Answer:
The first dramatic swing happened in the 1970s when there was a sharp rise in the real price of oil caused by the formation of OPEC.
In 1973, the World saw it's first oil spike when members of the Organization of Oil Exporting Countries (OPEC) being mostly Muslims, decided to punish the Western World for their perceived support of the Israelis in the Yom Kippur War. They placed an embargo on the sale of oil to the West and because they controlled 56% of the then World supply, this was enough to force the price of oil up due to the reduction in demand.
The second swing happened in the 2000s when there was a sharp rise in the real price of oil caused by increased demand from emerging economies.
From the early 2000s to 2008, the price of oil kept rising steadily till it reached around $147.30 in July 2008. This rise in prices was due to increased demand from newly industrialized and emerging nations like China that needed the oil to maintain their rapid growth.
The most recent swing happened in 2008 when there was a sharp drop in the real price of oil caused by a large financial crisis.
By December 2008, the price of oil had fallen to $32 and this was down to the global recession that was ravaging the World known as the Great Recession. As the world saw economic output fall, demand for oil decreased sharply thereby forcing the price of oil to fall dramatically.
Carter Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,100,000; sales of $4,525,000; cost of goods sold of $2,550,000; and operating expenses of $1,372,000. Compute the division's return on investment:
Answer:
14.7%
Explanation:
The computation of return on investment is shown below:
Return on Investment = Net Income ÷ Average total assets × 100
where,
Net Income is
= Sales - Cost of goods sold - Operating expense
= $4,525,000 - $2,550,000 - $1,372,000
= $603,000
And,
Average total assets = $4,100,000
So,
Return on Investment is
= $603,000 ÷ $4,100,000 × 100
= 14.7%
On July 1, Shady Creek Resort borrowed $400,000 cash by signing a 10-year, 9% installment note requiring equal payments each June 30 of $62,328. What is the journal entry to record the first annual payment
Answer:
Journal Entry
Debit Credit
Interest Expense $36,000
Notes Payable $26,328
Cash $62,328
Workings
Interest portion for one year = 400,000 * 9% = $36,000
Total installment paid = $62,328
So, principal portion repaid = $62,328 - $36,000
= $26,328
Prepare journal entries to record each of the following four separate issuances of stock. A corporation issued 10,000 shares of $20 par value common stock for $240,000 cash. A corporation issued 5,000 shares of no-par common stock to its promoters in exchange for their efforts, estimated to be worth $45,500. The stock has a $1 per share stated value. A corporation issued 5,000 shares of no-par common stock to its promoters in exchange for their efforts, estimated to be worth $45,500. The stock has no stated value. A corporation issued 2,500 shares of $50 par value preferred stock for $170,500 cash.
Answer:
1.
DR Cash.................................................$240,000
CR Common Stock................................................... $200,000
Paid in Excess of Par- Common Stock.....................$40,000
Working
Common Stock = $20 * 10,000 = $200,000
Paid in Excess of Par- Common Stock = 240,000 - 200,000 = $40,000
2.
DR Promotion Expenses................................$45,500
CR Common Stock.........................................................$5,000
Paid in Excess of Par- Common Stock ........................$40,500
Working
Common stock = 5,000 * 1 = $5,000
Paid in Excess of Par- Common Stock = 45,500 - 5,000 = $40,500
3
DR Promotion Expenses..........................$45,500
CR Common Stock....................................................$45,500
4
DR Cash ...................................................$170,500
CR Preferred Stock .....................................................$125,000
CR Paid in Excess of Par - Preferred Stock ..............$45,500
Working
Preferred Stock = 50 * 2,500 = $125,000
Paid in Excess of Par - Preferred Stock = 170,500 - 125,000 = $45,500
You consider undertaking the research project. It will increase sales by $100K per year starting next year and its life is 10 years. The maintenance cost is $50K and the depreciation of the equipment is 20K per year. The tax rate is 40% and there are no changes in net operating working capital. What is the annual operating cash flow from the project? A. $10,000 B. $18,000 C. $38,000 D. $30.000
Answer: C. $38,000
Explanation:
The Operating cashflow for a project will be the net income earned from it less any taxes but including depreciation.
In formula form;
Operating cash flow = EBIT - tax paid + depreciation
Earnings Before Interest and Tax
= Sales - Expenses
= 100,000 - 50,000 - 20,000
= $30,000
Tax paid
= EBT * 40%
= 30,000 * 40%
= $12,000
Operating cash flow = EBIT - tax paid + depreciation
= 30,000 - 12,000 + 20,000
= $38,000
Note; Depreciation is added back because it is a non-cash expense.
The accounts receivable turnover is computed as __________ divided by __________. sales; accounts receivable sales; average accounts receivable sales; net income accounts receivable; net income
Answer:
sales ; average accounts receivables
Explanation:
Accounts receivable turnover refers to how a business firm manage its assets. Businesses, companies uses accounts receivables to know and quantify how perfectly goods bought on credit by their customers are being paid back. It also measures how business gives credit and collects back it's debt .It is calculated as net sales divided by average accounts receivables.
A company’s common stock has a market value of $63.18 per share and its next dividend is expected to be $3.26 per share. The stock’s beta is 1.2, the tax rate is 35%, and the market risk premium is 6.1% per year. The yield to maturity for the company’s long-term debt is 6.4% per year. If the riskiness of the company’s equity requires that it provide a risk premium of 3.2% per year over the yield on its long-term debt, what is the company’s annual cost of internal equity financing?
Answer:
Cost of equity = 9.6%
Explanation:
The cost of equity is the return a firm theoretically pays to its equity investors, In order to calculate the cost of equity here we need to add up the yield to maturity for the company's long term debt and the risk premium per year over the yield on its long term debt.
Solution
Cost of equity = Yield to maturity + Risk premium
Cost of equity = 6.4% + 3.2%
Cost of equity = 9.6%
Blue Cab Company had 69,000 shares of common stock outstanding on January 1, 2021. On April 1, 2021, the company issued 39,000 shares of common stock. The company had outstanding fully vested incentive stock options for 14,500 shares exercisable at $11 that had not been exercised by its executives. The end-of-year market price of common stock was $32 while the average price for the year was $31. The company reported net income in the amount of $364,915 for 2021. What is the diluted earnings per share (rounded)
Answer:
$3.38
Explanation:
The diluted earnings per share is calculated as;
First, we need to calculate the weighted average outstanding shares.
Weighted average outstanding share is
= Common shares + (Issued shares × 9/12[April - December] + [(Issued shares - Shares exercisable)
= 69,000 shares + (39,000 shares × 9/12) + ( 14,750* - 5,145*)
= 69,000 + 29,250 + 9,605
= 107,855
Therefore, the diluted earnings per share is;
= Net income / Weighted average outstanding shares
= $364,915 / 107,855
= $3.38
Note : (14,500 shares × 11) / 31
= 5,145
In a production bottleneck situation, the product with the highest contribution margin per unit should be given priority over a product that has the highest contribution margin per bottleneck hour.
a. True
b. False
Answer:
b. false
Explanation:
A bottleneck is a point at which there is the stoppage in the system of production. The inefficiencies that are generated through the bottleneck developed the delays and leads to the high cost of production
Here in the given situation, since there is the highest contribution margin per unit that gives more priority as compared with the contribution margin per bottleneck hour i.e. totally wrong as it should give the priority to the contribution margin per bottleneck hour
Therefore the given statement is false
Sea Blue manufactures flotation vests in Charleston, South Carolina. Sea Blue's contribution margin income statement for the month ended December 31, 2018, contains the following data:
Sea Blue
Income Statement
For the Month Ended December 31, 2018
Sales in Units 32,000
Net Sales Revenue $608,000
Variable Costs:
Manufacturing 96,000
Selling and Administrative 108,000
Total Variable Costs 204,000
Contribution Margin 404,000
Fixed Costs:
Manufacturing 124,000
Selling and Administrative 94,000
Total Fixed Costs 218,000
Operating Income $186,000
Suppose Overboard wishes to buy 4,600 vests from Sea Blue. Sea Blue will not incur any variable selling and administrative expenses on the special order. The Sea Blue plant has enough unused capacity to manufacture the additional vests. Overboard has offered $15 per vest, which is below the normal sales price of $19.
1. Identify each cost in the income statement as either relevant or irrelevant to Sea Blue's decision.
a. Variable Manufacturing Costs
b. Variable Selling and Administrative Costs
c. Fixed Manufacturing Costs
d. Fixed Selling and Administrative Costs
2. Prepare a differential analysis to determine whether Sea Blue should accept this special sales order.
3. Identify long-term factors Sea Blue should consider in deciding whether to accept the special sales order. In addition to determining the special order's effect on operating profits, Sea Blue's managers also should consider the following:
A. Will Sea Blue's other customers find out about the lower sale price Sea Blue accepted from Overboard? If so, will these other customers demand lower sale prices?
B. Will the special order customer come back again and again, asking for the same reduced price?
C. How will Sea Blue's competitors react? Will they retaliate by cutting their prices and starting a price war?
D. All of the above
E. None of the above
Answer:
1. Variable Cost
Manufacturing 96,000 ( Relevent )
Selling and administrative 108,000 ( Irrelevent )
Fixed Cost
Manufacturing 124,000 ( Irrelevent )
Selling and administrative 94,000 (Irrelevent )
2. $55,200
3. A. If the regular customer found out about this order and will demand a lower price?
B. Will this order customer come back again and again asking the same reducted price?
C. Will this order price will start a price war with the competitors?
Explanation:
1. Calculation to Identify each cost in the income statement as either relevant or irrelevant to Sea Blue's decision.
Variable Cost
Manufacturing 96,000 ( Relevent )
Selling and administrative 108,000 ( Irrelevent )
Fixed Cost
Manufacturing 124,000 ( Irrelevent )
Selling and administrative 94,000 (Irrelevent )
2. Preparation of a differential analysis to determine whether Sea Blue should accept this special sales order.
Differential analysis
Expected increase in income in revenue
( 4,600 vest * $15 per vest ) 69,000
Less :Expected increase in Variable manufacturing
( 4,600 vest * $3 per vest) (13,800)
=$55,200
Variable manufacturing cost of $96,000 / divide by 32,000 units will give us $3
Based on the above calculation Sea blue should accept this order reason been that the order will increase their operating income by the amount of $55,200.
3. The manager of Sea blue should know that the sale might affect their regular sale in long run.
Therefore In addition to determining the special order's effect on operating profits, Sea Blue's managers also should consider:
A. If the regular customer found out about this order and will demand a lower price?
B. Will this order customer come back again and again asking the same reducted price?
C. Will this order price will start a price war with the competitors?
The company currently markets McDog T-bone, Lapdog Lunchtreats, Rover's Potroast, and Puppy Porterhouse in the dog food market. Prime Cuts will be an addition to the
Answer:
company's product line in the dog food market
Explanation:
In the description provided, it can be said that Prime Cuts will be an addition to the company's product line in the dog food market. A product line is a group of related products all marketed under a single brand name and are sold by the same company to the same targeted group of consumers. Such as in this scenario, all of the products listed are dog treats/food with different ingredients and are all sold by the same company to people looking for dog food.
A mother, aged 60, wishes to withdraw monies from her variable annuity to pay for her son's college education. Which statement is true regarding the taxation of the withdrawal?
A. The withdrawal is 100% taxable
B. Any amount withdrawn above the cost basis is taxable
C. Any amount withdrawn above the cost basis is taxable, and is subject to a 10% penalty tax
D. The withdrawal is not subject to tax
Answer:
Any amount withdrawn above the cost basis is taxable
Explanation:
This woman is above 59½ years at age 60. If she was least than 60, she would be owing a 10% penalty on the taxable amount of this withdrawal. But since she is above this age she has to pay income taxes on the whole taxable amount of the funds she withdrew. Variable annuities would never be taxed the money is withdrawn. Therefore option B is the best answer for This question.
The direct labor budget of Yuvwell Corporation for the upcoming fiscal year contains the following details concerning budgeted direct labor-hours:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Budgeted direct labor-hours 11,000 9,700 10,000 10,800
The company uses direct labor-hours as its overhead allocation base. The variable portion of its predetermined manufacturing overhead rate is $5.75 per direct labor-hour and its total fixed manufacturing overhead is $78,000 per quarter. The only noncash item included in fixed manufacturing overhead is depreciation, which is $19,500 per quarter.
Required:
a. Prepare the company’s manufacturing overhead budget for the upcoming fiscal year.
b. Compute the company’s predetermined overhead rate (including both variable and fixed manufacturing overhead) for the upcoming fiscal year.
Answer:
Manufacturing Overhead Budget
Quarter 1st 2nd 3rd 4th
Variable Overheads $63,250 $55,775 $57,500 $62,100
Fixed Overheads $78,000 $78,000 $78,000 $78,000
Total Overheads $141,250 $133,775 $135,500 $140,100
Explanation:
When Preparing the Manufacturing Overhead Budget Note the following :
The Manufacturing Overheads Include Both Fixed and Variable Overheads.Be careful to absorb the Variable overheads cost at the direct labor-hour.Fixed Overheads can Include both cash and non-cash items._____ is a method for determining the estimated annual costs and benefits for a project and the resulting annual cash flow.
Answer:
Cash flow analysis, is the right answer.
Explanation:
“Cash flow analysis” is the method that determined the actual cash that goes out of the business and the actual cash that comes in the business. Basically this method is used for financial purposes. This method exhibits the actual cost that the business has incurred and the actual benefit it has earned. Moreover, new investors that invest in the company primarily sees the financial report of the company and then take the decision to invest.
a company bought a piece of equipment for A200 and expects to use it for eight years. The company that plans to
Answer:
The correct option b. $2,567.
Explanation:
Note: This question is not complete. The complete question is therefore provided before answering the question as follows:
A company bought a piece of equipment for $49,200 and expects to use it for eight years. The company then plans to sell it for $4,000. The company has already recorded depreciation of $42,632.60. Using the double-declining-balance method, what is the company's annual depreciation expense for the upcoming year? (Round your answer to the nearest whole dollar amount.)
a. $11,300.
b. $2,567.
c. $19,200.
d. $1,642.
The explanation to the answer is now given as follows:
Note: See the attached excel file for the calculation of the annual depreciation expenses.
Double declining depreciation method is an accelerated depreciation technique due to the fact the depreciation expenses are charged faster under it than under straight-line depreciation method.
The depreciation of double declining method is calculated by by multiplying the rate of straight-line depreciation method by 2.
From the question, the already recorded depreciation of $42,632.60 is the accumulated depreciation expenses for the 7th year.
Since the upcoming year is the 8th year which is the last year, the depreciation expense for it can be calculated as by adjusting for the residual value of $4,000 follows:
Equipment cost = $49,200
Accumulated Depreciation = $42,632.60
Residual value = $4,000
Estimated useful life = 8 years
Therefore, we have:
Straight line method depreciation rate = 1 / Estimated useful life = 1 / 8 = 0.125, or 12.50%
Double declining depreciation rate = Straight line method depreciation rate * 2 = 12.50% * 2 = 25%
Beginning book value of the equipment in the upcoming year or in the 8th year = Equipment cost - Accumulated Depreciation = $49,200 - $42,632.60 = $6,567.40
Annual depreciation expense for the upcoming year or for the 8th year = Beginning book value of the equipment - Residual value = $6,567.40 - $4,000 = $2,567
Therefore, the correct option b. $2,567.
On January 1, 2021, Splash City issues $320,000 of 8% bonds, due in 15 years, with interest payable semiannually on June 30 and December 31 each year. Required:Assuming the market interest rate on the issue date is 8%, the bonds will issue at $320,000. Record the bond issue on January 1, 2021, and the first two semiannual interest payments on June 30, 2021, and December 31, 2021. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)
Answer:
Journal entries are given below
Explanation:
Entry for the bond issue on January 1, 2021, and the first two semiannual interest payments on June 30, 2021, and December 31, 2021, are prepared as follows
January 01, 2021 (Splash City issues $320,000 of 8% bonds)
Debit Credit
Cash 320,000
Bonds payable 320,000
June 30, 2021 (Interest paid)
Debit Credit
Interest expense $12,800
Cash $12,800
Working
Interest expense = $320,000 x 8% x 6/12
Interest expense = $12,800
December 31, 2021 (Interest paid)
Debit Credit
Interest expense $12,800
Cash $12,800
Working
Interest expense = $320,000 x 8% x 6/12
Interest expense = $12,800
Lance contributed investment property worth $507,500, purchased Five years ago for $312,500 cash, to Cloud Peak LLC in exchange for an 70 percent profits and capital interest in the LLC. Cloud Peak owes $380,000 to its suppliers but has no other debts.
Required information
A. What is Lance’s tax basis in his LLC interest?
B. What is Lance’s holding period in his interest?
C. What is Cloud Peak’s basis in the contributed property?
D. What is Cloud Peak’s holding period in the contributed property?
Answer:
a. Lance's Tax basis in his LLC interest
= Basis of investment property + Shares in LLC debt
= $312,500 + ($380,000 * 70%)
= $312,500 + $266,000
= $578,500
Therefore, LLC common debt obligation treated as non-recourse debt, lance income allocation ratio is used to allocate a share of LLC debt to him
b. Lance holding period in his interest is 5 years. The holding period of the contributed assets "tacks onto" his partnership interest because Lance contributed a capital asset
c. Cloud Peak's basis in the contributed property is $312,500. Also, the carryover basis would be taken by the LLC in the contributed property
d. Cloud's Peak holding period in the contributed property is 3 years
A firm recently reported EBITDA of $3.95 million, depreciation of $1.20 million, and had a tax rate of 40%. The firm's expenditures on fixed assets and net operating working capital totaled $1.2 million. How much was its free cash flow, in millions
Answer:
Free cash flow=$2.37
Explanation:
Calculation for how much was its free cash flow, in millions
Using this formula
Free cash flow =[ (Operating income * (1- tax rate) + Depreciation- Expenditures on fixed assets and net operating working capital]
Where,
Operating income =$3.95
(1- tax rate) = (1 - .40)
Depreciation=$1.20
Expenditures on fixed assets and net operating working capital=$1.2
Let plug in the formula
Free cash flow = [($3.95 * (1 - .40) + $1.20 - $1.2]
Free cash flow=$3.95*0.60+$1.20-$1.2
Free cash flow=$2.37+$1.20-$1.2
Free cash flow=$3.57-$1.2
Free cash flow=$2.37
Therefore the amount of its free cash flow, in millions will be $2.37
A manufacturing company has variable overhead costs of $2.50 per unit and fixed costs of $5,000 per month. Each unit requires 4 hours of direct labor and the company expects to produce 2,000 units each month. The standard overhead rate will be
Answer:
Standard Overhead rate is $1.25 per Direct labor hours
Explanation:
Total variable cost (2000 unit * $2.50) = $5,000
Total fixed cost = $5,000
Estimated Overhead cost = $10,000
Estimated Direct labor hour = 2000 unit * 4 hours = 8,000 hours
Standard Overhead rate = Estimated overhead cost / Estimated Direct labor hour
Standard Overhead rate = $10,000 / 8,000 hours
Standard Overhead rate = $1.25 per Direct labor hours
Longman Company manufactures shirts. During June, Longman made 1,900 shirts but had budgeted production at 2,150 shirts. Longman gathered the following additional data:
Variable overhead cost standard $0.80 per DLHr
Direct labor efficiency standard 4.50 DLHr per shirt
Actual amount of direct labor hours 8,620 DLHr
Actual cost of variable overhead $10,344
Fixed overhead cost standard $0.10 per DLHr
Budgeted fixed overhead $968
Actual cost of fixed overhead $1,033
Required:
a. Calculate the variable overhead cost variance.
b. Calculate the variable overhead efficiency variance.
c. Calculate the total variable overhead variance.
d. Calculate the fixed overhead cost variance.
e. Calculate the fixed overhead volume variance
Answer:
a. variable overhead cost variance- $3,448 Unfavorable
b. variable overhead efficiency variance- $ 56 unfavorable
c. total variable overhead variance - $3,504 Unfavorable
d. fixed overhead cost variance - $65 unfavorable
e. Fixed overhead volume variance -$ 112.5 unfavorable
Explanation:
Variable overhead rate variance $
8,620 hours should have cost (8,620 × $0.80) 6896
but did cost 10,344
Variable overhead rate variance 3,448 Unfavorable
Variable overhead rate variance =$3,448 unfavorable
Efficiency variance Hours
190 units should have taken (1,900 × 4.50 hrs) 8,550
but did take 8,620
Efficiency variance in hours 70 unfavorable
Standard rate × $0.80
Efficiency variance $ 56 unfavorable
Efficiency variance =$ 56 unfavorable
Total variable overhead= rate variance +efficiency
Total variable overhead = $3,448 UF + $ 56 UF = $3,504 U
Total variable overhead = $3,504 Unfavorable
Fixed overhead cost variance
$
Budgeted cost 968
Actual cost 1,033
Fixed overhead cost Variance 65 unfavorable
Fixed Overhead Volume
Units
Budgeted units 2,150
Actual units 1,900
Variance 250
Standard fixed cost per unit (Notes) $0.45
Volume Variance 112.5 unfavorable
Standard fixed overhead cost per unit
= standard hours × standard Fixed overhead rate = 4.5 × $0.1= $0.45
a. variable overhead cost variance- $3,448 Unfavorable
b. variable overhead efficiency variance- $ 56 unfavorable
c. total variable overhead variance - $3,504 Unfavorable
d. fixed overhead cost variance - $65 unfavorable
e. Fixed overhead volume variance -$ 112.5 unfavorable
A coworker of Connor's recommends that she maximize the shelf space devoted to those drinks with the highest contribution margin per case. Do you agree with this recommendation? Explain briefly.
Answer:
Yes
Explanation:
Ultimately I agree with the recommendation that has been given by Connor's coworker. By maximizing the shelf space specifically devoted to these drinks it will cause two things to happen. First, customers will mostly notice those drinks which will entice them to buy those drinks instead of the ones they cannot see. The second is that since customers are buying more of these drinks, the increase in sales will also increase profits, but since these items contribution margins are significantly higher than the others, it will cause profits to drastically increase.
Instead of a dividend of $1.60 per share, the company has announced a share repurchase of $16,000 worth of stock. How many shares will be outstanding after the repurchase?
Answer:
9,690 stocks
Explanation:
some information is missing:
Market Value Balance Sheet
Cash $45,300 Equity $515,300
Fixed assets $470,000
Total $515,300 Total $515,300
total number of shares outstanding = 10,000
stock's market price = $515,300 / 10,000 = $51.53
stocks repurchased = $16,000 / $51.53 = 310.50, but we must round down to 310 stocks
stocks outstanding after repurchase = 10,000 - 310 = 9,690
Consider a $1,000-par-value 20-year zero-coupon bond issued at a yield to maturity of 10%. If you buy that bond when it is issued and continue to hold the bond as yields decline to 9%, the imputed interest income for the first year of that bond is
Answer:
$14.87
Explanation:
Computation the imputed interest income for the first year of the bond
First step
Using this formula
Imputed interest income= Par value/(1+yield to maturity)^Numbers of years
Let plug in the formula
Imputed interest income$1,000/(1.10)^20
Imputed interest income= $1,000/6.72749
Imputed interest income=$148.64
Second step
Imputed interest income=$1,000/(1.10)^19= Imputed interest income=$1,000/6.11590
Imputed interest income=$163.51
Hence,
Imputed interest income=$163.51 - $148.64
Imputed interest income= $14.87
Therefore the imputed interest income for the first year of the bond will be $14.87
Chester's balance sheet has $105,038,000 in equity. Further, the company is expecting net income of 3,000,000 next year, and also expecting to issue $4,000,000 in new stock. If there are no dividends paid what will beChester's book value?
Answer:
$112,038,000
Explanation:
The book value is computed as shown below:
= Equity balance + net income + issue of new stock
= $105,038,000 + $3,000,000 + $4,000,000
= $112,038,000
Suppose the rate of inflation was 2 percent in India from 2008-2012 and, over that same period, the inflation rate in the United States was 2.7 percent. Based on these inflation trends, which of the following is true?
a. The PPP condition implies that the rupee has depreciated relative to the dollar.
b. The PPP condition implies that the rupee has appreciated relative to the dollar
Answer:
b. The PPP condition implies that the rupee has appreciated relative to the dollar
Explanation:
Remember, the inflation rate looks at how the prices of goods and services in a country increases over a period of time, and it's effects on the the purchasing value or power of money in the country.
As in this scenario, India had 2 percent inflation rate while United States had 2.7 which is a higher price increases not in a different period but the same one, meaning that the Purchasing power parity (PPP) condition of the rupee has appreciated relative to the dollar from 2008-2012.
Assume the Apple division of the Gala Company had the following results last year (in thousands). Managements required rate of return is 10% and the weighted average cost of capital is 8%. Its effective tax rate is 30%. What is Apple division's residual income
Answer:
$50,000
Explanation:
The computation of the residual income for each division is shown below:
As we know that
Residual income = Operating income - target income
where,
Operating income is given in the question
And, the target income could be calculated by
= Average invested assets × required rate of return
= $4,500,000 × 10%
= $450,000
So, the residual income is
= $500,000 - $450,000
= $50,000
Quantitative Problem 1: Assume today is December 31, 2017. Barrington Industries expects that its 2018 after-tax operating income [EBIT(1 – T)] will be $450 million and its 2018 depreciation expense will be $65 million. Barrington's 2018 gross capital expenditures are expected to be $110 million and the change in its net operating working capital for 2017 will be $30 million. The firm's free cash flow is expected to grow at a constant rate of 4.5% annually. Assume that its free cash flow occurs at the end of each year. The firm's weighted average cost of capital is 9%; the market value of the company's debt is $3 billion; and the company has 180 million shares of common stock outstanding. The firm has no preferred stock on its balance sheet and has no plans to use it for future capital budgeting projects. Using the free cash flow valuation model, what should be the company's stock price today (December 31, 2017)? Do not round intermediate calculations. Round your answer to the nearest cent. $ per share
Answer:
$29.630
Explanation:
For computation of stock price first we need to follow some steps which is shown below:-
Free cash flow = EBIT (1 - T) + Depreciation - Capital expenditure - Working capital
= $450 million + $65 million - $110 million - $30 million
= $375 million
Value of firm = Free cash flow ÷ (WACC - Growth)
= $375 million ÷ (9% - 4.5%)
= $375 million ÷ 0.045
= $8,333.33 million
Value of equity = Value of firm - Value of debt
= $8,333.33 million - $3,000 million
= $5,333.33 million
Stock price = Value of equity ÷ Outstanding shares
= $5,333.33 million ÷ 180 million
= $29.630
Rahman stock just paid a dividend of $3.00 per share. Future dividends are expected to grow at a constant rate of 6% per year. What is the value of the stock if the required return is 12%
Answer:value of stock for the required return of 12 % = $53
Explanation:
Given
current dividend just paid = $3.00
dividend to grow at constant rate of 6%
required rate of return =12%
to calculate the value of stock for the requitred return of 12 % , we use the dividend growth model which is
Current price = dividend ( 1 + growth rate )/ (required rate -growth rate )
= 3 x (1+6%) / 12-6 = 3 x 1.06 /6% =3.18/0.06= $53
Therefore value of stock for the requitred return of 12 % ,= $53
You own a portfolio that has a total value of $235,000 and it is invested in Stock D with a beta of .82 and Stock E with a beta of 1.43. The beta of your portfolio is equal to the market beta. What is the dollar amount of your investment in Stock D?
Answer:
ok man. Copied text is stored in the clipboard for 1 hour.Press and hold an item to delete it.Press and hold an item to pin it.Press and hold an item to pin it.Press and hold an item to pin it.Press and hold an item to pin it.Press and hold an item to pin it.Press and hold an item to pin it.Press and hold an item to pin it.Press and hold an item to pin it.Press and hold an item to delete it.Copied text is stored in the clipboard for 1 hour.Copied text is stored in the clipboard for 1 hour.Copied text is stored in the clipboard for 1 hour.Press and hold an item to delete it.Press and hold an item to delete it.Press and hold an item to delete it.Press and hold an item to delete it.Press and hold an item to delete it.Press and hold an item to pin it.Press and hold an item to delete it.Press and hold an item to delete it.Press and hold an item to delete it.Press and hold an item to delete it.Press and hold an item to delete it.Press and hold an item to delete it.Press and hold an item to delete it.Press and hold an item to delete it.Press and hold an item to delete it.Press and hold an item to delete it.Press and hold an item to delete it.Press and hold an item to delete it.Press and hold an item to delete it.Press and hold an item to delete it.Press and hold an item to pin it.Copied text is stored in the clipboard for 1 hour.Press and hold an item to pin it.Press and hold an item to delete it.Copied text is stored in the clipboard for 1 hour.
A customer redeems 1,000 shares of ABC Fund on Wednesday, June 14th. Under the provisions of the Investment Company Act of 1940, the customer must be paid the money no later than:
Answer:
Wednesday, June 21st
Explanation:
In this scenario, since the customer redeemed the shares on Wednesday, June 14th then he must be paid before Wednesday, June 21st. This is 7 days after the redemption. According to section 22 article (e) of the Investment Company Act of 1940, all companies are prevented from postponing the date of payment for more than seven days as stated below.
(e) No registered investment company shall suspend the right
of redemption, or postpone the date of payment or satisfaction upon
redemption of any redeemable security in accordance with its terms
for more than seven days after the tender of such security to the
company or its agent designated for that purpose for redemption
Why must corporate managers use multiple techniques of project evaluation? Which technique is most commonly used and why? Describe several ways you may be able to use the techniques above as you progress in your professional career.
Answer:
The most important technique for project evaluation is the net present value (NPV) which compares the present value of discounted cash flows against the initial costs associated with the project. The other two most important techniques used are the payback period (either regular or discounted) and the internal rate of return (IRR).
Depending on the company's needs, sometimes one technique might be used instead of others. E.g. technological firms generally use the payback period because most of their projects have a very short life, 1 or 2 years. Other times, you might have to compare different projects and even if they are not mutually exclusive, no company can dispose of money freely. It only invests in certain projects that have a minimum required rate of return.
But the basic technique, the NPV, is the most relevant in a sense that no project with a negative NPV should be accepted.
