Which ratios measure the extent of a firm’s financing with debt relative to equity and its ability to cover interest and fixed charges?

Answers

Answer 1

Answer:

Debt to Equity ratio and Times Interest Earned (TIE) ratio

Explanation:

The Debt to Equity ratio measures the extent of a firm’s financing with debt relative to equity

Formulae :

Debt to Equity ratio = Total Debt ÷ Total Equity

The Times Interest Earned (TIE) ratio measures the ability of a firm  ability to cover interest and fixed charges

Formulae :

Times Interest Earned (TIE) ratio = Earnings Before Interest and Tax ÷ Interest


Related Questions

Which of the following are assumptions of the sustainable (self-supporting) growth model? Check all that apply. The firm maintains a constant net profit margin. The firm’s liabilities and equity must increase at the same rate. The firm pays no dividends. The firm maintains a constant ratio of liabilities to equity.

Answers

Answer:

The firm maintains a constant ratio of liabilities to equity

Explanation:

Where can a Master Admin Accountant User view the apps connected to a client’s QuickBooks Online account from within QuickBooks Online Accountant?

Answers

Answer:

The answer is below

Explanation:

A Master Administrator is normally the individual who is tasked at establishing the company file in QuickBooks Online.

In other words, Master Admin possesses access to all portions of the company file and can grant authorizations and access to other users.

Therefore, a Master Admin Accountant User can view the apps connected to a client’s QuickBooks Online account from within QuickBooks Online Accountant by doing the following:

1. Go to Settings

2. Select Manage Users.

3. Select Accounting firms.

4. Under the Company section, Select View Apps.

Answer:

Left Navigation Bar > Apps > Client Apps

Explanation:

Menlo Company distributes a single product. The company’s sales and expenses for last month follow:

Total Per unit
Sales $314,000 $20
Variable expenses 219,800 14
Contribution margin 94,200 6
Fixed expenses 75,000
Net operating income 19,200

Required:
a. What is the monthly break-even point in unit sales and in dollar sales?
b. Without resorting to computations, what is the total contribution margin at the break-even point?
c. How many units would have to be sold each month to attain a target profit of S27,600?
d. Verify your answer by preparing a contribution format income statement at the target sales level.
e. Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms.
f. What is the company's CM ratio? If sales increase by $76,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?

Answers

Answer:

a) 12,500 units

b) $75,000

c) 17,100 units

d) total sales revenue $342,000

- variable costs = -$239,400

contribution margin = $102,600

- fixed expenses = $75,000

net income = $27,600

e) 20.38%

f.1) 30%

f.2) $22,800

Explanation:

                                                       Total          Per unit

Sales                                            $314,000        $20

Variable expenses                     $219,800         $14

Contribution margin                    $94,200          $6

Fixed expenses                           $75,000

Net operating income                 $19,200

break even point = fixed costs / contribution margin = $75,000 / $6 = 12,500 units

units needed to yield expected profits = (fixed costs + expected profits) / contribution margin = ($75,000 + $27,600) / $6 = 17,100 units

margin of safety = (current sales - break even point) / current sales = ($314,000 - $250,000) / $314,000 = 20.38%

contribution margin ratio = (total revenue - variable costs) / total revenue = ($314,000 - $219,800) / $314,000 = 30%

$76,000 x 30% = $22,800

The monthly break-even point in unit sales is 12,500 units. The total contribution margin at the break-even point is $75,000.

c) 17,100 units would have to be sold each month to attain a target profit of S27,600.

d) total sales revenue of $342,000

- variable costs = -$239,400

contribution margin = $102,600

- fixed expenses = $75,000

net income = $27,600

e) The company's margin of safety in percentage terms is 20.38%.

f.1) The company's CM ratio is 30%.

f.2) The  Expected monthly net operating income to increase by $22,800.

The break-even threshold is reached when overall costs and total revenues are equal, leaving your small firm with no net benefit or loss. In other words, you've achieved the point in manufacturing when the income from a product matches the cost of manufacturing.

A formula known as net operating income (NOI) is used to assess the profitability of real estate assets that produce revenue. NOI is the sum of all property revenues less all running costs that are deemed to be reasonably reasonable.

On a property's income and cash flow statement, NOI is a before-tax statistic that does not include loan principal and interest payments, capital expenses, depreciation, or amortization. In other sectors, this term is known as "EBIT," which stands for "earnings before interest and taxes."

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The last dividend paid by Coppard Inc. was $1.25. The dividend growth rate is expected to be constant at 27.5% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return (rs) is 11%, what is its current stock price

Answers

Answer:

36.38

Explanation:

The Current stock price can be calculated by identifying Present value of dividends in all three years adding terminal value of dividends in year 3.

Year Dividend Growth  Dividend   PV factor  Present Values

1  1.25           127.5%   1.59    0.900901         1.43  

 2  1.59           127.5%   2.03           0.811622          1.64  

 3  2.03          127.5%   2.59    0.731191     1.88  

 3                                    42.987(w)  0.731191           31.43  

Total PV                                                                     36.38  

Current Dividend = 2.59    

Rate of return       = 11.00%    

Growth Rate        = 6.00%    

Terminal value = Current Dividend*(1+Growth rate)/(Rate of return-Growth Rate)

Terminal value = 2.59 x (1+0.06) / (0.11-0.06)  

Terminal value =42.987

   

Current stock price = 1.43 +1.64+1.88+31.43

Current stock price = 36.38  

An American-style call option with six months to maturity has a strike price of $35. The underlying stock now sells for $43. The call premium is $12. What is the intrinsic value of the call

Answers

Answer:

$8

Explanation:

An American style call option has a strike price of $35

The underlying stock now sells for $43 in the market

The call premium is $12

Therefore, the intrisic value of the call can be calculated as follows

Intrisic value= Market price - strike price

= $43-$35

= $8

Hence the intrinsic value of the call is $8

Presented below are the ending balances of accounts for the Kansas Instruments Corporation at December 31, 2021.Account Title Debits CreditsCash $40,000 Accounts receivable 170,000 Raw materials 44,000 Notes receivable 120,000 Interest receivable 23,000 Interest payable $25,000 Investment in debt securities 52,000 Land 70,000 Buildings 1,700,000 Accumulated depreciation—buildings 640,000 Work in process 62,000 Finished goods 109,000 Equipment 340,000 Accumulated depreciation—equipment 150,000 Patent (net) 140,000 Prepaid rent (for the next two years) 80,000 Deferred revenue 56,000 Accounts payable 200,000 Notes payable 600,000 Restricted cash 100,000 Allowance for uncollectible accounts 33,000 Sales revenue 1,200,000 Cost of goods sold 470,000 Rent expense 48,000 Additional Information:1. The notes receivable, along with any accrued interest, are due on November 22, 2022.2. The notes payable are due in 2025. Interest is payable annually.3. The investment in debt securities consist of treasury bills, all of which mature next year.4. Deferred revenue will be recognized as revenue equally over the next two years.Required:Determine the company’s working capital (current assets minus current liabilities) at December 31, 2021.

Answers

Answer:

Working capital = $ 374,000

Explanation:

Calculation to Determine the company’s working capital at December 31, 2021

Formula for Working Capital

Working capital = Current assets - Current liabilities

First is to find the Current assets

Current assets =Cash $40,000 + Accounts receivable 170,000 +Raw materials 44,000+Work in process 62,000 +Finished goods 109,000 +Notes receivable 120,000 +Interest receivable 23,000 +Investment in debt securities 52,000+Prepaid rent 40,000 (80,000/2)

Current assets=$660,000

Second step is to find the Current liabilities

Current liabilities =Interest payable $25,000+Accounts payable 200,000+Deferred revenue 28,000 (56,000/2) +Allowance for uncollectible accounts 33,000

Current liabilities =$286,000

Let plug in the formula

Working capital =$660,000 - $286,000

Working capital = $ 374,000

Therefore the company’s working capital at December 31, 2021 will be $374,000

a project will produce cash inflows of 5400 a year for 3 years with a final cash inflow of 2400 in year 4. The projects initial cost is 13400. what is the net present value if the required rate of return is 14.2 percent?

Answers

Answer:

NPV = $505.9242271 rounded off to $505.92

Explanation:

The NPV or net present value is an important metric that is used for project and investment evaluation. The NPV is the present value of the series of cash flows provided by the project less the initial cost incurred to undertake the project. NPV can be calculated as follows,

NPV = CF1 / (1+r)  +  CF2 / (1+r)^2  +  ....  +  CFn / (1+r)^n - Initial cost

Where,

CF1, CF2 and so on represents the cash flow in year 1 , cash flow in year 2 and so onr represents the required rate of return

NPV = 5400 / (1+0.142)  +  5400 / (1+0.142)^2   +  5400/ (1+0.142)^3  +  

2400 / (1+0.142)^4   -  13400

NPV = $505.9242271 rounded off to $505.92

TB MC Qu. 8-174 LBC Corporation makes and sells ... LBC Corporation makes and sells a product called Product WZ. Each unit of Product WZ requires 2.0 hours of direct labor at the rate of $16.00 per direct labor-hour. Management would like you to prepare a Direct Labor Budget for June. The company plans to sell 39,000 units of Product WZ in June. The finished goods inventories on June 1 and June 30 are budgeted to be 610 and 110 units, respectively. Budgeted direct labor costs for June would be:

Answers

Answer:

Direct labor cost= $1,232,000

Explanation:

Giving the following information:

Each unit of Product WZ requires 2 hours of direct labor at a rate of $16 per direct labor-hour.

Sales= 39,000 units

Beginning inventory= 610 units

Desired ending inventory= 110 units

First, we need to calculate the production required:

Production= sales + desired ending inventory - beginning inventory

Production= 39,000 + 110 - 610

Production= 38,500

Now, the direct labor budget:

Direct labor hours= 38,500*2= 77,000 hours

Direct labor cost= 77,000*16= $1,232,000

On October 10, the stockholder's equity of Sherman Systems appears as follows:
Common stock–$10 par value, 72,000 shares authorized,
issued, and outstanding $720,000
Paid-in capital in excess of par value, common stock 216,000
Retained earnings 864,000
Total stockholders’ equity $1,800,000
1. Prepare journal entries to record the following transactions for Sherman Systems.
1A. Purchased 5,000 shares of its own common stock at $25 per share on October 11.
1B. Sold 1,000 treasury shares on November 1 for $31 cash per share.
1C. Sold all remaining treasury shares on November 25 for $20 cash per share.
2. Prepare the revised equity section of its balance sheet after the October 11 treasury stock purchase.

Answers

Answer and Explanation:

The journal entries are shown below:

1A. Treasury Stock (5,000 × $25) $75,000

            To Cash $75,000

(Being the purchased of its own common stock is recorded)

1B. Cash (1,000 × $31 shares) $31,000

            To Treasury Stock (1,000 ×  $25) $25,000

            To Paid-in Capital from Sale of Treasury Stock $6,000

(Being the sale of treasury stock is recorded)

1C. Cash (4,000 × $20) $80,000

Paid-in Capital from Sale of Treasury Stock $6,000

Retained Earnings $14,000

         To Treasury Stock 99,000 (4,000 × 25) $100,000

(Being the sale of treasury stock is recorded)

2. The preparation of the revised equity section of its balance sheet is presented below:

Common stock 36,000 shares authorized, issued                     $720,000

Paid in capital in excess of par value

, common stock.                                                                             $216,000

Retained Earnings.                                                       $864,000

Less: Treasury Stock - 5,000 shares                           -$75,000 $789,000

Total stockholders' equity                                                            $1,725,000

Even if you cannot meet all of the elements of a contract, in special circumstances, courts may still find that there was an enforceable agreement.

a. True
b. False

Answers

Answer:

Correct answer:

a. True

Explanation:

A contract which is an agreement between two individual is meant to be kept in any given business situation. In a situation where there is a need not to meet the elements of the contracts, there might be cancellation of the contract if both parties agrees.

When one of the parties refuses, he or she would go to court inorder to enforce the agreement. In most cases, the court would see reasons on why the agreements must be enforced.

Mojo Mining has a bond outstanding that sells for $2,120 and matures in 18 years. The bond pays semiannual coupons and has a coupon rate of 6.66 percent. The par value is $2,000. If the company's tax rate is 40 percent, what is the aftertax cost of debt?
A. 3.96%
B. 6.24%
C. 5.82%
D. 3.66%
E. 3.45%

Answers

Answer:

D. 3.66%

Explanation:

For computing the after tax cost of debt we need to apply the RATE formula i.e to be shown in the attachment

Given that,  

Present value = $2,120

Future value or Face value = $2,000

PMT = $2,000 × 6.6% ÷ 2 = $66.60

NPER = 18 years × 2 = 36 years

The formula is shown below:  

= Rate(NPER;PMT;-PV;FV;type)  

The present value come in negative  

So, after solving this,  

1. The pretax cost of debt is 3.05% × 2 % = 6.10%

2. And, the after tax cost of debt would be

= Pretax cost of debt × ( 1 - tax rate)

= 6.10% × ( 1 - 0.40)

= 3.66%

Common stock is called a hybrid security because it takes on the attributes of both preferred stock and bonds.

a. True
b. False

Answers

Answer:

false

Explanation:

examples of hybrid stocks is convertible preferred shares

A common stock is a stock that entitles owners of the stock to a fixed amount of shares and holders of the stock are owners of the company where the stock is bought.

Answer:

a. True

Explanation:

In most stocks that attributes of  both bonds and preferred stock, it is referred to as a hybrid security. Most organisations and the government recognized it as a medium of security in situations of seeking for loan.

Given the following data: Average operating assets $ 504,000 Total liabilities $ 23,520 Sales $ 168,000 Contribution margin $ 85,680 Net operating income $ 45,360 Return on investment (ROI) is:

Answers

Answer:

9%

Explanation:

According to the given situation, the solution of return on investment is shown below:-

Return on investment = (Net operating income ÷ Average operating assets) × 100

now, we will put the values into the above formula

= ($45,360 ÷ $504,000) × 100

= 0.09 × 100

= 9%

Therefore for computing the return on investment we simply applied the above formula.

Wyckam Manufacturing Inc. has provided the following information concerning its manufacturing costs:
Fixed Cost per Month Cost per Machine-Hour
Direct materials $ 5.40
Direct labor $ 42,400
Supplies $ 0.30
Utilities $ 1,700 $ 0.25
Depreciation $ 15,200
Insurance $ 11,600
For example, utilities should be $1,700 per month plus $0.25 per machine-hour. The company expects to work 4,200 machine-hours in June. Note that the company’s direct labor is a fixed cost.
Required:
Prepare the company's planning budget for manufacturing costs for June.

Answers

Answer:

Total Manufacturing Costs is $95,680

Explanation:

                        Wyckam Manufacturing Inc.

              Planning Budget for Manufacturing costs

                       For the month Ended June 30

Direct Materials      (4,200 hours *$5.40)                    $22,680

Direct Labor                  Fixed                                        $42,400

Supplies                  (4,200 hours * $0.25 )                   $1,050

Utilities                   ($1,700+ 4,200 Hours * $0.25)      $2,750

Depreciation                  Fixed                                        $15,200

Insurance                       Fixed                                        $11,600

Total Manufacturing Costs                                         $95,680

___________is a partnership Is also called the articles of incorporation.
a) Is the same as a limited liability partnership.
b) Is not binding unless it is in writing.
c) Is binding even if it is not in writing.
d) Does not generally address the issue of the rights and duties of the partners.

Answers

Answer:

c

Explanation:

here is the correct question :

A partnership agreement:

A. Is not binding unless it is in writing.

B. Is the same as a limited liability partnership.

C. Is binding even if it is not in writing.

D. Does not generally address the issue of the rights and duties of the partners.

E. Is also called the articles of incorporation.

A partnership agreement is a contract between partners in a partnership. it contains guidelines on the relationship between the partners and responsibilities of partners. the partnership agreement creates legally binding relationships among the partners

Fetzer Company declared a $0.55 per share cash dividend. The company has 200,000 shares authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The journal entry to record the payment of the dividend is:

Answers

Answer:

Please see journals below

Explanation:

Retained earnings Dr $104,000

Common dividend payable Cr $104,000

Common dividend payable Dr $104,000

Cash Cr. $104,000

Retained earnings Dr $100,100

Common dividends payable Cr $100,100

Common dividends payable Dr $100,100

Cash Cr $100,100

Retained earnings Dr $110,000

Common dividends payable Cr $110,000

Working

Dividends payable

= 190,000 × $0.55

= $104,000

Common dividend payable

= $0.55 × (190,000 shares - 8,000 shares)

= $100,100

Webster Corporation's monthly projected general and administrative expenses include $5,600 administrative salaries, $3,000 of other cash administrative expenses, $1,650 of depreciation expense on the administrative equipment, and .5% monthly interest on an outstanding bank loan of $16,000. Compute the total general and administrative expenses to be reported on the general and administrative expense budget per month.

Answers

Answer:Total general and administrative expenses budget per month  =$10,250

Explanation:

Total general and administrative expenses are  the compulsory costs to ensure that a company's day to day  operations is  maintained  whether or not the company is making profit.

General and administrative expenses includes Rent, Utility bills,  insurance  wages and benefits, depreciation of office furnitures, Office supplies and  are regarded as  operating expenses and therefore  interest paid on a bank loan is not an operating expenses but a  financing activities and will not be considered as an administrative expense.

Administrative expenses= administrative Salaries+Other cash administrative expenses+Depreciation

=$5,600+$3,000+$1,650

=$10,250

Analyze the following scenarios to determine who can appropriately access health information.

1. Mrs. John Smith is requesting the emergency room records from last week of her daughter, Katy. Mrs. Smith is the noncustodial parent of Katy, who lives with her dad. Should you release the records to her? Why or why not?
2. Mr. Fred Mitchell is requesting the birth record for Amy, his birth daughter. Mr. and Mrs. Mitchell gave Amy up for adoption four years ago. Should you release the records to him? Why or why not?
3. Mrs. Lynn Olsen is requesting the lab results of her husband, Tim. She has a note. signed by him, giving his permission for her to have the records. Should you release the records to her? Why or Why not?
4. An investigator from the Health and Human Services department is conducting an audit of patient records and has provided a list of records that they want to review. Should you release the information to the investigator? Why or why not?
5. Dr. Rex Harrisson is requesting the medical records of Martha Flynn. He states he is a family friend and has been asked by Mrs. Flynn's son to review her last inpatient admission for appropriateness of care. Should you release the records to Dr. Harrison? Why or why not?

Answers

Answer:

4. because they are government officials

4. You should  release the information to the investigator from the Health and Human Services department because they are government officials.

What is Human Services department ?

A Department of Human Services (DHS) or Ministry of Human Services (MHS) is a national or subnational umbrella agency in charge of delivering public assistance programmes to the people they serve. Social security, social affairs, human resources, and welfare are some of the various aspects or alternate names.

Human Service with Multiple Purposes Organizations encourage volunteerism and offer a variety of direct services in the communities they serve, across the country, and around the world. Among these organisations are YMCAs, YWCAs, and the Red Cross, among others.

Answer to questions :

1. Mrs. Smith cannot get the records because non-custodials parent have no right to get any medicalrecord. She can only visit.

2. The Original Birth certificate will be Sealed and no longer available once the child is been adopted

3. No, even though her husband has signed a note, the lab results should not be released.

4. You should  release the information to the investigator.

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Jolly Company produces hula hoops. Jolly Company has the following sales projections for the upcoming​ year: First quarter budgeted hula hoop sales in units Second quarter budgeted hula hoop sales in units Third quarter budgeted hula hoop sales in units Fourth quarter budgeted hula hoop sales in units Jolly Company wants to have ​% of the next​ quarter's sales in units on hand at the end of each quarter. Inventory at the beginning of the year was hula hoops. How many hula hoops should Jolly Company produce during the first​ quarter?

Answers

Answer:  27,200 units

Explanation:

The ending inventory is calculated as;

Desired Ending Inventory = Beginning Inventory + Inventory produced - Sales in the quarter

(40,000 * 20%) = 3,600 + Inventory produced - 22,800

Inventory produced = 8,000 - 3,600 + 22,800

Inventory Produced = 27,200 units

Harry Company sells 20,000 units at $42 per unit. Variable costs are $26.88 per unit, and fixed costs are $105,800. Determine (a) the contribution margin ratio, (b) the unit contribution margin, and (c) income from operations.

Answers

Answer:

Instructions are below.

Explanation:

Giving the following information:

Harry Company sells 20,000 units at $42 per unit. Variable costs are $26.88 per unit, and fixed costs are $105,800.

To calculate the contribution margin ratio, we need to use the following formula:

contribution margin ratio= contribution margin / selling price

contribution margin ratio= (42 - 26.88) / 42

contribution margin ratio= 0.36

Now, the contribution margin:

Contribution margin= 42 - 26.88= $15.12

Finally, income from operations:

Contribution margin= 20,000*15.12= 302,400

Fixed costs= (105,800)

Net operating income= 196,600

Find the net present value of a project that has cash flows of −$12,000 in Year 1, +$5,000 in Years 2 and 3, −$2,000 in Year 4, and +$6,000 in Years 5 and 6. Use an interest rate of 12%. Find the interest rate that gives a net present value of zero.

Answers

Answer:

NPV = $2,000

IRR = 19.19%

Explanation:

Net present value is the present value of after tax cash flows from an investment less the amount invested.  

NPV can be calculated using a financial calculator  

Only firms with a positive NPV should accept the project because a negative NPV indicates that the project would be unprofitable for the firm

the interest rate that gives a net present value of zero is the IRR

Internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested

IRR can be calculated using a financial calculator

Cash flow for year 1 =  −$12,000

Cash flow for year 2 =  $5,000

Cash flow for year 3 =  $5,000

Cash flow for year 4 =  −$2,000

Cash flow for year 5 =  $6,000

Cash flow for year 6 =  $6,000

I = 12%

NPV = $2,000

IRR = 19.19%

To find the NPV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.  

3. Press compute  

To find the IRR using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the IRR button and then press the compute button.  

Cara Industries incurred the following costs for 50,000 units:


Variable costs $90,000
Fixed costs 120,000


Cara has received a special order from a foreign company for 5,000 units. There is sufficient capacity to fill the order without jeopardizing regular sales. Filling the order will require spending an additional $4,250 for shipping.

If Cara wants to break even on the order, what should the unit sales price be?

A. $4.2

B. $5.05

C.$1.8

D. $2.65

Answers

Answer:

Selling price= $2.65

Explanation:

Because it is a special offer, and there is unused capacity, we will take into account only the incremental fixed costs.

First, we need to calculate the unitary variable cost:

Unitary variable cost= 90,000/50,000= $1.8

Now, we can determine the total unitary cost and the selling price per unit:

Total unitary cost= (4,250/5,000) + 1.8= $2.65

Selling price= $2.65

Zycon has produced 10,000 units of partially finished Product A. These units cost $20,000 to produce, and they can be sold to another manufacturer for $12,000. Instead, Zycon can process the units further and produce finished Products X, Y, and Z. Processing further will cost an additional $16,000 and will yield total revenues of $30,000.Required:Identify weather the tem is relevant or irrelevant to the sew or process further decision.

Answers

Answer:

1. $20,000 cost already incurred to a produce. - Irrelevant

This cost has already been incurred in the initial production and as such are classified as sunk costs. Sunk costs are not relevant to the decision on whether to sell or process the product further.

b. $12,000 selling price - Relevant

As this amount relates to the selling price were the product not to be processed further, it is relevant to the sell or process the products further decision.

c. $16,000 additional processing costs - Relevant

This is the incremental cost should the product be processed further and so is relevant to the decision.

d. $30,000 revenues from processing further. - Relevant.

As the total revenue that could be realized if the product is processed further, this is very relevant to the decision on whether to process further or sell.

Countess Corp. is expected to pay an annual dividend of $4.63 on its common stock in one year. The current stock price is $74.11 per share. The company announced that it will increase its dividend by 3.75 percent annually. What is the company's cost of equity?

Answers

Answer:

r = 0.099974 or 9.9974% rounded off to 10.00%

Explanation:

Using the constant growth model of DDM we calculate the price of a stock today which is expected to pay a dividend which increases at a constant rate through out. The DDM values a stock based on the present value of the expected future dividends from the stock. The formula for price under this model is,

P0 = D1 / r - g

Where,

r is the required rate of return or cost of equityg is the constant growth rate in dividends

Plugging in the available values in the formula, we calculate r to be,

74.11 = 4.63 / (r - 0.0375)

74.11 * (r - 0.0375) = 4.63

74.11r - 2.779125 = 4.63

74.11r = 4.63 + 2.779125

r = 7.409125 / 74.11

r = 0.099974 or 9.9974% rounded off to 10.00%

Red Sun Rising just paid a dividend of $2.43 per share. The company said that it will increase the dividend by 15 percent and 10 percent over the next two years, respectively. After that, the company is expected to increase its annual dividend at 4.1 percent. If the required return is 11.5 percent, what is the stock price today

Answers

Answer:

P0 = $39.76

Explanation:

The dividend discount model or DDM can be used to calculate the price of the share today. The DDM values a stock based on the present value of the expected future dividends from the stock. The price of this stock under this model can be calculated as follows,

P0 = D0 * (1+g1) / (1+r)  + D0 * (1+g1) * (1+g2) / (1+r)^2  +  

[ (D0 * (1+g1) * (1+g2) * (1+g3) / (r - g3)) / (1+r)^2 ]

Where,

g1 is the growth rate in the first year which is 15% g2 is the growth rate in the second year which is 10%  g3 is the constant growth rate which is 4.1% r is the required rate of return P0 is the stock price today

P0 = 2.43 * (1+0.15) / (1+0.115)  +  2.43 * (1+0.15) * (1+0.1) / (1+0.115)^2  +

[ (2.43 * (1+0.15) * (1+0.1) * (1+0.041) / (0.115 - 0.041)) / (1+0.115)^2 ]

P0 = $39.76

A project that provides annual cash flows of $2,700 for nine years costs $8,800 today.
Requirement 1:A. At a required return of 9 percent, what is the NPV of the project?
B. At a required return of 28 percent, what is the NPV of the project?
C. At what discount rate would you be indifferent between accepting the project and rejecting it?

Answers

Answer:

A. $8,187.17

B. $597.38

C. 30%

Explanation:

Calculate the Net Present Value of the Project at the Required Return of 9%

The following is the calculation of NPV using a financial calculator :

($8,000)   CFj

$2,700     CFj

$2,700     CFj

$2,700     CFj

$2,700     CFj

$2,700     CFj

$2,700     CFj

$2,700     CFj

$2,700     CFj

$2,700     CFj

9.00 %     i/yr

Shift NPV  $8.187.1666 or $8,187.17

Calculate the Net Present Value of the Project at the Required Return of 9%

The following is the calculation of NPV using a financial calculator :

($8,000)   CFj

$2,700     CFj

$2,700     CFj

$2,700     CFj

$2,700     CFj

$2,700     CFj

$2,700     CFj

$2,700     CFj

$2,700     CFj

$2,700     CFj

28.00 %     i/yr

Shift NPV  $597.3765 or $597.38

You will be indifferent between accepting the project and rejecting it at the internal rate of return. The Internal Rate of Return is the interest rate that makes the Present Vale of Cash Flows to equal the Initial Cost of the Investment.

Use the Data given to find the Internal Rate of Return :

($8,000)   CFj

$2,700     CFj

$2,700     CFj

$2,700     CFj

$2,700     CFj

$2,700     CFj

$2,700     CFj

$2,700     CFj

$2,700     CFj

$2,700     CFj

Shift IRR 30%

Brik Products, located in Atlanta, Georgia, produces two lines of electric toothbrushes, Deluxe and Standard. Because Brik can sell all the toothbrushes it produces, the owners are expanding the plant. They are deciding which product line to emphasize. To make the decision, they assemble the following data.
Per Unit
Deluxe Toothbrush Standard Toothbrush
Sales price $94 $54
Variable expenses 22 16
Contribtion margin $72 $36
Contribution margin ratio 75.5% 70.4%
Requirements:
1) Identify the constraining factor for Brik products.
2) Prepare an analysis to show which product line to em

Answers

Complete Question:

Brik Products, located in Atlanta, Georgia, produces two lines of electric toothbrushes: Deluxe and Standard. Because Brik can sell all the toothbrushes it produces, the owners are expanding the plant. They are deciding which product line to emphasize. To make this decision, they assemble the following data:

Per Unit

Deluxe Toothbrush Standard Toothbrush

Sales price $94 $54

Variable expenses 22 16

Contribution margin $72 $36

Contribution margin ratio 75.5% 70.4%

After expansion, the factory will have a production capacity of 4.200 machine hours per month. The plant can manufacture either 68 Standard electric toothbrushes or 26 Deluxe electric toothbrushes per machine hour.

Requirements:

1. Identify the constraining factor for Brik Products.

2. Prepare an analysis to show which product line to emphasize.

Answer:

Brik Products

1. The constraining factor for Brik Products is the 4,200 machine hours.

2. Analysis to show which product line to emphasize:

Product Mix Analysis  

                                                                   Deluxe      Standard

Sale price                                               $94             $54

Variable expense                                         22                16

Contribution margin per unit               $72             $38

Number of toothbrushes per hour               26            68

Total contribution margin per hour        $1,872       $2,584

Decision: Brik Products should emphasize the production and sale of the Standard electric toothbrushes as this rakes in more contribution per the constraining factor, i.e. machine hours.

Explanation:

a) Data and Calculations:

                                                                   Deluxe      Standard

Sale price                                               $94          $54

Variable expense                                         22             16

Contribution margin per unit                 72             38  (not $36)

Contribution margin ratio         76.6% (not 75.5%)   70.4%

Number of toothbrushes per hour               26          68

Machine hours available = 4,200 hours

b) Analysis:

For Brik Products, the contribution margin per machine hour = contribution per unit x units per hour.  Brik will generate a total contribution margin per product line without producing the other that is equal to the contribution margin per machine hour multiplied by total machine hours.

Assuming that Brik Products concentrates on the production of the standard electric toothbrushes alone, it will generate a total contribution margin of $10,852,800 ($2,584 x 4,200) as against the total contribution margin of $7,862,400 ($1,872 x 4,200) to be generated if only Deluxe electric toothbrushes are produced.

Income statement data for Boone Company for two recent years ended December 31, are as follows:

Current Year Previous Year
Sales $396,000 $330,000
Cost of goods sold 330,400 280,000
Gross profit $65,600 $50,000
Selling expenses $17,600 $16,000
Administrative expenses 16,520 14,000
Total operating expenses $34,120 $30,000
Income before income tax $31,480 $20,000
Income tax expenses 12,600 8,000
Net income $18,880 $12,000
a. Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. If required, round to one decimal place.

Boone Company
Comparative Income Statement
For the Years Ended December 31
Current year Amount Previous year Amount Increase (Decrease) Amount Increase (Decrease) Percent
Sales $396,000 $330,000 $ %
Cost of goods sold 330,400 280,000 %
Gross profit $65,600 $50,000 $ %
Selling expenses 17,600 16,000 %
Administrative expenses 16,520 14,000 %
Total operating expenses $34,120 $30,000 $ %
Income before income tax $31,480 $20,000 $ %
Income tax expense 12,600 8,000 %
Net income $18,880 $12,000 $ %
b. The net income for Boone Company increased by 57.3% between years. This increase was the combined result of an in sales of 20% and percentage in cost of goods sold. The cost of goods sold increased at a rate than the increase in sales, thus causing the percentage increase in gross profit to be than the percentage increase in sales.

Answers

Answer:

a.                                       Boone Company

             Statement showing comparative income statement

Particulars  Current (A)    Previous(B)    CHANGE     PERCENT

                            Year                 Year             (C=A-B)      (C/B*100)

Sales                 $396,000      $330,000         $66,000       20%

Cost of goods  $330,400       $280,000        $50,400         18%

sold

Gross profit       $65,600         $50,000          $15,600         31.2%

Selling                $17,600          $16,000            $1,600            10%

expenses

Administrative    $16,520         $14,000           $2,520            18%

expenses  

Total operating   $34,120         $30,000            $4,120            13.73%

expenses

Income before    $31,480          $20,000          $11,480           57.4%

income tax  

Income tax          $12,600          $8,000            $4,600            57.5%

expenses  

Net income         $18,880          $12,000            $6,880            57.3%

b.  The cost of goods sold increased at a rate LOWER than the increase in sales, thus causing the percentage increase in gross profit to be GREATER than the percentage increase in sales.

Suppose that you have an old car that is a real gas guzzler. It is 10 years old and could be sold to a local dealer for ​$ cash. The annual maintenance costs will average ​$ per year into the foreseeable​ future, and the car averages only miles per gallon. Gasoline costs ​$ per​ gallon, and you drive miles per year. You now have an opportunity to replace the old car with a better one that costs ​$. If you buy​ it, you will pay cash. Because of a​ 2-year warranty, the maintenance costs are expected to be negligible. This car averages miles per gallon. Should you keep the old car or replace​ it? Utilize a​ 2-year comparison period and assume that the new car can be sold for ​$ at the end of year 2. Assume that the salvage value of the old car at the end of year 2 will be​ $0. Ignore the effect of income taxes and let your MARR be ​%.

Answers

Answer:

you should replace the old car with a newer and more efficient one

Explanation:

all the numbers are missing, so I looked them up:

current sale value of old car $400

maintenance costs per year $800

gasoline expense per year = $3.50 x 1/10 x 15,000 = $5,250

resale value in 2 years = $0

cost of replacing old car = $8,000

maintenance costs per year $0

gasoline expense per year = $3.50 x 1/30 x 15,000 = $1,750

resale value in 2 years = $5,000

MARR = 15%

if you keep the old car, your net cash flows will be:

Year 1 = -$6,050

Year 2 = -$6,050

if you change your car, your net cash flows will be:

Year 0 = -$8,000 + $400 = -$7,600

Year 1 = -$1,750

Year 2 = $3,250

keeping the old car results in a NPV = -$6,050/1.15 - $6,050/1.15² = -$5,260.87 - $4,574.67 = -$9,835.54

changing for a new car results in a NPV = -$7,600 -$1,750/1.15 + $3,250/1.15² = -$7,600 -$1,521.74 + $2,457.47 = -$6,664.27

since both options result in negative cash flows, we must select the option that results in a smaller loss

Vince offers to buy a book owned by Sun-Hi for twice what Sun-Hi paid for it. She accepts and hands the book to Vince. Sun-Hi's delivery of the book is

Answers

Answer:

Vince and Sun-Hi's Book

With Sun-Hi's delivery of the book, the offer by Vince is accepted by Sun-Hi.

Acceptance of an offer is necessary to make a contract.

Explanation:

An offer by Vince is not a contract, but its acceptance by Sun-Hi without a counter-offer makes it a valid contract that can be enforced in law if other ingredients for a valid contract are present.  Acceptance establishes the agreement between Vince and Sun-Hi.  Once Sun-Hi accepts Vince's offer with valid considerations (the book and double the price), the agreement for a business transaction between them is consummated.  It is acceptance that completes the exchange of promises in this simple contract.

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