Answer:
HomeGrown Company
Return on Investment Analysis:
Proposal Alpha Beta Gamma
Annual Income Average $351,145 $475,608 $704,490
Investment Average $302,054 $272,019 $626,564
Return on Investment $49,091 $203,589 $77,926
Average Rate of Return 0.16 0.75 0.12
Expected Rate of Return 20% 20% 20%
Accept/Reject Reject Accept Reject
Decision: Eliminate Alpha and Gamma, accept Beta based
Explanation:
a) The Required Rate of Return (RRR) of an investment is the minimum return an investor will accept for making an investment. It is the compensation expressed in percentage for a given level of risk associated with the investment. The RRR is used to analyze the profitability of potential investment projects. Once, this rate is determined, it will be compared with the Return on Investment to decide if the investment can be made or eliminated.
b) The Return on Investment (ROI) is a financial performance measure which evaluates the efficiency of an investment or compares the efficiency of a number of different investments. The ROI calculation is obtained dividing the benefit (or return) of an investment by the cost of the investment. The result is expressed as a percentage or a ratio.
Ace Industries prepares its statement of cash flows using the direct method. Ace sold equipment with a book value of $6,400.00 at a loss of $800.00. The amount to be reported on the statement of cash flows under operating activities is A. $0.00. B. $800.00.
Answer:
Option B,$800 is correct
Explanation:
The operating activities need to be adjusted for loss made on sale of equipment which is not a cash flow in actual sense by adding back the loss to the net income and showing the cash received from the disposal as an inflow under investing activities.
As a result ,the correct option is B,$800,which should be added back to net income in order to show the impact of non-cash items in the statement of cash flows Ace industries
The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total electrical costs of the hotel and the number of occupancy-days over the last year. An occupancy-day represents a room rented out for one day. The hotel's business is highly seasonal, with peaks occurring during the ski season and in the summer. Month Occupancy- Days Electrical Costs January 3,250 $ 9,660 February 3,470 $ 10,185 March 3,660 $ 10,360 April 1,760 $ 6,160 May 1,350 $ 4,725 June 4,350 $ 11,575 July 3,280 $ 9,765 August 1,610 $ 5,635 September 700 $ 2,450 October 1,300 $ 4,550 November 1,640 $ 5,740 December 2,220 $ 7,770 Required:
1. Using the high-low method, estimate the fixed cost of electricity per month and the variable cost of electricity per occupancy-day. (Do not round your intermediate calculations. Round your Variable cost answer to 2 decimal places and Fixed cost element answer to nearest whole dollar amount)
2. What other factors other than occupancy-days are likely to affect the variation in electrical costs from month to month? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)
Number of days present in a month.
Income taxes paid on hotel income.
Seasonal factors like winter or summer.
Systematic factors like guests, switching off fans and light
Answer and Explanation:
The computation of the fixed cost and the variable cost of electricity per occupancy-day by using high low method is shown below:
The Variable cost of electricity per occupancy-day = (High electrical cost - low electrical cost) ÷ (High month occupancy days - low month occupancy days)
= ($11,575 - $2,450) ÷ (4,350 - 700)
= $9,125 ÷ 3,650
= $2.50 per occupancy days
Now the fixed cost equal to
= High electrical cost - (High month occupancy days × Variable cost per occupancy days)
= $11,575 - (4,350 × $2.50)
= $11,575 - $10,875
= $700
The other factors other than the occupancy days affect the variation in electrical costs from month to month is the number of days present in a month as it remains fixed with respect to the occupancy , seasonal factors like winter or summer as in the summer the electrical cost is high as compared in the winter season , and the Systematic factors like guests, switching off fans and light depend on their wish or as per usage.
On October 31, 2021, Damon Company’s general ledger shows a checking account balance of $8,415. The company’s cash receipts for the month total $74,440, of which $71,325 has been deposited in the bank. In addition, the company has written checks for $72,485, of which $71,090 has been processed by the bank. The bank statement reveals an ending balance of $12,165 and includes the following items not yet recorded by Damon: bank service fees of $210, note receivable collected by the bank of $5,600, and interest earned on the account balance plus from the note of $620. After closer inspection, Damon realizes that the bank incorrectly charged the company’s account $540 for an automatic withdrawal that should have been charged to another customer’s account. The bank agrees to the error. Required: 1. Prepare a bank reconciliation to calculate the correct ending balance of cash on October 31, 2021. (Amounts to be deducted should be indicated with a minus sign.)
Answer:
The correct ending balance of cash on October 31, 2021 is $14,425.
Explanation:
A bank reconciliation refers to the process whereby the bank account balance in the books of account of a company or an entity is reconciled to the balance on the most recent bank statement obtained from bank of the entity.
Therefore, to prepare a bank reconciliation to calculate the correct ending balance of cash on October 31, 2021, all the amount which have already being included as either as additions or subtractions in the bank statement but has not been recorded by the entity will be added or subtracted from the bank balance as appropriate. Based on the information in the question, this can be done as follows:
Damon Company
Bank Reconciliation on October 31, 2021.
Details $
Balance as per checking account 8,415
Note receivable collected by the bank 5,600
Interest earned 620
Bank service fees of (210)
Balance per reconciliation by the company 14,425
Therefore, the correct ending balance of cash on October 31, 2021 is $14,425.
Jameson's Manufacturing Inc.'s debits to Work in Process-Assembly Department for July, together with data concerning production, are as follows:
July 1, work in process:
Materials cost, 3,000 units $ 8,000
Conversion costs, 3,000 units, 66.7% completed 6,000
Materials added during July, 10,000 units 30,000
Conversion costs during July 31,000
Goods finished during July, 11,500 units 0
July 31 work in process, 1,500 units, 50% completed 0
All direct materials are placed in process at the beginning of the process and the first-in, first-out method is used to cost inventories. The materials cost per equivalent unit for July is:__________.
A. $3.00
B. $3.80
C. $2.92
D. $2.31
Answer:
Option A is correct
Cost per equivalent unit for material - $3
Explanation:
Cost per equivalent unit = Total direct material cost / Total equivalent unit
Equivalent units of materials
Item Equivalent unit
Opening inventory 3000×0% = 0
Fully worked 8,500× 100% = 8,500
Closing inventory 1,500 ×100%= 1,500
Total equivalent units 10,000
Notes:
Fully worked represent the units started and completed in July
Fully worked = newly introduced units in July - Closing inventory in July
Fully worked = 10,000 -1500 = 8,500
Cost per equivalent unit = Total direct material cost / Total equivalent unit
= 30,000/10,000=$3
Cost per equivalent unit for material =$3
Larkspur, Inc. uses a periodic inventory system. Its records show the following for the month of May, in which 80 units were sold.
Date Explanation Units Unit Cost Total Cost
May 1 Inventory 28 $9 $252
15 Purchase 26 10 260
24 Purchase 39 11 429
Total 93 $941
Required:
1. Calculate the weighted-average unit cost. (Round answer to 3 decimal places, e.g. 5.125.)
2. Calculate the ending inventory at May 31 using the FIFO, LIFO and average-cost methods. (Round answers to 0 decimal places, e.g. 125.)
Answer:
Explanation:
Date Unit Unit cost Total Goods sold Cost Total
May 1 28 9 252 28 9 252
May 15 26 10 260 26 10 260
May 24 39 11 429 26 11 286
Total 93 941 80
1) Weighted average unit cost = 941/93 = $10.118
FIFO method
2)Ending inventory (93-80)*11 =$ 143
FIFO method assumes that the first set of inventory are the first to be sold
LIFO method
LIFO assumes that the last set of inventory are the first to be sold
Goods Sold Cost Total
39 11 429
26 10 260
15 9 135
Ending Inventory = (93-80)*9 = $117
Average Cost Method
Ending Inventory = 13 * 10.118 =$131.534
Bill's Grill is a popular college restaurant that is famous for its hamburgers. The owner of the restaurant, Bill, mixes fresh ground beef and pork with a secret ingredient to make delicious quarter-pound hamburgers that are advertised as having no more than 25% fat. Bill can buy beef containing 80% meat and 20% fat at $0.85 per pound. He can buy pork containing 70% meat and 30% fat at $0.65 per pound. Bill wants to determine the minimum cost way to blend the beef and pork to make hamburgers that have no more than 25% fat.
Required:
1. What is objective function for the mathematical formulation, in words?
Answer:
Explanation:
Given that:
Bill can buy containing 80% meat and 20 % pound at $0.85 per pound
Also; He can buy pork containing 70% meat and 30% fat at $0.65 per pound.
Bill, mixes fresh ground beef and pork with a secret ingredient to make delicious quarter-pound hamburgers that are advertised as having no more than 25% fat.
From the information given:
The Objective is that Bill wants to determine the minimum cost way to blend the beef and pork to make hamburgers that have no more than 25% fat.
Also: Required is to find the objective function for the mathematical formulation, in words.
Assumptions:
Let assume that [tex]\mathbf{Z_1}[/tex] should be the percentage of the beef.
Let assume that [tex]\mathbf{Z_2}[/tex] should be the percentage of the beef.
The buying cost of beef is $0.85 and the buying cost of pork is $0.65
Hence; the Minimum Objective cost function for this model will be :
[tex]\mathbf{Min:0.85Z_1 + 0.65Z_2}[/tex]
Also; from above:
We know that the fat in beef and pork is 20% and 30% respectively ( 0.2 and 0.3).
And Bill decided to make hamburgers that have fat not more than 25% (0.25)
Equally ; we can formulate a decision that the sum of the beef and pork should be less than or equal to 0.25
So:
[tex]\mathbf{0.85Z_1 + 0.65Z_2 \leq 0.25}[/tex]
Since Bill is using both beef and pork for the production; there is need to add both entity together because He does not have to use either beef or pork alone;
So;
[tex]\mathbf{Z_1+Z_2 =1}[/tex]
Of course , we know that the percentage of this aftermath result can't be zero. i.e it is definitely greater than 1.
So; [tex]\mathbf{Z_1,Z_2 > 1}[/tex]
Thus; the Objective function of this model is :
[tex]\mathbf{Min:0.85Z_1 + 0.65Z_2}[/tex] which is subjected to [tex]\mathbf{0.85Z_1 + 0.65Z_2 \leq 0.25} \\ \\ \mathbf{Z_1+Z_2 =1} \\ \\ \mathbf{Z_1,Z_2 > 1}[/tex]
The capitalist economy comprises two forms of economic organization, the market mechanism operated by prices and the administrative mechanism of firms. a. The market mechanism is referred to as the "visible hand" while the administrative mechanism of firms is referred to as the "invisible hand". b. The market mechanism is referred to as the "invisible hand" while the administrative mechanism of firms is referred to as the "visible hand". c. The simultaneous operation of both "hands" means that the capitalist system is often referred to as an "ambidextrous organization". d. The notion of the capitalist economy as governed by market processes is a myth. In reality the global capitalist economy is controlled by large corporations.
Answer:
Option B: The market mechanism is referred to as the "invisible hand" while the administrative mechanism of firms is referred to as the "visible hand"
Explanation:
The invisible hand of the market mechanism is simply the known first form of the market as it is the point in which individuals and firms make independent decisions and well guided by market prices. Deliberate and conscious global planning is not needed in invisible hand market mechanism.
The visible hand market mechanism is also called administrative mechanism as it involves active planning in coordinating players.
Economic decisions are usually in the hierarchy that is the firm by managers and imposed through a hierarchy.
Analysis of an income statement, balance sheet, and additional information from the accounting records of Gadgets, Inc., reveals the following items.
Required: Select the section of the statement of cash flows in which each of these items would be reported: operating activities (indirect method), investing activities, financing activities, or a separate noncash activities note.
1. Purchase of a patent. 2. Depreciation expense. 3. Decrease in accounts receivable. 4. Issuance of a note payable. 5. Increase in inventory. 6. Collection of notes receivable. 7. Purchase of equipment. 8. Exchange of long-term assets. 9. Decrease in accounts payable. 10. Payment of dividends.
Answer and Explanation:
The categorization is shown below:
1 Purchase of a patent = Investing activities as it represents in a negative sign because it is a cash outflow
2 Depreciation expense Operating activities as it is added to the net income
3 Decrease in accounts receivable = Operating activities as it is added to the change in adjustments column
4 Issuance of a note payable = Financing activities as it represents in a a positive sign because it is a cash inflow
5 Increase in inventory = Operating activities as it is deducted from the change in adjustments column
6 Collection of note receivable = Investing activities as it represents in a positive sign because it is a cash inflow
7 Purchase of equipment = Investing activities as it represents in a negative sign because it is a cash outflow
8 Exchange of long term assets = Separate non cash activities note as it does not involved any cash transactions
9 Decrease in accounts payable = Operating activities as it is deducted from the change in adjustments column
10 Payments of dividend = Financing activities as it represents in a negative sign because it is a cash outflow
A sole proprietorship was started on January 1, 2018, when it received $55,500 cash from Marlin Jones, the owner. During 2018, the company earned $43,600 in cash revenues and paid $19,080 in cash expenses. Jones withdrew $6,100 cash from the business during 2018.
Required:
Prepare the income statement. capital statement (statement of changes in equity). balance sheet. and statement of cash flows for Jones's 2018 fiscal year.
Answer:
a. Net income = $24,520
b. Ending capital = $73,920
c. Total assets = $73,920; and Total Equities and Liabilities = $73,920.
d. Ending cash balance = $73,920.
Explanation:
a. Income statement
Details Amount ($)
Revenue 43,600
Expenses 19,080
Net income 24,520
b. Capital statement (statement of changes in equity)
Details Amount ($)
Beginning capital 55,500
Net income 24,520
Withdrawal (6,100)
Ending capital 73,920
c. Balance sheet.
Details Amount ($)
Assets:
Cash 73,920
Total assets 73,920
Equity and Liabilities:
Capital 73,920
Total 73,920
d. Statement of cash flows
Details Amount ($) Amount ($)
Cash from operating activities:
Cash from revenue 43,600
Cash paid for expenses (19,080)
Cash generated from operating activities 24,520
Cash flow from financing activities:
Capital introduced 55,500
Cash withdrawal (6,100)
Cash generated from financing activities 49,400
Net cash generated 73,920
Beginning cash balance 0
Ending cash balance 73,920
Mueller Company sold merchandise costing $120,000 for $240,000. Mueller estimates that merchandise costing $5,000 will be returned for a refund of $10,000. Mueller should report net sales of:
Answer:
The answer is $230,000
Explanation:
Net sales is the sum of a company's gross(total) sales minus any returned goods, sales allowances and/or discounts. The total amount of revenue on a company's income statement is the net sales.
Gross sales - $240,000
Merchandise returned - $10,000
Net sales = Gross sales - goods returned
$240,000 - $10,000
= $230,000
Blossom Company includes one coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2020, Blossom Company purchased 9,500 premiums at 75 cents each and sold 120,000 boxes of soap powder at $3.00 per box; 41,800 coupons were presented for redemption in 2020. It is estimated that 60% of the coupons will eventually be presented for redemption.
Prepare all the entries that would be made relative to sales of soap powder and to the premium plan in 2020.
Answer:
Dr Purchased premiums 7,125
Cr Cash 7,125
Dr Cash 360,000
Cr Sales 360,000
Dr Premium Expense 3,135
Cr Inventory Premiums 3,135
Dr Premium Expense 2,265
Cr Estimated Liability Premiums 2,265
Explanation:
Blossom Company Journal entry
Dr Purchased premiums 7,125
(9,500×0.75)
Cr Cash 7,125
Dr Cash 360,000
(120,000×3.00per box)
Cr Sales 360,000
Dr Premium Expense 3,135
Cr Inventory Premiums (41,800 ÷ 10 coupons×0.75) 3,135
Dr Premium Expense 2,265
Cr Estimated Liability Premiums 2,265
[(120,000 ×0.60) – 41,800) ÷ 10 × .75]
=72,000-41,800÷10×.75
=30,200÷10×.75
=3020×.75
=2,265
Prepare general journal entries to record the following transactions. No explanations.Jan. 3 Paid office rent, $1,600.4 Bought a truck costing $50,000, making a down payment of $7,000.6 Paid wages, $3,000.7 Received $16,000 cash from customers for services performed.10 Paid $4,100 owed on last month's bills.12 Billed credit customers, $5,300.17 Received $1,800 from credit customers.19 Taylor Gordon, the owner, withdrew $1,700.23 Paid $700 on amount owed for truck.29 Received bill for utilities expense, $255.AccountsCashAccounts ReceivableTruckAccounts PayableTaylor Gordon, DrawingService FeesRent ExpenseWages ExpenseUtilities Expense
Answer:
Jan. 3 Paid office rent, $1,600.
Dr Rent expense 1,600
Cr Cash 1,600
4 Bought a truck costing $50,000, making a down payment of $7,000.
Dr Truck 50,000
Cr Cash 7,000
Cr Accounts payable 43,000
6 Paid wages, $3,000.
Dr Wages expense 3,000
Cr Cash 3,000
7 Received $16,000 cash from customers for services performed.
Dr Cash 16,000
Cr Service fees 16,000
10 Paid $4,100 owed on last month's bills.
Dr Accounts payable 4,100
Cr Cash 4,100
12 Billed credit customers, $5,300.
Dr Accounts receivable 5,300
Cr Service fees 5,300
17 Received $1,800 from credit customers.
Dr Cash 1,800
Cr Accounts receivable 1,800
19 Taylor Gordon, the owner, withdrew $1,700.
Dr Taylor Gordon, Drawing 1,700
Cr Cash 1,700
23 Paid $700 on amount owed for truck.
Dr Accounts payable 700
Cr Cash 700
29 Received bill for utilities expense, $255.
Dr Utilities expense 255
Cr Accounts payable 255
A protective put strategy is Multiple Choice a long call plus a short put on the same underlying asset. None of the options are correct. a long put plus a long call on the same underlying asset. a long put plus a long position in the underlying asset. a long put plus a short call on the same underlying asset.
Answer:
a long put plus a long position in the underlying asset.
Explanation:
A protective put strategy is a long put plus a long position in the underlying asset. It is a risk management strategy that makes use of options contracts which are employed by investors to protect or guard their investments against a potential loss in stocks or assets such as commodities, indexes and currencies. The protective put strategy helps to mitigate or limit risk associated with buying stocks for the first time.
Generally, the value of the underlying asset is anticipated to decrease by the buyers while the value of the underlying asset is anticipated by sellers of call options to also decrease.
Hence, considering the prospective option holder, when the exercise price is higher, it means that the call options are worth less. Also, when the exercise price is higher, it means that the put options are worth more.
Nevertire Ltd purchased a delivery van costing $52,000. It is expected to have a residual value of $12,000 at the end of its useful life of 4 years or 200,000 kilometers. Ignore GST.
Required:
a) Assume the van was purchased on 1 July 2019 and that the accounting period ends on 30 June. Calculate the depreciation expense for the year 2019–20 using each of the following depreciation methods
straight-line.
diminishing balance (depreciation rate has been calculated as 31%).
units of production (assume the van was driven 78,000 kilometers during the financial year).
b) Record the adjusting entries for the depreciation on 30 June 2021 using a diminishing balance method.
c) Show how the van would appear in the balance sheet prepared at the end of year 2 using the Straightline method.
Answer:
a.
Straight line method
This method gives a uniform depreciation figure over the lifetime of the asset. Formula is,
= ( Cost - Residual Value) / Useful life
= (52,000 - 12,000) / 4
= $10,000
Diminishing Balance Method
This method applies depreciation at a faster rate so that the assets depreciates faster in it's earlier years.
Formula is,
= Cost * Depreciation rate
= 52,000 * 31%
= $16,120
Units of Production
This method depreciates based on the usage of the asset vs the total capacity of the asset. Assuming the van was driven 78,000 kilometers during the financial year
Formula is,
= (( Cost - Residual value) * units for the year) / Estimated production capacity
= ((52,000 - 12,000)*78,000)/200,000
= 3,120,000 / 200,000
= $15,600
b.
Date
June 30 2021
DR Depreciation $11,123
CR Accumulated Depreciation $11,123
Working
June 30 2021 Depreciation
= ( Cost - 2020 Depreciation ) * 31%
= (52,000 - 16,120 ) * 31%
= 35,880 * 31%
= $11,123
c. Straight line depreciation is constant so Value at the second year using Straight line will be,
= Cost - 2020 Depreciation - 2021 Depreciation
= 52,000 - 10,000 - 10,000
= $32,000
Balance sheet excerpt,
Particulars Amount
Assets
Fixed assets
Vechicles $32,000
Southwest Components recently switched to activity-based costing from the department allocation method. The Fabrication Department manager has estimated the following cost drivers and rates:
Activity Centers Cost Drivers Rate per
Cost Driver Unit
Materials handling Pounds of material handled $ 16 per pound
Quality inspections Number of inspections $ 240 per inspection
Machine setups Number of machine setups $ 2,700 per setup
Running machines Number of machine-hours $ 21.00 per hour
Direct materials costs were $306,000 and direct labor costs were $161,000 during July, when the Fabrication Department handled 3,900 pounds of materials, made 760 inspections, had 50 setups, and ran the machines for 13,000 hours.
Required:
Use T-accounts to show the flow of materials, labor, and overhead costs from the four overhead activity centers through Work-in-Process Inventory and out to Finished Goods Inventory.
Answer:
Direct Materials T - Account
Debit :
Cash $306,000
Totals $306,000
Credit:
Work In Process $306,000
Totals $306,000
Direct Labor T - Account
Debit :
Cash $161,000
Totals $161,000
Credit:
Work In Process $161,000
Totals $161,000
Overhead T - Account
Debit :
Cash $652,800
Totals $652,800
Credit:
Work In Process :
Materials handling ( $ 16 × 3,900 pounds) $62,400
Quality inspections ( $ 240 × 760 inspections) $182,400
Machine setups ( $ 2,700 × 50 setups) $135,000
Running machines ( $ 21.00 × 13,000 hours) $273,000
Totals $652,800
Work In Process T - Account
Debit :
Direct Materials $306,000
Direct Labor $161,000
Overheads $652,800
Totals $1,119,800
Credit:
Finished Goods $1,119,800
Totals $1,119,800
Explanation:
Direct Materials T - Account
Accumulates Material costs used in manufacturing process
Direct Labor T - Account
Accumulated labor costs used in manufacturing process
Overhead T - Account
Accumulated Overhead costs incurred in manufacture
Work In Process T - Account
Accumulates total costs used in manufacture and transfers the cost to Finished Goods inventory
Ayala Corporation accumulates the following data relative to jobs started and finished during the month of June 2014.
Costs and Production Data
Actual
Standard
Raw materials unit cost $2.25 $2.10
Raw materials units used 10,600 10,000
Direct labor payroll $120,960 $120,000
Direct labor hours worked 14,400 15,000
Manufacturing overhead incurred $189,500
Manufacturing overhead applied $193,500
Machine hours expected to be used at normal capacity 42,500
Budgeted fixed overhead for June $55,250
Variable overhead rate per machine hour $3.00
Fixed overhead rate per machine hour $1.30
Overhead is applied on the basis of standard machine hours. Three hours of machine time are required for each direct labor hour. The jobs were sold for $400,000. Selling and administrative expenses were $40,000. Assume that the amount of raw materials purchased equaled the amount used.
Instructions
(a)
Compute all of the variances for (1) direct materials and (2) direct labor.
LQV $4,800 F
(b)
Compute the total overhead variance.
(c) Prepare an income statement for management. (Ignore income taxes.)
Answer: The answer is provided below
Explanation:
a) Variances for Direct materials =
( actual rate - standard rate) × actual quantity
= ($2.25 - $2.10) × 10,600
= 1590
Variance for Direct material quantity
= (10,600 - 10,000) × 2.1
= 1260
Variance for labor rate
= (8.4 - 8) × 14,400
= 0.4 × 14400
= 5760
b. Total overhead variace = Actual overhead - ovehead applied
= $189,500 - $193,500
= 4000(F)
c. Sale revenue $400,000
COGS at standard $334,500
Gross profit At standard $65,500
Variances:
Material price. 1590(U)
Material qty variance 1260(U)
Labor price varaince 5760(U)
Labor qty variance 4800(F)
Overhead variance 4000(F)
Total vairiance 190(F)
Gross profit ( Actual) 65,690
Selling and admin expense 40,000
Net income $25,64
The MoMi Corporation’s cash flow from operations before interest and taxes was $5.6 million in the year just ended, and it expects that this will grow by 5% per year forever. To make this happen, the firm will have to invest an amount equal to 16% of pretax cash flow each year. The tax rate is 35%. Depreciation was $380,000 in the year just ended and is expected to grow at the same rate as the operating cash flow. The appropriate market capitalization rate for the unleveraged cash flow is 12% per year, and the firm currently has debt of $7.3 million outstanding. Use the free cash flow approach to value the firm’s equity. (Round answer to nearest whole number. Enter your answer in dollars not in millions.)
Answer:
Value of the firm = $ 43155000
Value of the firm's equity = $ 35855000
Explanation:
The objective of this question is to determine the value of the firm and the value of the firm's equity
Cash flow from operations =( 5.6 million + 5% of 5.6 million ) = 5880000
Depreciation = ( 380000 + 5% of 380,000 ) = 399000
Taxable income = 5880000 - 399000 = 5481000
Net income (after tax) = ( 5481000 - 35% of 5481000 ) = 3562650
Cash flow from operations (after tax) = 3562650 + 399000 = 3961650 ( which is the depreciation, being non-cash expense)
However, The Free cash flow available = Cash flow from operations (after tax) - Income from investment
= 3961650 - ( 5600000 × 16% × 1.05)
= 3961650 - 940800
= 3020850
Value of the firm = Free cash flow available / (Capitalization rate - Growth rate)
Value of the firm = 3020850 / 0.12 - 0. 05
Value of the firm = 3020850 / 0.07
Value of the firm = $ 43155000
Value of the firm's equity = Total value of firm - Value of debt of firm
Value of the firm's equity = $ 43155000 - $ 7300000
Value of the firm's equity = $ 35855000
a. Present one recent instance (within the last 50 years only) whereby a language, custom or national culture has been lost or diminished by the elimination or blurring of an existing border via globalization. (Please select non-U.S. examples)
b. By extension, how have global oligopolies benefited from the decrease in local competition?
Answer: 1. A. China in Zambia
B. Increased Market Share
Explanation:
A. China in Zambia
For years now many have worried about Chinese influence in China and what they view as subtle attempts by China to engage in modern day Colonialism through methods such as Predatory Loaning practices.
One glaring example is that of Zambia.
There are several ways in which the Chinese have established a foothold in Zambia and are making the country lose its sovereignty and national culture.
1. Loans for Infrastructure
China has invested massively in Zambia which is a big Copper exporter to enable them mine and capture the Copper that Zambia has for use in production in China. In the last 6 years, Zambia has embarked on over 29 projects all funded by about $9 billion in Chinese loans. With such loans being owed, the amount of Chinese influence will be great.
2. Small Scale Entrepreneurs
Chinese people have emigrated to Zambia in droves and some of them have started street level businesses also called Chinese Shops where they sell every day goods ranging from AA batteries to bicycles. These put pressure and compete with local Entrepreneurs who might not be able to get those goods as cheaply as the Chinese can from China. This as well as the importation of Chinese goods and services to feed the Chinese people involved has led to Zambian adopting Chinese foods and goods for themselves as well.
3. Political Interference
With such a huge investment in Zambia, many have noted with concern that China often meddles in the politics of the Southern African nations by picking candidates that will be more friendly to their Economic aspirations. This directly leads to a loss of sovereignty as well as an erosion in the independence of the national culture.
2. Oligopolies refer to firms that exist in an industry that has very few competitors and with the less competitions have a chance to make huge profits. Getting into the industries they operate in can be quite difficult due to high start-up costs as well as already well established competition. These include industries like the Motor and Aeroplane manufacturing industries.
As a result of Globalization, these companies have spread across the globe and as they are already established, they have the unique opportunity to charge less for their goods due to Economies of Scale. This allowed them to discourage local manufacturers in the newer companies they came to which could not hope to compete with such giants. This enabled the Oligopolies to capture the market share that the local competitors gave up thereby increasing the market share of these Oligopolies and by extension their Profitability.
On January 1, 2014, Ridge Road Company acquired 25 percent of the voting shares of Sauk Trail, Inc. for $3,800,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail's board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail's board which gave it the ability to significantly influence Sauk Trail's operating and investing activities.January 1, 2014, carrying amounts and corresponding fair values for Sauk Trail's assets and liabilities follow: Carrying Amount Fair ValueCash and receivables $ 165,000 $ 165,000Computing equipment 5,495,000 6,580,000Patented technology 155,000 4,110,000Trademark 205,000 2,110,000Liabilities (240,000 ) (240,000 )Also as of January 1, 2014, Sauk Trail's computing equipment had a remaining estimated useful life of seven years. The patented technology was estimated to have a five-year remaining useful life. The trademark's useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost.During the next two years, Sauk Trail reported the following net income and dividends: Net Income Dividends Declared:2014 $ 1,910,000 $ 205,0002015 2,095,000 215,000a. How much of Ridge Road's $3,800,000 payment for Sauk Trail is attributable to goodwill?b. What amount should Ridge Road report for its equity in Sauk Trail's earnings on its income statements for 2014 and 2015?c. What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2014 and 2015?
Answer: a. $236,500 b. $287,250 c. $4269500
Explanation:
The balance sheet also called the statement of financial position or a statement of financial condition is the summary of financial balances of an individual or an organization.
The calculations for a-c has been attached
A)
Acquisition Price $3,800,000
Book Val Acquired $1,445,000
Excess PMT $2,355,000
Excess fair value: Computer equip 271,250
Excess fair value: Patented Tech 988,750
Excess fair value: Trademark 476,250
1,736,250
Goodwill $618,750
Amortization
Computer equip $38,750
Patented Tech 197,750
$236,500
B)
Basic Equity accual 477500
Less: Amortization $236,500
$241,000
Basic Equity accrual 523750
Less: annual amortization $236,500
$287,250
C)
Acquisition Price $3,800,000
Add Equity $241,000
Less div -51250
Invest in ST1 $3,989,750
Add Equity $287,250
Less div -53750
Invest in ST2 $4,223,250
Alanco, Inc. manufactures a variety of products and is currently manufacturing all of their own component parts. An outside supplier has offered to sell one of those components to Alanco. To evaluate this offer, the following information has been gathered relating to the cost of producing the component internally:
Direct Materials $4
Direct Labor $6
Variable Manufacturing Overhead $2
Fix Manufacturing Overhead, Traceable* $5
Fix Manufacturing Overhead, Common but Allocated $8
Total Cost $25.00
Supplier Price = $21
Units Per Year = 12,000
Fix manufacturing overhead, traceable is composed of two items:
Depreciation of Equipment: 30%
Supervisor Salary: 70%
Assuming the company has no alternative use for the facilities now being used to produce the component, complete the following analysis to determine if the outside supplier's offer should be accepted.
Based on this analysis, write an if statement to determine if Alanco should make or buy the component.
Alanco should ............. the component.
3 Per Unit Differential Cost 12,000 units
Make Buy Make Buy
Cost of purchasing
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
total costs,
Based on this analysis, wrie an if statement to determine if Alanco should make or buy the component. Alanco should the _____________component
Answer:
If the company decides to purchase the component from the outside supplier, its operating income will decrease by $66,000 per year. Therefore, Alanco should keep producing the component.
Explanation:
cost of producing the component (per unit):
direct materials $4
direct labor $6
variable manufacturing overhead $2
fixed manufacturing overhead, traceable $5 (non avoidable $1.50)
fixed manufacturing overhead, not traceable $8
total cost per unit = $25
units per year = 12,000
price offered by supplier $21 per unit
alternative A alternative B differential
keep producing buy amount
purchase cost $0 $252,000 ($252,000)
avoidable man.
costs $186,000 $0 $186,000
total $186,000 $252,000 ($66,000)
if the company decides to purchase the component from the outside supplier, its operating income will decrease by $66,000 per year.
Based on the make or buy analysis, Alanco Inc. should continue to manufacture the 12,000 components annually.
It will save $66,000 if it makes the components internally but loses the same amount if it buys it from the outside supplier.
Data and Calculations:
Relevant / avoidable costs:
Direct Materials $4
Direct Labor $6
Manufacturing Overhead $2
Supervisor's salary $3.5 ($70% x $5)
Variable manufacturing cost per unit = $15.50
Supplier Price = $21
Units Per Year = 12,000
Total relevant cost of production = $186,000 ($15.50 x 12,000)
Total relevant cost of outside purchase = $252,000 ($21 x 12,000)
Difference in cost = $66,000 ($252,000 - $186,000)
Thus, Alanco should continue to manufacture 12,000 units of the components annually instead of buying from the supplier.
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Consumer _____ refers to the personal, social, and economic significance of a purchase. Group of answer choices acculturative response aspiration involvement selective perception motivation
Answer:
Consumer Involvement
Explanation:
Consumer Involvement refers to the level of importance a consumer places on a purchase. The consumer factors in the personal, social and economic significance of the product before going ahead to make the purchase. The levels of consumer involvement could be of three types, namely; low, medium and high involvement.
A low involvement purchase is one in which the consumer does not give so much thought to before making the purchase. Example is household products like detergents. Medium Involvement purchase are those in which the consumer puts in some thought before acquisition. An example could be new clothes. High Involvement purchase require considerable thought and research before the purchase is made. An example could be a new car.
The following transactions are for Kingbird Company.
1. On December 3, Kingbird Company sold $450,000 of merchandise to Blossom Co., on account, terms 1/10, n/30. The cost of the merchandise sold was $310,000.
2. On December 8, Blossom Co. was granted an allowance of $22,000 for merchandise purchased on December 3.
3. On December 13, Kingbird Company received the balance due from Blossom Co.
Instruction:
Prepare the journal entries to record these transactions on the books of Mack Company. Mack uses a perpetual inventory system.
Answer and Explanation:
The Journal entries are shown below:-
1. Account Receivable Dr, $450,000
To Sales revenue $450,000
(Being credit sales is recorded)
here we debited the accounts receivable as it increased the assets and we credited the sales revenue as it also increased the sales.
Cost of goods sold Dr, $310,000
To Inventory $310,000
(Being Cost of goods sold is recorded)
here we debited the cost of goods sold as it increased the expenses and we credited the inventory as it decreased the assets
2. Sales return and allowances Dr, $ 22,000
To Account Receivable $22,000
(Being sales return is recorded)
here we debited the sales return and allowances as it increased the sales return and we credited the accounts receivable as it decreased the assets
3. Cash Dr, $423,720
Sales discount Dr, $4,280 ($428,000 × 1%)
To Account Receivable $428,000 ($450,000 - $22,000)
(Being cash and sales discount is recorded)
Here we debited the cash and sales discount as it increased the assets and sales discount and we credited the accounts receivable as it decreased the assets
A bank in Austin, Texas, has allowed its state banking license, under which it had been regulated by the Federal Deposit Insurance Corporation, a U.S. bank regulator, to expire. It has switched to a federal banking license, under which it is now regulated by the Office of the Comptroller of the Currency, another bank regulator. Do these regulators subject the bank to social or economic regulation?
Answer: c. economic regulation because they regulate only the activities of banks.
Explanation:
Economic Regulation refers to rules, regulations and policies that are established by a Governmental or Independent Adminstrative agency with the aim being to monitor the entrance of new firms as well as the activities of existing firms in an industry including the financial industry. They help protect the industry through their actions and are thus very important.
A very important example of such an organization is the Office of the Comptroller of the Currency. They have the mandate of regulating all national Banks including foreign Banks as well. As the regulator of such an industry and going by the definition of an Economic regulation, the regulation they apply is Economic in nature to ensure that the banks behave in such a way that will not be detrimental to the industry and the Economy.
Lanni Products is a start-up computer software development firm. It currently owns computer equipment worth $30,000 and has cash on hand of $20,000 contributed by Lanni’s owners. Lanni takes out a bank loan. It receives $50,000 in cash and signs a note promising to pay back the loan over 3 years.
a-1. Prepare the balance sheet just after it gets the bank loan. (Omit the "$" sign in your response.)
Assets Liabilities & Shareholders' Equity
Cash $ Bank loan $
Computers Shareholders' equity
Total $ Total $
a-2. What is the ratio of real assets to total assets? (Round your answer to 2 decimal places.)
Ratio of real assets to total assets
b-1. Prepare the balance sheet after Lanni spends the $70,000 to develop its software product. (Omit the "$" sign in your response.)Assets Liabilities & Shareholders' Equity Software product $ Bank loan $ Computers Shareholders' equity Total $ Total $ b-2. What is the ratio of real assets to total assets?Ratio of real assets to total assets c-1. Lanni sells the software product to Microsoft, which will market it to the public under the Microsoft name. Lanni accepts payment in the form of 1,500 shares for $80 per share. Prepare the balance sheet after Lanni accepts the payment of shares from Microsoft. (Omit the "$" sign in your response.)Assets Liabilities & Shareholders' Equity Microsoft shares $ Bank loan $ Computers Shareholders' equity Total $ Total $ c-2. What is the ratio of real assets to total assets? (Round your answer to 2 decimal places.)
Ratio of real assets to total assets
Answer:
A-2 Ratio of real Assets to Total Assets = 0.3
B-2 Ratio of real Assets to Total Assets= 1
C-2 Ratio of real Assets to Total Assets= 0.2
The company has low ratio at the start , increases to full when producing and then again decreases.
Explanation:
The balance sheet after Lanni accepts the Bank Loan. The cash increases and so does the liability increases.
Lanni Products
Balance Sheet
Assets Liabilities & Shareholders' Equity
Cash $ 70,000 Bank loan $ 50,000
Computers $30,000 Shareholders' equity 50,000
Total $ 100,000 Total $ 100,000
A-2 Ratio of real Assets to Total Assets
Real Assets = $ 30,000
Total Assets = $ 100,000
Ratio = 30,000/100,000 = 0.3
B-1
Lanni Products
Balance Sheet
Assets Liabilities & Shareholders' Equity
Software $ 70,000 Bank loan $ 50,000
Computers $30,000 Shareholders' equity 50,000
Total $ 100,000 Total $ 100,000
The software costs $ 70,000. The Balance sheet is as given above and the cash will be replaced by the software.
B-2 Ratio of real Assets to Total Assets
Real Assets = $ 100,000
Total Assets = $ 100,000
Ratio = 100,000/100,000 = 1.0
C-1 The share given are calculated ( 1500 *80= $ 120,000) . And after it accepts the payment the share holder's equity increases and the assets as well.
Lanni Products
Balance Sheet
Assets Liabilities & Shareholders' Equity
Shares $ 120,000 Bank loan $ 50,000
( 1500 *80)
Computers $30,000 Shareholders' equity 100,000
Total $ 150,000 Total $ 150,000
C-2 Ratio of real Assets to Total Assets
Real Assets = $ 30,000
Total Assets = $ 150,000
Ratio = 30,000/150,000 = 0.2
A local unemployment office keeps track of the number of new claims filed each day. Based on data collected, it determines that the expected number of new claims filed per day is 2.4 with a standard deviation of 0.8688. Suppose that the office is open five days per week. The expected number of new claims filed per week at this office is ________________________ . A. 4.344 B. 10 C. 12 D. 7.4 E. 5.25
Answer:
C. 12
Explanation:
As the expected number of new claims filed per day is 2.4 and the office is open 5 days per week, to be able to find the expected number of new claims filed per week, you have to multiply the expected number of claims per day for the number of days that the office is open in a week:
Expected number of new claims filed per week= 2.4*5= 12
According to this, the answer is that the expected number of new claims filed per week at this office is 12.
The expected number of new claims filed per week at this office is option C. 12
Calculation of the expected number of new claimed:Since the expected number of new claims filed per day is 2.4 with a standard deviation of 0.8688.
So per week, there is 5 days
So, here the expected number should be
= 2.4*5
= 12
hence, option c is correct.
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You must estimate the intrinsic value of Noe Technologies' stock. The end-of-year free cash flow (FCF1) is expected to be $24.50 million, and it is expected to grow at a constant rate of 7.0% a year thereafter. The company's WACC is 10.0%, it has $125.0 million of long-term debt plus preferred stock outstanding, and there are 15.0 million shares of common stock outstanding. What is the firm's estimated intrinsic value per share of common stock
Answer:
Intrinsic value per share of common stock is $46.11
Explanation:
To calculate the intrinsic value per share, we first need to calculate the value of firm using FCF and then calculate the value of equity by deducting the market value of debt and preferred stock from the value of firm. Then we will divide the value of equity by the number of common stock shares.
Value of firm will be calculated using the constant growth model discounted cash flow approach. The formula for value of firm is,
Value of firm = FCF1 / WACC - g
Value of firm = 24.5 / (0.1 - 0.07)
Value of firm = $816.6666667 rounded off to $816.67
Value of equity = 816.67 - 125 = $691.67
Value per share = 691.67 / 15
Value per share = $46.11
Tallow, Inc. had reported the following balances: LOADING...(Click the icon to view the 2018 and 2019 balances.) 11. Compute Tallow's earnings per share for 2019. 12. Compute Tallow's price/earnings ratio for 2019, assuming the market price is $ 35 per share. 13. Compute Tallow's rate of return on common stockholders' equity for 2019. 11. Compute Tallow's earnings per share for 2019.
Answer:
Explanation:
Rate of return on common stockholder's equity for 2019:
= (Net Income - Preferred Dividend) / Av. common stockholder's equity
= ($94,000 - $26,000) / $312,000
= $68,000 / $312,000
= 0.2179 or 21.79%
Av. common stockholder's equity 2019 :
Total stockholder's equity 2018 ( Common) = Total stockholder's equity - Stockholder's Equity attributable to preferred
= $318,000 - $22,000
= $296,000
Total stockholder's equity 2019 ( Common) = Total stockholder's equity - Stockholder's Equity attributable to preferred
= $350,000 - $22,000
= $328,000
Av. common stockholder's equity 2019 = ($296,000 + $328,000) / 2 = $312,000
Stealth bank holds deposits of $200 million. It holds reserves of $15 million. It has purchased government bonds worth $75 million. The current value of its loans, if sold at market value, is $130 million. What is the value of Stealth bank's liabilities?
Answer:
$220 million
Explanation:
Stealth bank total value of liabilities will be:
Reserves $15 million
Government bonds purchased $75 million
Market value (loan) $130 million
Value of bank liabilities $220 million
An investor has $19,000 to invest and believes that the IBM stock price is going to increase in the following 12 months from the current stock price of $200. Call options on IBM stock expiring in 12 months have a strike price of $207 and sell at a premium of $20 each. Assume that the stock price will be $268 per share after 12 months.
a. What will be the investor's rate of return if they buy 450 call options?
b. What will be the investor's rate of return if they buy 45 shares?
Answer:
a.305%
b.34%
Explanation:
If 450 options were bought,the investor would have invested just the amount paid for the options which is $9,000 ($20*450).
On exercising the option,the investor would gain per share the excess of market price over the option exercise price i.e 450*($268-$207)=$27,450.00
return on investment= 27,450/9000=305%
If the investor had bought the shares he would invested $9000 ($200*45)
By selling the shares for $268 return would $3,060 ($268-$200)*45
return on investment=$3,060/$9,000=34%
Venetian Company has two production departments, Fabricating and Assembling. At a department managers meeting, the controller uses flexible budget graphs to explain total budgeted costs. Separate graphs based on direct labor hours are used for each department. The graphs show the following.
1. At zero direct labor hours, the total budgeted cost line and the fixed cost line intersect the vertical axis at $ 53,000 in the Fabricating Department and $ 43,000 in the Assembling Department.
2. At normal capacity of 46,100 direct labor hours, the line drawn from the total budgeted cost line intersects the vertical axis at $ 131,370 in the Fabricating Department, and $ 93,710 in the Assembling Department.
State the total budgeted cost formula for each department, round to 2 decimal place.
Fabricating Department = $_____ _____ +total _____ of $_____ per direct labor hours
Assembling Department = $_____ _____ +total _____ of $_____ per direct labor hours
Compute the total budgeted cost for each department, assuming actual direct labor hours worked were 49,100 and 43,100, in the Fabricating and Assembling Departments, respectively.
Fabricating Department Assembling Department
The total budgeted cost $__________________ $__________________
Answer:
Fabricating Department = $136470= 53000 +total 49100 of $1.7 per direct labor hours
Assembling Department = $$ 90,410= 43000 +total 43100 of $ 1.10 per direct labor hours
Explanation:
When a fixed line intersects a vertical axis at the point of total budgeted cost line represents total cost of the activity . From this we can calculate the following.
Fabricating Assembling
Total Cost for 46100 DLH $131,370 $93,710
Fixed Costs (53000) (43,000)
Variable Costs 78370 50,710
Variable Cost Per hour 78370 / 46100 50,710 / 46100
= $ 1.7 = $1.10
Fabricating Assembling
Total DLH 49100 43100
Variable Cost Per hour $ 1.7 $1.10
Variable Costs $ 83470 $ 47410
Fixed Costs 53000 43,000
Total Budgeted Cost 136470 $ 90,410
