The value of the company is $438,461.54, regardless of its capital structure due to the Modigliani-Miller theorem. This holds true even if the company decides to take on debt equal to 30% or 100% of its levered or unlevered value.
Explanation:The subject of this question falls under the field of Business Finance. Here we deal with the valuation of a firm using the Modigliani-Miller theorem which states that a firm's value is not affected by its capital structure in perfect markets.
a. The current value of the company can be calculated as the expected EBIT divided by the cost of equity. So, the unlevered value (Vu) of the company is $57,000 / 0.13 = $438,461.54.
b-1. If the company takes on debt equal to 30% of its unlevered value, the levered value (Vl) will be the same as the unlevered value. This is because in perfect markets, the value doesn’t change with capital structure. So, Vl = Vu = $438,461.54.
b-2. Similarly, if the company takes on debt equal to 100% of its unlevered value, the levered value (Vl) remains the same, i.e., Vl = Vu = $438,461.54.
c-1 & c-2. Again following Modigliani-Miller theorem, even if the company takes on debt equal to 30%, or 100% of its levered value, the firm value would remain the same, i.e., at $438,461.54.
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Jallouk Corporation has two different bonds currently outstanding. Bond M has a face value of $20,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $900 every six months over the subsequent eight years, and finally pays $1,300 every six months over the last six years. Bond N also has a face value of $20,000 and a maturity of 20 years; it makes no coupon payments over the life of the bond. The required return on both these bonds is 5.4 percent compounded semiannually. What is the current price of Bond M and Bond N
The current price of Bond M can be calculated by finding the present value of each cash flow using the required return rate, and then summing them up. The current price of Bond N is equal to its face value.
Explanation:To calculate the price of Bond M, we need to calculate the present value of each cash flow and sum them up. The cash flows consist of no payments for the first six years, $900 every six months for the next eight years, and $1,300 every six months for the last six years. We discount each cash flow using the required return rate, which is 5.4% compounded semiannually.
Calculating the present value of no payments for the first six years:PV = 0 (since there are no cash flows)Calculating the present value of $900 every six months for the next eight years:Number of periods = 8 (16 semiannual periods)Required return rate = 5.4% (0.054/2)PV = $900 * ((1 - (1 + 0.054/2)^(-16)) / (0.054/2))Calculating the present value of $1,300 every six months for the last six years:Number of periods = 6 (12 semiannual periods)Required return rate = 5.4% (0.054/2)PV = $1,300 * ((1 - (1 + 0.054/2)^(-12)) / (0.054/2))Summing up all the present values:Current price of Bond M = PV(no payments) + PV($900 payments) + PV($1,300 payments)To calculate the price of Bond N, since it makes no coupon payments over the life of the bond, its price is equal to its face value. Therefore, the current price of Bond N is $20,000.
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For its inspecting cost pool, Ellsworth, Inc. expected overhead cost of $400,000 and 4,000 inspections. The actual overhead cost for that cost pool was $460,000 for 5,000 inspections. The activity-based overhead rate used to assign the costs of the inspecting cost pool to products is:
A. $80 per inspection
B. $100 per inspection
C. $115 per inspection
D. $92 per inspection
Answer:
The correct answer is option B. $100 per inspection
Explanation:
Let's start by clarifying what Activity-based costing is.
This activity is one of the methods used in an organization in which its objective is to assign a cost to the activities used for the production of goods and services.
If we analyze the information we have, we know that the expected overhead cost is $ 400,000. If we divide this number by the inspections that are 4000, we will obtain the price per per inspection:
400000/4000 = 100.
Given this information we can say that the correct answer is option B.
Analyzing and Reporting Financial Statement Effects of Bond Transactions Winston Inc. reports financial statements each December 31 and issues $400,000 of 9%, 15-year bonds dated May 1, 2017, with interest payments on October 31 and April 30. Assuming the bonds are sold at par on May 1, 2017, complete the financial statement effects template to reflect the following events: (a) bond issuance, (b) the first semiannual interest payment, and (c) retirement of $150,000 of the bonds at 102 on November 1, 2017. Use negative signs with answers, when appropriate.
Answer and Explanation:
The financial statement effects template to reflect the following events is shown below:-
Balance Sheet
Transaction Cash assets + Non Cash = Liabilities+Contributed assets capital Earned Capital
a. $400,000 $400,000
b. -$18,000
-$18,000
c. -$202,000 -$202,000
Income statement
Transaction Revenue - Expense = Net income
b. $18,000 -$18,000
c. $2,000 -$2,000
Answer:
Balance Sheet:
A) 400,000 + 0 = 400,000 + 0 + 0
B) -18,000 + 0 = 0 + 0 + -18,000
C) -153,000 + 0 = -150,000 + 0 + -3,000
Income Statement
A) 0 - 0 = 0
B) 0 - 18,000 = -18,000
C) 0 - 3,000 = -3,000
Explanation:
Bims Corporation uses the weighted-average method in its process costing system. The Assembly Department started the month with 2,600 units in its beginning work in process inventory that were 70% complete with respect to conversion costs. An additional 62,500 units were transferred in from the prior department during the month to begin processing in the Assembly Department. There were 21,000 units in the ending work in process inventory of the Assembly Department that were 60% complete with respect to conversion costs. What were the equivalent units for conversion costs in the Assembly Department for the month?
Answer:
Total equivalent units 56,700
Explanation:
Equivalent Units E.U) are notional whole units which represent incomplete work and are used to apportion costs between between work in progress and completed work.
To compute as
Equivalent Units = Degree of completion (%) × units
We will assume the company uses weighted average method of accounting for work-in progress.
Under the weighted average method of valuation, to account for completed units, it is assumed that the entire degree of work required is done in the period under consideration. So there is no separation of the completed units into opening inventory and fully worked.
Completed units = opening inventory + transferred in - closing inventory
= 2,600 + 62,500 - 21,000 = 44,100
Items Units Equivalent unit
Completed units 44,100 44,100× 100% = 44,100
Closing inventory 21,000 21,000 ×60% = 12,600
Total equivalent units 56,700
Paragon comma Inc.'s trial balance shows $ 255 comma 000 face value of bonds with a discount balance of $ 1 comma 200. The bonds mature in 10 years. How will the bonds be presented on the balance sheet? A. Bonds payable $ 255 comma 000 will be listed as a long-term liability. B. Bonds payable $ 255 comma 000 will be listed as a long-term liability. A $ 1 comma 200 discount on bonds payable will be listed as a contra current liability. C. Bonds payable $ 253 comma 800 (net of $ 1 comma 200 discount) will be listed as a long-term liability. D. Bonds payable $ 255 comma 000 will be listed as a long-term liability. A $ 1 comma 200 discount on bonds payable will be listed as a current liability.
Answer:
The correct option is C,Bonds payable $ 253 comma 800 (net of $ 1 comma 200 discount) will be listed as a long-term liability.
Explanation:
Upon issuance of the bonds,bonds payable would be credited with $255,000,the face value of the bond while discounts on bonds payable is debited with $1,200,with cash proceeds of $253,800($255,000-$1200) debited to cash accounts.
The $1,200 debited is a contra liability,the same way accumulated depreciation is a contra asset going against the non-current asset account in the balance.
By being contra liability,it effectively reduces bonds payable balance to $253,800,as a result the bonds is shown as a long term liability in the balance sheet
While working at a busy law firm, Bruce is using Skype to meet with a client in another state. Although Bruce is trying to concentrate, he is also replying to an important text on his phone and is handed an incoming fax by his assistant. Bruce takes notes on the meeting, but he notices later that several important details are missing. Bruce probably missed those details as a result of __________________ during his client meeting.
Final answer:
Bruce likely experienced absentmindedness because he was multitasking during the client meeting, causing him to miss important details.
Explanation:
Bruce probably missed those details as a result of absentmindedness during his client meeting. Absentmindedness is a lapse in memory caused by breaks in attention or when our focus is directed elsewhere. This can occur when someone is attempting to do multiple tasks at once and does not give their undivided attention to a single important task, such as during a client meeting when important information is being discussed.
In such situations, being always-plugged-in and trying to multitask, like replying to texts or dealing with incoming faxes while also engaging in a Sky.pe call, can cause one to miss critical details or be inattentionally blind to important aspects of their environment.
Sheffield Suppliers reported cost of goods sold for 2017 of $690,000 and retained earnings of $1,250,000 at December 31, 2017. Sheffield later discovered that its ending inventories at December 31, 2016 and 2017, were overstated by $48,000 and $64,800, respectively. Determine the corrected amounts for 2017 cost of goods sold and December 31, 2017, retained earnings. COGS Retained Earnings Corrected amounts $enter a dollar amount $enter a dollar amount
Answer:
Adjusted COGS = $706,800
Adjusted retained earnings = $1,185,200
Explanation:
Opening stock + purchases - Closing stock = Adjustment needed to COGS
- 48,000 + 0 - (-64,800) = Adjustment needed to COGS
-48,000 + 64,800 = Adjustment needed to COGS
Adjustment needed to COGS = $16,800
Adjusted COGS = $690,000 + $16,800 = $706,800
Adjusted retained earnings = $1,250,000 - 64,800 = $1,185,200
Under the gross method of accounting for purchases:
a. The purchase of inventory is recorded for its full amount.
b. The amount paid for inventory during the discount period is the full amount of the purchase minus the discount.
c. The amount paid for inventory after the discount period is the full amount of the purchase.
Answer:
all the options are correct:
a. The purchase of inventory is recorded for its full amount. b. The amount paid for inventory during the discount period is the full amount of the purchase minus the discount. c. The amount paid for inventory after the discount period is the full amount of the purchase.Explanation:
A typical journal entry to record the purchase of merchandise would be:
January 2, 2020, merchandise purchased on credit, terms 2/10, n/30.
Dr Merchandise inventory 10,000
Cr Accounts payable 10,000
if the invoice is paid within the discount period:
January 8, 2020, invoice is paid
Dr Accounts payable 10,000
Cr Cash 9,800
Cr Purchase discounts 200
if the invoice is not paid within the discount period:
January 18, 2020, invoice is paid
Dr Accounts payable 10,000
Cr Cash 10,000
A major source of chicken feed in the United States is anchovies, small fish that can be scooped out of the ocean at low cost. Every 7 years, when the anchovies disappear to spawn, producers must turn to grain, which is more expensive, to feed their chickens. What is likely to happen to the cost of chicken when the anchovies disappear? A. The cost of chicken will increase. B. The cost of chicken will not change. C. The cost of chicken will fall. D. The cost of chicken is unrelated to the cost of anchovies. What is a substitute for chicken? A. Chicken feed B. Fish C. Turkey D. Both B and C. How are the markets for these substitutes affected when the anchovies disappear?
Final answer:
The cost of chicken is likely to increase when anchovies disappear because feed costs rise, leading to higher consumer prices. Fish and turkey, as substitutes for chicken, may see increased demand and potentially higher prices as a result.
Explanation:
When anchovies, a major source of chicken feed, disappear to spawn every 7 years and producers must turn to more expensive grain to feed their chickens, it is likely that the cost of chicken will increase. This is because the cost of production for chicken farmers goes up, which typically leads to higher prices for consumers.
A substitute for chicken can be other sources of animal protein such as fish and turkey. When anchovies disappear, the markets for these substitutes, fish and turkey, are likely to see increased demand, as consumers may turn to these alternatives if chicken becomes more expensive. This increased demand could potentially lead to higher prices in these substitute markets as well.
Laramie Corporation has acquired a property that included both land and a building for $ 500 comma 000. The corporation hired an appraiser who has determined that the market value of the land is $ 310 comma 000 and that of the building is $ 400 comma 000. At what amount should the corporation record the cost of the building? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)
Answer:
$281,700
Explanation:
The computation of cost of the building is shown below:-
Market value of total assets = Market value of land + Market value of building
= $310,000 + $400,000
= $710,000
Share of buildings in total market value = Market value of building ÷ Market value of total assets
= $400,000 ÷ $710,000
= 56.33%
So, Cost of building to be recorded = Combined cost of land and building × Share of buildings in total market value
= $500,000 × 56.34%
= $281,700
On January 1, 2018, Maywood Hydraulics leased drilling equipment from Aqua Leasing for a four-year period ending December 31, 2021, at which time possession of the leased asset will revert back to Aqua. The equipment cost Aqua $412,184 and has an expected economic life of five years. Aqua expects the residual value at December 31, 2018, to be $50,000. Negotiations led to Maywood guaranteeing a $70,000 residual value.
Equal payments under the lease are $100,000 and are due on December 31 of each year with the first payment being made on December 31, 2018. Maywood is aware that Aqua used a 5% interest rate when calculating lease payments.
Required:
(a) Prepare the appropriate entries for Maywood on January 1, 2018 and December 31, 2018, related to the lease.
Answer:
Explanation:
The attached picture below shows the whole explanation for the problem. Its so explanatory and i hope it helps you
An airline is considering a project of replacement and upgrading of machinery that would improve efficiency. The new machinery costs $350 today and is expected to last for 5 years with no salvage value. Straight line depreciation will be used. Project inflows connected with the new machinery will begin in one year and are expected to be $300 each year for 5 years and project outflows will also begin in one year and are expected to be $135 each year for 5 years. The corporate tax rate is 36% and the required rate of return is 8%. Calculate the project's net present value.
Answer:
$172.25
Explanation:
initial outlay for the project = -$350
cash flow years 1-5 = [($300 - $135 - $70) x (1 - 36%)] + $70 (depreciation expense) = $60.80 + $70 = $130.80
using an excel spreadsheet and the NPV function, we can calculate the project's NPV with an 8% discount rate:
=NPV(8%,130.80,130.80,130.80,130.80,130.80) - $350 = $522.25 - $350 = $172.25
we can also do it manually:
NPV = -$350 + $130.80/1.08 + $130.80/1.08² + $130.80/1.08³ + $130.80/1.08⁴ + $130.80/1.08⁵ = $172.25
The net present value of the project when the machine cost is $350 should be considered as the $172.25.
Calculation of the net present value:Since the initial outlay for the project is -$350
And, the time period is 5 years
Also, the tax rate is 36%
The required rate of return is 8%.
Now
cash flow years 1-5
= [(One year cost - outflows - $70) * (1 - tax rate) + $70
= [($300 - $135 - $70) x (1 - 36%)] + $70
= $60.80 + $70
= $130.80
Now the NPV should be
= Machine cost + cash flow / (1 + required rate of return) + cash flow / (1 + required rate of return)^2 + cash flow / (1 + required rate of return)^3 + cash flow / (1 + required rate of return)^4 + + cash flow / (1 + required rate of return)^5
= -$350 + $130.80/1.08 + $130.80/1.08² + $130.80/1.08³ + $130.80/1.08⁴ + $130.80/1.08⁵
= $172.25
hence, The net present value of the project should be considered as the $172.25.
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enn Co.'s allowance for uncollectible accounts was $190,000 at the end of 2020 and $180,000 at the end of 2019. For the year ended December 31, 2020, Nenn reported bad debt expense of $31,000 in its income statement. What amount did Nenn debit to the appropriate account in 2020 to write off actual bad debts?
Answer:
$21,000
Explanation:
The computation is shown below:
Given that
Beginning balance of Allowance for Uncollectible = $180,000
Ending balance of Allowance for Uncollectible = $190,000
Bad debt exp reported = $31,000
Now considering the above information,
The Write off of actual bad debt is
= $180,000 + $31,000 - $190,000
= $21,000
We simply applied the above formula
On October 1, 2019, Fashion Jewelers accepted a 4minusmonth, 14% note for $ 8 comma 000 in settlement of an overdue account receivable. The accounting period ends on December 31. Calculate the accrued interest on the note at December 31, 2019. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)
Answer:
$280.00
Explanation:
Data provided
Overdue accounts receivable = $8,000
Note percentage = 14%
The computation of accrued interest on the note is shown below:-
Accrued interest = Overdue accounts receivables × Note percentage × Remaining month (From Oct to Dec)
= $8,000 × 14% × 3 ÷ 12
= $8,000 × 14% × 0.25
= $280.00
therefore for computing the accrued interest we simply applied the above formula.
Purple, Inc, a domestic corporation, owns 80% of Blue, Ltd., a foreign corporation and Yellow, Inc, a domestic corporation. Purple also owns 50% of Green, Inc, a domestic corporation. Purple receives no distributions from any of these corporations. Which of these entities' net income are included in Purple's Federal tax return for the current year assuming Purple elects to include all eligible entities in its consolidated Federal income tax return?
a. Purple, Blue, Yellow, and Green.
b. Purple, Blue, and Yellow.
c. Purple, Blue, and Green.
d. Purple and Yellow.
Tej Dhakar's company wants to establish kanbans to feed a newly established work cell. The following data have been provided. Note: This is a level production system. Daily demand 150 units Production lead time 3.00 days Safety stock 1.50 days Kanban size 50 units How many kanbans are needed? nothing kanbans (round your response to the nearest whole number).
Answer:
13.5
Explanation:
The calculation of Number of kanbans needed is shown below:-
Demand during lead time = Daily demand × Production lead time
= 150 × 3.00
= 450
Safety stock = Safety stock × Daily demand
= 1.50 × 150
= 225
Number of kanbans needed = (Demand during lead time + safety stock) ÷ Kanban size
= (450 + 225) ÷ 50
= 675 ÷ 50
= 13.5
So, for calculating the number of Kanbans needed we simply applied the above formula.
Courtney Corporation is considering two alternative investment proposals with the following data: Proposal X Proposal Y Investment $ 812,500 $ 390,000 Useful life 8 years 8 years Estimated annual net cash inflows for 8 years $ 125,000 $ 78,000 Residual value $ 40,000 $ 0 Depreciation method Straight-line Straight-line Required rate of return 14% 10% How long is the payback period for Proposal Y?
Answer:
5 years
Explanation:
As per given data
Proposal X Proposal Y
Investment $812,500 $390,000
Useful life 8 years 8 years
Estimated annual net cash inflows $125,000 $78,000
Residual value $40,000 $0
Depreciation method Straight-line Straight-line
Required rate of return 14% 10%
Payback period is the time in which a project returns back the initial investment in the form of net cash flow.
Proposal Y
Initial Investment = $390,000
Annual net cash inflows = $78,000
Payback period = Initial Investment / Annual net cash inflows
Payback period = $390,000 / $78,000
Payback period = 5 years
On June 30, 2021, Mabry Corporation issued $5 million of its 8% bonds for $4.6 million. The bonds were priced to yield 10%. The bonds are dated June 30, 2021. Interest is payable semiannually on December 31 and July 1. If the effective interest method is used, by how much should the bond discount be reduced for the 6 months ended December 31, 2021?
Final answer:
The bond discount should be reduced by $30,000 for the six months ending December 31, 2021, when using the effective interest method of amortization.
Explanation:
To determine how much the bond discount should be reduced by for the six months ending December 31, 2021, we need to apply the effective interest method of amortization. Under this method, the amount of discount amortized in each period is the difference between the interest expense based on the market rate at issuance (the yield) and the actual cash interest paid. First, we calculate the interest expense for the period, which is the carrying amount of the bonds times the yield divided by 2 (because of semiannual interest). Then we subtract the actual interest paid, which is face value times the stated rate divided by 2. The difference reduces the bond discount.
Interest expense: $4.6 million x 10% x ½ = $230,000
Actual interest paid: $5 million x 8% x ½ = $200,000
Discount amortized: $230,000 - $200,000 = $30,000
The bond discount should be reduced by $30,000 for the period.
Which one of the following is true? A. Most of the U.S. currency in existence circulates outside U.S. borders. B. Traveler's checks are not considered to be money because they are not valid unless signed. C. Balances in money market deposit accounts are counted in M1 but are not included in M2. D. Transaction deposits are counted in M2 but are not included in M1.
Answer:
A) Most of the U.S. currency in existence circulates outside U.S. borders.
Explanation:
Both the Secretary of the Treasury and the Federal Reserve estimate that around 60% of all US dollar bills are held in foreign countries.
The US dollar is considered the strongest and most stable currency in the world. That is the reason why so many governments use the US dollar as a reserve of value. Some foreign countries even adopted the US dollar as their own currency, e.g. El Salvador, Ecuador, Guam, Zimbabwe, etc.
It is true is that most of the U.S. currency in existence circulates outside U.S. borders.
In international trade, the United States dollars is the currency which forms the basis of trade for majority of country in the entire continent.
The US Dollars is used in international tarde because of the integrity and stability its offers in the foreign market
The Secretary of the Treasury and the Federal Reserve estimated that more then 60% of US dollar bills are circulating outside its borders.
Therefore, the Option A is correct because It is true is that most of the U.S. currency in existence circulates outside U.S. borders.
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Suppose that you are considering taking out an adjustable-rate mortgage with the following terms: Amount borrowed: $350,000 Index rate: Prime Rate (Currently 2.25%) Margin: 200 basis points. Periodic cap: 1.5 percentage points Lifetime cap: 5 percentage points Amortization: 30 years If the interest rate changes at the end of every year and the prime rate increases to 2.60% during the first year, what will your monthly payment be in year 2? Assume that the lender will use monthly compounding.
Answer:
Monthly payment for year 2 is $1,782.64
Explanation:
According to the given data we have the following:
Mortgage amount .initial balance.(P) =$350,000
Initial interest rate=Prime rate + 200 basis points or 2%
2.25%+2%= 4.25%
Monthly rate 4.25%/12=0.003541666667
no of months (n)=30*12=360
To calculate the monthly payment be in year 2 we would have to use first the monthly payment formula as follows:
Monthly payment = P*i/(1-((1+i)^-n))
=350000*0.00354166667/(1-((1+0.00354166667)^-360))
=$1721.78962
Peroidic cap is 1.5%. it means rate cannot exceed 1.5% by previous adjusted rate
Interest rate for 2nd year =2.60%+2%=4.60%
increase in rate compared to previous year is not more than 1.5%. so interest rate=4.60%
Monthly rate 4.6%/12= 0.003833333333
no of months remaining (n)=29*12=348
First find closing balance at year 1
Unpaid balance at year 1 formula (P)=monthly payment *(1-((1+i)^-n))/i
1721.79*(1-((1+0.003541666667)^-288))/0.003541666667
310532.1673
Therefore, monthly payment in year 2= 310532.1673*0.0038333333/(1-((1+0.00383333333)^-288))
=1782.643774
Monthly payment for year 2 is $1,782.64
The effectiveness of an advertising campaign can be measured a. only after the campaign has been carried out completely and results have been tabulated. b. during the campaign to determine whether more or less funds should be allocated, but not after the campaign. c. only before the campaign begins, to prevent unnecessary expenditures. d. before, during, and after the campaign through the use of pretests, inquiries, and posttests. e. several weeks after the beginning of the campaign to determine whether the campaign is headed in the right direction.
Answer:
before, during, and after the campaign through the use of pretests, inquires and posttests.
Explanation:
Advertising campaigns can be defined as the advertisement of a product that focuses mainly on communicating a similar type of message to the potential customers. This can be achieved through different mediums inorder to create an awareness about the product.
Measurement of an effective advertising campaign is very necessary, it is used to determine how well a product will sell in the market.
The effectiveness of an advertising campaign can be evaluated by utilizing pretests, inquires and posttests to determine if the potential customers have seen the advertisement and how well they are responding to it.
The effectiveness of an advertising campaign can be measured: E) Before, during, and after the campaign through the use of pretests, inquiries, and posttests.
Here's a detailed explanation:
Before the campaign:
Pretests gauge the target audience's awareness, attitudes, and behaviors through surveys or focus groups. This helps predict campaign success and refine strategies.
During the campaign:
Ongoing inquiries assess campaign performance in real-time, including social media engagement and feedback. This enables flexible fund reallocation, strategy adjustments, and immediate response to feedback.
After the campaign:
Posttests evaluate campaign effectiveness by comparing post-campaign data to pre-campaign baselines, including sales figures, focus groups, and media impressions. This analysis offers valuable insights for improving future campaigns.
Evaluating before, during, and after the campaign provides a complete view of its impact, aiding informed decisions for future improvements.
The complete question is shown below:
The effectiveness of an advertising campaign can be measured:
A) only after the campaign has been carried out completely and results have been tabulated.
B) only before the campaign begins, to prevent unnecessary expenditures.
C) during the campaign to determine whether more or less funds should be allocated, but not after the campaign.
D) several weeks after the beginning of the campaign to determine whether the campaign is headed in the right direction.
E) before, during, and after the campaign through the use of pretests, inquiries, and posttests.
The most recent financial statements for Assouad, Inc., are shown here: Income Statement Balance Sheet Sales $3,900 Current assets $4,700 Current liabilities $860 Costs 1,900 Fixed assets 4,700 Long-term debt 3,610 Taxable income $2,000 Equity 4,930 Taxes (22%) 440 Total $9,400 Total $9,400 Net income $1,560 Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 50 percent dividend payout ratio. As with every other firm in its industry, next year's sales are projected to increase by exactly 20 percent. What is the external financing needed?
Final answer:
To calculate the external financing needed for Assouad, Inc., increase current assets, costs, and current liabilities by the sales growth of 20%, assess net income for the dividend payout policy, and deduct the increase in liabilities and retained earnings from additional assets needed. The calculation shows that Assouad, Inc. will require external financing of $2,360.
Explanation:
To determine the external financing needed for Assouad, Inc. as its sales are projected to increase by 20%, we first forecast the income statement and balance sheet entries that are proportional to sales. Since current assets, costs, and current liabilities are proportional to sales, we will increase these items by 20%.
The projected sales for next year would be $3,900 + ($3,900 * 20%) = $4,680. Accordingly, projected costs would be $1,900 + ($1,900 * 20%) = $2,280, taxable income would thus be projected at $2,400, and taxes at 22% of taxable income would be around $528. Net income would therefore be projected at $1,872. Given the 50% dividend payout, $936 will be paid out as dividends.
Now we examine the balance sheet. Projected current assets would be $4,700 + ($4,700 * 20%) = $5,640, and projected current liabilities would be $860 + ($860 * 20%) = $1,032. As long-term debt and equity are not proportional to sales, they will stay unchanged.
To find out the total external financing needed, we need to calculate the additional assets required which is the increase in current assets plus the increase in fixed assets (if any), and subtract the increase in liabilities (current liabilities here), and the retained earnings which are not paid out as dividends.
Since no new fixed assets or long-term debt/equity are being introduced according to the given information, the only external financing needed would come from covering the increased current assets that aren't financed by the increased current liabilities and retained earnings. Thus, external financing needed = ($5,640 - $1,032) - ($1,560 - $936), which is $2,984 - $624 = $2,360.
Credenza Industries is expected to pay a dividend of $ 1.55 at the end of the coming year. It is expected to sell for $ 64 at the end of the year. If its equity cost of capital is 9%, what is the expected capital gain from the sale of this stock at the end of the coming year?
Answer:
$3.87
Explanation:
Given the information:
Dividend of $ 1.55Cost of capital = 9%Selling price =$64the expected capital gain from the sale of this stock at the end of the coming year can be calculated :
= Expected selling price after a year -the stock current value
We need to find the stock current value
The current stock value is given by:
The Cost of equity = the change in market price + dividend
<=> [tex]9 \% \text { of } x=(64-x)+1.55[/tex]
<=> 1.09x = $65.55
<=> x = $60.13
=> the expected capital gain = $64 - $60.13 = $3.87
Quarter Real GDP (billions of dollars) Long-Run Trend of Real GDP (billions of dollars) 1 4,000 4,000 2 4,160 4,120 3 4,326 4,244 4 4,413 4,371 5 4,501 4,502 6 4,591 4,637 7 4,499 4,776 8 4,409 4,919 9 4,673 5,067 10 4,954 5,219 11 5,252 5,376 12 5,376 5,537 Between quarter 10 and quarter 11, real gross domestic product (GDP) grew by what percentage?
Answer:
6%
Explanation:
As per given data
Quarter Real GDP ($billions) Long-Run Trend of Real GDP ($billions)
1 4,000 4,000
2 4,160 4,120
3 4,326 4,244
4 4,413 4,371
5 4,501 4,502
6 4,591 4,637
7 4,499 4,776
8 4,409 4,919
9 4,673 5,067
10 4,954 5,219
11 5,252 5,376
12 5,376 5,537
Growth of GDP = (DGP of Current/recent period - GDP of Prior period) / DGP of Prior period
In this question prior period is quarter 10 and current /recent period is quarter 11.
So, formula will be
Growth of GDP = (DGP of quarter 11 - GDP of quarter 10) / GDP of quarter 10
As we need to calculate the real GDP growth the formula will be as follow
Growth of real GDP = (Real DGP of quarter 11 - Real GDP of quarter 10) / Real GDP of quarter 10
Growth of real GDP = ($5,252 billion - $4,954 billion) / $4,954 billion
Growth of real GDP = $298 billion / $4,954 billion
Growth of real GDP = 6.02% = 6%
Final answer:
Between quarter 10 and quarter 11, the real GDP grew by approximately 6.01%, calculated by taking the difference in GDP for the two quarters, dividing by the GDP in quarter 10, and then multiplying by 100.
Explanation:
To calculate the percentage growth of real gross domestic product (GDP) between quarter 10 and quarter 11, we can use the formula for percentage change:
Percentage Change = ((New Value - Old Value) / Old Value) × 100
For quarter 10, the Real GDP was $4,954 billion, and for quarter 11, it was $5,252 billion. Applying the formula, we get:
Percentage Change = (($5,252 - $4,954) / $4,954) × 100
Percentage Change = ($298 / $4,954) × 100
Percentage Change ≈ 6.01%
Therefore, the Real GDP grew by approximately 6.01% from quarter 10 to quarter 11.
Mad Hatter Enterprises purchased new equipment for $358,000, terms f.o.b. shipping point. Other costs connected with the purchase were as follows: State sales tax $ 28,500 Freight costs 4,900 Insurance while in transit 730 Insurance after equipment placed in service 1,130 Installation costs 1,650 Insurance for the first year of operations 2,050 Testing 630 Required: Determine the capitalized cost of the equipment.
Answer:
$394,410
Explanation:
Data given
New equipment purchased = $358,000
State sales tax = $28,500
Freight costs = $4,900
Insurance while in transit = $730
Installation costs = $1,650
Testing = $630
The computation of capitalized cost of the equipment is shown below:-
Capitalized cost of the equipment = New equipment purchased + State sales tax + Freight costs + Insurance while in transit + Installation costs + Testing
= $358,000 + $28,500 + $4,900 + $730 + $1,650 + $630
= $394,410
Therefore for computing the capitalized cost of the equipment we simply applied the above formula.
The capitalized cost of the equipment purchased by Mad Hatter Enterprises is the sum of the purchase cost, state sales tax, freight costs, insurance during transit, installation costs, and testing, which totals to $394,410.
When calculating the capitalized cost of equipment for accounting purposes, we only include the costs necessary to acquire the equipment and prepare it for use. This means the purchase cost, any taxes paid at the time of purchase, freight and shipping costs, insurance during transit, installation costs, and any costs associated with testing and getting the equipment ready for use should be included. However, future operational costs, such as insurance after the equipment is put into service, are not capitalized.
Here is a breakdown of the costs that would be capitalized in the case of Mad Hatter Enterprises:
Equipment purchase cost: $358,000State sales tax: $28,500Freight costs: $4,900Insurance while in transit: $730Installation costs: $1,650Testing: $630The total capitalized cost is therefore the sum of these amounts:
$358,000 (purchase cost) + $28,500 (sales tax) + $4,900 (freight) + $730 (transit insurance) + $1,650 (installation) + $630 (testing) = $394,410.
Costs related to insurance after the equipment is in service and operational insurance for the first year are not capitalized but rather treated as operational expenses and expensed in the periods they are incurred.
On December 31, 2020, Berclair Inc. had 600 million shares of common stock and 7 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2021, Berclair purchased 24 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2021. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2021, was $1,050 million. The income tax rate is 25%.
Also outstanding at December 31 were 30 million incentive stock options granted to key executives on September 13, 2016. The options were exercisable as of September 13, 2020, for 30 million common shares at an exercise price of $56 per share. During 2021, the market price of the common shares averaged $70 per share.
Required:
Compute Berclair's basic and diluted earnings per share for the year ended December 31, 2021.
Answer:
The diluted EPS is $1.65
Explanation:
Solution
The Numerator (Basic EPS):
The Net income = $1,050 million
The Preferred dividends= 3mn * 9% * $ 100 = $ 27 million
because the preferred stock is cumulative, the dividend is deducted whether or not paid)
The Denominator (Basic EPS): Weighted average Number of shares
Now,
common stock outstanding (1/1 – 12/31) 600 million x (12/12) *1.05 = 630 million
The Treasury shares purchased (3/1 – 12/31) (24) million x (10/12) *1.05 =(21) million
The shares treasury sold (10/1 – 12/31) (4) million x (3/12) =1
The average weighted number of shares =610 million
so,
Basic EPS = ($1,050-27) ÷ 610 = $1.68
Stock Options
The stock choice are dilutive because exercise price is lesser than market price of $ 70 per share.
By applying the treasury stock method.
Exercise is supposed to take place at the later of the date of issue (9/13/21) or the beginning of the year (1/1/21). Assume exercise 1/1/21
The Treasury Stock Method suggests that the proceeds received upon exercise of $1,680 (30 million x $56) are used to purchase back stock at the market price average, for example $1,680 ÷ $70 = 24 million
The net goes higher in the number of shares = 6 million (30 million issued upon exercise – 24 million repurchased)
Convertible Bonds
By applying method if bonds are transformed into common stock. however,a step by step approach to calculate nature of dilution. is determined
Now,
The shares issued on conversion = 6 million
The Interest paid, net of tax = $3 [(8% x $50) x 75%]
The Interest per shares issued = 3/6 = $ 0.5 per share
The EPS without assumed conversion = ($1,050 - $27+3) ÷ (610 + 6+6) = $1.65
The convertible bonds are dilutive because $1.65 is less than $1.68
Therefore, diluted EPS = ($1,050 - $27+3) ÷ (610 + 6+6) = $1.65
When the Berclair's basic and diluted earnings per share for the year ended December 31, 2021, Then, The diluted EPS is = $1.65
Computation of Tax Rate
The Numerator (Basic EPS):
Then, The Net income is = $1,050 million
After that, The Preferred dividends is = 3mn * 9% * $ 100 = $ 27 million
because When the preferred stock is cumulative, Then, the dividend is deducted whether or not paid)
When The Denominator (Basic EPS): Weighted average Number of shares
Now, When the common stock outstanding (1/1 – 12/31) 600 million x (12/12) *1.05 is = 630 million
When The Treasury shares purchased (3/1 – 12/31) (24) million x (10/12) *1.05 is = (21) million
Although, The shares treasury sold (10/1 – 12/31) (4) million x (3/12) =1
When The average weighted number of shares is = 610 million
so,
The Basic EPS is = ($1,050-27) ÷ 610 = $1.68
Then the Stock Options are:
When The stock choice is dilutive because the exercise price is lesser than the market price of $ 70 per share.
Now, By applying the treasury stock method.
The Exercise is supposed to take place at the later date of issue (9/13/21) or the beginning of the year (1/1/21). Then, Assume exercise 1/1/21
After that, The Treasury Stock Method suggests that the proceeds received upon exercise of $1,680 (30 million x $56) are used to purchase back stock at the market price average, for example, $1,680 ÷ $70 is = 24 million
When The net goes higher the number of shares is = 6 million (30 million issued upon exercise – 24 million repurchased)
Now, Convertible Bonds
Then, By applying the method if bonds are transformed into common stock. however, When a step by step approach to calculating the nature of dilution. is determined
Now,
The shares issued on conversion is = 6 million
The Interest paid, net of tax is = $3 [(8% x $50) x 75%]
The Interest per shares issued is = 3/6 = $ 0.5 per share
The EPS without assumed conversion is = ($1,050 - $27+3) ÷ (610 + 6+6) = $1.65
After that, The convertible bonds are dilutive because $1.65 is less than $1.68
Thus, diluted EPS = ($1,050 - $27+3) ÷ (610 + 6+6) = $1.65
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A company's income statement showed the following: net income, $128,000; depreciation expense, $37,000; and gain on sale of plant assets, $11,000. An examination of the company's current assets and current liabilities showed the following changes accounts receivable decreased $10,800; merchandise inventory increased $25,000; prepaid expenses increased $7,600; accounts payable increased $4,800. Calculate the net cash provided or used by operating activities.
Answer:
$137,000
Explanation:
The cash flow statement categories the company's transactions in a financial period into 3 groups; these are operating, investing and financing.
The net profit/loss, depreciation, changes in current assets (other than cash) and liabilities are considered as operating activities including income taxes.
The sale of assets, interest received, purchase of investments are examples of investing activities while the issuance of stocks, debt principal deduction (loan settlement), issuance of debt securities etc are examples of financing activities.
An increase in assets other than cash is an outflow while an increase in liabilities is an inflow. Depreciation and other non-cash expenses deducted in the income statements are added back while the non-cash income such gain on asset are deducted from net income.
The net cash provided or used by operating activities
= $128,000 + $37,000 - $11,000 + $10,800 - $25,000 - $7,600 + $4,800
= $137,000
Richman Co. purchased some equipment 3 years ago. The company's required rate of return is 12%, and the net present value of the project was $(900). Annual cost savings were: $10,000 for year 1; $8,000 for year 2; and $6,000 for year 3.
The amount of the initial investment was
a.
$18,316.
b.
$20,116.
c.
$20,478.
d.
$18,678.
Answer:
The correct answer is option (C) $20,478
Explanation:
Solution
Given that:
The Net present value is defined as:
Net present value
= Present value of all flow of cash discounted at the rate required of return - Initial investment
Thus,
$ - 900 = 10000/1.12 + 8000/ (1.12)^2 + 6000/(1.12)^3 - The initial investment
So,
Initial Investment = $ 19,578 + $ 900
= $ 20,478
Therefore the amount of initial investment was $20,478
The initial investment amount can be calculated by finding the present value of the cash flows and subtracting it from the net present value (NPV).
Explanation:The initial investment amount can be calculated by finding the present value of the cash flows and subtracting it from the net present value (NPV). In this case, the cost savings for each year need to be discounted back to the present value. The formula to calculate the present value of cash flows is:
PV = CF / (1 + r)^n
Where:
PV is the present valueCF is the cash flowr is the required rate of returnn is the number of yearsUsing this formula, the initial investment amount is $20,116 (option b).
Indicate which of the following statements relate to financial accounting versus managerial accounting. 1. Must adhere to generally accepted accounting principles. 2. Primary users are external. 3. Past results and projected future results. 4. Reports prepared after the end of an accounting period. 5. Statements contained in annual reports. 6. Reports benefit internal users. 7. Reports come in a variety of formats, designed for the decision maker. 8. Information not disseminated to the general public. 9. Communicates information about the financial health of the company. 10. Includes information prepared for a range of decision makers within the organization.
Answer:
1. Financial accounting: must adhere to generally accepted accounting principles.
2. Managerial accounting: primary users are external.
3. Managerial accounting: past results and projected future results.
4. Financial accounting: reports prepared after the end of an accounting period.
5. Financial accounting: statements contained in annual reports.
6. Managerial accounting: reports benefit internal users.
7. Managerial accounting: reports come in a variety of formats, designed for the decision maker.
8. Managerial accounting: information not disseminated to the general public.
9. Financial accounting: communicates information about the financial health of the company. 10. Managerial accounting: includes information prepared for a range of decision makers within the organization.
Explanation:
Financial accounting is an accounting technique used for analyzing, summarizing and reporting of financial transactions like sales costs, purchase costs, payables and receivables of an organization using standard financial guidelines such as Generally Accepted Accounting Principles (GAAP). Examples of financial statements includes Balance sheet, cash-flow and income statement.
Managerial accounting also known as cost accounting is an accounting technique focused on identification, measurement, analyzing, interpretation, and communication of financial information to managers for better decisions making and pursuit of the organization's goals.
Financial accounting, aimed at external users, is linked with statements 1, 2, 4, 5, and 9. Managerial accounting, intended for internal use by the company's management, corresponds to points 3, 6, 7, 8, and 10.
Explanation:What determines which statement relates to Financial Accounting versus Managerial Accounting is their intended audience and how they are used within a company. Financial accounting relates to statements 1, 2, 4, 5, and 9. This is because it must adhere to generally accepted accounting principles (GAAP), is aimed at external users, is used in annual reports, has reports prepared after an accounting period, and is used to communicate the financial health of the company. These reports are regulated and standardized.
On the other hand, managerial accounting corresponds to statements 3, 6, 7, 8, and 10. Managerial accounting is typically used internally, has many different report formats for different decision-makers, includes past results and future projections, is not disseminated to the public, and is prepared for a variety of decision-makers within the organization. These reports are flexible and depend on the demands of the company's management.
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What term refers to searching for potential buyers?
Answer is prospecting
Answer:
^
Explanation: