Answer:
the company's cost of equity is 11.47 %.
Explanation:
The Company`s cost of equity is the return that is required by holders of Common Stocks.
The Cost can be determined using the Capital Asset Pricing Model (CAPM) as follows :
Cost of Equity = Return on Risk Free Rate + Beta × Return on Market Portfolio
= 2.86 % + 1.23 × 7.00 %
= 11.47 %.
The open systems anchor of organizational behavior states that: 1 point A. organizations affect and are affected by their external environments. B. organizations can operate efficiently by ignoring changes in the external environment. C. people are the most important organizational input needed for effectiveness. D. organizations should avoid internal conflicts to achieve efficiency. E. organizations should be open to internal competition to be able to obtain a sustainable competitive advantage.
Answer:
A. organizations affect and are affected by their external environments.
Explanation:
An organizational behavior can be defined as the study of people's opinions, feelings, actions and how people perceive an organization.
The open systems anchor of organizational behavior states that organizations affect and are affected by their external environments. The external environment comprises of factors such as;
1. Criteria set by the regulatory agencies where the organization is operating.
2. The state of the economy, either recessionary or inflationary.
3. The policies adopted by the government.
4. The investor's needs or requirements.
5. The culture of the business environment.
What type of policy lowers interest rates to allow individuals access to more money for large purchases
Complete Question:
What type of policy lowers interest rates to allow individuals access to more money for large purchases?
Group of answer choices
A. Fiscal.
B. Stimulus.
C. Discount.
D. Monetary.
Answer:
D. Monetary.
Explanation:
Monetary policy can be defined as the actions (macroeconomic policies) adopted and undertaken by the central bank of a particular country to control the money supply and interest rates so as to boost or enhance economic growth. The central bank uses monetary policies to manage inflation, economic growth through long-term interest rates and level of unemployment in a country. In order to boost economic growth, monetary policy is used to increase money supply (liquidity) while it is also used to prevent inflation by reducing money supply.
Generally, money supply comprises of checks, cash, money market mutual funds (MMF) and credit (mortgage, bonds and loans).
Additionally, monetary policy lowers interest rates to allow individuals access to more money for large purchases.
Imagine that Eveready has developed solar rechargeable batteries that cost only slightly more to produce than the rechargeable batteries currently available. These solar batteries can be recharged by sunlight up to five times, after which they are to be discarded. Unfortunately, the production process cannot be patented, so competitors could enter the market within a year. Which of the following is the best description of the product life cycle of this product?
a. Long, level beginning, and rapid ascent
b. High initial sales followed by slow decline
c. High introductory sales followed by rapid decline
d. Rapid growth followed by rapid decline
e. Moderately slow introduction, followed by modest growth, gradually leveling off
Answer: Moderately slow introduction, followed by modest growth, gradually leveling off
Explanation:
The product life cycle is the time a product takes from the introduction stage to the decline stage when it's off the market.
Based on the above scenario, the product life cycle of this product will be moderately slow introduction, followed by modest growth, gradually leveling.
This is because since it's a new product, there will be a slow introduction as people will just be getting used to the product, then as customers begin to buy the product and it's brand becomes known, there'll be a modest growth before it levels off.
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
] A firm is producing 1,000 units at a total cost of $5,000. If it were to increase production to 1,001 units, its total cost would rise to $5,008. What does this information tell you about the firm?
Answer:
The question is not complete, below is an example of the completely stated question:
A firm is producing 1,000 units at a total cost of $5,000. If it were to increase production to 1,001 units, its total cost would rise to $5,008. What does this information tell you about the firm?
a. Marginal cost is $5, and average variable cost is $8.
b. Marginal cost is $8, and average variable cost is $5.
c. Marginal cost is $5, and average total cost is $8.
d. Marginal cost is $8, and average total cost is $5.
Answer:
d. Marginal cost is $8, and average total cost is $5.
Explanation:
Marginal cost of production is the change in cost, arising from the production of an additional unit of output. it is the cost of manufacturing one more unit of product. Mathematically, marginal cost is represented as:
[tex]Marginal\ cost = \frac{change\ in\ cost}{change\ in\ quantity\ produced} \\[/tex]
change in cost (ΔC) = C₂ - C₁ = 5,008 - 5,000 = 8
change in quantity produced = Q₂ - Q₁ = 1,001 - 1,000 = 1
[tex]Marginal\ cost = \frac{8}{1} = \$8[/tex]
∴Marginal Cost = $8
Average Total Cost (ATC) or average cost or unit cost is the total cost divided by the number of units produced. It is represented as
[tex]ATC =\frac{TC}{Q} \\where\\ATC = Average\ total\ cost\\\TC = Total\ cost\ = \$5,000\\Q = units\ of\ goods\ produced = 1,000\\[/tex]
∴ ATC = 5,000 ÷ 1,000 = $5
You are calculating the performance of your project. If the actual cost is $80,000, the planned value is $70,000 and the earned value is $65,000, what is the cost performance index?
Answer:
Cost performance index is 81.25%
Explanation:
Actual cost = $80,000
Planned value = $70,000
Earned value = $65,000
Cost performance index (CPI) is the ratio of earned value to actual cost and can be used to estimate the projected cost of completing the project.
CPI = EV / AC
= $65,000 / $80,000
= 0.8125
= 0.8125 x 100
= 81.25%
A gift-wrapping business is staffed by Kaitlyn, Rob, Sam, Susan and Sarah. The production by each of the staff members for an average eight-hour work day is as follows:
Assume that the standard or normal productivity in the organization is 10 minutes per package. What is Kaitlyn's efficiency?
Kaitlyn Rob Sam Susan Sarah
72 packages 55 packages 52 packages 52 packages 48 packages
a. 0.75 (75%)
b. 1.50(150%)
c. 9.0 packages per hour
d. 1.50 packages per hour
e. 9.0 minutes per package
Answer:
b. 1.50(150%)
Explanation:
Given that, the standard time per packages is 10 minutes
Then, the total time taken in eight hour shift is 8 * 60 = 480 minutes
The standard output = Total time taken / Standard time = 480/10 = 48 packages
Therefore, the efficiency of Kaitlyn = Kaitlyn's Output / Standard output
=72 / 48
= 1.5
Hence, the answer is 150% or 1.5
The following table lists all costs of quality incurred by Sam's Surf Shop last year. Annual inspection costs Annual cost of scrap materials Annual rework cost Annual cost of quality training Annual warranty cost Annual testing cost $ 172,000 356,000 104,679 526,000 1,686,000 535,000 What was Sam's appraisal cost for quality last year?
Answer:
$707,000
Explanation:
Calculation for Sam's appraisal cost for quality last year
Using this formula
Appraisal cost = Annual inspection costs + Annual testing cost
Where,
Annual inspection costs =$172,000
Annual testing cost=$535,000
Let plug in the formula
Appraisal cost = $172,000 + $535,000
Appraisal cost = $707,000
Therefore Sam's appraisal cost for quality last year will be $707,000.
The basic unit in which data are stored in an accounting system is called an __________. These storage units should be so constructed as to readily receive money measurements of the __________ or ___________ in the items for which they are established.
Answer:
it would be 3 units for the first part then second answer would be 5 then the last one would be 13
Explanation:
that's why it would be asking for how many units for each storage units
Which of the following is included in the entry to record the issuance of shares of par value common stock at per share for cash?
A) Cash is debited for $294,000.
B) Common Stock is debited for $98,000.
C) Common Stock is credited for $294,000.
D) Paid-In Capital in Excess of Par-Common is debited for $196,000.
Answer:
A) Cash is debited for $294,000. and,
C) Common Stock is credited for $294,000.
Explanation:
When Shares are Issued for Cash, recognize the Assets of Cash (Debit) and also recognize an equity element - Common Stock (Credit).
The Bob Buckham Senior Center, a not-for-profit entity, serves a hot meal to senior citizens every Friday evening. All the food is donated by a local supermarket. All the food preparation and serving is done by local volunteers. If the Center had to pay for the food, it would need to spend $10,000 a year. If it had to pay for the food preparation and service, it would need to spend $12,000 a year. How should it report these contributions in its financial statements?
Food | Food preparation and service
a. Disclose in the notes | Disclose in the notes
b. Disclose in the notes | Report $12,000 revenue and expense
c. Report $10,000 revenue and expense | Disclose in the notes
d. Report $10,000 revenue and expense | Report $12,000 revenue and expense
Answer:
c. Report $10,000 revenue and expense | Disclose in the notes
Explanation:
Not-for-profit entities must report the fair value of all the goods they receive as donations. in this case, they would have to report the $10,000 worth of food received from a local supermarket. But they are not required to report the value of volunteer work, they only have to disclose it on the footnotes of their financial statements.
. A particular parcel of real estate (land) is sold for $20,000,000 and was originally purchased for $10,000,000. On a taxable sale, explain a circumstance (type of investor, intent, entity, etc.) that would pay the following U.S. federal income tax results on the $10,000,000 gain (exclude the 3.8% net investment income tax and any state taxes in the calculation):
Question Completion:
Choices: a. No tax liability on the sale b. $2,000,000 of tax c. $2,960,000 of tax d. $2,100,000 of tax
Answer:
b. $2,000,000 of tax for individuals
Explanation:
Long-term capital gains tax is a tax on profits from the sale of an asset which an investor has held for more than a year. The approved long-term capital gains tax rates are 0%, 15% or 20% depending on your taxable income bracket and whether you are filing as a single or jointly as married. But, an important point to note is that long-term capital gains tax rates are generally lower than short-term capital gains tax rates, thus encouraging investors to hold assets for a longer time. Short-term capital gains tax rates are the rates applicable to the normal individual income tax brackets.
The Whistling Straits Corporation needs to raise $74 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. The offer price is $45 per share and the company's underwriters charge a spread of 6 percent. If the SEC filing fee and associated administrative expenses of the offering are $825,000, how many shares need to be sold? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567.)
Answer:
1,768,913 new stocks
Explanation:
the company needs to raise amount needed to finance expansion plus SEC's filing and administrative fees = $74,000,000 + $825,000 = $74,825,000
net amount received per stock issued = stock price x (1 - underwriting fee) = $45 x (1 - 6%) = $42.30 per stock
the company needs to issue = $74,825,000 / $42.30 per stock = 1,768,912.53 = 1,768,913 new stocks
At 17 years old, Otto signed a contract to purchase a new Hummer by advancing a payment of $50,000. However, when Otto turned 20, he wished to disaffirm this contract. Does the law permit this
Bawl purchased ABC bonds on 1/1/21. Data regarding these available-for-sale securities follow: Cost MV December 31, 2021 $100,000 $ 91,000 December 31, 2022 100,000 111,000 December 31, 2023 100,000 106,000 The unrealized Gain/Loss reported in OCI of the 2023 Comprehensive Income statement is:
Answer:
Bawl with ABC bonds
The unrealized Gain/Loss reported in OCI of the 2023 Comprehensive Income statement is:
A Loss of $5,000
Explanation:
a) Data and Calculations:
Cost MV Unrealized Profit or (Loss)
December 31, 2021 $100,000 $ 91,000 $9,000 (Loss)
December 31, 2022 100,000 111,000 20,000
December 31, 2023 100,000 106,000 5,000 (Loss)
Available-for-sale Investment
Debit Credit
Dec 31 100,000
Loss 9,000
Dec 31 91,000
Profit 20,000
Dec 31 111,000
Loss 5,000
Dec 31 106,000
The Available-for-sale Investment will show a loss of $5,000 in the Other Comprehensive Income of the 2023 Comprehensive Income Statement based on the yearly adjustments to the account with losses and profits.
A small town with one hospital has two ambulances to supply ambulance service. Requests for ambulances during nonholiday weekends average .45 per hour and tend to be Poisson-distributed. Travel and assistance time averages two hours per call and follows an exponential distribution. Find:
a. System utilization.
b. The average number of customers waiting.
c. The average time customers wait for an ambulance.
d. The probability that both ambulances will be busy when a call comes in.
Explanation:
Given: -
The number of ambulances is(m) = 2.
Arrival rate = 0.45 per hour
Service time = 2 per hour
Service rate =?
service time = 2 (Travel and assistance time averages two hours per call)
Therefore, Service rate will be 1/2 = 0.5 per hour.
a). System utilization(p) = arrival rate/mean of ambulances*service time
p = 0.45/2×0.5 = 0.45.
(b) :- The average number of customer waiting or waiting time for an ambulance is equal to:-
Arrival rate divided by the service rate ( on its corresponding service time as per table value)
I.e. Arrival time = 0.45 ÷ service rate =0.5
= 0.9 ( see table value for 0.9 with service rate as 2)
It comes to 0.229.
Therefore, the average number of customers waiting. 0.229.
(c) :- The average time customers wait for an ambulance is equal to :
No. of customers waiting for ÷ arrival rate
0.229 ÷ 0.45 = 0.508
Or 0.509 (approx. )
D) probability of Both ambulances is idle is Po = 0.378 (from the table for the value of and M=2)
So Probability of both ambulance is busy = 1-Po
= 1 - 0.378
= 0.622
Suppose you bought a bond with an annual coupon rate of 4.2 percent one year ago for $900. The bond sells for $950 today. a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year? b. What was your total nominal rate of return on this investment over the past year? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. If the inflation rate last year was 2.5 percent, what was your total real rate of return on this investment? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Answer:
a) total return = ($1,000 x 4.2%) + ($950 - $900) = $92
b) nominal rate of return = total return / total investment = $92 / $900 = 10.22%
c) we calculate the approximate real rate of return = nominal rate of return - inflation rate = 10.22% - 2.5% = 7.72%
if we want to determine the exact real rate of return:
exact real rate of return = [(1 + nominal rate) / (1 + inflation rate)] - 1 = (1.1022 /1.025) - 1 = 7.53%
A midyear burst of minimum-wage increases starts on July 1
On July 1, 2016, the minimum wage will increase in 14 U.S. cities, states and counties, and in the District of Columbia. In SanFrancisco, the minimum wage will rise to $13.00 by 2018.
Source: The Wall Street Journal, July 1, 2016
The rise in the minimum wage _______.
A. increases aggregate supply because when workers receive a higher wage rate, they work harder
B. decreases aggregate supply because firms' costs increase
C. creates a movement up along the aggregate supply curve because the price level rises
D. does not change aggregate supply because most people earn more than the minimum wage
Answer: B. decreases aggregate supply because firms' costs increase
Explanation:
The rise in the the minimum wage rate raise the production cost .
This tends to shift the aggregate supply curve leftwards because the profit margins of firm will decrease and that tends to decrease the production.( at each unite of production.)
Hence, the rise in the minimum wage decreases aggregate supply because firms' costs increase .
Therefore , the correct option is 'B'.
Using the same information from before, please calculate the WACC of Correct Inc. assuming a risk free rate of 2.5%, a company Beta of 1.2 and a market risk premium of 6%.
Answer:
WACC = 21.7%
Explanation:
The firm is an all-equity finance firm which implies that the company uses only equity funds to finance its its operation without the use of debt. Therefore, the cost of the equity of the firm would be the same as its cost of capital (WACC)
The WACC can be determined using the the capital asset pricing model (CAPM). The CAPM relates the price of a share to the market risk or systematic risk. The systematic risk is that which affects all the all the economic agents, e.g inflation, interest rate e.t.c
Using the CAPM , the required rate of return is given as follows:
E(r)= Rf +β(Rm-Rf)
E(r) - required return
β- Beta
Rm- Return on market
Rf- Risk-free rate
Rm-Rf- Market risk premium
DATA
E(r) =? , Rf- 2.5%, Rm-Rf- 6% , β- 1.2
E(r) = 2.5% + 1.2× (16%) = 21.7 %
Cost of equity = 21.7%
WACC = 21.7%
An individual is planning to set-up an education fund for her daughter. She plans to invest $7,700 annually at the end of each year. She expects to withdraw money from the fund at the end of 9 years and expects to earn an annual return of 8%. What will be the total value of the fund at the end of 9 years
Answer:
$96,154.20
Explanation:
We are to find the future value of the annuity
The formula for calculating future value = A (B / r)
B = [(1 + r)^n] - 1
A = Amount
R = interest rate
N = number of years
[(1.08)^9 - 1 ] / 0.08 = 12.487558
12.487558 x $7,700 = $96,154.20
Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows:
Year Cash Flow
0 160,000
1 335,000
2 400,000
3 295,000
4 250,000
All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to Improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are "blocked" and must be reinvested with the government for one year. The reinvestment rate for these funds is 4 percent.
If Anderson uses a required return of 7 percent on this project, what are the NPV and IRR of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Enter your IRR as a percent.)
NPV
IRR %
Answer:
since the positive cash flows are blocked for one year, you have to adjust your cash flows:
year cash flow
0 -$160,000
1 $0
2 $348,400
3 $416,000
4 $306,800
5 $260,000
discount rate = 7%
using a financial calculator:
NPV = -$160,000 + $1,063,318.63 = $903,318.63
IRR = 102.94%
A company had total sales of $840,000, net sales of $821,400, and an average accounts receivable of $111,000. Its accounts receivable turnover equals:
Answer:
7.4
Explanation:
accounts receivable turnover is ratio of total net sales and average account receivable.
accounts receivable turnover = total net sales/ average account receivable
Given
net sales = $821,400,
average accounts receivable = $111,000
accounts receivable turnover =$821,400/111,000 = 7.4 Answer
A company issued 5-year, 7% bonds with a par value of $100,000. The market rate when the bonds were issued was 6.5%. The company received $102,105 cash for the bonds. Using the straight-line method, the amount of recorded interest expense for the first semiannual interest period is:
Answer:
$3,289.5
Explanation:
The computation of the amount of recorded interest expense for the first semiannual interest period is shown below:-
Amortization of premium = Premium amount ÷ Number of semi-annual periods
where
Premium amount = Par value - issue price
= $102,105 - $100,000
= $2,105
Number of semi-annual periods = 5 × 2
= 10 periods
Amortization of premium = $2,105 ÷ 10
= 210.5
Semi-annual interest expense = Face value × Coupon rate × (6 ÷ 12)
= $100,000 × 7% × (6 ÷ 12)
= $3,500
First semi-annual interest expense = $3,500 - 210.5
= $3,289.5
The Janjua Company had the following account balances at 1/1/18:
Common Stock $65,000
Treasury Stock (at cost) 13,400
Paid-in-Capital in Excess of Par 82,000
Investments in AFS Debt Securities 40,000
FVA (AFS) 1,500 credit
Retained Earnings 22,000
On that date, the Accumulated OCI account was at its proper balance.
There were no sales or purchases of Common Stock or Investments during 2018. Prior to any adjusting journal entries related to the investments, 2018 Net Income was $10,300. No other transactions affecting Retained Earnings occurred. Fair Value of the Investments at 12/31/2018 was $41,500.
Required:
a. Prepare the 12/31/18 journal entry to adjust the investment to fair value.
b. Prepare the complete 12/31/18 Equity section of the balance sheet.
Answer:
a. Journal Entry:
Investments in Debt securities (Dr.) $1500
Fair Value of Debt securities(Cr.) $1500
b. Equity Section:
Common Stock $65,000
Retained Earnings $22,000
Treasury Stock $13,400
Revaluation of Debt securities $1,500
Explanation:
Investments in AFS Debt securities 40,000
Fair value of the investment on 12/31/2018 is $41,500
The difference between fair value and reported value will be adjusted through journal entry. The difference is of $1500 (41,500 - 40,000) is the revaluation amount of the securities.
Suppose Rocky Brands has earnings per share of $2.33 and EBITDA of $29.3 million. The firm also has 5.3 million shares outstanding and debt of $125 million (net of cash). You believe Jared's Outdoor Corporation is comparable to Rocky Brands in terms of its underlying business, but Jared's has no debt. If Jared's has a P/E of 12.9 and an enterprise value to EBITDA multiple of 7.1, estimate the Enterprise Value of Rocky Brands by using both multiples. Which estimate is likely to be more accurate?
Answer:
enterprise value to EBITDA.
Explanation:
The computation of the value of the stock using P/E ratio is shown below:-
Stock value = (P/E ratio × EPS) × Number of shares outstanding
= (12.9 × $2.33) × 5.3 million
= 159.3021 million
Now, the computation of the value of the stock using EBITDA multiple is shown below:-
Stock value = (EBITDA multiple × EBITDA) - Net debt
= (7.1 × $29.3 million) - $125 million
= 208.03 - $125 million
= 83.03
There is no equivalent corporate debt. It is easier to make a comparison at the operating level and thus a better measure of valuation is the enterprise value to EBITDA.
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!
Most Company has an opportunity to invest in one of two new projects. Project Y requires a $345,000 investment for new machinery with a six-year life and no salvage value. Project Z requires a $345,000 investment for new machinery with a five-year life and no salvage value. The two projects yield the following predicted annual results. The company uses straight-line depreciation, and cash flows occur evenly throughout each year.
Project Y Project Z
Sales 360,000 288,000
Expenses
Direct materials 50,400 36,000
Direct labor 72,000 43,200
Overhead including depreciation 129,600 129,600
Selling and administrative expenses 26,000 26,000
Total expenses 278,000 234,800
Pretax income 82,000 53,200
Income taxes (38%) 31,160 20,216
Net income 50,840 32,984
Required:
a. Compute each project’s annual expected net cash flows.
b. Compute each project’s accounting rate of return.
c. Determine each project’s net present value using 6% as the discount rate. Assume that cash flows occur at each year-end.
Answer:
Most Company
a. Annual expected net cash flows:
Project Y Project Z
Net cash flows before tax 139,500 122,200
Expected net cash flows:
Income taxes (38%) 31,160 20,216
Net cash flows after tax 108,340 101,984
b. Accounting rate of return:
= Annual Net Income/Average Investment
Project Y:
= $50,840/$278,000 * 100
= 18.29%
Project Z:
= $32,984/$234,800 * 100
= 14.05%
c. Net Present Value, using 6% discount rate:
Annuity PV Project Y Project Z
Annuity factor = 4.212
Annuity of operating outflows 929,746 698,350
Initial Investments 345,000 345,000
Total PV of investments $1,274,746 $1,043,350
Annuity of cash inflows $1,516,320 $1,213,056
Net present value $241,574 $169,706
Explanation:
a) Data and Calculations:
1. Investments in Projects:
Project Y Project Z
Investments $345,000 $345,000
Project's life 6 years 5 years
Salvage value 0 0
Depreciation method = straight-line method
Annual Depreciation expenses $57,500 $69,000
2. Cash Inflows:
Sales 360,000 288,000
3. Cash Outflows:
Direct materials 50,400 36,000
Direct labor 72,000 43,200
Overhead 72,100 60,600
Selling & Admin. expenses 26,000 26,000
Total Operating Outflows 220,500 165,800
Net cash flows before tax 139,500 122,200
Expected net cash flows:
Income taxes (38%) 31,160 20,216
Net cash flows after tax 108,340 101,984
4. Accounting rate of returns calculations:
Project Y Project Z
Annual Net income $50,840 $32,984
Project's life 6 years 5 years
Initial Investments 345,000 345,000
Annual Cash Outflows 220,500 165,800
Total Cash Outflows 1,323,000 829,000
Total Investments 1,668,000 1,174,000
Average Investments $278,000 $234,800
Average investments = total investments/number of project's years.
5. Most Company's accounting rate of return measures the average annual net income as a percentage of the average investments, without considering the time value of money.
6. Most Company's NPV or net present value of a project calculates the difference between the present values of the inflows and the outflows of a project over its life.
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 13% and T-bills provide a risk-free return of 4%. a. What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of (i) 0; (ii) 0.25; (iii) 0.50; (iv) 0.75; (v) 1.0
Answer:
a. The answers are as follows:
(i) Expected of Return of Portfolio = 4%; and Beta of Portfolio = 0
(ii) Expected of Return of Portfolio = 6.25%; and Beta of Portfolio = 0.25
(iii) Expected of Return of Portfolio = 8.50%; and Beta of Portfolio = 0.50
(iv) Expected of Return of Portfolio = 10.75%; and Beta of Portfolio = 0.75
(v) Expected of Return of Portfolio = 13%; and Beta of Portfolio = 1.0
b. Change in expected return = 9% increase
Explanation:
Note: This question is not complete as part b of it is omitted. The complete question is therefore provided before answering the question as follows:
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 13% and T-bills provide a risk-free return of 4%.
a. What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of (i) 0; (ii) 0.25; (iii) 0.50; (iv) 0.75; (v) 1.0
b. How does expected return vary with beta? (Do not round intermediate calculations.)
The explanation to the answers are now provided as follows:
a. What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of (i) 0; (ii) 0.25; (iii) 0.50; (iv) 0.75; (v) 1.0
To calculate these, we use the following formula:
Expected of Return of Portfolio = (WS&P * RS&P) + (WT * RT) ………… (1)
Beta of Portfolio = (WS&P * BS&P) + (WT * BT) ………………..………………. (2)
Where;
WS&P = Weight of S&P = (1) – (1v)
RS&P = Return of S&P = 13%, or 0.13
WT = Weight of T-bills = 1 – WS&P
RT = Return of T-bills = 4%, or 0.04
BS&P = 1.0
BT = 0
After substituting the values into equation (1) & (2), we therefore have:
(i) Expected return and beta of portfolios with weights in the S&P 500 of 0 (i.e. WS&P = 0)
Using equation (1), we have:
Expected of Return of Portfolio = (0 * 0.13) + ((1 - 0) * 0.04) = 0.04, or 4%
Using equation (2), we have:
Beta of Portfolio = (0 * 1.0) + ((1 - 0) * 0) = 0
(ii) Expected return and beta of portfolios with weights in the S&P 500 of 0.25 (i.e. WS&P = 0.25)
Using equation (1), we have:
Expected of Return of Portfolio = (0.25 * 0.13) + ((1 - 0.25) * 0.04) = 0.0625, or 6.25%
Using equation (2), we have:
Beta of Portfolio = (0.25 * 1.0) + ((1 - 0.25) * 0) = 0.25
(iii) Expected return and beta of portfolios with weights in the S&P 500 of 0.50 (i.e. WS&P = 0.50)
Using equation (1), we have:
Expected of Return of Portfolio = (0.50 * 0.13) + ((1 - 0.50) * 0.04) = 0.0850, or 8.50%
Using equation (2), we have:
Beta of Portfolio = (0.50 * 1.0) + ((1 - 0.50) * 0) = 0.50
(iv) Expected return and beta of portfolios with weights in the S&P 500 of 0.75 (i.e. WS&P = 0.75)
Using equation (1), we have:
Expected of Return of Portfolio = (0.75 * 0.13) + ((1 - 0.75) * 0.04) = 0.1075, or 10.75%
Using equation (2), we have:
Beta of Portfolio = (0.75 * 1.0) + ((1 - 0.75) * 0) = 0.75
(v) Expected return and beta of portfolios with weights in the S&P 500 of 1.0 (i.e. WS&P = 1.0)
Using equation (1), we have:
Expected of Return of Portfolio = (1.0 * 0.13) + ((1 – 1.0) * 0.04) = 0.13, or 13%
Using equation (2), we have:
Beta of Portfolio = (1.0 * 1.0) + (1 – 1.0) * 0) = 1.0
b. How does expected return vary with beta? (Do not round intermediate calculations.)
There expected return will increase by the percentage of the difference between Expected Return and Risk free rate. That is;
Change in expected return = Expected Return - Risk free rate = 13% - 4% = 9% increase
Marks Company makes one product, for which it has established the following standards for materials: Average quantity of material per unit of product: 4.5 pounds Price per pound of materials, $16 During March, Marks made 10,000 units of the product, using 50,000 pounds at a total purchase price of $825,000. What is the materials price variance
Answer:
Direct material price variance= $25,000 unfavorable
Explanation:
Giving the following information:
Standard price= $16
During March, Marks made 10,000 units of the product, using 50,000 pounds at a total purchase price of $825,000.
To calculate the direct material price variance, we need to use the following formula:
Direct material price variance= (standard price - actual price)*actual quantity
Actual price= 825,000/50,000= $16.5
Direct material price variance= (16 - 16.5)*50,000
Direct material price variance= $25,000 unfavorable
Companies collect a wide variety of information about their foreign markets to decide in which countries to conduct business and which market segments in these markets they should target. What are the three major markets that exist in all foreign markets
Answer:
Consumer MarketsIndustrial MarketsGovernment MarketExplanation:
Consumer markets are where trade happens with consumption as the final aim. This means that in such markets, the end users are households as well as individual consumers who buy goods and services for their own use. Example; selling cars to people.
The Industrial Market is where trade happens between producers and manufacturers who want to turn the goods bought into finished goods or further processable goods. This is why it is also called the Business market.
In the Government market, the consumers or end users is the Government through it's various arms and levels such as state agencies at the Federal, state or municipal level.
