Answer:
After tax cost of debt = 0.049 or 4.9%
Explanation:
The after tax cost of debt is the rate of debt after deducting the benefit from tax savings due to interest payments required by the debt which are deductible before calculating tax. The after tax cost of debt is somewhat an effective cost of debt. It is calculated using the following formula,
After tax cost of debt = Cost of debt * (1 - tax rate)
After tax cost of debt = 0.07 * (1 - 0.3)
After tax cost of debt = 0.049 or 4.9%
An investor in the United States bought a one year Brazilian security valued at $195,000 Brazilian reals. The U.S. dollar equivalent was 100,000. The Brazilian security earned 16.00% during the year, but the Brazilian real depreciated 5 cents against the us dollar during the time period ($0.51 to $0.46)
Required:
a. After the transfer of funds back to the united states, what was the investors return on her $100,000?
b. Determine the total ending value of the Brazilian investment in Brazilian reals and then translate this Brazilian value to US dollar’s. Then compute the return on the $100,000.
Answer:
S
Explanation:
Masterson, Inc., has 3.6 million shares of common stock outstanding. The current share price is $85.50, and the book value per share is $9.25. The company also has two bond issues outstanding. The first bond issue has a face value of $73 million, a coupon rate of 5.3 percent, and sells for 95.7 percent of par. The second issue has a face value of $45 million, a coupon rate of 5.9 percent, and sells for 104.9 percent of par. The first issue matures in 23 years, the second in 11 years. The most recent dividend was $4.04 and the dividend growth rate is 4.3 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 23 percent.
1. What is the company's cost of equity?
2. What is the company's aftertax cost of debt?
3. What is the company's weight of equity?
4. What is the company's weight of debt?
5. What is the company's WACC?
Answer:
1. 9.03 %
2. 7.56 %
3. 72.45 %
4. 27.55 %
5. 8.63 %
Explanation:
Cost of equity is the return that is required by holders of Common Stocks
Cost of equity = Recent year`s dividend / Current Market Price + Expected Growth Rate
= $4.04 / $85.50 + 0.043
= 0.0903 or 9.03 %
1st bond issue
PV = $69,861,000
Pmt = ($73,000,000 × 5.30%) ÷ 2 = - $1,934,500
p/y = 2
n = 23 × 2 = 46
Fv = 0
i = ?
Cost of the 1st Bond Issue, i is : 2.1571 %
After tax cost = 2.1571 % × 77 %
= 1.66%
2nd Bond Issue
PV = $47,205,000
Pmt = ($45,000,000 × 5.90%) ÷ 2 = - $1,327,500
p/y = 2
n = 11 × 2 = 22
Fv = 0
i = ?
Cost of the 2nd Bond Issue, i is : 7,6681 %
After tax cost = 7,6681 % × 77 %
= 5.90%
Total Cost of Debt = 1.66% + 5.90%
= 7.56 %
Market Values :
Market Value of Equity = 3,600,000 shares × $85.50
= $307,800,000
Market Value of Bonds
1st Issues = $69,861,000
2nd Issue = $47,205,000
Total = $117,066,000
Weight of equity = Market Value of Equity ÷ Total Market Value
= $307,800,000 ÷ ($307,800,000 + $117,066,000)
= 72.45 %
Weight of debt = Market Value of Bonds ÷ Total Market Value
= $117,066,000 ÷ ($307,800,000 + $117,066,000)
= 27.55 %
WACC = Weighted Cost of Debt + Weighted Cost of Equity
= 27.55 % × 7.56 % + 72.45 % × 9.03 %
= 8.63 %
All-Mart Discount Stores Corporation contracts to buy ten acres from Suburban Enterprises, Inc., as a site for a new store. The contract calls for a "warranty deed." According to a survey that All-Mart commissions, one corner of an adjacent, enclosed parking lot is on part of the property that Suburban is attempting to convey. Can All-Mart avoid the contract? If so, on what basis? If not, why not?
Answer:
All-Mart can avoid the contract since it didn't meet their specification for the siting of their new store which they planned for. The warranty deed which they called for was to ensure that, all land purchased has guarantee that it would not become an issue for them in the future.
Since one part is an enclosed parking lot which is a public property that Suburban is trying to sell to them, the best would be to avoid it.
Explanation:
When recording journal entries for production costs using a standard cost accounting system, the debit to Work in Process Inventory account is for the ______ amount.
Answer: Actual amount
Explanation:
Standard Costing deviates from traditional accounting in that it is not based on historical costs of a good. In standard cost accounting, the actual costs are put in place of standard costs and then the variance between the two will be recorded and used for analysis.
The debit to the Work in Process Inventory account under a standard cost accounting system will be the actual amount.
Product V72 sells for $20 per unit as is, but if enhanced it can be sold for $25 per unit. The enhancement process will cost $52,000 for 12,000 units. If the 12,000 units of Product V72 are sold as is without further processing, the company:
Answer:
It will incur an Opportunity cost of $8,000.
Explanation:
It will incur the opportunity cost of $8000 because the additional unit produces by the company then the additional revenue that is generated will be equal to the amount (25 - 20) x 12,000 = 60,000. Since the additional cost, that incurs for the production of 12000 units is 52000. Therefore the profit earned is $8000.
So if the company does not produce it then it will lose the profit of $8000.
Child Play Inc. manufactures electronic toys within a relevant range of 20,000 to 150,000 toys per year. Within this range, the following partially completed manufacturing cost schedule has been prepared: Complete the cost schedule. When computing the cost per unit, round to two decimal places.
Toys produced 40,000 80,000 120,000
Total costs:
Total variable costs $720,000 d. $ j. $
Total fixed costs 600,000 e. k.
Total costs $1,320,000 f. $ l. $
Cost per Unit
Variable cost per unit a. $ g. $ m. $
Fixed cost per unit b. h. n.
Total cost per unit c. $ i. $ o. $
Answer:
Toys produced 40,000 80,000 120,000
Total costs:
Total variable costs $720,000 $1,440,000 $2,160,000
Total fixed costs $600,000 $600,000 $600,000
Total costs $1,320,000 $2,040,000 $2,760,000
Cost per Unit
Variable cost $18 $18 $18
Fixed cost $15 $7.50 $5
Total cost $33 $25.50 $23
Fixed costs do not change with total output, they are the same regardless so the number of units produced. Variable costs change proportionally to any change in total output. If total output increases, variable costs will increase.
Busch Company has these obligations at December 31. For each obligation, indicate whether it should be classified as a current liability, long-term liability, or both. (a) A note payable for $100,000 due in 2 years. select a balance sheet section (b) A 10-year mortgage payable of $200,000 payable in ten $20,000 annual payments. select a balance sheet section (c) Interest payable of $15,000 on the mortgage. select a balance sheet section (d) Accounts payable of $60,000. select a balance sheet section
Answer:
Busch Company
Indication of whether the obligation be classified as a current liability, long-term liability, or both:
(a) A note payable for $100,000 due in 2 years. Long-term Liability
(b) A 10-year mortgage payable of $200,000 payable in ten $20,000 annual payments. Both.
Every year, $20,000 would be classified as Current Liability while the remaining balance is long-term liabilities.
(c) Interest payable of $15,000 on the mortgage. Both
If the interest payable is to be settled at the end of the mortgage, then it is classified as only long-term.
(d) Accounts payable of $60,000. Current Liability
Explanation:
Busch's current liabilities are financial obligations that are due for settlement within the next accounting period of 12 months or less.
The long-term liabilities of Busch Company are those financial obligations that are not due for settlement within the next accounting period.
For some long-term liabilities, Busch may settle some part within 12 months. That part that can be settled within the accounting period are classified as current while the other parts are non-current.
Deming, the proponent of total quality management, argued that management has the responsibility to train employees in new skills.
A. True
B. False
Answer:
Its TRUE
Explanation:
Management should train employees in new skill, where Deming argued that management has the responsibility to train employees in new skills to keep pace with changes in the workplace. In addition, he believed that achieving better quality requires the commitment of everyone in the company.
Match each term to the correct defintion.
Terms:
a. Benchmarking
b. Efficiency variance
c. Cost variance
d. Standard cost
Definitions:
1. Measures whether the quantity of materials or labor used to make the actual number of outputs is within the standard allowed for the number of outputs.
2. Uses standards based on best practice.
3. Measures how well the business keeps unit costs of materials and labor inputs within standards.
4. A price, cost, or quantity that is expected under normal conditions.
Answer:
A = 2
B = 1
C = 3
D = 4
Explanation:
On January 1, Parson Freight Company issues 9.0%, 10-year bonds with a par value of $3,400,000. The bonds pay interest semiannually. The market rate of interest is 10.0% and the bond selling price was $3,168,967. The bond issuance should be recorded as:
Answer:
January 1
Cash $3168967 Dr
Discount on Bonds Payable $231033
Bonds Payable $3400000 Cr
Explanation:
The issuance of bond on January 1 is at a discount as the coupon rate paid by the bond is less than the market interest rate. In such case the bond is issued at a lower value than its par/face value. The discount on bonds payable is the difference between the face value and the cash received on issuance.
The entry to record the issues include a debit to cash account as cash is received, a debit to the discount on bonds payable account for the amount of discount and a credit to bonds payable account as liability is created as a result of the issuance of the bonds.
Discount = 3400000 - 3168967 = 231033
Sue Helms Appliances wants to establish an assembly line to manufacture its new product, the Micro Popcorn Popper. The goal is to produce five poppers per hour. The tasks, task times, and immediate predecessors for producing one Micro Popcorn Popper are as follows:
Task Performance time(minutes) Predecessor
A 8 -
B 10 A
C 8 A,B
D 10 B,C
E 8 C
F 4 D,E
a. The theoretical minimum number of workstations is:___________
b. The assignment of tasks to workstations should be:________
Were you able to assign all the activities to workstations equivalent to the theoretical minimum workstation ?
c. The efficiency of the assembly line is:________
Answer:
Please see explanation below.
Explanation:
a. Cycle time = Production time available per hour / Units required per hour
= 60 / 5
= 12minutes
Minimum number of workstations = Sum of the task time / Cycle time
Sum of task time
= 8 + 10 + 8 + 10 + 8 + 4
= 48
The theoretical minimum number of work stations is
= 48 / 12
= 4
b. In order to assign the tasks to the work station, events that precede the task must be considered together with the time taken to complete each task.
°Task A This task is assigned to work station 1 and no task would further be assigned to work station 1, otherwise it will exceed the cycle time.
°Task B. This next task will be assigned to work station 2, no additional task will be assigned to station 2.
Task C is assigned to workstation 3, hence can no longer accept any other assigned task.
°Task D is the next task and will be assigned to work station 4, and we cannot assign any more task to work station 4.
°Task E and F will not be assigned as there are no more available stations.
Task Time Workstation
A. 8 1
B. 10 2
C. 8 3
D. 10 4
E. 8 -
F. 4 -
Please note that due to the theoretical minimum number of work station, which is 4, it will not be possible to assign task to all the workstations hence task E and F remains unassigned.
C. Efficiency of the assembly line
Efficiency ;
= Sum of task times / Actual number of work stations × cycle time
Although the actual number of required workstation is 5 but we cannot assign task E and F due to the theoretical minimum number of workstation. Therefore, additional work station will be required and there are 5 work stations in total.
= 48 ÷ (5 × 12) × 100
= 80%
The theoretical minimum should be = 4
The efficiency of the assembly line should be 80 percent
The production time = 60
The units that are required per hour = 5
[tex]cycle time = \frac{minutes in one hour}{units needed in a day} \\\\cycle time=\frac{60}{5}[/tex]
= 12
The workstation = 8+10+8+10+8+4
= 48
[tex]The minimum number = \frac{48}{12} \\\\= 4[/tex]
The efficiency of the assembly line
[tex]\frac{48}{5*60} \\\\= 0.8\\\\0.8*100 = \\\\80percent[/tex]
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The Securities and Exchange Commission requires companies listing on the New York Stock Exchange and the Nasdaq Stock Market to have codes of ethics. A code of ethics is
Answer:
A Code of Ethics are a set of guidelines that helps the member in distinguishing right and wrong and always following the guidelines that protects the interest of profession and stakeholders.
Explanation:
Basically these Ethical codes are set of guidelines that helps the entities and professionals to acknowledge what is expected from them and what are their responsibilities. Usually every reputable profession and organizations adopt code of ethics to encourage and enforce ethical practices in decision making process.
Answer:
Answer:
A Code of Ethics are a set of guidelines that helps the member in distinguishing right and wrong and always following the guidelines that protects the interest of profession and stakeholders.
Explanation:
Basically these Ethical codes are set of guidelines that helps the entities and professionals to acknowledge what is expected from them and what are their responsibilities. Usually every reputable profession and organizations adopt code of ethics to encourage and enforce ethical practices in decision making process.
Explanation:
Webb, Inc. uses a flexible budget for manufacturing overhead based on machine hours. Variable manufacturing overhead costs per machine hour are as follows: Indirect labor $5.00 Indirect materials 2.50 Maintenance .50 Utilities .30 Fixed overhead costs per month are: Supervision $1,200 Insurance 400 Property taxes 600 Depreciation 1,800 The company believes it will normally operate in a range of 4,000 to 8,000 machine hours per month. During the month of August, 2019, the company incurs the following manufacturing overhead costs: Indirect labor $28,000 Indirect materials 16,200 Maintenance 2,800 Utilities 1,900 Supervision 1,440 Insurance 400 Property taxes 600 Depreciation 1,860 Prepare a flexible budget report, assuming that the company used 6,000 machine hours during August.
Answer:
Variable overhead costs per machine hour:
Indirect labor $5.00 Indirect materials $2.50 Maintenance $0.50 Utilities $0.30Total $8.30Fixed overhead costs:
Supervision $1,200 Insurance $400 Property taxes $600 Depreciation $1,800 Total $4,000Flexible Actual Spending
budget expenses variances
Variable costs:
Indirect labor $30,000 $28,000 $2,000 FIndirect materials $15,000 $16,200 $1,200 UMaintenance $3,000 $2,800 $200 FUtilities $1,800 $1,900 $100 UTotal $49,800 $48,900 $900 FFixed costs:
Supervision $1,200 $1,440 $240 UInsurance $400 $400 $0Property taxes $600 $600 $0Depreciation $1,800 $1,860 $60 UTotal $4,000 $4,300 $300 UTotal costs $53,800 $52,300 $600 F
Cost recovery. Richardses' Tree Farm, Inc. purchased a new aerial tree trimmer for $. It is classified in the property class category of a single-purpose agricultural and horticultural structure. Then the company sold the tree trimmer after four years of service. If a seven-year life and MACRS, LOADING..., was used for the depreciation schedule, what is the after-tax cash flow from the sale of the trimmer (use a % tax rate) if a. the sales price was $? b. the sales price was $? c. the sales price was $? a. If the sales price is $, what is the after-tax cash flow?
Answer:
after tax cash flow = $29,512.32
Explanation:
the numbers are missing in this question:
purchase cost = $82,000
tax rate = 40%
selling price at end of year 4 = $32,000
MACRS 7 year depreciation schedule:
year % depreciation expense carrying value
1 14.29% $11,717.80 $70,282.20
2 24.29% $19,917.80 $50,364.40
3 17.49% $14,341.80 $36,022.60
4 12.49% $10,241.80 $25,780.80
after tax cash flow = $32,000 - [($32,000 - $25,780.80) x 40%] = $32,000 - $2,487.68 = $29,512.32
George Bailey purchased equipment from M. Potter for $450,000, paying $35,000 cash as a down payment and financing the remainder. The correct journal entry to record this event is:
Answer:
Equipment $450,000 (debit)
Cash $35,000 (credit)
Suppliers Loan $415,000 (credit)
Explanation:
George Bailey must recognize the Asset of Equipment, de-recognize the Assets of Cash and recognize the Suppliers Loan as above.
g An increase in taxes when the economy is above full employment ______ aggregate demand and real GDP, and the price level ______.
Answer:
C. decreases; falls
Explanation:
As we know that
The rise in taxes results in low disposable income for individuals that lowered the spending of the consumer also the consumer spending is an element of the aggregate demand so ultimately it declines that result the curve to shift leftward or downward
Due to this, the real GDP also falls, and the price level too
Hence, the correct option is c.
If an investor purchases a bond when its current yield is higher than the coupon rate, then the bond's price will be expected to
Answer:
The answer is: The bond price is expected to Increase over time, reaching par value at maturity
Explanation:
If an investor purchased a bond when the bond current yield-to-maturity is higher than the bond's price, the bond is said to be bought at discount (its price is less than the face value at maturity). With this, the bond price will be expected to Increase over time, reaching par value at maturity.
And when the opposite happens i.e coupon rate higher than the current yield-to-maturity, the bond is said to be bought at premium.
Akers Company sold bonds on July 1, 2017, with a face value of $100,000. These bonds are due in 10 years. The stated annual interest rate is 6% per year, payable semiannually on June 30 and December 31. These bonds were sold to yield 8%. By July 1, 2018, the market yield on these bonds had risen to 10%.
Required:
What was the bonds' market price on July 1, 2018?
Answer:
Price of bond= $75,075.58
Explanation:
The value of the bond is the present value(PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV).
Value of Bond = PV of interest + PV of RV
The value of the bond for Akers Company can be worked out as follows:
Step 1
PV of interest payments
Semi annul interest payment
= 6% × 100,000 × 1/2 = 3000
Semi-annual yield = 10%/2 = 5% per six months
Total period to maturity (in months)
= (2 × 10) = 20 periods
PV of interest =
3000 × (1- (1+0.05)^( -20)/) 0.05 = 37,386.63
Step 2
PV of Redemption Value
= 100,000 × (1.05)^(-20) = 37,688.95
Price of bond
Price of bond = 37,386.63 + 37,688.95 = 75,075.58
Price of bond= $75,075.58
Predatory pricing is considered an anti-competitive practice, and is considered illegal under competition laws. Which of the following best describes predatory pricing?
A. Predatory pricing requires one company to aquire the assets of another.
B. One business chooses to put another out of business by pricing its product below the level another competing business must be at to make a profit.
C. Predatory pricing occurs when a firm colludes with one or more firms to fix prices or output.
D. Predatory pricing is when a business sends someone out to change the price of another company's product so it is higher than its own.
Answer:
B
Explanation:
Predatory pricing is when a company sets the price of its goods or services too low with the aim of eliminating the competition. Predatory pricing is illegal and it violates antitrust law.
Predatory pricing occurs when a firm colludes with one or more firms to fix prices or output. This is an example of collusion and they usually occur in an oligopoly
Lott Company uses a job order cost system and applies overhead to production on the basis of direct labor costs. On January 1, 2020, Job 50 was the only job in process. The costs incurred prior to January 1 on this job were as follows: direct materials $21,200, direct labor $12,720, and manufacturing overhead $16,960. As of January 1, Job 49 had been completed at a cost of $95,400 and was part of finished goods inventory. There was a $15,900 balance in the Raw Materials Inventory account.
During the month of January, Lott Company began production on Jobs 51 and 52, and completed Jobs 50 and 51. Jobs 49 and 50 were also sold on account during the month for $129,320 and $167,480, respectively. The following additional events occurred during the month.
1. Purchased additional raw materials of $95,400 on account.
2. Incurred factory labor costs of $74,200. Of this amount $16,960 related to employer payroll taxes.
3. Incurred manufacturing overhead costs as follows:
Indirect materials $18,020
Indirect labor $21,200
Depreciation expense on equipment $12,720
Various other manufacturing overhead costs on account $16,960.
4. Assigned direct materials and direct labor to jobs as follows.
Job No. Direct Materials Direct Labor
50 $10,600 $5,300
51 41,340 26,500
52 31,800 21,200
Calculate the predetermined overhead rate for 2020, assuming Lott Company estimates total manufacturing overhead costs of $ 882,000, direct labor costs of $735,000, and direct labor hours of 21,000 for the year.
Answer:
Predetermined manufacturing overhead rate= $1.2 per direct labor dollar
Explanation:
Giving the following information:
Company estimates total manufacturing overhead costs of $882,000 and, direct labor costs of $735,000
To calculate the predetermined overhead rate, we need to use the following formula:
Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Predetermined manufacturing overhead rate= 882,000/735,000
Predetermined manufacturing overhead rate= $1.2 per direct labor dollar
The HIJ bond has a current price of $800, a maturity value of $1,000, and matures in 5 years. If interest is paid semi-annually and the bond is priced to yield 8%, what is the bond's annual coupon rate
Answer:
Explanation:
The coupon rate is defined as the interest rate paid on a bond by its issuer for the term of the security.
Hence,
Par Value = $800
Face Value = $1,000
N = 5 x 2 = 10
Since the interest is semi annual
i = 8% / 2 = 4%
CF = $15.34
Coupon = $30.68 per year or 3.068%
The following information pertains to J Company's outstanding stock for 2021:
Common stock, $1 par
Shares outstanding, 1/1/2021 10,000
2 for 1 stock split, 4/1/2021 10,000
Shares issued, 7/1/2021 5,000
Preferred stock, $100 par, 7% cumulative
Shares outstanding, 1/1/2021 4,000
What is the number of shares J should use to calculate 2018 basic earnings per share?
a. 20,000.
b. 22,500.
c. 25,000 .
d. 27,000.
Answer: b. 22,500
Explanation:
J should use the total number of outstanding common stock at end of year to calculate 2018 basic earnings.
As a result of the Stock-split, the shares are split into 2 for 1.
There were 10,000 shares split so;
= 10,000 * 2
= 20,000
On the 1st of July, 5,000 shares were issued. This means that up till December 2021, the stock was outstanding for 6 months.
This will reflected by;
= 5,000 * 6/12
= 2,500 shares
Total shares = 20,000 + 2,500
= 22,500 shares
Your first baby was born yesterday and is healthy and strong. To guard against your premature death, you want to purchase a life insurance policy that will replace $58,000 of your annual income until your child is 20 years old. How much life insurance should you purchase, if you assume a 3% inflation rate
Answer:
assuming the interest rate is = 15% the life insurance should you should purchase = $497854.0773
Explanation:
Given that :
Annual income receipt = $58000
Assumption:
If we assume that the inflation rate π = 3% = 0.03
Also , let assume that the interest rate is = 15% = 0.15 since it is not given too
Then the effective interest rate = [tex]\dfrac{ (i-\pi)}{(1+\pi)}[/tex]
the effective interest rate = [tex]\dfrac{ (0.15-0.03)}{(1+0.03)}[/tex]
the effective interest rate = [tex]\dfrac{ (0.12)}{(1.03)}[/tex]
the effective interest rate = 0.1165
the effective interest rate = 11.65%
Since n = [tex]\infty[/tex]
The Principal amount of how much life insurance should you purchase is;
= Annual income receipt/the effective interest rate
= $58000/ 0.1165
= $497854.0773
In Macroland autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Planned aggregate expenditure equals:________a.1,000. b.1,160. c.1,280. d.1,440.
Answer:
b) $1,160
Explanation:
From the above information,
I=Investment = 50
G=Government expenditure = 150
X=Net export = 20
a=autonomous consumption = 100
b=Marginal propensity to consume = 0.75
Y=Equilibrium GDP
C = consumption ;
C = 100 + 0.75Y (Y income - 40 taxes)
Planned aggregate expenditure (PAE)
PAE = C + l +G +X
Substituting for C in the above equation,
PAE = 100 + 0.75 (Y - 40) + 50 + 150+ 20
= 100 + 0.75Y -30 + 50 + 150 + 20
= 290 + 0.75Y
Since short run exists when Y = PAE
Therefore,
Y = 290 + 0.75Y
Collect like terms
Y - 0.75Y = 290
0.25Y =290
Y = 290/0.25
Y = 1,160
Messing Company has their own credit card and makes a credit sale on February 1 to one of its customers for $5,000. Prepare the February 1 journal entry for Messing Company by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.
Answer:
February 1
DR Accounts Receivable.......................................$5,000
CR Sales........................................................................................$5,000
(To record sales on credit)
The credit card was that of Messing company itself.
A sole proprietor owned an office building with a cost of $300,000 and accumulated depreciation of $40,000, using modified accelerated cost recovery system (MACRS) straight-line depreciation. In the current year, she sold the building for $320,000. What is the unrecaptured Section 1250 gain from this sale, if any
Answer:
The Correct Answer:
$40,000
Explanation:
IRC Section 1250 requires that excess depreciation (actual depreciation in excess of straight-line depreciation) be recaptured as ordinary income. Since the property has sold for more than the adjusted basis ($300,000 − $40,000 = $260,000 adjusted basis), the initial gains are recaptured based on the original purchase price of $300,000.
This makes the first $40,000 of the profit subject to the unrecaptured Section 1250 gain while the remaining $20,000 is considered regular long-term capital gains.
You purchased a share of stock for $120. One year later you received $1.82 as a dividend and sold the share for $136. What was your holding-period return
Answer:
Holding period return =14.85 %
Explanation:
The return on stock is the sum of the dividends earned and capital gains made during the holding period of the investment.
Dividend is the proportion of the profit made by a company which is paid to shareholders.
Capital gains is another type of the return made on an equity investment as a result of increase in the value of the shares. It is difference between the cost of the share and the value at the time of disposal.
Therefore, we can can compute the return on the investment as follows:
Holding period return = (Dividend + capital gain)/Begin Price of stock × 100
Dividend = $1.82
Capital gains= 136 - 120 = 16
Total dollar return on Investment = 1.82 + 16= $ 17.82
= 17.82/120 × 100 = 14.85 %
Holding period return =14.85 %
Your estimate of the market risk premium is %. The risk-free rate of return is %, and General Motors has a beta of . According to the Capital Asset Pricing Model (CAPM), what is its expected return?
Answer:
The correct option is option A) 16.4%.
Explanation:
Note: This question is not complete as all the important data are omitted from it. The complete question is therefore provided before answering the question as follows:
Your estimate of the market risk premium is 9%. The risk-free rate of return is 3.8% and General Motors has a beta of 1.4. According to the Capital Asset Pricing Model (CAPM), what is its expected return?
Options:
A) 16.4%
B) 17.2%
C) 14.8%
D) 15.6%
The question is now answered as followed:
Capital asset pricing model (CAPM) can be described as a model that is employed to compute a theoretical required rate of an asset in order decide whether or not to add assets a portfolio of investment that is well-diversified.
According to the Capital Asset Pricing Model (CAPM), the expected return can be calculated using the following formula:
Expected return = Risk-free rate + (Beta * Market ris premium) .......... (1)
Where;
Risk-free rate of return = 3.8%
Market risk premium = 9%
Beta = 1.4
Substitute the values into equation (1), we have:
Expected return = 3.8% + (1.4 * 9%) = 16.40%
Therefore, the correct option is option A) 16.4%.
TB MC Qu. 7-77 Corbel Corporation has two divisions: Division A and ... Corbel Corporation has two divisions: Division A and Division B. Last month, the company reported a contribution margin of $47,700 for Division A. Division B had a contribution margin ratio of 35% and its sales were $231,000. Net operating income for the company was $27,200 and traceable fixed expenses were $59,700. Corbel Corporation's common fixed expenses were:
Answer:
Corbel Corporation's common fixed cost is $41,650
Explanation:
Division A contribution margin $47,700
Division B contribution Margin $80,850 $128,550
($231,000 * 35%)
Less: Traceable fixed cost $59,700
Operating Income $27,200 ($86,900)
Common fixed cost $41,650
MicroTech Corporation maintains a capital structure of 40 percent debt and 60 percent common equity. To finance its capital budget for next year, the firm will sell 11% coupon bonds at par value (assume no flotation costs). The firm will finance the rest of its capital expenditures with retained earnings. MicroTech expects next year's dividend to be $1.30 per share. Dividends are expected to grow at 7% per year for the foreseeable future. The current market value of MicroTech's common stock is $30 per share. If the firm has a corporate tax rate of 21%, what is its weighted cost of capital for next year?
Answer:
weighted cost of capital for next year is 10.27 %.
Explanation:
Weighted cost of capital = Ke × (E/V) + Kd × (D/V)
Ke = Cost of Equity
= Dividend Yield + Expected growth rate
= $1.30 / $30.00 + 0.07
= 0.11333 or 11.33 %
Kd = Cost of Debt
= Interest × (1 - tax rate)
= 11% × ( 1 - 0.21)
= 8.69 %
Weighted cost of capital = 11.33 % × 60% + 8.69 % × 40%
= 10.27 %
