To assign overhead costs to each product, the company:_____.
a. multiplies the activity-based overhead rates per cost driver by the number of cost drivers expected to be used per product.
b. assigns the cost of each activity cost pool in total to one product line.
c. multiplies the overhead rate by the number of direct labor hours used on each product.
d. multiplies the rate of cost drivers per estimated cost for the cost pool by the estimated cost for each cost pool.

Answers

Answer 1

Answer:

a. multiplies the activity-based overhead rates per cost driver by the number of cost drivers expected to be used per product.

Explanation:

Costing is the measurement of the cost of production of goods and services by assessing the fixed costs and variable costs associated with each step of production.

Generally, an activity-based costing uses multiple cost pools such as manufacturing cost or customer services and multiple cost drivers such as direct labor hours worked, number of changes used in engineering department, etc.

Cost pool is simply the amount of money spent by a firm on a particular activity.

Hence, to assign overhead costs to each product, the company multiplies the activity-based overhead rates per cost driver by the number of cost drivers expected to be used per product.

In activity-based costing, the activity rate for an activity cost pool is calculated by using the following formula;

Activity rate = total overhead cost/activity for the activity cost pool.


Related Questions

Fitness Fanatics is a regional chain of health clubs. The managers of the clubs, who have authority to make investments as needed, are evaluated based largely on return on investment (ROI). The company's Springfield Club reported the following results for the past year:

Sales $780,000
Net operating income $17,940
Average operating assets $100,000


The following questions are to be considered independently.

Required:
Compute the Springfield club's return on investment (ROI).

Answers

Answer:Springfield club's return on investment (ROI) is 17.94%

Explanation:

Return on investment (ROI) is given as the ratio of the net operating income to average operating assets and  expressed in percentage .

ROI = Net operating income / Average operating assets

Given that

Net operating income =$17,940

Average operating assets = $100,000

ROI = $17,940/ $100,000 = 0.1794, 17.94%

Therefore, the the Springfield club's return on investment (ROI) is 17.94%

Tip Top Painting Company has the following production data for March: Beginning work in process inventory, 2,000 units that are 30% complete for conversion costs Units completed and transferred out, 44,000 Units in ending work in process inventory, 9,000 that are 80% complete for conversion costs Materials are added only at the beginning of the process. What is the equivalent units of production during May for direct materials if the FIFO method is used?

Answers

Answer: 51000 units

Explanation:

The equivalent units of production during May for direct materials if the FIFO method is used will be calculated thus:

Units completed and transferred out = 44,000 Units

Less: Beginning work in process inventory = 2,000

Balance = 42000

Then, the Equivalent units of materials will be:

Balance = 42000

Add: Units in ending work in process inventory = 9,000

Equivalent units of materials = 51,000 units

Gabriele Enterprises has bonds on the market making annual payments, with nine years to maturity, a par value of $1,000, and selling for $978. At this price, the bonds yield 7.4 percent. What must the coupon rate be on the bonds

Answers

Answer:

7.06%

Explanation:

The computation of the coupon rate is given below:

Given that

FV is $1,000

PV is $978

NPER is 9

RATE is 7.4%

The formula is given below:

=PMT(RATE,NPER,-PV,FV,TYPE)

After applying the above formula, the PMT is $70.57

Now the coupon rate is

= $70.57 ÷ $1,000

= 7.06%

A business purchases equipment by paying in cash and issuing a note payable of . Which of the following​ occurs? A. Cash is credited for ​, Equipment is credited for ​, and Notes Payable is debited for . B. Cash is credited for ​, Equipment is debited for ​, and Notes Payable is credited for . C. Cash is debited for ​, Equipment is debited for ​, and Notes Payable is credited for . D. Cash is debited for ​, Equipment is credited for ​, and Notes Payable is debited for .

Answers

Answer: Cash is credited for, Equipment is debited for and Notes Payable is credited for.

Explanation:

Let's assume the business purchases equipment by paying $5000 in cash and then issued a note payable of $15000.

Then, the journal entry will be:

Debit Equipment $20000

Credit Cash ($20000 - $15000)=$5000

Credit Note payable $15000

Many experts believe that marketing is the most important function in a company. Discuss the reasons this is a true statement. Discuss the reasons this is not a true statement.

Answers

Solution :

Marketing is considered as an important function in a company.

Marketing is an important function in any organization as it allows the business to maintain a long-lasting and an ever-present relationships with the audience. It increase the brand value and generates revenue for the organization.

Marketing is not considered as an important function in a company.

Besides marketing there are other function as well which are important for an organization. The human resource department is an important function which maintains the relationship between the employees and the management. It works for the welfare of its employees which is considered as asset to the organization.

Also attention should be given to manufacture a good product seeing the demand in the market that can be easily available and usable by the customer. More research should be done to develop a product that is best for its consumers.

Suppose that American firms claim that protectionism in Canada is on the rise as the Canadian government attempts to protect its infant industries. This protectionism will cause the greatest harm to Group of answer choices

Answers

Answer:

manufacturers who export to Canada.

Explanation:

From the question we are informed about an American firms claim that uses protectionism in Canada is on the rise as the Canadian government attempts to protect its infant industries. This protectionism will cause the greatest harm to manufacturers who export to Canada.

Protectionism can be regarded as economic policy that is used in restriction of imports from other countries using some methods and measures, these measures could be tariffs on imported goods as well as import quotas and some government regulations. This is usually create economic crises such as Great Depression.

You are in desperate need for cash to pay your water bill so you head to the check-cashing store down the street. They offer to lend you $200 now but you must leave a postdated check of $212 to be cashed in 7 days. What is the effective annual rate of this short-term loan?

Answers

Answer:

1969.6%

Explanation:

The computation of the effective annual rate is given below;

Given that

It is been charged $12 for $200 loan for 7 days

So for 7 days,

the nominal interest rate is is

= 12 ÷ 200 × 100

= 6%

Now

(1+r) = (1+0.06)^{52}

(1+r) = 20.696

r = 19.696

= 1969.6%

The ACogs-153 company has provided the following data for the month of May: Inventories: Beginning Ending Work in process $ 24,000 $ 19,000 Finished goods $ 53,000 $ 57,000 Additional information: Direct materials $ 64,000 Direct labor cost $ 94,000 Manufacturing overhead cost incurred $ 70,000 Manufacturing overhead cost applied to Work in Process $ 68,000 Any underapplied or overapplied manufacturing overhead is closed out to cost of goods sold. The company's adjusted cost of goods sold (that is, cost of goods sold adjusted for underapplied or overapplied overhead) for May is:

Answers

Answer:

$209,000

Explanation:

   Schedule of Cost of goods manufactured

Particulars                                                Amount

Direct materials                                        $64,000

Direct labor cost                                       $94,000

Manuf. overhead cost applied to WIP     $68,000

Total manufacturing costs                        $226,000

Add: WIP Inventory, Beginning                $24,000

Less: WIP Inventory, Ending                     $19,000

Cost of goods manufactured                   $231,000

Add: Beginning Finished goods              $53,000

Less: Ending Finished goods                   $57,000

Unadjusted cost of goods sold                $207,000

Add: Underapplied manuf. overhead      $2,000     ($70,000-$68,000)

Adjusted cost of goods sold                   $209,000

How does a parent perform the functions of organizing in management?

Answers

Answer:

I'll assume that the term "parent" here means parent in the conventional term as in father, mother, and children.

With this in mind, parents have the responsibility of organising the family which include their children and the affairs of the house.

Therefore, a parent performs the functions of organizing in management by:

1. Guiding their wards in management principles

2. Educating them in what they should and shouldn't do.

ABC Bank requires a 20% down payment on all of its home loans. If a house
is priced at $145,000, what is the amount of the down payment required by
the bank?
A. $29,000
B. $290,000
C. $14,500
D. $18,000

Answers

$29,000

The equation used to find this is the following: 145,000 x .20

Hope this helps! Please make me the brainliest, it’s not necessary but appreciated, I put a lot of effort and research into my answers. Have a good day, stay safe and stay healthy.

1. Prepare a general ledger having T-accounts for Accounts Receivable, Sales, and Sales Returns and Allowances. Post these entries to both the general ledger and the accounts receivable ledger. General Ledger Accounts Receivable Sales End.Bal End.Bal Accounts Receivable Subsidiary Ledger Ski Shop Sales Returns and Allowances End.Bal Welcome Enterprises Zia Natara End.Bal End.Bal Vail Company recorded the following selected transactions during November Current Year Debit Credit 5,238 Date General Journal Nov. 5 Accounts Receivable-Ski Shop Sales 5,238 10 Accounts Receivable-Welcome Enterprises 2,780 Sales 2,780 13 Accounts Receivable-Zia Natara 1,630 Sales 1,630 21 Sales Returns and Allowances 421 Accounts Receivable-Zia Natara 421 30 Accounts Receivable-Ski Shop 5,796 Sales 5,796
2 . Prepare a schedule of accounts receivable VAIL COMPANY Schedule of Accounts Receivable November 30, Current Year Total

Answers

Answer:

Vail Company

1. T-accounts:

a. General Ledger

Accounts Receivable

Date       Account Titles   Debit           Credit

Nov. 5    Sales                  5,238

Nov. 10  Sales                   2,780

Nov. 13  Sales                   1,630

Nov. 21  Sales Returns and Allowances 421

Nov. 30 Sales                  5,796

Nov. 30 Balance                               15,0232

Sales

Date       Account Titles                  Debit           Credit

Nov. 5    Accounts Receivable-Ski Shop            5,238

Nov. 10   Accounts Receivable-

              Welcome Enterprises                          2,780

Nov. 13   Accounts Receivable-Zia Natara         1,630

Nov. 30 Accounts Receivable-Ski Shop           5,796

Nov. 30 Balances                          15,444

Sales Returns and Allowances

Date       Account Titles                           Debit           Credit

Nov. 21 Accounts Receivable-Zia Natara 421

b. Accounts Receivable Ledger:

Ski Shop

Date       Account Titles   Debit           Credit

Nov. 5    Sales                  5,238

Welcome Enterprises

Date       Account Titles   Debit           Credit

Nov. 10   Sales                 2,780

Zia Natara

Date       Account Titles   Debit           Credit

Nov. 13   Sales                  1,630

Nov. 21   Sales Returns and Allowances 421

Ski Shop

Date       Account Titles   Debit           Credit

Nov. 30  Sales                  5,796

Explanation:

a) Data and Analysis:

Nov. 5 Accounts Receivable-Ski Shop 5,238

Sales 5,238

Nov. 10 Accounts Receivable-Welcome Enterprises 2,780

Sales 2,780

Nov. 13 Accounts Receivable-Zia Natara 1,630

Sales 1,630

Nov. 21 Sales Returns and Allowances 421

Accounts Receivable-Zia Natara 421

Nov. 30 Accounts Receivable-Ski Shop 5,796

Sales 5,796

Express net income as a common-size percentage using the following data.

Sales $45,000
Cost of goods sold $29,340
Gross profit from sales $15,660
Operating expenses $10,800
Net income $4,860.

a. 100 percent
b. 31 percent
c. 12 percent
d. 10.8 percent

Answers

Answer:

i think the answers D 10.8 percent

In a process operation, each process has a separate department which will accumulate costs for each of the following: Multiple select question. administrative direct labor overhead sales direct materials

Answers

Answer:

overhead

direct labor

direct materials

Explanation:

Process operations can be regarded as process manufacturing it can be explained as mass production method that is been followed when producing products following a continuous flow.

It can be regarded conveyer belt system which brings about production of identical as well as standardized item with fast rate as regards the speed. It should be noted that In a process operation, each process has a separate department which will accumulate costs for ;

✓overhead ( ongoing costs that is gotten in operation of a business)

✓direct labor

✓direct materials

Bluebean Inc. produces two lines of coffee cups: espresso coffee cups and travel coffee mugs. The unit cost information is shown here. The company uses a traditional volume-based costing system and believes that the number of labor hours is the appropriate cost driver

Activity Cost Pool Espresso Coffee Cups Travel Coffee Mugs
Selling price $20 $25
Direct materials $6 $8
Direct labor $2 $5
Units produced 10,000 units 4,000 units
Direct labor hours 10,000 hours 6,000 hours
Estimated total overhead costs $80,000

Item Espresso coffee cups Travel coffee mugs
Pre-determined overhead rate
Total manufacturing overhead allocated
Manufacturing cost per unit
Gross profit unit

Answers

Answer:

Results are below.

Explanation:

To calculate the predetermined manufacturing 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= 80,000 / (10,000 +  6,000)

Predetermined manufacturing overhead rate= $5 per direct labor hour

Now, we can allocate overhead:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Espresso coffee cups= 5*10,000= 50,000

Travel coffee mugs= 5*6,000= 30,000

In unitary bases:

Espresso coffee cups= 50,000/10,000= 5

Travel coffee mugs= 30,000/4,000= 7.5

Finally, the total unitary cost and the gross profit per unit:

Espresso coffee cups:

Total unitary cost= 6 + 2 + 5= $13

Gross profit= 20 - 13= $7

Travel coffee mugs:

Total unitary cost= 8 + 5 + 7.5= $20.5

Gross profit= 25 - 20.5= $4.5

Costs: Costs in beginning Work in Process - Direct Materials: $58,000. Costs in beginning Work in Process - Conversion: $63,850. Costs incurred in February - Direct Materials: $388,250. Costs incurred in February - Conversion: $614,150. Calculate the cost per equivalent unit of materials.

Answers

Answer: $2.05 per unit

Explanation:

First find out the Equivalent units for materials:

= Units started and completed + Ending work in process

= 180,000 + 37,500

= 217,500 units

Find out total cost of materials:

= Costs in beginning Work in Process for materials + Cost incurred in February

= 58,000 + 388,250

= $446,250

Cost per equivalent unit:

= Total costs / Equivalent units

= 446,250 / 217,500

= $2.05 per unit

A company is offering perpetual preferred stock (its dividend payments last forever) with a fixed annual dividend of $100. If your required rate of return on this investment is 12 percent, what is the value of each share

Answers

Answer:

833.33

Explanation:

The fixed annual dividend is $100

The required rate of return on this investment is 12%

Therefore the value for each share can be calculated as follows

= 100/(12/100)

= 100/0.12

= 833.33

Hence the value for each share is 833.33

Cavy Company estimates that the factory overhead for the following year will be $1,470,000. The company has decided that the basis for applying factory overhead should be machine hours, which is estimated to be 40,000 hours. The machine hours for the month of April for all of the jobs were 4,780.

Required:
Prepare the journal entry to apply factory overhead.

Answers

Answer and Explanation:

The journal entry to record the factory overhead is given below:

Predetermined Overhead rate is

= Estimated overhead ÷ Estimated machine hours

= $1,470,000 ÷ 40,000

= $36.75 per mh

Now journal entry is  

Work in Process $175,665  

     To Factory Overhead $175,665   (4780 × 36.75)

(Being the factory overhead applied is recorded)

Here work in process is debited as it increased the assets and credited the factory overhead as it decreased the expense

Potatoes and wheat output (tons per day)

Country Potatoes Wheat
United States 4 2
Ireland 3 1

The United States has a comparative advantage in producing: __________

a. wheat
b. neither
c. potatoes
d. both

Answers

Answer:

c. potatoes

Explanation:

The computation is shown below:

Opportunity cost of producing 1 tons of wheat is  

for US = 4 ÷ 3 = 1.33 tons of potatoes

for Ireland = 2 ÷ 1 = 2 tons of potatoes

As the opportunity cost is higher in united states of potatoes so here the united stated should be comparative advantage in generating potatoes  

In 2020, Wild Corporation reported a net loss of $70,000. Wild's only net income adjustments were depreciation expense $81,000, and increase in accounts receivable $8,100. Compute Wild's net cash provided (used) by operating activities.

Answers

Answer:

$2,900

Explanation:

Computation for Wild's net cash provided (used) by operating activities.

Net income adjustments $81,000

Less increase in accounts receivable ($8,100)

$72,900

Less reported net loss $70,000

Net cash provided (used) by operating activities $2,900

($72,900-$70,000)

Therefore net cash provided (used) by operating activities will be $2,900

Botox Facial Care had earnings after taxes of $282,000 in 20X1 with 200,000 shares of stock outstanding. The stock price was $81.80. In 20X2, earnings after taxes increased to $418,000 with the same 200,000 shares outstanding. The stock price was $94.00.

Required:
a. Compute earnings per share and the P/E ratio for 20X1.
b. Compute earnings per share and the P/E ratio for 20X2.
c. Why did the P/E ratio change? (

Answers

Answer:The earnings per share and The P/E ratio  for 20X1 is $1.41 and  $58.01 respectively.

The earnings per share and The P/E ratio  for 20X2 is $2.09 and   $44.976 respectively.

Explanation:

a. Earning per shares = Earning after Taxes / total Shares outstanding  

                                  = $282,000/200,000  

                                   = $1.41

Therefore, The earnings per share for 20X1 is $1.41

P/E RATIO = Price Per shares/Earning per shares  

               = $81.80/$1.41  

                = $58.01

Therefore, The P/E ratio for 20X1 is  $58.01

b. Earning per shares = Earning after Taxes / total Shares outstanding  

                                  = $418,000/200,000  

                                   = $2.09

Therefore, The earnings per share for 20X2 is $2.09

P/E RATIO = Price Per shares/Earning per shares  

               = $94.00/$2,09  

                = $44.976

Therefore, The P/E ratio for 20X2 is  $44.976

c.The P/E ratio changed from $58.01 to $44.976 because of the change in earnings per share and the stock price per share.

A very accurate estimate that is formed only after most design work is complete:_________
Definitive estimate
Parametric estimate
Feasibility estimate
Ballpark estimate

Answers

Answer:

Definitive estimate

Explanation:

The definitive estimate shows the most accurate or correct estimation for the amount of work and the resources required for finishing the project. It is the estimate in which the organization commits to an order to the baseline

So as per the given situation, the accurate estimated i.e. should be created only after most design work is finished is known as the definitive estimate

According to your reading material, one cause of excessive pressure is a/an __________.
a. overestimation of the severity of one’s own problems
b. lack of sleep
c. lack of self-confidence
d. lack of self-esteem

Answers

Answer: D

Explanation: A lack of self-esteem can lead to reliance others advice which can also lead to excessive pressure by the people your getting advice from.

d.

lack of self-esteem

A partial list of a corporation's accounts shows the following account balances: Retained earnings, $375,000 Treasury stock—common, $20,000 Paid-in capital in excess of par value—common, $60,000 Treasury stock—preferred, $20,000 Common stock, $200,000 Preferred stock, $175,000 Paid-in capital in excess of par value—preferred, $60,000 How much is total stockholders' equity?

Answers

Answer:

Stockholders' Equity

Common stock                                     $200,000

Preferred stock                                     $175,000

Paid-in capital in excess of par value

Common stock                                      $60,000

Preferred stock                                      $60,000

Retained earnings                                 $375,000

Treasury Stock

Common stock                                     -$20,000

Preferred stock                                     -$20,000

Total stockholders' equity                   $830,000

Martha works as a window dresser in her hometown of Victoria BC. She charges $16.72/h and it takes her 5 hours to finish the window display at a local department store. How much will her gross pay be for the job

Answers

Answer:

Her gross pay for the job will be $ 83.6.

Explanation:

Given that Martha works as a window dresser in her hometown of Victoria BC, and she charges $ 16.72 / h and it takes her 5 hours to finish the window display at a local department store, to determine how much will her gross pay be for the job the following calculation must be performed:

16.72 x 5 = X

83.6 = X

Therefore, her gross pay for the job will be $ 83.6.

Revising for clarity is an important revision task. Clear messages are immediately understood and appreciated. To improve the clarity of your message, keep your sentences short and simple, and dump trite business phrases.
Which of the following sentences employ the KISS formula? Check all that apply.
We are processing your request to the best of our abilities.
Our company is pleased to have processed your request.
Your request is noteworthy and has been processed through the correct channels.
Your request has been processed.
The trite business phrase as per your request can be revised as .
Determine which revision of each the following sentences provides the most clarity.
I would like to take this opportunity to inform you that the changes to your account will post soon.
As per your verbal instruction, changes to your account will post on Tuesday.
I am taking this opportunity to inform you that changes to your account will post on Tuesday.
The changes to your account will post on Tuesday.
Pursuant to your request, the sales managers will be a ubiquitous presence in case they are needed.
Every effort will be made for sales managers to be available if needed.
Sales managers are available if needed.
Per your request, the sales managers should be an omnipresent presence if needed.
Which sentence provides the most clarity?
Mary, from human resources, would like to explain the changes with reference to your employee benefits.
Mary, from human resources, will explain the changes to your employee benefits.
In accordance with company policy, the human resources associate would like to codify the new employee benefits information.

Answers

Answer:

ANSWERS TO PART A:   Sentence 2 and Sentence 4

ANSWER TO PART B:    Sentence 3

ANSWER TO PART C:    Sentence 3

ANSWER TO PART D:    Sentence 2

Explanation:

In Part A, which of the sentences employs the Keep It Short & Simple formula?

We start by labelling the sentences and then selecting the right answers.

Remember the rules are that the sentences must not be long and complex and also must not contain trite business phrases.

1. We are processing your request to the best of our abilities.

2. Our company is pleased to have processed your request.

3. Your request is noteworthy and has been processed through the correct channels.

4. Your request has been processed.

PART B: Which sentence provides the most clarity?

1. I would like to take this opportunity to inform you that the changes to your account will post soon.

2. As per your verbal instruction, changes to your account will post on Tuesday.

3. I am taking this opportunity to inform you that changes to your account will post on Tuesday.

4. The changes to your account will post on Tuesday.

PART C: Which sentence provides the most clarity?

1. Pursuant to your request, the sales managers will be a ubiquitous presence in case they are needed.

2. Every effort will be made for sales managers to be available if needed.

3. Sales managers are available if needed.

4. Per your request, the sales managers should be an omnipresent presence if needed.

PART D: Which sentence provides the most clarity?

1. Mary, from human resources, would like to explain the changes with reference to your employee benefits.

2. Mary, from human resources, will explain the changes to your employee benefits.

3. In accordance with company policy, the human resources associate would like to codify the new employee benefits information.

May 31, Novac Corp. Has net sales of $415,000 in cost of goods available for sale of $286,000 compute the estimated cost of the ending inventory assuming the gross profit rate is 37%

Answers

Answer:

$24,550

Explanation:

Computation for the estimated cost of the ending inventory

Net Sales = $415,000

Gross Profit rate= 37%

Cost of goods Sold = 100%- 37% = 63%

Cost of Goods Sold =$415,000*63% = $261,450

Cost of Goods Available for sale = $286,000

Using this formula

Estimated Cost of Ending Inventory= Cost of goods available for sale - Cost of Goods Sold

Let plug in the formula

Estimated Cost of Ending Inventory = $286,000-$261,450

Estimated Cost of Ending Inventory = $24,550

Therefore the estimated cost of the ending inventory is $24,550

calculator solutionvChang is investing $2,500 today and will do so at the beginning of each of the next six years for a total of seven payments. If her investment can earn 12 percent annually, how much will she have at the end of seven years

Answers

Answer: $28,249.25

Explanation:

As the payments are constant, this represents an annuity. Also, as the payment is made at the beginning of every period, it is an Annuity Due.

The value of the end of the 7 years is the future value of the annuity due which is found by:

= Annuity * Future value factor of an annuity, 7 years, 12%

= 2,500 * 11.2997

= $28,249.25

Please tell whether inventory is beneficial or not for businesses with a large number of customers? Why?

Answers

Answer:

I don't know how it is possible

I think that Inventory is beneficial por a business with a large range of customers because, if they have no inventory then they have no products to sell to the consumers and that way they will begin to lose the customers.

A truck acquired at a cost of $195,000 has an estimated residual value of $10,200, has an estimated useful life of 56,000 miles, and was driven 5,000 miles during the year. Determine the following:

a. The depreciable cost $___________
b. The depreciation rate $__________ per mile
c. The units-of-activity depreciation for the year $__________

Answers

Answer:

a. $184,800

b. 3.3 per miles

c. 16,500

Explanation:

(a) Calculation to determine The depreciable cost

Depreciable cost =Cost - estimated residual value

Depreciable cost=$195,000- $10,200

Depreciable cost=$184,800

(b) Calculation to determine The depreciation rate

Depreciation rate = $184,800/useful life 56,000 miles

Depreciation rate =3.3per mile

(c) Calculation to determine The units-of-activity depreciation for the year

Units-of-activity depreciation =3.3per mile*5,000 miles

Units-of-activity depreciation=16,500

Therefore The units-of-activity depreciation for the year is 16,500

A firm wants to sponsor an engineering lab. This requires $2.5M to construct the lab, $1.2M to equip it, and $600,000 every 5 years for new equipment. What is the required endowment if the university will earn 6% interest on funds

Answers

Answer:

$5.47M

Explanation:

The required endowment from the sponsor is the total costs required immediately plus the present value of the new equipment that needs to be purchased every five years as shown thus:

Immediate costs=cost of lab construction+cost of equipping the lab

Immediate costs=$2.5M+$1.2M

Immediate costs=$3.7M

Present value of every 5 years equipment cost=cost/(1+interest)^n-1

interest rate=6%

n=5 years(the frequency of incurring the cost)

PV=$0.60M/(1+6%)^5-1

PV=$0.60M/0.33822558

PV=$1.77M

required endowment =$3.70M+$1.77M

required endowment =$5.47M

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