Answer:
1. Continue to Make the Cakes. Because the Cost of Outsourcing is greater that the cost of making by $1,150.
2. C. Qualitative factors include quality and on-time delivery.
Explanation:
Analysis of the Make or Buy Decision
Make Outsource Difference
Cake costs cakes cakes
Variable costs:
Direct materials $550 $0 $550
Direct labor $950 $0 $950
Variable manufacturing overhead $150 $0 $150
Fixed manufacturing overhead $1,125 $1,125 $0
Purchase cost $0 $2,800 ($2,800)
Total differential cost of cakes $2,275 $3,925 ($1,150)
Qualitative Factors.
Are non-monetary factors that need to be considered in decision making.
Midhun uses internet to deposit 1 poin
and withdraw money from his
bank. Name this type of
banking.
e-commerce
O e-banking
O e-payment
O e-lending
Answer:
e banking
Explanation:
it is called e banking ( electronic), because Midhun is using both deposit and withdraw money through internet
Akram owns a small farm. He employs 80 workers in the field and has recently hired a manager to help him manage the farm. The income of the business varies greatly during the year. The farm makes a small profit but Akram is ambitious. He wants to take over a neighbour’s farm and increase the range of crops he sells. He thinks that he needs long-term finance and plans to take out bank loan to pay for the takeover. He has already borrowed money to buy a new tractor. A friend has advised him to form a company and sell shares
Question Completion:
Requirement. Identity two types of short-term finance Akram could use when the farm income is low
Answer:
Akram's Farm
Akram's farm can make good use of the following short-term financing sources:
1. Akram's farm can use Accounts Payable to provide short-term trade finance when the farm buys farm inputs, equipment, and other supplies on credit. The farm's Accounts Payable can provide interest-free trade loans by allowing the farm to take longer time to settle the suppliers. But, the farm should not miss out on cash discounts - an important source of trade finance.
2. Akram's farm can generate finances by ensuring early collections of the Accounts Receivable. Akram's farm can also go ahead and borrow on the accounts receivable through short-term bank loans guaranteed on the accounts. The farm can also factor the accounts receivable by selling them to factoring and finance houses for less.
Explanation:
Akram's farm is still a small farm that is not yet formed as a company. The immediate concentration is growing the entity and starting the processes for changing its corporate status so that it can take advantage of the sources of finance available to companies.
A customer buys 1,000 shares of XYZ at $60 in a margin account, regular way settlement. Two days after the trade, XYZ has dropped to $40. The minimum maintenance margin requirement is:
Answer:
$10,000
Explanation:
A customer buys 1,000 shares of XYZ
The shares are bought at $60 in a margin account
Two days after the price of XYZ drops to $40
The first step is to calculate the current market value
= 1,000 shares×$40
= $40,000
Therefore, the minimum maintenance margin requirement can be calculated as follows
= 25/100 × current market value
= 25/100 × 40,000
= 0.25×40,000
= $10,000
Hence the minimum maintenance margin requirement is $10,000
1.1. Which of the following ratios are key components in measuring a company's operating efficiency? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)
a. Profit margin
b. Equity ratio
c. Return on total assets
d. Total asset turnover
1.2. Which ratio summarizes the components applicable in 11?
a. Debt ratio
b. Profit margin
c. Return on total assets
d. Total asset turnover
2. What measure reflects the difference between current assets and current liabilities?
a. Gross margin
b. Day's sales uncollected
c. Retun on total assets
3. Which of the following short-term liquidity ratios measure how frequently a company collects its accounts? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)
a. Days' sales uncollected
b. Days' sales in inventory
c. Accounts receivable turnover
d. Acid test rato
Answer:
1.1 The ratio from the list below which measures the efficiency of the operations of a company is D - Total Asset Turnover Ratio.
Explanation:
Total Asset Turn Over Ratio is calculated by dividing Net Sales by Average Total Assets.
For example, if company CDH is reporting a value of $499,650 as initial total assets and $387,656 as ending total assets. Within the same period, the company generated sales of $250,655, with sales returns of $17,000.
This means that, the asset turnover ratio for Company CDH is calculated as follows:
($250,655-$17,000)/(($387,656+$499,650)/2)
The answer is 0.52667
Thus, every dollar in total assets generates $0.52667 in sales.
Efficiency ratios are important for rating the operations of the business. They are also used by investors and lenders when conducting financial analysis of businesses to decide whether the companies are a good investment.
1.2 The component which summarises the components applicable in 1.1 is D Total Asset Turnover
2. Working capital is the variance between current assets and current liabilities.
. This is simply the capital that an organisation uses in its day-to-day business operations.
3. The short-term liquidity ratios which calculate how frequently a company collects its accounts are:
A) Days' sales Uncollected and
C) Accounts receivable turnover.
A) Days' sales Uncollected is calculated by
(Accounts receivable/Net annual credit sales) x 365
It is the number of days before receivables are collected.
The lower the ratio the more liquid the company is likely to be. High Days' Sales Uncollected Ratios are bad for business.
C) Accounts receivable turnover is the annual rate at which a business collects its average accounts receivable.
Cheers!
Hotel Cortez is an all-equity firm that has 10,900 shares of stock outstanding at a market price of $37 per share. The firm's management has decided to issue $66,000 worth of debt and use the funds to repurchase shares of the outstanding stock. The interest rate on the debt will be 8 percent. What is the break-even EBIT
Answer:
$32,264.07
Explanation:
The computation of the Break-even EBIT is shown below:
(EBIT ÷ Number of shares) = (EBIT - Interest) ÷ Number of shares
(EBIT ÷ 10,900) = (EBIT - $66,000 × 0.08) ÷ (10,900 - (66,000 ÷ $37))
(EBIT ÷ 10,900) = (EBIT - $5,280) ÷ (10,900 - 1,783.78)
(EBIT ÷ 10,900) = (EBIT - $5,280) ÷ (9116.22)
After solving this, the value of break-even EBIT is $32,264.07
A comparative balance sheet and income statement is shown for Cruz, Inc.
CRUZ, INC. Comparative
Balance Sheets December 31, 2015 2014
Assets
Cash $ 94,800 $ 24,000
Accounts receivable, net 41,000 51,000
Inventory 85,800 95,800
Prepaid expenses 5,400 4,200
Total current assets 227,000 175,000
Furniture 109,000 119,000
Accum. depreciation—Furniture (17,000) (9,000)
Total assets $ 319,000 $ 285,000
Liabilities and Equity
Accounts payable $ 15,000 $ 21,000
Wages payable 9,000 5,000
Income taxes payable 1,400 2,600
Total current liabilities 25,400 28,600
Notes payable (long-term) 29,000 69,000
Total liabilities 54,400 97,600
Equity Common stock, $5 par value 229,000 179,000
Retained earnings 35,600 8,400
Total liabilities and equity $ 319,000 $ 285,000
CRUZ, INC.
Income Statement
For Year Ended December 31, 2015
Sales $ 488,000
Cost of goods sold 314,000
Gross profit 174,000
Operating expenses
Depreciation expense $ 37,600
Other expenses 89,100 126,700
Income before taxes 47,300
Income taxes expense 17,300
Net income $ 30,000
1. Assume that all common stock is issued for cash. What amount of cash dividends is paid during 2015?
2. Assume that no additional notes payable are issued in 2015. What cash amount is paid to reduce the notes payable balance in 2015?
Answer:
1. $2,800
2. $40,000
Explanation:
1. The computation of cash dividends is paid during 2015 is shown below:-
Retained earnings
Dividend paid $2,800 Beginning balance $8,400
($8,400 + $30,000
- $35,600) Net income $30,000
Total $2,800 $38,400
Ending balance $35,600
Therefore cash dividends is paid during 2015 is 2,800
2. The computation of cash amount is paid to reduce the notes payable balance in 2015 is shown below:-
Notes payable
Cash paid $40,000 Beginning balance $69,000
($69,000 - $29,000)
Total $40,000 $69,000
Ending balance $29,000
Therefore cash amount is paid to reduce the notes payable balance
in 2015 is $40,000
Ideally, in effective marketing planning, goals should be _____ in terms of what is to be accomplished and when.
Answer:
The answer is quantified and measurable.
Explanation:
Goals need to be quantified and measurable in effective marketing planning. To determine what needs to be accomplished and when, we must put figures to it. This makes performance measurement easier where variances at the end can be analysed.
For example, one of the marketing goals for bank A might be to onboard 100 new customers every month for a year after the launching of its new mobile app.
This example is quantified and can be measured every month.
Angie Pereira and Ferro Schwartz are employees of Free Star, Inc. In February 2019. Angie's gross pay was $6000, and Ferro's gross pay was $7400. All earnings are subject to FICA-OASDI Tax of 6.296 and FICA--Medicare Tax of 1.4596. Which of the following would be included in the entry to record the salaries expense for February?
A. a credit to Salaries Expense for 5830.80
B. a credit to FICA-OASDI Taxes Payable for $830.80
C. a debit to FICA-Medicare Taxes Payable for $830.80
D. a debit to Salaries Payable to employees for $830.80
Answer:
B. a credit to FICA-OASDI Taxes Payable for $830.80
Explanation:
Free Star, Inc. In February 2019.
Angie's gross pay was $6000,
Ferro's gross pay was $7400
Total gross pay $ 13400
FICA-OASDI Tax 6.296 %
$ 13400 * 6.2% = $ 830.80
The recording of the journal entry would require a debit to FICA tax and credit to FICA tax payable .
The FICa tax is 6.2 % which equals to $ 830.80 of the two gross pays.
All the other three options are incorrect.
The interest income received from older Industrial revenue bonds may be taxable to the holder at regular income tax rates if the holder is:
Answer:
the "substantial user" of the facility built with the proceeds of the issue.
Explanation:
An Industrial revenue bond (IRB) can be defined as any municipal debt security issued by a local or state government agency with respect to a private firm which intend to undergo a particular project such as building facilities, purchasing heavy machinery or equipments.
The interest income received from older Industrial revenue bonds (IRB) may be taxable to the holder at regular income tax rates if the holder is the "substantial user" of the facility built with the proceeds of the issue because in the true sense it is only beneficial to the holder and not the larger community.
Juice Drinks has beginning inventory of $10,000, purchases in the amount of $150,000, and ending inventory of $8,000. Juice Drinks cost of goods sold is $ ____________.
Answer:
$152,000
Explanation:
Given the data as shown below;
Opening inventory = $10,000
Purchases = $150,000
Ending inventory = $8,000
Therefore,
Juice drinks cost of goods sold = Opening inventory + Purchases - Ending inventory
= $10,000 + $150,000 - $8,000
= $152,000
The Rhaegel Corporation’s common stock has a beta of 1.2. If the risk-free rate is 4.3 percent and the expected return on the market is 13 percent, what is the company’s cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Answer:
Cost of equity = 14.74%
Explanation:
The capital asset pricing model is a risk-based model for estimating the return on a stock..
Here, the return on equity is dependent on the level of reaction of the the equity to changes in the return on a market portfolio. These changes are captured as systematic risk.
Systematic risks are those which affect all economic actors in the market, they include factors like changes in interest rate, inflation, etc. The magnitude by which a stock is affected by systematic risk is measured by beta.
Under CAPM,
E(r)= Rf + β(Rm-Rf)
E(r)- cost of equity , Rf-risk-free rate , β= Beta, Rm= Return on market.
Using this model, we can work out the value of beta as follows:
β-1.2 Rf- 4.3%, Rm = 13%
E(r) = 4.3% + 1.2 × (13 - 4.3)%=14.74 %
Expected return = 14.74 %
Cost of equity = 14.74%
The following data were taken from the financial statements of Gates Inc. for the current fiscal year. Property, plant, and equipment (net) $971,600 Liabilities: Current liabilities $140,000 Note payable, 6%, due in 15 years 694,000 Total liabilities $834,000 Stockholders' equity: Preferred $4 stock, $100 par (no change during year) $834,000 Common stock, $10 par (no change during year) 834,000 Retained earnings: Balance, beginning of year $890,000 Net income 386,000 $1,276,000 Preferred dividends $33,360 Common dividends 130,640 164,000 Balance, end of year 1,112,000 Total stockholders' equity $2,780,000 Sales $21,141,000 Interest expense $41,640 Assuming that total assets were $3,433,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.
Answer:
Ratio of fixed assets to long-term liabilities = fixed assets / long term liabilities = $971,600 / $694,000 = 1.4
Ratio of liabilities to stockholders' equity = total liabilities / stockholders' equity = $834,000 / $2,780,000 = 0.3
Asset turnover = net sales / average total assets = $21,141,000 / [($3,614,000 + $3,433,000)/2] = 6
Return on total assets = (net income + interest expense) / average total assets = ($386,000 + $41,640) / [($3,614,000 + $3,433,000)/2] = 12.14%
Return on stockholders’ equity = net income / average stockholders' equity = $386,000 / [($2,780,000 + $2,558,000) = 14.46%
Return on common stockholders' equity = net income / average common stockholders' equity = $386,000 / [($1,946,000 + $1,724,000) = 21.04%
Suppose you observe the following situation: Security Beta Expected Return Pete Corp. 1.80 .190 Repete Co. 1.49 .163 a. Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the risk-free rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Answer:
a. 12.03%
b. 3.32%
Explanation:
The computation is shown below:
As we know that
Expected rate of return = Risk free rate of return + [Beta × Risk premium]
Let us assume Risk free rate of return be x and Risk premium be y
Now the equations are as follows
For Pete Corp
19 = x + 1.80y ...................... (1)
For Repete Corp
16.3 = x + 1.49y .....................(2)
Now Solving (1) and (2)
After solving we get
y = 8.70967741935
x = 3.3225806452
i.e Risk free rate = x = 3.32%
And, the Risk premium = 8.70967741935%
So,
Expected return on market = Risk free rate + Risk premium
= 3.3225806452 + 8.70967741935
= 12.03%
hich of the following is NOT one of the ways companies are using mobile apps? Group of answer choices track behavior across tablets and mobile devices utilize cookies to track mobile activity utilize GPS data to provide location-based offers track loyalty program participation add social value and entertainment to consumers' lives
Answer: Add social value and entertainment to consumers' lives
Explanation:
In this age of technology, companies have found that being able to offer their customers relevant products can be greatly helped by gathering information about them and offering it to them directly on their phones. A great way to do so is through the use of mobile apps.
With mobile apps a company can track behavior on the device as well as track mobile activity. They could even use the GPS capabilities of the phone through the app to offer relevant location based content.
However, as much as companies would like their customers to have enjoyable lives, this is not an aim with mobile apps. The apps are there to boost the companies sales not to add social value and entertainment to consumers' lives unless of course, that is the company's main business.
Answer:
Which features are created by wave erosion?
Your answer is:
- arches
- cliffs
- stacks
Explanation:
Beyer Company is considering the purchase of an asset for $190,000. It is expected to produce the following net cash flows. The cash flows occur evenly within each year.
Year 1 Year 2 Year 3 Year 4 Year 5 Total
Net cash flows $50,000 $31,000 $60,000 $140,000 $30,000 $311,000
Compute the payback period for this investment.
Answer:
Pay back period =3 years 4 months
Explanation:
The payback period is the estimated length of time it takes cash inflow from a project to recoup the cash outflow.
The payback period uses cash flows and not profit.
The payback period can be determined by accumulation the cash inflow consecutively to ascertain the length of time it will take the sum to equate the initial cost.
This will be done as follows:
The sum of the cash in flows for the first three years would equal
50,000 + $31,000 + $60,000 = 141,000
The balance required to equate 190,000 would be
balance = 190,000 - 140,000 = 50,000
Pay back period = 3 years + (50,000/140,000)× 12 months
= 3 years 4 months
Pay back period =3 years 4 months
The following standards for variable manufacturing overhead have been established for a company that makes only one product: Standard hours per unit of output 5.2 hours Standard variable overhead rate $11.60 per hour The following data pertain to operations for the last month: Actual hours 2,500 hours Actual total variable manufacturing overhead cost $29,590 Actual output 150 units What is the variable overhead efficiency variance for the month?
Answer:
Variable overhead efficiency variance= $19,952 unfavorable
Explanation:
Giving the following information:
Standard hours per unit of output 5.2 hours
Standard variable overhead rate $11.60 per hour
Actual hours 2,500 hours
Actual output of 150 units
To calculate the variable overhead efficiency variance, we need to use the following formula:
Variable overhead efficiency variance= (Standard Quantity - Actual Quantity)*Standard rate
Standard quantity= 5.2*150= 780
Variable overhead efficiency variance= (780 - 2,500)*11.6
Variable overhead efficiency variance= $19,952 unfavorable
After reading it write about whether or not you agree with the academic economic consensus that independent officials running the Federal Reserve are able to properly balance their dual mandate in a fair and balanced fashion with the needs of workers in one hand and the financial industry on the other. If you agree with the consensus view explain your reasons; or if you disagree and think that the officials are biased in favor of the financial industry explain your reasoning with some possible solutions to the problem. Write at least two paragraphs articulating your views.
Answer:
The Federal Reserve has been at times biased in favor of the financial industry, because they have often put inflation targeting above the need to reduce unemployment when executing monetary policy. Besides, the financial industry has often been rescued by massive loans from the Fed.
However, the Federal Reserve has also acted in favor of reducing unemployment, specially during recessions, by expanding the money supply through a policy known as quantitative easing.
In conclusion, we can say that the Fed tends to be biased in favor of the financial industry, but not at all times.
All else being equal, a marketing channel that has a high cost per exposure will have a ________ return on investment.
Answer:
all else being equal, a marketing channel that has a high cost per exposure will have a low return on investment
For the quarter ended March 31, 2017, Croix Company accumulates the following sales data for its newest guitar, The Edge: $314,000 budget; $300,800 actual. In the second quarter, budgeted sales were $381,000, and actual sales were $391,000.
Prepare a static budget report for the second quarter and for the year to date.
CROIX COMPANY
Sales Budget Report
For the Quarter Ended June 30, 2017
Second Quarter Year to Date
Product Line Budget Actual Difference Budget Actual Difference
Answer:
CROIX COMPANY
Sales Budget Report
For the Quarter Ended June 30, 2017
Second Quarter Year to Date
Product Line Budget Actual Difference Budget Actual Difference
The Edge 381,000 391,000 10,000 695,000 691,800 3,200 U
Explanation:
Croix's sales budget gives a forecast of the sales figure over the future period in order to help Croix plan its production or purchase of the newest guitar, The Edge so that customers' demand can be met and profit objectives of the company is achieved.
A company with a WACC of 8.5% is considering two possible investments. Project A will return 10% and be financed using equity costing 9.5%. Project B will return 8% and be financed using debt costing 6%. Which project should the company undertake
Answer:
The Company should undertake project A.
Explanation:
The finance of projects is usually done through pooling of funds, that is using various sources of finance. The WACC represents the return required by providers of this finance and also shows the risk of the company.
A company will always accept projects that provide a return higher that their weighted average cost of capital (risk) and reject any project offering a return below the WACC.
Conclusion :
The Company should undertake project A as this gives a return higher than the WACC of 8.5%.
The following data is given for the Bahia Company: Budgeted production 1,049 units Actual production 971 units Materials: Standard price per pound $1.971 Standard pounds per completed unit 12 Actual pounds purchased and used in production 11,302 Actual price paid for materials $23,169 Labor: Standard hourly labor rate $15.00 per hour Standard hours allowed per completed unit 4.3 Actual labor hours worked 5,000.65 Actual total labor costs $76,260 Overhead: Actual and budgeted fixed overhead $1,014,000 Standard variable overhead rate $27.00 per standard labor hour Actual variable overhead costs $140,018 Overhead is applied on standard labor hours. The variable factory overhead controllable variance is a.$75,397.52 unfavorable b.$75,397.52 favorable c.$27,284.90 unfavorable d.$27,284.90 favorable
Answer:
c.$27,284.90 unfavorable
Explanation:
Standard variable overhead rate =$27.00
Standard hours allowed per completed unit =4.3
Actual production unit =971
Actual variable overhead costs =$140,018
Variable factory overhead controllable variance = (Standard variable overhead rate * Standard hours allowed per completed unit * Actual production unit) - Actual variable overhead costs
Variable factory overhead controllable variance = ($27 * 4.3 * 971) - $140,018
Variable factory overhead controllable variance = $112,733.1 - $140,018
Variable factory overhead controllable variance = $27,284.9 (Unfavorable)
The Sisyphean Company has a bond outstanding with a face value of $1,000 that reaches maturity in 8 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is 9.6%, then this bond will trade at
Answer:
this bond will trade at $912.05.
Explanation:
There is an Inverse relationship between the yield and the price of bond.
As the yield goes up, the price of bond goes down, that is trade at discount.Whereas, as the yield goes down, the price of bond goes up, that is trade at a premium.The Bond investment in Sisyphean Company is trading at a discount.
The Price of the Bond, PV can be determined as follows..
PV = ?
FV = $1,000
PMT = ($1,000 × 8%) ÷ 2 = $40
P/yr = 2
YTM = 9.6%
n = 8 × 2 = 16
Using a Financial Calculator, the Price of the Bond, PV is $912.05.
f the nominal interest rate is 7 percent and the real interest rate "is -2.5" percent, then the inflation rate is
Answer:
9.7%
Explanation:
(1 + nominal interest rate) = (1 + real rate) x (1 + inflation rate)
1.07 = 0.975 x (1 + inflation rate)
(1 + inflation rate) = 1.07 / 0.975
(1 + inflation rate) = 1.097
Inflation rate = 1.097 - 1 = 0.097 = 9.7%
A corporate bond currently yields 8.5%. Municipal bonds with the same risk, maturity, and liquidity currently yield 5.5%. At what tax rate would investors be indifferent between the two bonds?
Answer: 35.29%
Explanation:
Municipal Bonds are attractive in that they give the tax benefit of being tax exempt whereas a corporate bond is liable for taxation. The tax rate that will therefore make an investor indifferent between the two bonds is the one that will equate the Corporate bond's yield net of tax to the yield on the Municipal bond.
5.5% = 8.5% * ( 1 - x)
5.5% = 8.5% - 0.085x
0.085x = 8.5% - 5.5%
0.085x = 3%
x = 35.29%
When the actual cost of direct materials used exceeds the standard cost, the company must have experienced an unfavorable direct materials price variance.
a. True
b. False
Answer:
True
Explanation:
The cost was bigger than they had budgeted for, so it was an unfavorable variance.
One of the problems with licensing as a method of achieving international business is that it is a much more difficult procedure to implement than the other methods.
a. True
b. False
Answer: False
Explanation:
Licensing involves a company giving another company in another country/market permission to produce its products or use its likeness. The company that gets the license will then pay the parent company specified amounts for being able to do so.
This method of international business is cheap as the company licensing will see its brand spread to other countries without actually having to worry about set-up costs in the other country which can be very high. It is therefore one of the easiest methods of expanding to international markets there is.
One year ago, you purchased a stock at a price of $55.20 per share. Today, you sold your stock at a loss of 18.63 percent. Your capital loss was $12.62 per share. What was the total dividends per share paid on this stock over the year
Answer:
Dividend = $2.34
Explanation:
Purchase Price = $55.20
Loss on stock = 18.63% of $55.20 = $10.28
Capital Loss = $12.62
Dividend = Capital Loss - Total Loss
Dividend = $12.62 - $10.28
Dividend = $2.34
Prior to setting pricing options for its products to maximize profit, a company must: a. determine whether it should use horizontal or vertical integration. b. select appropriate corporate-level strategies. c. perform value-chain functional activities.
Answer: b. select appropriate corporate-level strategies
Explanation:
Prior to setting pricing options for its products to maximize profit, a company must select appropriate corporate-level strategies.
This is necessary in order to ensure that the strategies aligns with what the organization is willing to do in order to achieve its profit maximization goal.
You have been hired by the CFO of Lugones Industries to help estimate its cost of common equity. You have obtained the following data: (1) r d = yield on the firm's bonds = 7.00% and the risk premium over its own debt cost = 4.00%. (2) r RF = 5.00%, RP M = 6.00%, and b = 1.25. (3) D 1 = $1.20, P 0 = $35.00, and g = 8.00% (constant). You were asked to estimate the cost of common based on the three most commonly used methods and then to indicate the difference between the highest and lowest of these estimates. What is that difference?
Answer:
Under CAPM:
Re = Rf + Beta(Rm - Rf)
Rf = 5%
Rm - Rf = 6%
Beta = 1.25
Re = 5% + (1.25 x 6%) = 12.5%
Under dividend discount model:
Re = (Div₁ / P₀) + g
Div₁ = $1.20
P₀ = $35
g = 8%
Re = ($1.20 / $35) + 8% = 11.43%
Under bond yield plus risk premium approach:
Re = Pre-tax cost of debt + risk premium over its own debt
Pre-tax cost of debt = 7%
risk premium over its own debt = 4%
Re = 7% + 4% = 11%
The highest cost of equity results from the CAPM model and it is 12.5% while the lowest results from using the bond yield plus risk approach (11%), the difference is 1.5% between them.
Disclosure of interest and income tax paid if the indirect method is used. Primary objectives of a statement of cash flows. Disclosure of noncash investing and financing activities.
Answer with Explanation:
The disclosure of interest and income tax paid if the indirect method is used is cited at FASB ACS 230-10-50-2 under the title "Statement of Cashflows-Overall Disclosure-Interest and Income Taxes Paid".The primary objectives of a statement of cash flows is cited at FASB ACS 230-10-10-1 under the title "Statement of Cashflows-Overall Objective".The disclosure of noncash investing and financing activities is cited at FASB ACS 230-10-50-3 under the title "Statement of Cashflows-Overall Disclosure-Noncash Investing and Financing Activities".