Answer:
WACC = 9.1%
Explanation:
The weighted Average cost of Capital(WACC) is the average cost of capital for the different sources of long-term capital available to a firm weighted according to the proportion each source of finance bears to the total capital in the pool.
cost of equity = Rf+ β×(Rm-Rf)
(Rm-Rf)= 6%, Rf- 4%, β- 1.4
=4% + (1.4×6%) = 12.4
Cost of preferred share = Dividend/price
= 3/25× 100= 12.0%
After tax cost of debt = Yield × (1-Tax rate) = 8.5%× (1-0.35)=5.53%
Type cost Market value Cost × Market Value
Equity 12.4% 7 0.868
Preferred 12% 4 0.48
Bond 5.53% 10 0.553
Total 21 1.901
WACC = 1.901 /21 × 100 =9.1%
WACC = 9.1%
Netscrape Communications does not currently pay a dividend. You expect the company to begin paying a dividend of $3.20 per share in 15 years, and you expect dividends to grow perpetually at 4.2 percent per year thereafter. If the discount rate is 15 percent, how much is the stock currently worth? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
The stock is currently worth approximately $29.63, given an expected dividend of $3.20 in 15 years, growing perpetually at 4.2%.
To calculate the present value of the stock, we can use the Gordon Growth Model, also known as the Dividend Discount Model (DDM). The formula for the present value of a stock using the Gordon Growth Model is:
[tex]\[ P = \frac{D_1}{r - g} \][/tex]
Where:
[tex]- \( P \) = Present value of the stock[/tex]
[tex]- \( D_1 \) = Dividend expected in the next period[/tex]
[tex]- \( r \) = Discount rate[/tex]
[tex]- \( g \) = Growth rate of dividends[/tex]
Given:
[tex]- \( D_1 = \$3.20 \) (dividend expected in 15 years)[/tex]
[tex]- \( r = 15\% \) (discount rate)[/tex]
[tex]- \( g = 4.2\% \) (growth rate of dividends)[/tex]
Let's calculate the present value:
[tex]\[ P = \frac{\$3.20}{0.15 - 0.042} \][/tex]
[tex]\[ P = \frac{\$3.20}{0.108} \][/tex]
b. Evaluate the statement in the case made by Toru Sakuragi that "… Toyota has been caught between a need to cut costs to overcome the strong yen and the need to improve quality to prevent recalls." And that "They are now pursuing both strategies but they are essentially at odds with one another." Is this a realistic strategy? Do you have suggestions for how the strategy might be improved?
Answer:
Both strategies can be at odds with each other, because cutting costs can reduce the quality of the cars produced and exported, leading to the undesired effect of increasing recalls, which is precisely the other thing that Toyota wants to reduce.
Explanation:
For this reason, Toyota should try instead to improve quality instead of cutting costs, so that its cars become so desirable that even a strong yen does not prevent consumers from buying.
This strategy can be contrasted with country-wide strategies when it comes to export goods: some countries depreciate their currency and/or rely on the export of cheap goods, these countries tend to be less competitive, and the strategy may not live up to expectations. Italy implemented this strategy until it adopted the euro, and could not devalue its currency anymore.
On the contrary, other countries aim for quality even if their currency is strong. This is the German strategy, which has maintained a healthy export economy when it had the mark, and now with the euro, both strong currencies.
In conclusion, Toyota should try to be more like Germany, and less like Italy.
Although challenging, Toyota can manage the strategy of balancing cost reduction and increasing quality. They can consider technological improvements or the use of revenue from non-impacted markets to subsidize their efforts in quality improvements.
Explanation:The statement by Toru Sakuragi implies that Toyota is grappling with two significant but conflicting strategies. The tension lies between reducing operational costs to counter the impact of a robust yen and enhancing product quality to prevent recalls from potentially damaging the brand's reputation. Though it may seem that these strategies oppose each other fundamentally, it is not impossible to pursue both; it is just incredibly challenging.
Essentially, Toyota must strike a balance between cost and quality. A potential improvement to this strategy could be the adoption of new technologies or process improvements that could reduce production costs without compromising product quality. Alternatively, Toyota could leverage some of its revenue from non-affected markets to subsidize quality improvements without the need for significant cost reductions.
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Wilcox Electronics uses sales journal, purchases journal, cash receipts journal, cash payments journal, and general journal. Identify the journal in which each transaction should be recorded. a. Sold merchandise on credit. e. Sold merchandise for cash. b. Purchased shop supplies on credit. f. Purchased merchandise on credit. c. Paid an employee’s salary in cash. g. Purchased inventory for cash. d. Borrowed cash from the bank. h. Paid cash to a creditor. (Page 278).
Each transaction is to be recorded in a specific journal: Sales Journal for selling merchandise on credit, Purchases Journal for buying supplies or merchandise on credit, Cash Payments Journal for paying an employee's salary, buying inventory, or paying a creditor all in cash, General Journal for borrowing cash, and Cash Receipts Journal for selling merchandise for cash.
Explanation:The transactions in the question should be recorded in the following journals:
Sold merchandise on credit: This would be recorded in the Sales Journal.Purchased shop supplies on credit: This would be recorded in the Purchases Journal.Paid an employee’s salary in cash: This would go in the Cash Payments Journal.Borrowed cash from the bank: This would be recorded in the General Journal.Sold merchandise for cash: This would be recorded in the Cash Receipts Journal.Purchased merchandise on credit: This should be logged in the Purchases Journal.Purchased inventory for cash: This would go in the Cash Payments Journal.Paid cash to a creditor: This would be recorded in the Cash Payments Journal.Learn more about Journal Entries here:https://brainly.com/question/33762471
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A company began a new development project in 2017. The project reached technological feasibility on June 30, 2018, and was available for release to customers at the beginning of 2019. Development costs incurred prior to June 30, 2018, were $3,800,000 and costs incurred from June 30 to the product release date were $2,150,000. The 2019 revenues from the sale of the new software were $4,000,000, and the company anticipates additional revenues of $6,500,000. The economic life of the software is estimated at four years. Amortization of the software development costs for the year 2019 would be:
Answer:
$818,935
Explanation:
Percentage of-revenue method:
$4,000,000
($4,000,000 + 6,500,000) = $10,500,000
Hence;
$4,000,000/$10,500,000
= 38.09 %
Amortization = 38.09% ×$2,150,000
= $818,935
Therefore the amortization of the software development costs would be $818,935
If the government follows an easy monetary policy and the exchange rate is flexible, which of the following will likely be the result? A falling real interest rate but higher net exports. A strong currency, which will help stimulate net exports. Increases in the demand for the currency and decreases in the supply of the currency. A higher real interest rate but lower net exports.
Answer:
A falling real interest rate but higher net exports.
Explanation:
An easy monetary policy is a policy in which the interest rates decrease in order to increase the money supply and when interest rates are lower, there is an increase in spending and on net exports. Also, a flexible exchange rate is when the system allows the events on the market to determine the exchange rate.
According to this, the answer is that if the government follows an easy monetary policy and the exchange rate is flexible, the result will likely be a falling real interest rate but higher net exports.
Calculate Payroll An employee earns $44 per hour and 1.5 times that rate for all hours in excess of 40 hours per week. Assume that the employee worked 55 hours during the week, and that the gross pay prior to the current week totaled $63,800. Assume further that the social security tax rate was 6.0%, the Medicare tax rate was 1.5%, and federal income tax to be withheld was $633.
Answer: $1750
Explanation:
Given Data
Earnings = $44/ hr
Overtime Earnings = 1.5 times Of $44
= $66
Hours worked during the week = 55 hrs
Social security tax rate = 6.0%
Medicare tax rate = 1.5%
Federal income tax = $633
Therefore:
Gross pay = Normal pay + overtime pay
Normal pay
= $44 * 40 hrs
= $1760
Overtime pay
= $66 * 15 hrs
= $990
Gross pay = $1760 + $990
= $1750
Social security tax
= 0.06 * $2750
= $165
Medicare tax
= 0.015 * $2750
= $41.25
Total tax
= $633 + $41.25 + $165
= $839.25
Net pay
= $2750 - $839.25
= $1910.75
A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: Units in beginning inventory 0 Units produced 2,900 Units sold 2,600 Units in ending inventory 300 Variable costs per unit: Direct materials $ 49 Direct labor $ 58 Variable manufacturing overhead $ 6 Variable selling and administrative expense $ 11 Fixed costs: Fixed manufacturing overhead $ 55,100 Fixed selling and administrative expense $ 18,200 What is the absorption costing unit product cost for the month
Answer:
$132
Explanation:
The computation of absorption costing unit product cost is given below:-
Absorption costing unit product cost = Direct Materials + Direct Labor + Variable Manufacturing Overhead + Fixed manufacturing overhead per unit
= $49 + $58 + $6 + ($55,100 ÷ 2,900)
= $49 + $58 + $6 + $19
= $132
So, for computing the Absorption costing unit product cost we simply applied the above formula.
Ivanhoe Publications publishes a golf magazine for women. The magazine sells for $4 a copy on the newsstand. Yearly subscriptions to the magazine cost $45 per year (12 issues). During December 2019, Ivanhoe Publications sells 5,900 copies of the golf magazine at newsstands and receives payment for 7,500 subscriptions for 2020. Financial statements are prepared monthly. Prepare the December 2019 journal entries to record the newsstand sales and subscriptions received. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
Answer:
Debit Cash with $361,100; credit Newsstand sales revenue with $23,600, and credit Subscription in advance with $337,500.
Explanation:
News stand sales revenue = $4 * 5,900 = $23,600
Subscription received for 2020 = $45 * 7,500 = $337,500
The December 2019 journal entries will be as follows:
Details Dr ($) Cr ($)
Cash 361,100
Newsstand sales revenue 23,600
Subscription in advance 337,500
To record cash received form newsstand and subscription for 2020
Jackson comma Inc. is a manufacturer of lead crystal glasses. The standard direct materials quantity is 0.9 pound per glass at a cost of $ 0.60 per pound. The actual result for one month's production of 7 comma 100 glasses was 1.2 pounds per glass, at a cost of $ 0.40 per pound. Calculate the direct materials cost variance and the direct materials efficiency variance.
Answer:
$426 Favorable
$1,278 Unfavourable
Explanation:
Direct material cost variance = Standard cost - Actual cost
= 65
7,100*0.9*0.60 - 7,100*1.2*0.40
=3,834-3,408
= $426 Favorable
Direct labor efficiency variance = (standard quantity - actual quantity)*standard price
= (7,100*0.9- 7,100*1.2)*0.60
=6,390-8,520*0.60
=-2,130*0.60
=$-1,278 Unfavourable
Blue Co. has a patent on a communication process. The company has amortized the patent on a straight-line basis since 2014, when it was acquired at a cost of $36 million at the beginning of that year. Due to rapid technological advances in the industry, management decided that the patent would benefit the company over a total of six years rather than the nine-year life being used to amortize its cost. The decision was made at the end of 2018 (before adjusting and closing entries). What is the appropriate patent amortization expense in 2018?
Answer:
Appropriate patent amortization expense = $10 million
Explanation:
As per the data given in the question,
Annual amortization expense = Cost ÷ Time
= $36 ÷ 9
= $4 million
Year 2018 Amortization Expense 4 Years = $4 million × 4
= $16 million
Unamortized cost = $36 million - $16 million
= $20 million
Year 2018 Amortization expense 4 years = $20 million ÷ 2
= $10 million
You are considering the purchase of a common stock that paid a dividend of $3.00 yesterday. You expect this stock to have a growth rate of 20 percent for the next 3 years and the long-run normal growth rate after year 3 is expected to be constant at 5 percent. If you require a 14 percent rate of return, the price per share that you should you be willing to pay for this stock is closest to:
Answer:
$50.8
Explanation:
As per given Data
Dividend Paid = $3
Worth of the stock is the present value of all the cash flows associated with the stock. Dividend is the only cash flow that a stock holder receives against its investment in the stocks. We need to calculate the present values of all the dividend payments.
Formula for PV of dividend
PV of Dividend = Dividend x ( 1 + growth rate )^n x ( 1 + r )^-n
1st year
PV of Dividend = $3 x ( 1 + 20%)^1 x ( 1 + 14% )^-1 = $3.16
2nd year
PV of Dividend = $3 x ( 1 + 20%)^2 x ( 1 + 14% )^-2 = $3.32
3rd year
PV of Dividend = $3 x ( 1 + 20%)^3 x ( 1 + 14% )^-3 = $3.50
After three years the dividend will grow at a constant rate of 5%, so we will use the following formula to calculate the present value
PV of Dividend = [ $3 x ( 1 + 20%)^3 x ( 1 + 5%) / ( 14% - 5% ) ] x [ ( 1 + 14% )^-3 ]
PV of Dividend = $40.82
Value of Stock = $3.16 + $3.32 + $3.50 + $40.82 = $50.8
Brief Exercise 9-17 Record early retirement of bonds issued at a premium (LO9-7)
Premium Pizza retires its 7% bonds for $53,000 before their scheduled maturity. At the time, the bonds have a face value of $50,700 and a carrying value of $54,965. Record the early retirement of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Answer:
Dr Bonds payable $50,700
Dr premium on bonds payable $4,265
Cr Cash $53,000
Cr gain on bonds retirement($50,700+$4,265-$53000) $1,965
Explanation:
The premium yet to be amortized on the bond at retirement is the carrying value minus face value i.e $54,965-$50,700=$4265
The premium on bonds payable would now be debited with $4265
The cash paid on retirement would be credited to cash account
The face value of the bonds payable of $50,700 would be debited to bonds payable in order to show that the obligation has been discharged.
Tim's gross pay for this month is $ 9 comma 050. His gross yearminustominusdate pay, prior to this month, totaled $ 113 comma 000. What is the amount of FICA tax withheld from Tim's pay for this month? (Assume an OASDI rate of 6.2%, applicable on the first $118,500 earnings, and a Medicare rate of 1.45%, applicable on all earnings. Do not round any intermediate calculations, and round your final answer to the nearest cent.)
Answer:
Total FICA Tax withheld $ 472.23
Explanation:
FICA Tax is comprised of OASDI rate of 6.2%, and a Medicare rate of 1.45%.
Given
Taxable Earnings $118,500
Earned Pay $ 113, 000
Calculated Data
Current Taxable Income $ 5,500 ( $118,500- $ 113, 000)
OASDI rate of 6.2%, is applicable on $ 5,500
A Medicare rate of 1.45%, is applicable on gross pay $ 9,050
Working
OASDI Tax= 6.2 % of $ 5,500= $ 341
Medicare tax = 1.45% of $ 9,050= $ 131.225= $ 131.23
Total FICA Tax withheld = $ 341+$ 131.23=$ 472.23
Onshore Bank has $20 million in assets with risk-adjusted assets of $10 million. CET1 capital is $500,000, additional Tier I capital is $50,000, and Tier II capital is $400,000. How will each of the following transactions affect the value of the CET1, Tier I, and total capital ratios? What will the new values of each ratio be? a. The bank repurchases $100,000 of common stock with cash. b. The bank issues $2 million of CDs and uses the proceeds to issue category 1 mortgage loans with a loan-to-value ratio of 80 percent.
Answer:
Explanation:
If the bank repurchases $100,000 0f the common stock with cash, CET 1capitaldecreases to $400,000 ($500,000 - $100,000).
The Tier I capital decreases to $450,000 ($500,000 + $50,000 - $100,000).
The Tier II capital is $400,000.
The total capital decreases to $850,000 ($400,000+$50,000+$400,000).
We need to calculate the new ratios
CET 1 ratio = decreased CET 1 capital/risk-adjusted assets
= $400,000/$10,000,000
= 4.00%
Tier 1 ratio = decreased Tier 1 capital/risk-adjusted assets
= $450,000/$10,000,000 = 4.50%
Total capital ratio = decreased total capital/risk-adjusted assets
= $850,000/$10,000,000
= 8.50%
b) The uninsured mortgages have a risk weight of 35%.
Hence, the risk-weighted assets increase to $10,700,000 ($10,000,000 +$2,000,000*35%).
Hence, we have to calculate the new ratios.
CET 1 ratio = decreased CET 1 capital/risk-adjusted assets
= $500,000/$10,700,000
= 4.67%
Tier 1 ratio = decreased Tier 1 capital/risk-adjusted assets
= $550,000/$10,000,000
= 5.14%
Total capital ratio = decreased total capital/risk-adjusted assets
= $950,000/$10,000,000
= 8.88%
A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
Units-beginning inventory................. 0
Units produced................................... 6,700
Units sold........................................... 6,500
Units-ending inventory..................... 200
Variable costs per unit
Direct materials................................ $47
Direct labor..................................... 44
Variable manufacturing OH........... 6
Variable selling and administrative expense $11
Fixed costs:
Fixed manufacturing overhead $52,500
Fixed selling and administrative expenses $3,800
What is the net operating income for the month under variable costing?
Answer:
Hi, your question is missing the selling price per unit, however important principles and calculations are explained below:
Variable Cost Product Costs = Only Variable Manufacturing Costs
Variable Cost Period Costs = Fixed Manufacturing Costs + All Non Manufacturing Costs.
Product Cost per unit = $47 + $44 + $ 6
= $97.00
Calculation of net operating income for the month under variable costing
Sales ($pp × 6,500) xxxxx
Less Costs of Sales
Opening Stock of Finished Goods 0 0
Add Cost of Goods Manufactured ($97.00×6,700) $649,900
Less Closing Stock of Finished Goods ($97.00×200) ($19,400) $630,500
Contribution xxxxx
Less Expenses
Fixed manufacturing overhead ($52,500 )
Fixed selling and administrative expenses ($3,800)
Variable selling and administrative expense ($11×6,700)
Net Income/(Loss) xxxxx
Explanation:
uses job order costing to measure and track product costs. Raleigh has determined that machine hours drive its manufacturing overhead costs. During the month of June, the following data were available for Product #95: Direct labor 350 hours at $10 per hour Direct materials 40 square yards at $25 per yard Machine hours used 1,000 hours If total manufacturing overhead costs during the month totaled $100,000 when a total of 25,000 machine hours were used, what will be the total manufacturing cost of Product #95?
Answer:
Allocated MOH= $4,000
Explanation:
Giving the following information:
Machine hours used 1,000 hours
If total manufacturing overhead costs during the month totaled $100,000 when a total of 25,000 machine hours were used
First, we need to calculate the estimated overhead rate:
Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Estimated manufacturing overhead rate= 100,000/25,000= $4 per machine hour
Now, we can allocate overhead to Product 95:
Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base
Allocated MOH= 4*1,000= $4,000
You own a portfolio that is 22 percent invested in Stock X, 37 percent in Stock Y, and 41 percent in Stock Z. The expected returns on these three stocks are 12 percent, 15 percent, and 17 percent, respectively. What is the expected return on the portfolio?
Answer:
15.16%
Explanation:
The computation of expected return on the portfolio is shown below:-
Expected return on portfolio = (Return on Stock X × Weight of Stock X) + (Return on Stock Y × Weight of Stock Y) + (Return on Stock Z × Weight of Stock Z)
= (12% × 22%) + (15% × 37%) + (17% × 41%)
= 2.64% +5.55% + 6.97%
= 15.16%
So, for computing the expected return on the portfolio we simply applied the above formula.
Final answer:
To find the expected return on a portfolio, multiply the weight of each stock by its expected return and sum the results, resulting in an expected return of 18.13% for this portfolio.
Explanation:
The expected return on the portfolio can be calculated by multiplying the weight of each stock by its expected return and then summing the results.
Expected return = (0.22 x 0.12) + (0.37 x 0.15) + (0.41 x 0.17)
Expected return = 0.0554 + 0.0555 + 0.0704 = 0.1813 or 18.13%
Dunstreet's Department Store would like to develop an inventory ordering policy with a 95 percent probability of not stocking out. To illustrate your recommended procedure, use as an example the ordering policy for white percale sheets. Demand for white percale sheets is 4,500 per year. The store is open 365 days per year. Every four weeks (28 days) inventory is counted and a new order is placed. It takes 6 days for the sheets to be delivered. Standard deviation of demand for the sheets is five per day. There are currently 190 sheets on-hand. How many sheets should you order
Answer:
277 sheets
Explanation:
As per the data given in the question,
Z at 95% = 1.64485
Safety stock = Z × Standard deviation × (Lead time + Period)^(1÷ 2)
= 1.64485 × 5 × (6+28)^(1÷ 2)
= 47.955
Daily demand = 4500 ÷ 365
= 12.33
Reorder point = (Daily demand × (lead time + period)) + safety stock
= (12.33 × (28 + 6)) + 47.955
= 467.175
Sheets to be ordered = Reorder point - sheets in hand
= 467.175 - 190
= 277.175
= 277 sheets
You are an investor evaluating a project which is going to take 8 years. The project will pay $500,000 at the beginning of each year starting a year from now. These payments will grow at 2% for the first two years, then 3.5% for the following two years and then stay consistent at 4% until the end of the project. In the last year of the project you will receive a lump sum of $1 million while also paying a lump sum of $200,000. If your expected retrun on this project is 12.5%, what is the PV of the project?
Answer:
Present Value of the project is $3,295,932
Explanation:
Present value is the discounted value of all the cash inflows and outflows of the project. It can be calculated using a required rate of return.
All the cash flows first grew at the specified growth rate each year and then discounted using required rate of return.
Working for present value of the project is attached please find it.
Tyron manages with McGregor's Theory X in mind, and, as a result, his employee, Cassie, is losing interest in her job. If Tyron could abandon his current beliefs, he might instead acknowledge that there is "no one best way" to manage. He might consider Cassie's values, goals, skills, and attitudes, along with other factors, both internal and external to the firm, to improve performance. If so, he would be using the
Final answer:
Tyron should consider using Theory Y approach to improve performance and employee satisfaction.
Explanation:
The approach that Tyron should consider using is Theory Y. Theory Y managers assume that employees seek inner satisfaction and fulfillment from their work, and they function better under leadership that allows them to participate in setting their personal and work goals. In a Theory Y workplace, employees are given more autonomy and are encouraged to provide input on matters of efficiency and safety. By adopting this approach, Tyron can improve performance, employee satisfaction, and overall organizational output.
he Assembly Department of ByteSize, Inc., manufacturer of computers, incurred $ 260 comma 000 in direct material costs and $ 70 comma 000 in conversion costs. The equivalent units of production for direct materials and conversion costs are 1 comma 000 and 600, respectively. The weightedminusaverage method is used. The cost per equivalent unit of production (EUP) for conversion costs is
Answer:
Cost per equivalent unit for conversion cost = $116.66
Explanation:
Under the weighted average method of valuation, to account for completed units, it is assumed that the entire degree of work required to a complete a set of work is done in the period under consideration.So there is no separation of the completed units into opening inventory and fully worked.
To determine the cost per equivalent unit, we use the formula below:
Cost per equivalent unit = $70,000/600
= $116.66
Answer:
$ 166.67
Explanation:
The Concept of Equivalent units measures the number of units completed in terms of completion in input elements of materials and conversion costs.
cost per equivalent unit = Total conversion cost / total equivalent units of conversion
= $ 70,000 / 600
= $ 166.67
Therefore, cost per equivalent unit of production (EUP) for conversion costs is $ 166.67 .
Ajax Company presently leases a copy machine on a monthly basis. The lease agreement requires a fixed fee each month in addition to a charge per copy. The Company made 2,400 copies and paid a total of $162 in lease payments in September. In October they made 3,500 copies and paid a total of $195 in lease payments. Using these two data points and the high-low method, determine the Company’s variable cost per copy.
Answer:
Variable cost per copy =$ 0.03
Explanation:
The high and low techniques helps to analyse a cost into its variable and fixed cost component.
The formula is given below:\
Variable cost per copy = (cost at high act. - cost at low act)/(high act - low act)
Fixed cost = cost at high activity - (Vc/copy × high act)
VC per copy = ( 195 - 162)/(3500-2400) copies
=$ 0.03 per copy
Total fixed cost = 195 - (0.03× 3500)
= 195 - 105
=$90
Rochester Industries expects free cash flow to the firm (FCFF) in the coming year of 300 million Canadian dollars ($). The company maintains an all-equity capital structure, and Rochester's required rate of return on equity is 8 percent. For the purposes of this problem, you can assume that FCFF will grow forever at a rate of 3 percent. Rochester Industries has 100 million outstanding common shares. Rochester's common shares are currently trading in the market for $60 per share.
Required:
a. If Rochester Industries’s free cash flow is expected to be $10 million in one year, what constant expected future growth rate is consistent with the firm’s current market value?
b. Estimate the value of Restex’s interest tax shield
Answer:
Explanation:
a. 10.8512%7% 10.408.42%1.851.85102201.854070.0842100.08425.96%407LWACCFCFVEDWACCggg
b. 10.85pretax WACC12%7%9.70%1.851.85FCF10$267 millionpretax WACC0.09700.0596PVInterest Tax Shield407267$140 millionUVg
What are the five basis principles of finance? Briefly explain them (no more than 250 words). (10 marks)
Answer:
1. Time Value Money
2. Agency Problem
3. Cash Flow Matters
4. Risk Should be Rewarded
5. Market Prices Reflect Information
Explanation:
Time Value of Money
A very important Principle in Finance. Time Value of money refers to the fact that what money is worth today is not what it will be worth tomorrow. Tomorrow, that money will probably be worth less due to the effects of inflation eroding it's value. For this reason it is therefore possible to invest in the present and expect a higher value in future because your money becomes stronger. For example, rent for a building could be $2,000 in 2015 but is now $3,000 in 2020. This is because Inflation we the value of the Dollar and so prices went up to compensate.
Agency Problem.
This principle states that the goals of management and the goals of shareholders may differ sometimes. When this happens there is a conflict of interest and the managers might just undertake actions that are not in the interest of the shareholders.
CashFlow Matters
Actual cash is needed in finance to run the business and engage in transactions that help move the business forward. Simply having potential income is not good enough and so cash is Paramount. For this reason there is a very important financial statement called the Cash Flow Statement which a company uses to see how much cash it actually has on hand.
Risk Should be Rewarded
In finance there is a basic premise that the more risk you undertake, the more you should be compensated. If the risk you are taking is high then the benefit must be high as well. This is why riskier financial instruments are ascribed higher rewards and lower risk instruments have a lower reward. For example, US T-bills are known as the safest of instruments and for this reason have very low rates.
Market Prices Reflect Information
Market Prices in finance are considered right because they reflect the information in the market surrounding the asset in question. This means that Financial markets regulate their own prices based on information available and so that is the price trades should be conducted at.
Which of the following management actions is permissible during a union certification election? Promising benefits to employees if they reject the union Requiring all employees to attend "captive audience" speeches in the company auditorium regarding the union organizing effort Requiring small groups of employees to meet with management in a supervisor’s conference room to discuss the organizing effort Asking employees in advance of the election how they feel about the union
Answer:
Requiring all employees to attend “captive audience” speeches in the company auditorium regarding the union organizing effort
Explanation:
In simple words, union certification election refers to the electoral process under which the labor force of an organisation chooses its leader for a fixed period of time as determined by the rules. This process is usually seen in large organisations where a thousands of labor workforce is included.
Just like any other process, in these elections also the candidates are supposed to present themselves against the voters and tell them their ideas and the works they are going to perform.
On January 1, 2021, Tru Fashions Corporation awarded restricted stock units (RSUs) representing 15 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years. After the recipients of the RSUs satisfy the vesting requirement, the company will distribute the shares. On the grant date, the shares had a market price of $6.00 per share.1. Determine the total compensation cost pertaining to the RSUs.2. Prepare the appropriate journal entry to record the award of RSUs on January 1, 2018.3. Prepare the appropriate journal entry to record compensation expense on December 31, 2018.4. Prepare the appropriate journal entry to record compensation expense on December 31, 2019.5. Prepare the appropriate journal entry to record compensation expense on December 31, 2020.6. Prepare the appropriate journal entry to record the lifting of restrictions on the RSUs and issuing shares at December 31, 2020.
Answer and Explanation:
1. The Computation of compensation expenses is shown below:-
Compensation cost = Restricted stock units × Market price
= 15 million × $6.00
= $90.00 million
The Journal entry is shown below:-
2. No Journal entry is required
3. Compensation expenses Dr, $30 million
(15 million × $6.00) ÷ 3))
To paid in capital-restricted stock $30 million
(Being compensation expense is recorded)
4. Compensation expenses Dr, $30 million
(15 million × $6.00) ÷ 3))
To paid in capital-restricted stock $30 million
(Being compensation expense is recorded)
5. Compensation expenses Dr, $30 million
(15 million × $6.00) ÷ 3))
To paid in capital-restricted stock $30 million
(Being compensation expense is recorded)
6. Paid in capital-restricted stock $105 million
To common stock $15 million
To paid in capital - excess of par $90 million
(15 million × $6.00)
(Being common stock issued at grant date is recorded)
Carper Company is considering a capital investment of $390,000 in additional productive facilities. The new machinery is expected to have useful life of 6 years with no salvage value. Depreciation is by the straight-line method. During the life of the investment, annual net income and net annual cash flows are expected to be $20,000 and $85,000, respectively. Carper has an 8% cost of capital rate, which is the required rate of return on the investment. Instructions (Round to two decimals.)
Answer:
1. 4.59
2. 5.13%
Explanation:
(1) the cash payback period
Pay back period = Capital investment / Annual net annual cash flows = $390,000 / $85,000 = 4.59, or 4 years and (0.58823529411765 * 12 months) = 4 years and 7 months.
(2) The annual rate of return on the proposed capital expenditure
Annual rate of return = Annual net income / Capital investment = $20,000 / $390,000 = 0.0513, or 5.13%.
Eric was in the store and started looking at riding lawn mowers. He didn't come to this store for the purpose of purchasing one, but he started considering it once he was there. However, he did not purchase one on that trip. Instead he went to other stores to look at their mowers, he asked his neighbor and his brother-in-law about their mowers, and he searched the Internet before he decided on the brand to purchase. Which type of decision making did Eric undertake?
Answer:
Extended decision making
Explanation:
Decision making can be described as the process of making a choice between two or more alternatives. It involves analysing various alternatives and then identifying the right action to take.
Extended decision making involves the choices made by customers during the purchase of an unintended/unfamiliar product or a product with a high price. This type of decision making requires a prolonged thought and search effort inorder to arrive at a suitable choice.
Inorder for a brand to have a positive effect on extended decision makers, it is essential that they create a large social media presence where individuals can share their various views on the product.
15. Rick Barr Inc. is considering a new product line that has expected sales of $500,000 per year for each of the next 5 years. New equipment that is required to produce the new product will cost $800,000. The equipment has a useful life of 5 years and an $80,000 salvage value and will be sold at the end of year 5 for its salvage value. Total variable costs of the product line are $230,000 per year, total fixed costs (not including depreciation) will be an additional $100,000 per year and the initial working capital investment, to buy inventory, will be $10,000. The discount rate (interest rate) for the project is 10% and the company’s tax rate is 35%. What is the total cash flow of year 5 for the company? A. $250,900 B. $160,900 C. $240,900 D. $256,750
Answer: A.) $250,900
Explanation:
Given the following ;
Working Capital = $10,000
Salvage value = $80,000
Cost of equipment = 800,000
Tax rate = 35%
Number of useful years = 5 years
The formula for cash flow is = EBIT * (1 - tax rate) + Depreciation + Salvage Value + Working Capital released
Depreciation = (cost - Salvage value) ÷ Number of useful years
Depreciation = $(800,000 - 80,000)/5
Depreciation = $720,000÷5 = $144,000
EBIT = Sales - Variable costs - Fixed costs - Depreciation
EBIT = $500,000 - $230,000 - $100,000 - $144,000
EBIT = $26,000
Cash flow = $26,000(1 - 0.35) +$144,000 + $80,000 + $10,000
Cashflow = $250,900
"The potentially valid arguments for tariff protection are also the most easily abused. " What are those arguments? Why are they susceptible to abuse? Evaluate the use of artificial trade barriers, such as tariffs and import quotas, as a means of achieving and maintaining full employment. Answer fully and give necessary details.
Answer:
Trade barriers is also secured as being essential to shield local companies from foreign marketing, to shield supposed new firms, and to confirm satisfactory manufacture planes in segments believed to be necessary within the occasion of conflict. (The opinions about hypothetical will increase in local service, guard from external low-wage employment, and financial divergence aren't effective or are irrelevant to the pull economy.)
Every of those effective influences is commonly abused. Marketing cases by external companies within the US. are troublesome to evidence and occasional. Typically domestic manufacturers can privilege their external participants are marketing once the lower costs merely replicate a proportional benefit in external assembly. If this is often true the employment of anti- marketing responsibilities decreases the advantages of trade.