63
Step 2
PV of Redemption Value
= 100,000 × (1.05)^(-20) = 37,688.95
Price of bond
Price of bond = 37,386.63 + 37,688.95 = 75,075.58
Price of bond= $75,075.58
Richards Corporation uses the FIFO method of process costing. The following information is available for October in its Fabricating Department: Units: Beginning Inventory: 80,000 units, 60% complete as to materials and 20% complete as to conversion. Units started and completed: 250,000. Units completed and transferred out: 330,000. Ending Inventory: 30,000 units, 40% complete as to materials and 10% complete as to conversion. Costs: Costs in beginning Work in Process - Direct Materials: $37,200. Costs in beginning Work in Process - Conversion: $79,700. Costs incurred in October - Direct Materials: $646,800. Costs incurred in October - Conversion: $919,300. Calculate the cost per equivalent unit of conversion.
Answer:
$2.90 per equivalent unit of conversion
Explanation:
equivalent units of conversion (under FIFO) = [units in beginning inventory x ( 1 - previous conversion rate)] + units started and completed + (units in ending inventory x conversion rate) = [80,000 x (1 - 20%)] + 250,000 + (30,000 x 10%) = 64,000 + 250,000 + 3,000 = 317,000 units
cost per equivalent unit of conversion = total conversion costs / total equivalent units of conversion = $919,300 / 317,000 units = $2.90 per equivalent unit
Moorcroft’s assistant controller suggested that Moorcroft hire a part time collector to encourage customers to pay more promptly and to reduce the amount of uncollectible accounts. Sales are still 40% cash and 60% credit but the assistant controller predicted that this would cause credit sales to be collected 30% in the month of the sale, 50% in the month following sale, and 18% in the second month following sale; 2% are uncollectible.Prepare a schedule of expected collections from customers for June. How did these changes impact cash collections?
Answer:
The budgeted sales are missing, so I looked for them. I found the following question, hopefully it will be similar:
Month Sales
April $300,000
May $320,000
June $370,000
Schedule of expected collections
For the month of June, 202x
Cash sales during June = $370,000 x 40% = $148,000
Collection from June's credit sales = $222,000 x 30% = $66,600
Collection from May's credit sales = $192,000 x 50% = $96,000
Collection from April's credit sales = $180,000 x 18% = $32,400
Total cash collections during June = $343,000
Since the cost of the part time collector is $1,000 per month, and the total uncollectible accounts reduce from 4% to 2%, which represents $7,400 for June's sales, I would recommend hiring the collector.
Product V72 sells for $20 per unit as is, but if enhanced it can be sold for $25 per unit. The enhancement process will cost $52,000 for 12,000 units. If the 12,000 units of Product V72 are sold as is without further processing, the company:
Answer:
It will incur an Opportunity cost of $8,000.
Explanation:
It will incur the opportunity cost of $8000 because the additional unit produces by the company then the additional revenue that is generated will be equal to the amount (25 - 20) x 12,000 = 60,000. Since the additional cost, that incurs for the production of 12000 units is 52000. Therefore the profit earned is $8000.
So if the company does not produce it then it will lose the profit of $8000.
Best Foods, Inc. has an unlevered cost of capital of 10 percent. The company generates EBIT of $4,250 per year and has a tax rate of 35 percent. If the firm adds $10,000 of debt to its capital structure, what is the value of the levered firm?
Answer:
The value of the levered firm $31,125
Explanation:
Value of Firm is the value of present value of expected future earning. It is calculated by dividing the earning after tax by the cost of capital while considering that the business will operate for the foreseeable future time.
EBIT $4,250.00
Less
Interest $0.00
EBT $4,250.00
Tax 35% x 4250 $1,487.50
EAT $2,762.50
Cost of Capial 10%
Value of firm = EAT / Cost of Capital = $2,762.5 / 10% = $27,625
Debt after tax = $10,000 x ( 1 - 0.35 ) = $6,500
Value of Equity = Value of firm - Debt after tax = $27,625 - $6,500 = $21,125
Value of debt = $10,000
Value of levered Firm = $21,125 + $10,000 = $31,125
Indicate the type of Deferred Tax account created by Unearned Revenues and Prepaid Expenses, respectively:
Answer:
The answer is Deferred tax asset and Deferred tax liability.
Explanation:
Unearned revenue creates deferred tax asset. In here, taxes have been paid because income has been received but have not been recognized on the income statement because according to the revenue recognition, the services for the revenue has not been rendered.
Prepaid expenses give rise to deferred tax liability. In here, taxes have been recognized on income statement but the actual tax has not been paid. Income tax expense on income statement is greater than taxes payable
Polly Khan is trying to calculate the current market rate given the following information: Investor’s have been requiring a 12% annual return on Builtrite’s stock which has a beta of 2.0 and the current risk-free rate is 4%. What is the current market rate?
Answer:
The current market rate is 8%
Explanation:
The market rate is the return on market or the market portfolio. To calculate the market rate (rM) we will use the CAPM equation which is used to calculate the required rate of return on a stock or portfolio. The formula for required rate of return under CAPM is,
r = rRF + Beta * (rM - rRF)
Where,
rRF is the risk free raterM is the market rateWe already know the value of r, rRF and Beta. We will input these values in the above equation to calculate the market rate.
0.12 = 0.04 + 2 * (rM - 0.04)
0.12 - 0.04 = 2 * rM - 0.08
0.08 + 0.08 = 2 * rM
0.16 / 2 = rM
rM = 0.08 or 8%
Joseph contributed $25,000 in cash and equipment with a tax basis of $6,400 and a fair market value of $12,600 to Berry Hill Partnership in exchange for a partnership interest.
a. What is Joseph’s tax basis in his partnership interest?
b. What is Berry Hill’s basis in the equipment?
Answer:
(A) $31,400
(B) $6,400
Explanation:
Joseph contributed $25,000 in cash and equipment
The tax basis is $6,400
The fair market value paid to Bill hill partnership is $12,600
(A) Joseph tax basis in his partnership interest can be calculated as follows
= contribution+tax basis
= $25,000+$6,400
= $31,400
(B) Since Joseph contributed a tax basis of $6,400 to Bill hill partnership in exchange for a partnership interest then, Bill hill's basis in the equipment is $6,400
Henry Crouch's law office has traditionally ordered ink refills 50 units at a time. The firm estimates that carrying cost is 35% of the $12 unit cost and that annual demand is about 235 units per year. The assumptions of the basic EOQ model are thought to apply. For what value of ordering cost would its action be optimal?
Answer:
ordering costs = $22.34
Explanation:
economic order quantity (EOQ) = √(2SD / H)
D = annual demand = 235H = holding cost = 35% x $12 = $4.20S = cost per order = ?EOQ = 5050 = √[(2 x S x 235) / $4.20]
2,500 = (2 x S x 235) / $4.20
$10,500 = 2 x S x 235
S = $10,500 / (2 x 235) = $10,500 / 470 = $22.34
