Answer:
Operating income $32,100
Explanation:
The operating income for the company is the to be determined by aggregating the sales and cost figures of the two divisions . This is done as follows
$
Total sales (235,000 + 545,000) = 780,000
Variable expenses(132600+309800) = (442,400)
Traceable fixed expenses(63800+121500) = (185300)
Common fixed expenses (120200 )
Operating income 32,100
Drake Corporation is reviewing an investment proposal. The initial cost and estimates of the book value of the investment at the end of each year, the net cash flows for each year, and the net income for each year are presented in the schedule below. All cash flows are assumed to take place at the end of the year. The salvage value of the investment at the end of each year is equal to its book value. There would be no salvage value at the end of the investment's life.
Investment Proposal
Year Initial Cost and Book Value Annual Cash Flows Annual Net Income
0 $104,500
1 69,600 $44,000 $9,100
2 41,900 39,500 11,800
3 21,600 35,900 15,600
4 8,300 31,000 17,700
5 0 25,400 17,100
Drake Corporation uses an 11% target rate of return for new investment proposals.
(a) What is the cash payback period for this proposal? (Round answer to 2 decimal places, e.g. 10.50.)
Cash payback period
(b) What is the annual rate of return for the investment? (Round answer to 2 decimal places, e.g. 10.50.)
Annual rate of return for the investment %
(c) What is the net present value of the investment? (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answer to 0 decimal places, e.g. 125.)
Answer:
Check the explanation
Explanation:
Kindly check the attached images below to see the step by step explanation to the question above.
We learned in class that Starbucks uses its baristas as front line “brand ambassadors”. This is an example of ________________?
A.
top management not doing their jobs
B.
Inverted Organization Structure
C.
Management by Objectives MBO
D.
Giving uneducated employees too much responsibility
Answer:
Inverted Organization Structure
Explanation:
An Inverted Organization Structure is a structure where the employees are given more autonomy. Employees are given more prominent and important roles in the business.
I hope my answer helps you
Option B is correct because it is an example of inverted organization structure.
An Inverted Organization Structure is a organizational structure where employees are given more autonomy in their operation, that is, they are given more prominent and important roles in the company.
This type of structure is beneficial because the top hierarchy have lesser work and employee get more experience because of decision-makings.
In conclusion, the Option B is correct because it is an example of inverted organization structure
Read more about inverted organization structure
brainly.com/question/23840012
The SP Corporation makes 42,000 motors to be used in the production of its sewing machines. The average cost per motor at this level of activity is: Direct materials $ 10.10 Direct labor $ 9.10 Variable manufacturing overhead $ 3.75 Fixed manufacturing overhead $ 4.70 An outside supplier recently began producing a comparable motor that could be used in the sewing machine. The price offered to SP Corporation for this motor is $25.75. If SP Corporation decides not to make the motors, there would be no other use for the production facilities and none of the fixed manufacturing overhead cost could be avoided. Direct labor is a variable cost in this company. The annual financial advantage (disadvantage) for the company as a result of making the motors rather than buying them from the outside supplier would be:
Answer:
annual financial advantage, $837,600
Explanation:
Analysis of the Make or Buy Decision - Making
Making Costs
Direct materials $ 10.10×42,000 424,200
Direct labor $ 9.10×42,000 382,200
Variable manufacturing overhead $ 3.75×42,000 157,500
Fixed manufacturing overhead $ 4.70×42,000 197,400
Total 1,161,300
Buying Costs
Purchase Price $25.75×42,000 1,801,500
Fixed manufacturing overhead $ 4.70×42,000 197,400
Total 1,998,900
It costs $837,600 more to Buy than to make.
Hence the annual financial advantage for the company as a result of making the motors rather than buying them from the outside supplier would be $837,600.
Selected information from Arbon Corporation's accounting records and financial statements for 2021 is as follows ($ in millions): Cash paid to acquire machinery $ 36 Reacquired Arbon common stock 50 Proceeds from sale of land 90 Gain from the sale of land 52 Investment revenue received 66 Cash paid to acquire office equipment 80 In its statement of cash flows, Arbon should report net cash outflows from investing activities of:
Answer:
Arbon should report net cash outflows from investing activities of: ($26)
Explanation:
Arbon Corporation
Statement of cash flows (extract)
Purchase of machinery ($36)
Proceeds from sale of land 90
Cash paid to acquire office equipment (80)
Net cash outflows from investing activities ($26)
Therefore, Arbon should report net cash outflows from investing activities of ($26).
Note that reacquired stock affects the financing section of the cash flows, while gain on sale of land and investment revenue received affect the operating section of the cash flows.
Using these data from the comparative balance sheet of Sunta Fe Spice Company, perform horizontal analysis. (Round percentages to 0 decimal place, e.g. 17%.)
Increase or (Decrease)
December 31, 2017 December 31, 2016 Increase or (Decrease) Amount Percentage
Accounts receivable $ 375,000 $ 300,000 $ __________ ___________ %
Inventory 780,000 600,000 ____________ ___________ %
Total assets 3,220,000 2,800,000 __________ __________ %
Answer:
75000,25%;
18000, 30%.
420000, 15%.
Explanation:
From the question above we are given the following parameters Accounts receivable for year 2017 = $ 375,000,
Inventory for the year 2017 = 780,000 and the Total assets for the year 2017 = 3,220,000.
Accounts receivable for year 2016 = $ 300,000, inventory for the year 2016 = 600,000 and the Total assets for the year 2016 = 2,800,000.
Therefore, we have the following simple arithmetic(which is subtraction between the variables in the two years) to determine the solution to the question:
(375,000 - 300,000) = 75,000 = 25%(increase).
(780,000 - 600,000) = 180,000 = 30%(Increase).
(3,220,000 - 2,800,00) = 420,000 = 15%(increase).
Answer:
25%30%15%Explanation:
Accounts receivables
December 31 2017 = $375000
December 31 2016 = $300000
difference = $75000 ( 25%) { increase}
Inventory
December 31 2017 = 780000
December 31 2016 = 600000
difference = 180000 ( 30% ) { increase}
Total assets
December 31 2017 = 3220000
December 31 2016 = 2800000
difference = 420000 ( 15% ) { increase }
Running Co. had an equity investment where it owned less than 20% of an investee, and therefore Running Co. was not able to exercise significant influence. Information about the investment is below: 20X1 20X2 Investment cost 170,000 170,000 Fair value 181,400 155,000 Total unrealized gain (loss) 11,400 (15,000) The company sold the investment during 20X3 for the below price: Sales price 192,400 What is the gain (loss) recorded in the income statement in the year of sale, in 20X3
Answer:
Gain or Loss to be reocrded in Financial Statement: 151600 - 155000= 3400 loss to be booked as Fair value recorded in the books as in year ended 20X2 is 155000.
Misty and John formed the MJ Partnership. Misty contributed $50,000 of cash in exchange for her 50% interest in the partnership capital and profits. During the first year of partnership operations, the following events occurred: the partnership had a net taxable income of $20,000; Misty received a distribution of $12,000 cash from the partnership; and Misty had a 50% share in the partnership's $60,000 of recourse liabilities on the last day of the partnership year. Misty's adjusted basis for her partnership interest at year end is:
Answer:
$78,000
Explanation:
The computation of interest at year end is shown below:-
Interest at year end = Cash contribution + Income of partnership + Share of partnership liabilities - Cash from the partnership
= $50,000 + $20,000 × 50% + $60,000 × 50% - $12,000
= $90,000 + $10,000 + $30,000 - $12,000
= $78,000
Therefore for computing the partnership interest at year end we simply applied the above formula by considering all the items given in the question
Langley Company reported net income for 2022 in the amount of $460,000. The company's financial statements also included the following: Increase in accounts receivable$77,000 Decrease in inventory 62,000 Increase in accounts payable 250,000 Depreciation expense 107,000 Gain on sale of land 147,000 What is net cash provided by operating activities under the indirect method
Answer:
$655,000
Explanation:
Cash flow from operating activities involved all the cash flows related to the operations of the company like sales , purchases, receivable, payable etc.
Net Cash flow is the net of receipts and Payment.
Following are the operating cash flows.
Cash flows from operating activities
Net Income $460,000
Add: Non cash Expense Adjustments:
Depreciation $107,000
Change in Working Capital:
Increase in Account receivable ($77,000)
Decrease in Inventory $62,000
Increase in Account payable $250,000
Less: Net Change in WC $235,000
Other Adjustments
Gain on sale of Land ($147,000)
Net Operating Cash flow $655,000
Depreciation is a non cash expense deducted from the revenue to calculate net income. Now it needs to be added back.
Answer:
The net cash provided by operating activities under the indirect method is $655,000.
Explanation:
Langley Company
Statement of cash flows (extract)
Net income $460,000
Add: Depreciation expense 107,000
Less: Gain on sale of land (147,000)
Increase in accounts receivable (77,000)
Decrease in inventory 62,000
Increase in accounts payable 250,000
Net cash provided by operating activities $655,000
Equipment with a book value of $78,000 and an original cost of $168,000 was sold at a loss of $31,000. Paid $106,000 cash for a new truck. Sold land costing $315,000 for $420,000 cash, yielding a gain of $105,000. Long-term investments in stock were sold for $90,000 cash, yielding a gain of $15,500. Use the above information to determine this company's cash flows from investing activities. (Amounts to be deducted should be indicated with a minus sign.)
Answer:
$451,000
Explanation:
The computation of cash flows from investing activities is shown below:-
Sale of equipment $47,000
($78,000 - $31,000)
Purchase of new truck ($106,000)
Sale of land $420,000
Sale of Long-term investments $90,000
Net cash provided by investing activities $451,000
Therefore to reach the cash flows from investing activities we simply added the sale of equipment, sale of land, sale of long term investments and deduct the purchase of new truck.
Prepare the following journal entries in proper journal entry form. 1. Billed a customer for a $2,400 job. 2. Received $4,800 to start an eight-month job, beginning next month. 3. Started a company by contributing equipment worth $5,400, land worth $180,000 and cash of $30,000 into a business checking account.
Answer and Explanation:
The Journal entry is shown below:-
1. Accounts receivable Dr, $2,400
To Service revenue $2,400
(Being services revenue is recorded)
Here we debited the accounts receivable as it increased the assets and we credited the service revenue as it increased the revenue
2. Cash Dr, $4,800
To Unearned revenue $4,800
(Being unearned revenue is recorded)
Here we debited the cash as it increased the assets and we credited the unearned revenue as it increased the liabilities
3. Equipment Dr, $5,400
Land Dr, $180,000
Cash Dr, $30,000
To Capital $215,400
(Being assets investment is recorded)
Here we debited the equipment, land and cash as it increased the assets and we credited the capital as it increased the liabilities
A company can sell all the units it can produce of either Product A or Product B but not both. Product A has a unit contribution margin of $16 and takes two machine hours to make and Product B has a unit contribution margin of $30 and takes three machine hours to make. If there are 5,000 machine hours available to manufacture a product, income will be:
a. $10,000 more if Product A is made.
b. $10,000 less if Product B is made.
c. $10,000 less if Product A is made.
d. the same if either product is made.
Answer:
Product B has a net income of $10,000 superior to Product A.
The correct answer is C.
Explanation:
Giving the following information:
Product A:
Unitary contribution margin= $16
Machine-hours required= 2
Product B:
Unitary contribution margin= $30
Machine-hours required= 3
First, we will calculate the total income of both products.
Product A= 16*(5,000/2)= $40,000
Product B= 30*(5,000/3)= $50,000
Product B has a net income of $10,000 superior to Product A.
The selling price of imported olive oil is $20 per case. Your cost is 15 Euros per case, and the exchange rate is currently 1.25, so it takes 1.25 Euros to buy $1. Your largest customer has ordered 15,000 cases of olive oil. How much is the pretax profit for this transaction?
Answer:
$120,000
Explanation:
According to the question, the selling price (S.P) i.e. amount to be sold, of one imported olive oil case is $20 while the cost price (C.P) i.e. amount it was purchased, is €15
Looking at the currencies of both prices, they are different. To make the currencies the same, we need to convert euros (€) to dollars ($).
Based on the exchange rate of €1.25 to $1 given in the question;
€15 will be 15/1.25 = $12.
Therefore, the C.P is $12 and the S.P is $20
A customer ordered 15,000 cases of olive oil. This means that the;
1) The cost price (C.P) will be $12 × 15,000 = $180,000
2) The selling price will be $20 × 15,000 = $300,000
In order to obtain the pretax profit, we subtract the cost price (C.P) from the selling price (S.P). That is, $300,000 - $180,000 = $120,000
Net income was $469,000. Issued common stock for $76,000 cash. Paid cash dividend of $14,000. Paid $115,000 cash to settle a note payable at its $115,000 maturity value. Paid $124,000 cash to acquire its treasury stock. Purchased equipment for $90,000 cash. Use the above information to determine this company's cash flows from financing activities. (Amounts to be deducted should be indicated with a minus sign.)
Answer:
The company's cash flows from financing activities is ($177,000).
Explanation:
The company
Statement of cash flows (extract)
Proceed from issue of common stock $76,000
Dividends paid ($14,000)
Repayment of note payable ($115,000)
Purchase of treasury stock ($124,000)
Net cash flows from financing activities ($177,000)
Red Co. acquired 100% of Green, Inc. on January 1, 2017. On that date, Green had land with a book value of $42,000 and a fair value of $52,000. Also, on the date of acquisition, Green had a building with a book value of $200,000 and a fair value of $390,000. Green had equipment with a book value of $350,000 and a fair value of $280,000. The building had a 10-year remaining useful life and the equipment had a 5-year remaining useful life. In Red’s December 31, 2017 consolidated worksheet, what total amount of excess fair over book value amortization expense adjustments should Red recognize resulting from its 100% acquisition of Green?
Answer:
$5,000
Explanation:
The computation of total amount of excess fair over book value amortization expense adjustments to be recognized by red is shown below:-
Excess of fair value over book value = Land fair value - Land book value
= $52,000 -$42,000
= -$10,000
Here land is not amortized
Excess of fair value over book value = Building fair value - Building book value
= $390,000 - $200,000
= $190,000
Excess fair value over book value amortization expense adjustments to be recognized by red = Excess of fair value over book value of building ÷ Number of Years
= $190,000 ÷ 10
= $19,000
Excess of fair value over book value = Equipment fair value - Equipment book value
= $280,000 - $350,000
= ($70,000)
Excess fair value over book value amortization expense adjustments to be recognized by red for equipment = Excess of fair value over book value of equipment ÷ Number of Years
= ($70,000) ÷ 5
= ($14,000)
Total amount of excess fair over book value amortization expense adjustments to be recognized by red
= $19,000 - $14,000
= $5,000
(1) Reporting of Capital Assets. Are capital assets reported as a line-item in the government-wide statement of net position? Are nondepreciable capital assets reported on a separate line from depreciable capital assets, or are they separately reported in the notes to the financial statements? Do the notes include capital asset disclosures, such as those for the City and County of Denver shown in Illustration 5–2? Does the disclosure show beginning balances, increases and decreases, and ending balances for each major class of capital assets, as well as the same information for accumulated depreciation for each major class? Are these disclosures presented separately for the capital assets of governmental activities, business-type activities, and discretely presented component units? Do the notes specify capitalization thresholds for all capital assets, including infrastructure? Do the notes show the amounts of depreciation expense assigned to each major function or program for governmental activities at the government-wide level? Are the depreciation policies and estimated lives of major classes of depreciable assets disclosed? Do the notes include the entity’s policies regarding capitalization of collections of works of art and historical treasures? If collections are capitalized, are they depreciated?
Answer:
Principal resources are reported as a line-item within the management wide declaration of net situation. Non-depreciable principal resources are individually reported within the proceedings to the money declarations. The revealing expressions starting equilibriums, will increase and reduces, and finish stabilities for every main category of principal assets, yet because the same info for accrued devaluation for every key category. These revelations are given individually for the wealth assets of administrative actions, occupational sort actions, and unnoticeably given part units. The summaries stipulate capitalization inceptions for all principal assets, together with arrangement. The summaries display the quantities of devaluation expenditure assigned to every major operate or package for administrative actions at the government-wide flat. The decline strategies and calculable lives of main categories of depreciable resources are released. Summaries do reveal the strategies relating to capitalization of assortment of skills and historic materials if some. These collectibles aren't criticized however market price of those art effort is measured to reason gain/ injury at the year finish. Accounting strategies for possessions no inheritable underneath capita tenancy are obviously mere
Demand for consumer goods is necessarily variable. Forecasting the demand for consumer goods is an important business activity, as all businesses have to plan ahead. Manufacturer of consumer goods has been studying the demand for one of their products and the level of demand is given in the following stem and leaf plot, where stem unit is 100 and leaf unit is 10. Stem Leaf 1 1, 2, 3, 4.5, 5, 6, 7, 7, 9, 9.5 2 0, 0, 0, 0, 0, 0, 0, 0, 1, 1, 2, 4, 5, 7, 9 3 0, 0, 0, 2, 8 4 5 0 6 7 8 0 9 10 11 12 0 The outer fences are ___________.
Answer:
7.5 to 467.5.
Explanation:
Please note that In order to be fast, I make use of excel during the Calculation.
So, the first thing to do is to make sure that the observation is arranged in an increasing order.
Step one: Calculate the value for J1 and J3.
Know that J1 = J3. Where J3 = 3rd quartile.
Hence, J1 = 1st QUARTILE = QUARTILE. EXC (data, 1) = 18.
Also, J3 = QUARTILE. EXC(data, 3). = 29.5.
Therefore, the difference between the first quartile and the third QUARTILE = 29.5 - 18 = 11.5.
Step two: calculate the value for the higher fence and the lower fence respectively.
Thus, for the higher fence we have;
J3 + 1.5( 11.5).
= 29.5 + 1.5(11.5).
= 46.75.= (46.75 × 10) = 467.5).
Then, for the lower fence;
J1 - 1.5( 11.5).
= 18 - 1.5(11.5).
= 0.75 = (.75 × 10) = 7.5.
Consider the oil-producing countries of A, B, and C. Each has a marginal cost of zero. World demand is given by Q = 1430 - P. Suppose the three countries form a cartel, and that none of them has an incentive to deviate from the cartel. By how many units lower is the total output of oil under the cartel relative to the Cournot solution?
Answer: 357.50
Explanation:
Under Cournot model that has three firms, each firm produces at
q = (1430 – 0)/((3+1)×1)
= 1430/4
= 357.5 units
Total output = 357.5 × 3
= 1072.5 units
Under cartel, the marginal revenue equals to the marginal cost.
MR = MC = 0
1430 – 2Q = 0
Q = 1430/2
Q = 715 units
Difference= 1072.5 units - 715 units
= 357.5 units
Hence the units are 357.50 units lower in cartel compared to Cournot.
Pollution Busters Inc. is considering a purchase of 10 additional carbon sequesters for $120,000 apiece. The sequesters last for only 1 year before becoming saturated. Then the carbon is sold to the government. a. Suppose the government guarantees the price of carbon. At this price, the payoff after 1 year is $140,400 for sure. How would you determine the opportunity cost of capital for this investment? b-1. Suppose instead that the sequestered carbon has to be sold on the London Carbon Exchange. Carbon prices have been extremely volatile, but Pollution Busters’ CFO learns that average rates of return from investments on that exchange have been about 22%. She thinks this is a reasonable forecast for the future. What is the opportunity cost of capital in this case? b-2. If the expected return on the investment is still 17%, but instead depends on the price of carbon (so that it is no longer risk-free), then is the purchase of additional sequesters an attractive investment for the firm?
Answer:
(a) 17% (b) the purchase of additional sequesters an attractive investment for the firm is worthwhile investment if no other similar project offers a higher return of over 17%, which in this case here is 17%.
Explanation:
Solution:
(a) Calculate the opportunity cost of capital
Opportunity cost of capital = pay off at one year/Current investment
= $140,400-$120,000/$120,000
=20,400/120,000 = 0.17 or 17%
What it means is that, the project offers a guarantee of 17% return. it should be accepted unless another project offers a higher return of over 17%
(b) The opportunity cost of capital, if the sequestered carbon has to be sold on the London Carbon Exchange which is simply the average rate of return of investment.
Therefore the opportunity cost per capital in this case is 22%
The purchase of additional sequesters an attractive investment for the firm is worthwhile investment if no other similar project offers a higher return of over 17%, which in this case here is 17%.
Enviro Company issues 8%, 10-year bonds with a par value of $300,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 10%, which implies a selling price of 87 1/2. The straight-line method is used to allocate interest expense. 1. Using the implied selling price of 87 ½, what are the issuer's cash proceeds from issuance of these bonds? 2. What total amount of bond interest expense will be recognized over the life of these bonds? 3. What is the amount of bond interest expense recorded on the first interest payment date?
Answer:
1. Issuer's cash is $262,500
2. Total amount of bond interest is $277,500
3. The amount of bond interest expense is $13,875.
Explanation:
1. Issuer's cash = Face Value × Selling Price
Issuer's cash = $300,000 × 87.50%
Issuer's cash = $262,500
2. Discount on bond = $300,000 × 12.5% = $37,500
Interest on bond = $300,000 × 8% = $24,000
Period of bonds= 10 years
Total amount of bond interest = Discount on Bond + (Interest on Bond × period)
Total amount of bond interest = $37,500 + ($24,000 × 10)
Total amount of bond interest = $277,500
3. Discount on bond = $300,000 × 12.5% = $37,500
Interest on bond = $300,000 × 8% = $24,000
Period = 0.5 years
The amount of bond interest expense = (Discount of Bond ÷ 20) + Interest
The amount of bond interest expense = ($37,500 ÷ 20) + ($24,000 × 0.5)
The amount of bond interest expense = $1,875 + $12,000
The amount of bond interest expense = $13,875.
g Birch Company normally produces and sells 48,000 units of RG-6 each month. The selling price is $26 per unit, variable costs are $17 per unit, fixed manufacturing overhead costs total $180,000 per month, and fixed selling costs total $40,000 per month. Employment-contract strikes in the companies that purchase the bulk of the RG-6 units have caused Birch Company’s sales to temporarily drop to only 9,000 units per month. Birch Company estimates that the strikes will last for two months, after which time sales of RG-6 should return to normal. Due to the current low level of sales, Birch Company is thinking about closing down its own plant during the strike, which would reduce its fixed manufacturing overhead costs by $43,000 per month and its fixed selling costs by 11%. Start-up costs at the end of the shutdown period would total $13,000. Because Birch Company uses Lean Production methods, no inventories are on hand. Required: 1. What is the financial advantage (disadvantage) if Birch closes its own plant for two months? 2. Should Birch close the plant for two months? 3. At what level of unit sales for the two-month period would Birch Company be indifferent between closing the plant or keeping it open?
Answer:
Check the explanation
Explanation:
(1) Product RG-6 yields a contribution margin of $10 per unit ($20 - $10 = $10). If the plant closes, this contribution margin will be lost on the 18,000 units (9,000 units per month * 2 months) that could have been sold during the two-month period. However, the company will be able to avoid certain fixed costs as a result of closing down. The analysis is:
Amount ($) Amount ($)
Contribution margin lost by closing the
plant for two months ($10 * 18,000 units) (180,000)
Costs avoided by closing the plant for two months:
Fixed manufacturing overhead cost ($41,000 * 2 months)82,000
Fixed selling costs ($48,000 * 10% * 2months) 9,600 91,600
Net disadvantage of closing, before start-up cost (88,400)
Add start-up costs 13,000
Disadvantage of closing the plant 101,400
(2) No, the company should not close the plant; it should continue to operate at the reduced level of 9,000 units produced and sold each month. Closing will result in a $101,400 greater loss over the two-month period than if the company continues to operate.
(3)
Amount ($)
Cost avoided by closing the plant for two months 91,600
Less: start-up costs (13,000)
Net avoidable costs 78,600
Units = Net avoidable cost / Contribution margin per unit
= $78,600 / $10 = 7,860 units
CSUSM is a zero growth company. It currently has zero debt and its earnings before interest and taxes (EBIT) are $85,000. CSUSM 's current cost of equity is 11%, and its tax rate is 21%. The firm has 15,000 shares of common stock outstanding. Assume that CSUSM is considering changing from its original capital structure to a new capital structure with 39% debt and 61% equity. This results in a weighted average cost of capital equal to 8.7% and a new value of operations of $576,345. Assume CSUSM raises $165,000 in new debt and purchases T-bills to hold until it makes the stock repurchase. What is the stock price per share immediately after issuing the debt but prior to the repurchase?
Answer:
Check the explanation
Explanation:
Calculation of CSUSM 's New value of Operation :
For the purpose of Calculation of New Value of Operation we need to first calculate new WACC
Given :
Debt value ( Wd) = 30% or 0.30
Equity Value ( We)= 70% or 0.70
Cost of Debt ( Kd) =8%
New cost of equity (Ke) =12%
WACC =Kd(1-T) * Wd + Ke* We
WACC =[8%(1-0.40) * 0.30] + [12% * 0.70]
= [4.80% * 0.30 ] + [8.4 %]
= 1.44% + 8.4%
= 9.84 %
Given EBIT = $ 80,000
Tax rate = 40%
Currently the company has no growth. Therefore growth rate is 0 %
Value of New Operation =FCF / WACC
=EBIT (1-T) / WACC
=$80,000 (1-0.40)/ 9.84%
= $ 487,804.88
The common stock of Leaning Tower of Pita Inc., a restaurant chain, will generate payoffs to investors next year, which depend on the state of the economy, as follows: Dividend Stock Price Boom $ 10 $ 200 Normal economy 6 90 Recession 0 0 The company goes out of business if a recession hits. Assume for simplicity that the three possible states of the economy are equally likely. The stock is selling today for $80.
a. Calculate the rate of return to Leaning Tower of Pita shareholders for each economic state. (Negative amounts should be indicated by a minus sign. Enter your answers as a percent rounded to 2 decimal places.) Rate of return Boom Normal economy Recession a-2.
b. Calculate the expected rate of return and standard deviation of return to Leaning Tower of Pita shareholders. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Expected return Standard deviation
Answer:
a) Boom = 162.50%
Normal =20.00%
Recession = - 100.00%
b) Expected return = 27.50%
Standard deviation = 107.30%
Explanation:
a) To find the rate of return for each economy state, let's use:
Rate of return = (Dividend +Stock price next year-stock price today)/stock price today
i) For Boom:
[tex] \frac{10 + 200 - 80}{80} = 1.625 [/tex] = 162.50%
ii) Normal:
[tex]\frac{6 + 90- 80}{80} = 0.2 [/tex] = 20.00%
iii) Recession :
[tex]\frac{0 + 0 - 80}{80} = - 1 [/tex] = -100%
b) To calculate the expected rate of return, let's use:
Expected return = Sum of expected return in different scenario / number of economy states
[tex] = \frac{162.5 + 20 - 100}{3} = 27.50[/tex]
Standard deviation:
To find the standard deviation, let's use:
Standard deviation = √[(sum of square of expected return in each scenario -average return)/n]
[tex] = \sqrt{\frac{(162.50-27.50)^2+(20-27.50)^2+(-100-27.50)^2}{3}} [/tex]
[tex] = \sqrt{\frac{(135)^2 + (-7.50)^2 + (-127.50)^2}{3}} [/tex]
[tex] = \sqrt{\frac{18225+56.25+16256.25}{3} [/tex]
= 107.30%
Standard deviation = 107.30%
Service Department Charges In divisional income statements prepared for Demopolis Company, the Payroll Department costs are charged back to user divisions on the basis of the number of payroll distributions, and the Purchasing Department costs are charged back on the basis of the number of purchase requisitions. The Payroll Department had expenses of $64,560, and the Purchasing Department had expenses of $40,000 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records: ResidentialCommercialGovernment Contract Sales$2,000,000 $3,250,000 $2,900,000 Number of employees: Weekly payroll (52 weeks per year)400 250 150 Monthly payroll80 30 10 Number of purchase requisitions per year7,500 3,000 2,000 a. Determine the total amount of payroll checks and purchase requisitions processed per year by the company and each division.
Answer and Explanation:
The computation of the total amount of payroll checks and purchased requisitions processed per year is shown below:
Particulars Residential Commercial Government Contract Total
Number of payroll checks:
Weekly payroll $20,800) $13,000 $7,800 $41,600
(400 × 52 weeks) (250 × 52 weeks ) (150 × 52 weeks)
Monthly payroll $960 $360 $120 $1,440
(80 × 12) (30 × 12) (10 × 12)
Total $21,760 $13,360 $7,920 $43,040
Number of purchase requisitions per year 7,500 3,000 2,000 12,500
Prepare journal entries to record each of the following four separate issuances of stock. A corporation issued 3,000 shares of $20 par value common stock for $72,000 cash. A corporation issued 1,500 shares of no-par common stock to its promoters in exchange for their efforts, estimated to be worth $22,000. The stock has a $1 per share stated value. A corporation issued 1,500 shares of no-par common stock to its promoters in exchange for their efforts, estimated to be worth $22,000. The stock has no stated value. A corporation issued 750 shares of $100 par value preferred stock for $97,000 cash
Answer and Explanation:
The journal entries are shown below:
1. Cash $72,000
To common stock (3,000 shares × $20) $60,000
To Additional capital paid $12,000
(Being the issuance of the common stock is recorded)
For recording this we debited the cash as it increased the cash and credited the other two accounts as it increased the stockholder equity
2. Organisation expense Dr $22,000
To common stock (1,500 shares × $1) $1,500
To Additional capital paid $20,500
(Being the issuance of the common stock is recorded)
For recording this we debited the expense as it increased the expense and credited the other two accounts as it increased the stockholder equity
3. Organisation expense $22,000
To common stock $22,000
(Being the issuance of the common stock is recorded)
For recording this we debited the expense as it increased the expense and credited the common stock as it increased the stockholder equity
4. Cash $97,000
To preferred stock (750 shares × $100) $75,000
To Additional capital paid $22,000
(Being the issuance of the preferred stock is recorded)
For recording this we debited the cash as it increased the cash and credited the other two accounts as it increased the stockholder equity
Nicholas Health Systems recently reported an EBITDA of $25.0 million and net income of $15.8 million. It had $2.0 million of interest expense, and its federal tax rate was 21% (ignore any possible state corporate taxes). What was its charge for depreciation and amortization
Answer:
Depreciation and Amortization= $3,000,000
Explanation:
Giving the following information:
Nicholas Health Systems recently reported an EBITDA of $25.0 million and a net income of $15.8 million. It had $2.0 million of interest expense, and its federal tax rate was 21%
We need to reverse engineer the net income calculation to determine the depreciation and amortization:
EBT= net income/(1-t)
EBT= 15,800,000/(1 - 0.21)
EBT= 20,000,000
EBIT= EBT + Interest
EBIT= 20,000,000 + 2,000,000
EBIT= 22,000,000
Now, we can determine D and A:
D and A= EBITDA - EBIT
DA= 25,000,000 - 22,000,000
DA= 3,000,000
A law firm received $1600 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause:
Answer and Explanation:
In the first situation, the journal entry is
Cash Dr $1,600
To Unearned revenue $1,600
(Being the unearned revenue is recorded)
For this we debited the cash as it increased the assets and credited the unearned revenue as it also increased the liabilities
The adjusting entry is
Unearned Service Revenue XXXXX
To Service Revenue XXXXX
(Being the adjusting entry is recorded)
If this entry is not recorded than it would leads to understated of revenue and overstated of liabilities
In preparation for developing its statement of cash flows for the year just ended, D-Rose Distributors collected the following information: ($ in millions) Purchase of treasury bills (considered a cash equivalent) 6.7 Sale of preferred stock 150.7 Gain on sale of land 4.7 Proceeds from sale of land 25.7 Issuance of bonds payable for cash 140.7 Purchase of equipment for cash 30.7 Purchase of GE stock 35.7 Declaration of cash dividends 134.7 Payment of cash dividends declared in previous year 130.7 Purchase of treasury stock 120.7 Payment for the early extinguishment of long-term notes (carrying (book) value: $100 million) 110.7 Required: 1. Prepare the investing activities section of D-Rose's statement of cash flows. 2. Prepare the financing activities section of D-Rose's statement of cash flows.
Answer and Explanation:
1. The preparation of the investing activities is presented below:
Cash flow from investing activities
Proceeds from sale of land $25.7
Purchase of equipment for cash -$30.7
Purchase of GE stock -$35.7
Net cash used by investing activities -$40.7
2. The preparation of the financing activities is presented below:
Cash flow from financing activities
Sale of preferred stock 150.7
Issuance of bonds payable for cash 140.7
Payment of cash dividends declared in previous year -130
Purchase of treasury stock -120
Payment for the early extinguishment of long-term notes (carrying (book) value: $100 million) -110.7
Net cash used by financing activities -$69.3
The minus sign shows the cash outflow and the positives sign shows the cash inflow
You are given the following information about 2 accounts: Account 1 Time Account Value before transactions Deposit Withdrawal 0 100 0.25 110 X 0.75 120 3X 1 82 Account 2 Time Account Value before transactions Deposit Withdrawal 0 100 0.5 120 2X 1 140 You are also told that the dollar weighted return over the year on account 1 is i. If the time weighted return over the year on account 2 is also i, what are X and i
Answer:
Check the explanation
Explanation:
For account 1:
Dollar weighted investment = 100 for entire year + X for three fourth of the year - 3X for one fourth of the year = 100 + 3X/4 - 3X/4 = 100
Dollar return = Closing balance - opening balance - (Total deposit - total withdrawal) = 82 - 100 - (X - 3X) = 2X - 18
Hence, dollar weighted return = i = Dollar return / Dollar weighted investment = (2X - 18) / 100
Or, 100i = 2X - 18 Or, 50i = X - 9
For account 2:
Time weighted return: It has two components:
100 growing to 120 in 0.5 year
Immediately after deposit of 2X, the capital becomes 120 + 2X that grows to become 140 in the next 0.5 year
Hence time weighted return = 1 + i = 120 / 100 x 140 / (120 + 2X) = 168 / (120 + 2X) = 84 / (60 + X)
From the first equation, i = (X - 9) / 50
Hence, from second equation, 1 + i = 1 + (X - 9) / 50 = (41 + X) / 50 = 84 / (60 + X)
Hence, (60 + X).(41 + X) = 50 x 84
Hence, X2 + 101X + 2,460 = 4,200
Or, X2 + 101X - 1,740 = 0
It's a quadratic equation that can be factorized as:
(X - 15).(X + 116) = 0
Hence, X = 15
Hence, i = (X - 9) / 50 = (15 - 9) / 50 = 0.12 = 12%
Barton and Fallows form a partnership by combining the assets of their separate businesses. Barton contributes accounts receivable with a face amount of $48,000 and equipment with a cost of $186,000 and accumulated depreciation of $105,000. The partners agree that the equipment is to be valued at $90,000, that $3,700 of the accounts receivable are completely worthless and are not to be accepted by the partnership, and that $1,900 is a reasonable allowance for the uncollectibility of the remaining accounts receivable. Fallows contributes cash of $28,300 and merchandise inventory of $56,000. The partners agree that the merchandise inventory is to be valued at $60,500. Journalize the entries to record in the partnership accounts (a) Barton's investment and (b) Fallows's investment. If an amount box does not require an entry, leave it blank. (a) (b)
Answer and Explanation:
The Journal entry is shown below:-
1. Equipment Dr, $90,000
Accounts receivable Dr, $44,300
($48,000 - $3,700)
To Accumulated depreciation -equipment $1,900
To Barton's capital $132,400
(Being Barton capital contribution in the form of accounts Receivable and equipment as per agreed terms is recorded)
2. Cash account Dr, $28,300
Merchandise Inventory Account Dr, $60,500
To Fallows’s Capital Account $88,800
(Being Fallows capital contribution in the form of merchandise inventory and cash as per agreed terms)
Prior to September 30, a company has never had any treasury stock transactions. A company repurchased 1,000 shares of its $2 par common stock on September 30 for $20 per share. On October 2, it reissued 400 of these shares at $21 per share. On October 12, it reissued the remaining 600 shares at $19 per share. The journal entry to record the reissuance of the shares on October 2 would be:
Answer: Please refer to Explanation
Explanation:
The following will be the journal entry on October 2nd
October 2
DR Cash $8,400
CR Treasury Stock $8,000
CR Additional Paid-in Capital $400
(To record reissuance of Treasury Stock)
Workings
Cash = 400 * 21
= $8,400
Treasury Stock = 400 * 20 (purchase price)
= $8,000
Additional Paid-in Capital = (21 - 20) * 400
= $400
