Answer:
A) adjust the market price of a stock so it falls within a preferred trading range
Explanation:
A stock split is when a company increases the number of its shares outstanding.
for example if a company has 6 million shares outstanding at a price of $10, earning per share is $1 and dividend per share is $2. this company announces a 2 for 1 split :
the number of outstanding shares becomes 2 x 6 million = 12 million
stock price becomes = $10 / 2 =$5
earning per share = $1 / 2 = $0.50
dividend per share = $2 / 2 = $1
After a stock split, the price of the shares falls. so it can be used to adjust the market price of a stock so it falls within a preferred trading range.
A stock split doesn't affect the balances in shareholders equity account.
Stock split doesn't affect the cash holdings of the firm.
Market capitalisation doesn't change after a split, so stock value doesn't change.
Suppose that short-term municipal bonds currently offer yields of 4%, while comparable taxable bonds pay 5%. Which gives you the higher after-tax yield if your combined tax bracket is:
Answer:
1.Taxable bonds
2Taxable bonds
3.They have the same after-tax yield
4.
municipal bond
Explanation:
The missing tax brackets are zero,10%,20% and 30%
Zero % tax rate:
municipal bond pays 4%
taxable bonds after tax yield=5%*(1-0)=5%
10% tax rate
municipal bond pays 4%
taxable bond after tax yield=5%*(1-10%)=4.5%
20% tax rate
municipal bond pays 4.0%
taxable bond after tax yield=5%*(1-20%)=4.0%
30% tax rate
municipal bond pays 4.0%
taxable bond after tax yield=5%*(1-30%)=3.50%
Let's say that you choose to buy bread in a grocery store. According to the marginal benefit and marginal cost principle, how many loaves of bread will you purchase if you know the following:
A loaf of bread costs $2.00. Each dollar is worth 100 utils to you (so $2 is worth 200 utils). The first loaf of bread gives you 400 utils of satisfaction. The second loaf of bread gives you 320 utils of satisfaction. The third loaf of bread gives you 280 utils of satisfaction. The fourth loaf of bread gives you 220 utils of satisfaction. The fifth loaf of bread gives you 160 utils of satisfaction. The sixth loaf of bread gives you 30 utils of satisfaction. The seventh loaf of bread gives you no more additional utils.
1. Four loaves.
2. One loaf.
3. Three loaves.
4. Two loaves.
5. Six loaves.
6. Five loaves.
7. Seven loaves.
It will be advisable to purchase six loaves of bread to derive the optimum amount of marginal utility upon consumption. Hence, option 6 is correct.
What is marginal utility?The utility derived upon consumption of each additional unit of a product, given that other things remain constant, is known as the marginal utility derived.
It has been provided that the utility derived upon the consumption of seventh loaf will not derive further utility. And thus, six loaves derive optimum amount of utility for the consumer.
Hence, option 6 holds true regarding deriving the marginal utility.
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Aggregate income in an economy in 2017 is $100 billion. Saving is $30 billion and imports are $35 billion. What is aggregate expenditure in the economy in 2017?
Answer: $100 billion
Explanation:
In Economics, Aggregate Income is assumed to be the same as Aggregate Expenditure. The assumption behind this is that every dollar spent is a dollar in income from someone else so every income is just a dollar that will be spent.
With that logic in a country that has Aggregate income of $100 billion, the Aggregate Expenditure will be $100 billion as well.
Suppose Cho is considering emigrating from her home country.A fictional country of Flaxon has the same policies and institutions as Cho's home country, except that it has greater price stability. If Cho's decision to emigrate is based solely on the prospects for economic growth, she would
Answer: Migrate to Flaxon
Explanation:
If Flaxon country has the same policies and institutions as Cho's home country but also has greater price stability, Cho would emigrate if she wanted more economic growth because Price stability contributes to the growth of the economy.
Price stability means that the country is not going to experience inflation (deflation) that is too high (low) and lasts too long as well as one that is erratic.
This benefits the economy because;
Savings will not be easily eroded by inflation.Decisions can be made easier as inflation rates can be better predictable. For instance, people can save or invest at a particular rate that they know will bring them real return as it will be over the inflation rate. Unexpected deflation will not cause companies to make losses which can increase unemployment and company shutdowns and,Financial institutions can borrow out loans at more stable rates for investments because in a less stable market they would have to charge higher rates to ensure that they do not make losses should inflation change. These stable rates will attract companies and individuals who will use the funds for investment and improve the economy.If I currently sell 10,000 units, and my use of Formula 1 indicates that I will need to sell 500 additional units to justify my suggested change to the marketing mix, what percentage of sales does that represent
Answer:
It represents a 5% change to the marketing mix.
Explanation:
The change = 500/10,000 x 100 = 5%.
Company A's change in a variable can be compared with another index, by expressing the change (addition) as a percentage of the index. For instance, the sale of 10,000 units is an index. The additional 500 units that is needed to be sold represent the change. In percentage terms, the change can be divided by the index and then multiplied by 100.
Sally Eason put $4,000 in her deductible IRA this year. If Sally is in the 25 percent marginal tax bracket, the government actually contributed ____ of that amount for her. Group of answer choices
Answer: $1000
Explanation:
From the question, we are informed that Sally Eason put $4,000 in her deductible IRA this year and that Sally is in the 25 percent marginal tax bracket.
Based on the above information, the government contributed:
= 25% × $4,000
= 25/100 × $4,000
= 0.25 × $4,000
= $1000
The owner of a large machine shop has just finished its financial analysis from the prior fiscal year. Following is an excerpt from the final report: Net revenue $ 375,000 Cost of goods sold 322,000 Value of production materials on hand 42,500 Value of work-in-process inventory 37,000 Value of finished goods on hand 12,500 What is the inventory turnover ratio (ITR) ?
Answer:
The answer is 3.5
Explanation:
Inventory turnover ratio is:
Cost of goods sold / Total or average inventory
Cost of goods sold is $322,000
Total Inventory in this question comprises work-in- process, finished goods and even raw materials.
So total inventory equals:
Production materials on hand $42,500 Work-in-process inventory $37,000
Finished goods on hand $12,500
Total inventory. $92,000
Therefore, inventory turnover ratio is
$322,000 / $92,000
= 3.5
Location Score
Factor
(100 points each) Weight A B C
Convenience .15 86 77 83
Parking facilities .20 70 88 98
Display area .18 86 90 94
Shopper traffic .27 90 88 89
Operating costs .10 86 91 96
Neighborhood .10 90 86 84
1.00
Using the above factor ratings, calculate the composite score for each location. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)
Location Composite Score
A
B
C
Answer:
Location Composite Score
A 84.28
B 86.81
C 91.00
Explanation:
Calculation for the composite score for each location Using the above factor ratings
A
Factor Weight A
Convenience .15 ( .15*86 )=12.90
Parking facilities .20 (.20*70)=14.00
Display area .18 (.18*86)=15.48
Shopper traffic .27 (.27*90)=24.30
Operating costs .10 (.10*86 )=8.60
Neighborhood .10 (.10* 90 )=9.00
Total 1.00= 84.28
B
Factor Weight B
Convenience .15 (.15* 77)=11.55
Parking facilities .20 ( .20* 88)=17.60
Display area .18 (.18* 90)=16.20
Shopper traffic .27 (.27*88 )=23.76
Operating costs .10 (.10* 91)=9.10
Neighborhood .10 (.10*86 )=8.60
Total 1.00 = 86.81
C
Factor Weight C
Convenience .15 (.15* 83)=12.45
Parking facilities .20 (.20*98)=19.60
Display area .18 (.18*94)=16.92
Shopper traffic .27 (.27*89)=24.03
Operating costs .10 (.10*96)=9.60
Neighborhood .10 (.10*84)=8.40
Total 1.00 = 91.00
Therefore the composite score for each location is:
Location Composite Score
A 84.28
B 86.81
C 91.00
Based on the above calculation C is the best because it has the highest composite score of 91.00.
Connie recently provided legal services to the Winterhaven LLC and received a 5 percent interest in the LLC as compensation. Winterhaven currently has $43,000 of accounts payable and no other debt. The current fair market value of Winterhaven’s capital is $270,000. (Leave no answer blank. Enter zero if applicable.)
a. If Connie receives a 5 percent capital interest only, how much income must she report and what is her tax basis in the LLC interest?
Income ______
Tax Basis ______
b. If Connie receives a 5 percent profits interest only, how much income must she report and what is her tax basis in the LLC interest?
Income ______
Tax Basis ______
c. If Connie receives a 5 percent capital and profits interest, how much income must she report and what is her tax basis in the LLC interest?
Income ______
Tax Basis ______
Answer and Explanation:
a. Connie registers $13,500 of ordinary revenue or 5% of the LLC's $270,000 property. Her LLC investment base is $13,500 as well.
b. Connie does not disclose any profits but will have an interest rate equal to her share of the LLC 's debt in the LLC. Since debt from the LLC is a non-recourse loan, it needs to be distributed to her through interest on earnings from Connie. Therefore her investment in the LLC is equivalent to $2,150 or 5% of the $43,000 accounts payable by the LLC.
c. Connie reports $13,500 of ordinary revenue or 5 percent of the $270,000 capital of the LLC. Her LLC interest base is $13,500, too. Her base in the LLC is $15,650 consists of the $13,500 benefit she accepts for earning her capital gain and her $2,150 non-recourse tax payable from the LLC.
The bond has a 12% annual coupon rate, a $1,000 par value, it matures in 15 years and pays coupon quarterly. The current bond price is $900. What is the bond’s annual yield? A. 14.28% B. None of the answers is correct C. 13.60% D. 12.85%
Answer:
A. 14.28%
Explanation:
As per Approximation formula,
Quarterly yield = (A + B / C) * 100
A = Quarterly coupon = 12% of 1,000 / 4 =30
B = (Redemption - Price value / Number of coupon) = (1,000 - 900) / (15 * 4)
= 1.667
C= (Redemption value + Price / 2) = 1,000 + 900 / 2 = 1,900 /2 = 950
Quarterly yield = 30 + 1.66667 / 950 = 31.6667 / 950 = 0.03333
Quarterly yield = 3.33%
Using the calculator, we get exact Ytm quarterly = 3.3925%
Effective amount yield = {(1 + 0.033925)^4 - 1} * 100
Effective amount yield = 0.142762 * 100
Effective amount yield = 14.2762%
Effective amount yield = 14.28%
Apply the integration-responsiveness framework to describe which global strategy Hollywood studios followed originally, and how their strategic positioning has changed over time. Explain how and why.
Answer is given below :
Explanation:
Global integration refers to the coordination of the organization’s value chain operations within countries, achieving efficiency, synergy and cross-fertilization between countries so that equality between countries is maximized. Between global integration and local accountability, the integration-accountability framework is called to help managers develop a deeper understanding of the business. We can say at the outset or at the outset that an export strategy that applies to Hollywood is used when a company focuses primarily on its domestic operations. It is not intended to expand globally, but to export certain products to take advantage of international opportunities. It does not seek to adapt its products to international markets. It is not interested in responding to specific situations in other countries or formulating a unified world strategy. Hollywood not only produced films and shows that catered to the needs of its native business aimed at American Western culture, but as the industry began to expand it began to adopt a multi-national strategy. Multi dimensional strategy follows products or processes for specific situations in each country. In the initial example, Lincoln should use a multi-year strategy to adapt its manufacturing methods to the conditions of each country where electric factories are built. Retailers often use multicultural strategies because they must cater to local customer tastes. Hollywood has started producing Indian films like Kung Fu Panda, Karate Kids, Oscar Winning Slumdog Millionaire.The global strategy that Hollywood studios followed at first was the international strategy.
It should be noted that the global strategy that Hollywood studios followed originally was the international strategy where identical movies were showed in foreign countries.
This has changed now as there are different movies that are filmed and in different versions. Also, it isn't in the control of the government to edit out any part.
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Andrew is injured in an accident caused primarily by the negligence of Bob. Andrew suffers $100,000 worth of harm. Bob is 70% to blame, Andrew 30%. How much will Andrew recover from Bob under the rules of a state that has adopted comparative fault?
a. $0
b. $30,000
c. $70,000
d. $100,000
Answer:
$70,000
Explanation:
From the question, it is seen that Bob is the reason for this accident so he is the to bear a cost of treating Andrew based on comparative fault.
He contributed greatly to the accident therefore he is liable to a 70% payment of the $100000 cost of treatment.
100000 *70%
= $70000
Therefore by this law Andre will recover $70000 from him.
On January 22, Jefferson County Rocks Inc., a marble contractor, issued for cash 180,000 shares of $20 par common stock at $23, and on February 27, it issued for cash 25,000 shares of preferred stock, $7 par at $9.
A. Journalize the entries for January 22 and February 27.
Jan. 22 Cash
Common Stock
Paid-In Capital in Excess of Par-Common Stock
Feb. 27 Cash
Preferred Stock
Paid-In Capital in Excess of Par-Preferred
B. What is the total amount invested (total paid-in capital) by all stockholders as of February 27?
Answer:
A. Journalize the entries for January 22 and February 27.
January 22, 202x, common stocks issued:
Dr Cash 4,140,000
Cr Common stock 3,600,000
Cr Additional paid in capital: common stock 540,000
February 27, 202x, preferred stocks issued:
Dr Cash 225,000
Cr Preferred stock 175,000
Cr Additional paid in capital: preferred stock 50,000
B. What is the total amount invested (total paid-in capital) by all stockholders as of February 27?
$4,140,000 + $225,000 = $4,365,000
Suppose a jar of orange marmalade that is ultimately sold to a customer at The Corner Store is produced by the following production process: Name of Company Revenues Cost of Purchased Inputs Citrus Growers Inc. $0.75 0 Florida Jam Company $2.00 $0.75 The Corner Store $2.50 $2.00 What is the value added of Florida Jam Company
Answer:
$1.75
Explanation:
Value added is calculated by subtracting the difference of revenue and the cost of inputs.
value added of Florida Jam Company = $2.50 - $0.75 = $1.75
ignoring taxes what is the effect on earnings in the year after the shares are granted to executives
Answer: C. $40 million.
Explanation:
By granting them 15 million shares subject to forfeiture if employment is terminated within three years, the company is compensating them.
The total amount that they will be compensated with has to be apportioned over the 3 years as an expense that will reduce earnings per year.
Total compensation = No. of shares * fair value of shares
= 15,000,000 * 8
= $120,000,000
Apportioned over 3 years;
= 120,000,000/3
= $40,000,000
On November 7, Mura Company borrows $370,000 cash by signing a 90-day, 8%, $370,000 note payable. 1. Compute the accrued interest payable on December 31. 2. & 3. Prepare the journal entry to record the accrued interest expense at December 31 and payment of the note at maturity on February 5.
Answer:
At 31 December, the Interest for 54 days accrues as follows :
Interest expense $17,740 (debit)
Note Payable $17,740 (credit)
On payment February 5, the Interest expense will be capitalized in the Note Payable as follows :
Note Payable $407,473 (debit)
Cash $407,473 (credit)
Explanation:
AT, November 7, When Mura Company borrows the money :
Cash $370,000 (debit)
Note Payable $370,000 (credit)
At 31 December, the Interest for 54 days accrues as follows :
Interest expense $17,740 (debit)
Note Payable $17,740 (credit)
Interest expense calculation = $370,000 × 8% × 54/90
= $17,740
At February 5, the interest for 60 days accrues as follows :
Interest expense $19,733 (debit)
Note Payable $19,733 (credit)
Interest expense calculation = $370,000 × 8% × 60/90
= $19,733
On payment February 5, the Interest expense will be capitalized in the Note Payable as follows :
Note Payable $407,473 (debit)
Cash $407,473 (credit)
Note Payable Calculation = $370,000 + $19,733 + $17,740
$407,473
Ultimate Sportswear has $150,000 of 8% non-cumulative, non-participating, preferred stock outstanding. Ultimate Sportswear also has $550,000 of common stock outstanding. In the company's first year of operation, no dividends were paid. During the second year, the company paid cash dividends of $35,000. This dividend should be distributed as follows:
a. $8,750 preferred: $26,250 common.
b. $0 preferred: $35,000 common.
c. $12.000 preferred: $23.000 common.
d. $19.000 preferred: $16.000 common
e. $17,500 preferred; $17,500 соmmоn.
Answer:
c. $12,000 preferred: $23,000 common
Explanation:
Calculation of how the Dividend should be distributed
First step is to calculate for preferred stock outstanding
Preferred stock outstanding=$150,000 * 8% non-cumulative
Preferred stock outstanding=$12,000
Second step is to calculate for common stock outstanding
Using this formula
Common stock outstanding = Cash Dividend-Preferred stock outstanding
Let plug in the formula
Common stock outstanding=$35,000-$12,000
Common stock outstanding=$23,000
Therefore Preferred stock outstanding will be $12,000 while Common stock outstanding will be $23,000
Northwest Fur Co. started 2021 with $105,000 of merchandise inventory on hand. During 2021, $510,000 in merchandise was purchased on account with credit terms of 3/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $8,900. Merchandise with an invoice amount of $3,700 was returned for credit. Cost of goods sold for the year was $362,000. Northwest uses a perpetual inventory system. What is ending inventory assuming Northwest uses the gross method to record purchases
Answer:
The ending inventory by using the gross method is $243,011
Explanation:
Purchases = Net purchases + Freight inwards
Purchases = 491,111 + 8,900
Purchases = 500,011
When Net purchase = Gross Purchase - Purchase return - Discount
Net purchase = 510,000 - 3,700- 15,189
Net purchase = 491,111
Working
Discount = (Purchases - Purchase return) × Discount rate
Discount = (510,000 - 3,700) * 3%
Discount = 15,189
Ending inventory = Beginning inventory + Purchases− Cost of good sold
Ending inventory = (105,000 + 500,011) - 362,000
Ending inventory = $243,011
Thus, the ending inventory by using the gross method is $243,011.
Just how strong the competitive pressures are from substitute products depends on: Select one: a. Whether the available substitutes are products or services b. The speed with which buyer needs and expectations are changing c. Whether attractively priced substitutes are readily available and the ease with which buyers can switch to substitutes d. Whether the producers of substitutes have ample budgets for new product R
Answer: c. Whether attractively priced substitutes are readily available and the ease with which buyers can switch to substitutes
Explanation:
Substitute products are the product that can be used in place of another identical product e.g butter and margarine.
Just how strong the competitive pressures are from substitute products depends on whether attractively priced substitutes are readily available and the ease with which buyers can switch to substitutes.
g According to the CAPM, what is the expected rate of return for a stock with a beta of 1.2. when the risk-free rate is 6% and the market rate of return is 12%
Answer:
20.40%
Explanation:
According to CAPM :
expected rate of return = risk free rate + (beta x market rate of return)
6% + (1.2 x 12%) = 20.40%
A machine with a cost of $133,000 and accumulated depreciation of $86,500 is sold for $53,000 cash. The amount that should be reported in the operating activities section reported under the direct method is:
Answer:
Zero, because the selling of fixed asset is reported as cash inflow under investing activity.
Explanation:
Cash flow from investing activities includes all the investments in the long term assets and sale of investments or individual assets. The investment items may include Property, Plant and Equipment.
So this means that it will not be included in the Cash from Operating Activities because it is a Cash from Investing Activities.
On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What amount of interest expense will be included in the first annual payment
Answer:
Interest expense = $20,000
Explanation:
Loan Amortization: A loan repayment method structured such that a series of equal periodic installments will be paid for certain number of periods to offset both the loan principal amount and the accrued interest.
The annual installment is computed as follows:
Annual installment= Loan amount/annuity factor
Annual installment is already given as = 37,258 (already given)
Interest payment = interest rate × Loan balance at the beginning of the year
DATA
Interest rate = 8%
Loan balance at the beginning of the year = $250,000
Interest expense = 8%× 250,000 = $20000
Principal paid = Annual installment - Interest = 37,258-20,000 = 17,258 (this is not required but to explain the concept)
Interest expense = $20,000
A vendor at a carnival sells cotton candy and caramel apples for $2.00 each. The vendor is charged $60 to set up his booth. Furthermore, the vendor’s average cost for each product he produces is approximately $0.80.
a. Write a linear cost function representing the cost C(x) (in $) to the vendor to produce x products.b. Write a linear revenue function representing the revenue R(x) (in $) for selling x products.c. Determine the number of products to be produced and sold for the vendor to break even.d. If 60 products are sold, will the vendor make money or lose money?
Answer with its Explanation:
Requirement A. The cost function is equal to variable cost for "x" units and fixed cost which remains fixed. Hence:
Cost Function = C(x) = $60 + $0.8x
Requirement B. The revenue for any units "x" sold can be calculated by simply multiplying "x" with sales price per unit. Which means that:
Revenue Function = R(x) = $2 * x = $2x
Requirement C. Now we have to find the breakeven quantity and this could be calculated using the following formula:
Breakeven Point = Fixed Cost / (Selling Price per Unit - Variable Cost Per Unit)
By putting values we have:
Breakeven Point = $60 / ($2 - $0.8) = 50 units
Requirement D. As the number of units are above breakeven point (No profit and loss position), hence making sales above 50 units will generate profit for the company.
The profit for the company would be:
Total Profit = Contribution per unit * Units above Breakeven point
Total Profit = ($2 - $0.8) * 10 Units = $12
n January 1, 1987, three 100 par value bonds with 6% annual coupons will mature at the end of 1, 2, and 3 years, respectively. The redemption value of each bond is 100. You are given that the prices for these bonds on January 1, 1987 are: Maturity Date Price December 31, 1987 101.92 December 31, 1988 102.84 December 31, 1989 105.51 These prices are based on an interest rate of i in 1987, j in 1988, and k in 1989. Determine j.
Answer:
j = 4.52%
Explanation:
face value = $100, with 6% annual coupons
bond₁ matures in 1 year (December 31, 1987), market price $101.92
bond₂ matures in 2 years (December 31, 1988), market price $102.84
bond₃ matures in 3 years (December 31, 1989), market price $105.51
we must determine the market interest rate (j) for bond₂, and to do this we will use the approximate yield to maturity formula:
YTM = {coupon + [(face value - market price)/n]} / [(face value + market price)/2]
YTM = {6 + [(100 - 102.84)/2]} / [(100 + 102.84)/2] = 4.58 / 101.42 = 0.045158 = 4.52%
Since the bonds are sold at a premium, it means that the coupon rate is higher than the market rate.
Explain how growth in the demand for Australia's natural resources would affect the demand for Australian dollars in the foreign exchange market. Explain how the supply of Australian dollars would change.
Answer:
The question here is that of the balance of trade and the principles of demand and supply.
According to the Economics principles of demand and supply, when demand is high, prices follow in the same direction and the currency appreciates in value.
So, on one hand, when the demand for Australia's natural resources increases, because the legal tender recognised within Australia's borders is its own currency, trading partners are forced to convert from their currency into the Australian dollars thus creating an increased demand for the currency.
On the other hand, if the value of a countrys imports is more than the value of its export transactions, the opposite would happen, that is, its currency depreciates or loses value.
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Best Deals, Inc. has 10 units in ending merchandise inventory on December 31. The units were purchased in November for $160 each. The price lists from suppliers indicate the current replacement cost of the item to be $162 each. What would be the amount reported as Merchandise Inventory on the balance sheet?
A. $1,600
B. $3,220
C. $322
D. $1,620
Answer:
$1,600
Explanation:
Best deals incorporation has a total of 10 units in the ending merchandise inventory on December 31
The units were bought in the month of November at a price of $160 for each unit
The replacement cost of the item is $162
Inventory is always recorded when the cost is low
Therefore, the amount that is to be reported as the merchandise inventory can be calculated as follows
=10 units × $160
= $1,600
Hence the amount reported as the merchandise inventory on the balance sheet is $1,600
The accounting principle that requires important noncash financing and investing activities be reported on the statement of cash flows or in a footnote is the:\
Answer: Full Disclosure Principle
Explanation:
The Full Disclosure Principle is a principle in Accounting that aims to be keep the relevant business information as transparent as possible. The principle therefore requires that all information relating to the business be disclosed so that the stakeholders in the business will be able to reasonably understand the operations of the business.
As only financial data can be reported in financial statements such as cash related activities in the Cashflow Statement, the principle requires that important noncash financing and investing activities be reported on the statement of cash flows or in a footnote so that the readers of the statement will not have any missing information.
Window Dressing causes which kind of entry (may have more than one answer)? Multiple Choice Transaction Adjusting Closing
Answer:
Window Dressing causes Adjusting and Closing entries.
Explanation:
Window Dressing the alteration of financial performance near the year-end to appear as if performance has improved. To make the window dressing entry, some temporary and permanent accounts will be adjusted, especially Sales Revenue and costs to generate paper profits. These adjusting entries are closed to the Income Summary. The permanent accounts which are temporarily closed to the Balance Sheet for the period will also require some adjusting entries.
Piedmont Hotels is an all-equity company. Its stock has a beta of 1.23. The market risk premium is 6.9 percent and the risk-free rate is 2.7 percent. The company is considering a project that it considers riskier than its current operations so it wants to apply an adjustment of 1.9 percent to the project's discount rate. What should the firm set as the required rate of return for the project
Answer:
The required rate of return for the project will be 13.087%
Explanation:
To calculate the required rate of return for the project, we must first calculate the required rate of return for the firm's equity. The required rate of return can be calculated using the CAPM or Capital Asset Pricing Model equation. The formula for required rate of return (r) under this model is,
r = rRf + Beta * rpM
Where,
rRF is the risk free raterpM is the risk premium on marketr = 0.027 + 1.23 * 0.069
r = 0.11187 or 11.187%
The discount rate that is usually used for an all equity firm is its required rate of return. Thus, the required rate of return for the project will be,
r = 0.11187 + 0.019
r = 0.13087 or 13.087%
Assume that the current ratio for Arch Company is 2.5, its acid-test ratio is 2.0, and its working capital is $390,000. Answer each of the following questions independently, always referring to the original information. Required: a. How much does the firm have in current liabilities? (Round your final answer to nearest whole dollar.)
Answer:
Current liabilities = 260,000
Explanation:
Given:
Current ratio = 2.5
Working capital = $390,000
Find:
Current liabilities
Computation:
Working capital = Current assets - Current liabilities
$390,000 = Current assets - Current liabilities
Current assets = Current liabilities + $390,000
Current ratio = Current assets / Current liabilities
2.5 = [Current liabilities + $390,000] / Current liabilities
2.5 Current liabilities = Current liabilities + $390,000
Current liabilities = 260,000
