Answer:
the company's cost of equity capital is 14.75 %.
Explanation:
WACC = ke × (E/V) + kd × (D/V)
Where,
ke = cost of equity
= this is unknown
E/V = Weight of Equity
= 55%
kd = cost of debt
= Interest × ( 1 - tax rate)
= 12% × ( 1 - 0.40)
= 7.20 %
D/V = Weight of Debt
= 45%
Therefore,
WACC = ke × (E/V) + kd × (D/V)
11.35% = 55%ke + 7.20 % × 45%
11.35% = 55%ke + 3.24 %
55%ke = 8.11 %
ke = 14.75 %
Park Co. is considering an investment that requires immediate payment of $28,245 and provides expected cash inflows of $9,300 annually for four years. Assume Park Co. requires a 7% return on its investments.
Required:
a. What is the internal rate of return?
b. Based on its internal rate of return, should Park Co. make the investment?
Answer:
a) Internal rate of return (IRR) = 12.70 %
b) Park Co should make the return because the IRR is higher than the return on investment of 7%. This implies that undertaking the investment would increase the the wealth of the shareholders
Explanation:
The IRR is the discount rate that equates the present value of cash inflows to that of cash outflows. At the IRR, the Net Present Value (NPV) of a project is equal to zero
If the IRR greater than the required rate of return , we accept the project for implementation
If the IRR is less than that the required rate , we reject the project for implementation
IRR = a% + ( NPVa/(NPVa + NPVb)× (b-a)%
NPV = PV of cash inflow - initial cost
PV of cash inflow = A× (1- (1+r)^(-n) )/r
A- cash inflow , r- rate of return, n- number of years
Step 1 :
NPVa at 7%
NPV = (9300 × (1- 1.07^(-4)/0.07 ) - 28,245 = 3,256.06
Step 2:
NPVb at 20%
NPV = (9300 × (1- 1.07^(-4)/0.07 ) - 28,245 = (4,169.77)
Step 3 :
IRR = a% + ( NPVa/(NPVa + NPVb)× (b-a)%
= 7% + (3,256.06 /(3,256.06 + 4,169.77)) × (20-7)%= 12.70
IRR = 12.70%
a) Internal rate of return (IRR) = 12.70 %
b) Park Co should make the return because the IRR (12.70%) is higher than the return on investment of 7%. This implies that undertaking the investment would increase the the wealth of the shareholders
Compromising is most likely the best approach to conflict management when opponents with equal power are committed to mutually exclusive goals.
a. True
b. False
Answer:
true
Explanation:
when two opponents with equal power are committed to mutually exclusive goals then they have to reach a compromise.in a compromise, either of these two parties having a conflict would be willing to give up something to reach an agreement. The needs of both sides would be balanced, as both sides would have to make sacrifices. This makes it a lose-lose approach to conflict resolution for either parties involved. A compromise has to be reached for important goals to be achieved.
What is the standard deviation of a portfolio's returns if the mean return is 15%, and the variance of returns is 184
Answer:
Standard deviation =13.6
Explanation:
Standard deviation is measure of the total risks of an investment. It measures the volatility in return of an investment as a result of both systematic and non-systematic risks.
Non-systematic risk includes risk that are unique to a company like poor management, legal suit against the company .
Standard deviation is the sum of the squared deviation of the individual return from the mean return under different scenarios .
Further more, it can be calculated as the square root of the variance of the portfolio.
Standard deviation = √ variance
DATA
Variance = 184
Standard deviation = √184 = 13.6
Standard deviation =13.6
It costs your company $240 to produce pens and pencils together. To produce the same amount of pens and pencils separately costs $100 for the pens and $120 for the pencils. The production of pens and pencils exhibits:_______
a. diseconomies of scope
b. economies of scope.
c. increasing returns to scale.
d. constant returns to scale.
Answer:
b
Explanation:
Old Tired Professor Mullen, Inc. has $20,000 of ending (EI) finished goods inventory. If beginning (BI) finished goods inventory was $10,000 and Cost of Goods Sold (CGS) (OUT) was $40,000, how much would the Old Tired Professor report for Cost of Goods Manufactured (CGM) (IN)
Difference between beginning and ending CoG: 20,000-10,000 = 10,000
Difference + sold:
10,000 + 40,000 = 50,000
Answer: $50,000
You find a zero coupon bond with a par value of $10,000 and 21 years to maturity. The yield to maturity on this bond is 4.3 percent. Assume semiannual compounding periods.What is the price of the bond?
Answer:
Price of bond $4,092.49
Explanation:
Computation the price of the bond
Using this formula
Price of bond=Par value*1/(1+YTM/2)^(2*time period)
Where,
Par value=$10,000
1/(1+YTM/2)=1/(1+0.043/2)
(2*time period)=(2*21 years)
Let plug in the formula
Price of bond=$10,000*1/(1+0.043/2)^(2*21)
Price of bond=$10,000*1/(1.0215)^42
Price of bond=$10,000*(0.97895252)^42
Price of bond=$10,000*0.4092497467
Price of bond=$4,092.49
Therefore the price of the bond will be $4,092.49
Chaz and Dolly enter into a contract under which Chaz agrees to provide maintenance services for Dolly's Ski Resort. Duties under the contract may not be transferred if
Answer: d. any of the choices.
Explanation:
Chaz is not to transfer the duties to a third party if Dolly got into the agreement with Chaz for any of the following;
If Dolly places special trust in the ability of Chaz to perform the maintenance then that trust should not be broken by transferring the duties to a third party. Dolly went into that contract because they trusted in the abilities of Chaz.If Dolly went into the contract due to the personal skills or talents of Chaz, the duties against would be non-transferable. Chaz's skills were the reason the contract was signed, if these skills are not to be used then the contract will be baseless. By signing with Chaz, Dolly expects a certain level of performance. If the performance that will be made by a third contracting party is materially different from the one that Dolly would have expected from Chez, the duties will not be transferable.Rachel is hosting the neighborhood barbecue party at her house and decides to grill hotdogs. Last year, a package of hotdog buns costed $7 and a package of hotdogs costed $10 and Rachel had bought 15 packages of buns and 15 packages of hotdogs at that time.
Now the price of buns has increased to $8 a package, and the price of hotdogs remained at $10. Rachel decides she will only buy 10 packages of hotdogs this year.
Using the mid-point formula, the cross-price elasticity is __________ and the goods are __________.Rachel is hosting the neighborhood barbecue party at her house and decides to grill hotdogs. Last year, a package of hotdog buns costed $7 and a package of hotdogs costed $10 and Rachel had bought 15 packages of buns and 15 packages of hotdogs at that time.
Now the price of buns has increased to $8 a package, and the price of hotdogs remained at $10. Rachel decides she will only buy 10 packages of hotdogs this year.
Using the mid-point formula, the cross-price elasticity is __________ and the goods are __________.
Answer: -3, complements
Explanation:
Using the mid-point formula, the cross-price elasticity is 3 and the goods are Complementary Goods.
What is cross-price elasticity?Cross-price elasticity measures how sensitive a product's demand is to a change in a corresponding product price. Some goods in the market can frequently be related to one another. This could imply that an increase or decrease in the price of one product can have an impact on the demand for another. The cross elasticity of demand is an economic concept that measures how responsive one good's demand is when the price of another good changes. This measurement, also known as cross-price elasticity of demand, is calculated by dividing the percentage change in the quantity demanded of one good by the percentage change in the price of the other good. The cross elasticity of demand in economics refers to how sensitive demand for one product is to changes in the price of another.
Companies use the cross elasticity of demand to set prices for their goods. Because there is no cross-elasticity of demand to consider, products with no substitutes can be sold at higher prices. The cross elasticity of demand is used to strategically price complementary goods. Cross elasticity of demand assesses the relationship between two products when one of their prices changes. It depicts the relative change in demand for one product as the price of another increases or decreases.
What are Complementary Goods?A complementary good is a good whose appeal grows in proportion to the popularity of its complement. It has a negative cross elasticity of demand, which means that demand for it rises when the price of another good falls.
When two goods are complementary, they experience joint demand, which means that the demand for one good is linked to the demand for the other. As a result, if a greater quantity of one good is demanded, a greater quantity of the other will be demanded, and vice versa. For example, the demand for razor blades may be affected by the number of razors in use; this is why razors are sometimes sold as loss leaders in order to boost demand for the associated blades. Another example is when a toothbrush is given away free with toothpaste.
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_____ refers to the growth and spread of investment, trade, production, communication, and new technology around the world.
Answer:
Globalisation
Explanation:
Globalisation occurs when there is integration and interrelation between companies, governments, and people accross the globe. It is referred to as a capitalistic expansion where local individuals and businesses integrate into a global unregulated market.
Advanced in communication and transportation has also facilitated globalisation by easing flow of information and goods across different parties across the world.
Globalisation tends to result in spread of investment, trade, production, communication, and new technology around the world.
Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division’s return on investment (ROI), which has been above 20% each of the last three years. Derrick is considering a capital budgeting project that would require a $3,080,000 investment in equipment with a useful life of five years and no salvage value. Holston Company’s discount rate is 17%. The project would provide net operating income each year for five years as follows:
Sales $3,400,000
Variable expenses 1,450,000
Contribution margin 1,950,000
Fixed expenses:
Advertising, salaries, and other fixed
out-of-pocket costs $670,000
Depreciation 828,000
Total fixed expenses 1,498,000
Net operating income $452,000
Required:
a. Compute the project's net present value.
b. Compute the project's simple rate of return.
c. Would the company want Derrick to pursue this investment opportunity?
d. Would Derrick be inclined to pursue this investment opportunity?
Answer:
a. Project's net present value is $1,015,163.09
b. Simple rate of return is 15%
c. Yes. The reason is that the project has a positive net present value of $1,015,163.09.
d. No. The reason is that the simple rate of return of 15% obtained in part b is lower the division’s return on investment (ROI), which has been above 20% each of the last three years.
Explanation:
a. Compute the project's net present value.
To compute this, we first calculate the annual cash inflow as follows:
Annual cash inflow = Net operating income + Depreciation = $452,000 + $828,000 = $1,,280,000
Now, the project's net present value can be calculated using the formula for calculating the present of an ordinary annuity as follows:
PV = P * [{1 - [1 / (1 + r)]^n} / r] …………………………………. (1)
Where;
PV = Present value of the annual cash flow = ?
P = Annual cash inflow = $1,280,000
r = Discount rate = 17%, or 0.17
n = Equipment useful years = 5
Substitute the values into equation (1) to have:
PV = $1,280,000 * [{1 - [1 / (1 + 0.17)]^5} / 0.17]
PV = $4,095,163.09
Project's net present value = PV - Project's initial investment = $4,095,163.09 - $3,080,000 = $1,015,163.09
b. Compute the project's simple rate of return
This can be computed as follows:
Simple rate of return = Net operating income / Initial investment = $452,000 / $3,080,000 = 0.15, or 15%
c. Would the company want Derrick to pursue this investment opportunity?
Yes. The reason is that the project has a positive net present value of $1,015,163.09.
Note that had it been the net present value of the project was negative, the company would not want to Derrick to pursue this investment opportunity since the decision of the company is based on whether the project's NPV is positive or negative.
d. Would Derrick be inclined to pursue this investment opportunity?
No. The reason is that the simple rate of return of 15% obtained in part b is lower the division’s return on investment (ROI), which has been above 20% each of the last three years.
Pursuing this investment opportunity will therefore reduce the Overall ROI of the division and Derrick will not get annual pay raises if this happens.
Vijay Inc. purchased a 3-acre tract of land for a building site for $420,000. On the land was a building with an appraised value of $120,000. The company demolished the old building at a cost of $12,000, but was able to sell scrap from the building for $1,500. The cost of title insurance was $900 and attorney fees for reviewing the contract was $500. Property taxes paid were $3,000, of which $500 covered the period subsequent to the purchase date. The capitalized cost of the land is:
Answer:
$433,900
Explanation:
The computation of the capitalized cost of the land is shown below:-
Capitalized cost of the land = Purchase price + Demolition of building + Title insurance + Attorney fee + Property taxes covered during the period - Scrap value from the building
= $420,000 + $12,000 + $900 + ($3,000 - $500) - $1,500
= $420,000 + $12,000 + $900 + $2,500 - $1,500
= $435,400 - $1,500
= $433,900
Which of the following statements about collateral contracts is true? Group of answer choices The guarantor promises to pay only if the principal debtor fails to do so. The principal debtor's debt is secondary. A collateral contract involves three parties and one promise to perform. The guarantor's debt is primary.
Answer:
The principal debtor's debt is secondary
Explanation:
The collateral contracts involves three parties and one promise to perform.
What is a Collateral Contract?A collateral contract is a separate contract which exists beside the main contract. Largely, where a written contract, the term of agreement base on the contract.
The collateral contracts are independent oral or written contracts that are made between two parties to a separate agreement or between one of the original parties and a third party.
This type of contract is usually made before or simultaneously with the original contract.
A collateral contract is a secondary agreement added to the original contract that is meant to ensure that the pre-contract promise are met.
Collateral contracts contain terms that conflict with the terms of the primary agreement.
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The total amount paid on a 35 year loan was $98,000. If the interest rate was 4.1% and compounded monthly, what was the principal
Answer:
Principal = $23,392.45
Explanation:
To solve this, we are required to find a certain amount invested for 35 years at an interest rate of 4.1% compounded annually, yielding $98,000.
The formula for compounded interest is used, and this is done as follows:
[tex]FV=PV(1+\frac{r}{n} )^{nt}\\Where:\\FV=Future\ value\ =\ \$98,000\\PV= Present\ value\ =\ ???\\r= interest\ rate\ = 4.1\%=0.041\\n = number\ of\ compounding\ periods\ per\ year\ = monthly\ = \ 12\\ t= time\ =\ 35\ years[/tex]
[tex]98000=PV(1+\frac{0.041}{12} )^{(12\times35)}\\98000=PV(1+0.003417)^{420}\\98000=PV(1.003416667)^{(420)}\\98000=PV(4.189386)\\PV= \frac{98000}{4.189386} \\\\=PV= \$23,392.45[/tex]
Therefore, the principal is approximately $23,392
In which exchange rate system is the exchange rate determined entirely by the supply of and demand for a currency
Answer: Floating exchange rate system.
Explanation:
Floating exchange rate system is one in which the exchange rate is determined entirely by the supply of and demand for a currency.
In floating exchange rate system, the value of a currency fluctuates based on the happeninge that occur in the foreign exchange market.
Answer:
Managed -> exchange rate determined by both government intervention and supply and demand
Floating -> exchange rate determined by demand and supply of foreign currency
Fixed -> exchange rate pegged to the value of another nation's currency
Explanation:
"When The Bank of Bank County borrows funds from the Federal Reserve; the rate the Fed charges the commercial bank is called the _____ rate."
Answer: Bank Rate/ Discount Rate
Explanation:
The Bank Rate is the interest rate that the Fed as the country's Central Bank charges commercial banks when they borrow money from it. The loans given are usually short term in nature.
The Bank Rate is a very useful tool in Monetary Policy by the Central Bank. If the Fed for instance would like to increase Economic activity by injecting cash into the economy, they can lower the bank rate and thus encourage more banks to loan money from them which will then be loaned to the public. If the Fed wanted to decrease Economic activity, the reverse would hold true.
A company retired $80 million of its 10% bonds at 104 ($83.2 million) before their scheduled maturity. At the time, the bonds had a remaining discount of $2 million. Prepare the journal entry to record the redemption of the bonds. (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5). If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Answer:
Dr Bonds payable 80.0
Dr Loss on early extinguishment 5.2
Cr Discount on bonds payable 2.0
Cr Cash 83.2
Explanation:
Preparation of the journal entry to record the redemptionnof the bonds
Based on the information given we were told that the company retired the amount of $80 million with a 10% bonds at 104 ($83.2 million) and as well had a remaining discount of $2 million, which means that the transaction will be recorded as:
Dr Bonds payable 80.0
Dr Loss on early extinguishment 5.2
[(83.2+2.0)-80.0]
Cr Discount on bonds payable 2.0
Cr Cash 83.2
I am buying a firm with an expected perpetual cash flow of $700 but am unsure of its risk. If I think the beta of the firm is 0, when the beta is really 1, how much more will I offer for the firm than it is truly worth? Assume the risk-free rate is 7% and the expected rate of return on the market is 14%. (Input the amount as a positive value.)
Answer:
$50
Explanation:
using the CAPM,
The expected rate of return = risk free rate + beta(market rate of return - risk free rate)
if beta is 0,
7% + 0 X(14% - 7%) = 7%
If beta is 1,
7% + 1 X(14% - 7%) = 14%
Present value of a perpetuity = amount / expected rate of return
if beta is 0, present value = $700 / 7% = $100
if beta is 1, present value = $700 / 14% = $50
the amount offered will differ by $100 - $50 = $50
Explain the manufacturing flow management process and the relationship among manufacturers' production capabilities and costs, suppliers, shippers, and demand for goods. Briefly define and explain the differences between lean and agile supply chain strategies.
Answer:
The difference between lean and agile is the fluidity with the response to the market. A lean supply chain focuses on cutting costs by producing high volumes of products with low variability. An agile supply chain focuses on responding to the market demand with smaller, customizable batches of items.
A lean supply chain prioritizes cost reduction by producing goods in large quantities and with little variation. An agile supply chain focuses on producing things in smaller, more individualized quantities in response to market demand.
What is a supply chain?The entire process from when a consumer places an order to when the goods or service is delivered and paid for is known as the supply chain. The value and supply chains are coordinated and optimized by the supply chain manager.
He is in charge of ensuring the flawless operation of every process, from the acquisition of raw materials to production, logistics, and client delivery.
As a result, the company, its customers, and its customers' customers are all included in the supply chain. A supply network accounts for the possibility that one of the providers is also a supplier to a customer or even the final consumer.
The monitoring of all resources, data, and finances used in the production process, from the supplier to the manufacturer to the merchant and consumer, is referred to as supply chain management (SCM) or supply chain management.
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Harvey’s Hardware is thinking about starting a line of lawnmowers to serve its customer base in the summer. The lawnmowers would be priced at $100 and Harvey the manager believes that they would sell 3 units. They have the following estimated costs.
Units Produced Labor Cost Total cost
0 0 100
1 50 150
2 100 200
3 200 300
4 350 450
What is the marginal cost of producing the third unit?
a. $400
b. $300
c. $200
d. $100
Answer:
Harvey's Hardware
Marginal cost of producing the third lawnmowers:
d. $100
Explanation:
Harvey's marginal cost for producing the third unit of lawnmowers is the additional cost that resulted when the total cost increased from $200 to $300. However, it can be deciphered from the case that the marginal cost for Harvey, which it is supposed to be a variable cost, is traceable to the direct labor costs. This implies that the fixed cost element for Harvey in the production of the lawnmowers has been relatively fixed at $100. It does not vary with the volume of production, while the direct labor costs vary with the volume of lawnmowers produced by Harvey.
Which of the following costs should not be included in product costs for internal management reports that are used for decision-making?
Answer: d. Cost of organization sustaining activities
Explanation:
Organization sustaining activities are those undertakings that have to be made if a company can keep operating. Examples include; property taxes, insurance, information filing with Government agencies and etc.
These activities are therefore not directly linked to the production process as they are not related to a single product and so should not be included in product costs for internal management reports which will be used for decision-making.
Endor Company begins the year with $110,000 of goods in inventory. At year-end, the amount in inventory has increased to $118,000. Cost of goods sold for the year is $1,300,000. Compute Endor’s inventory turnover and days’ sales in inventory. Assume that there are 365 days in the year
Answer:
11.40
32 days
Explanation:
Inventory turnover and days of sales of inventory are examples of activity ratios.
They are used to measure the efficiency of performing daily tasks
inventory turnover = Cost of goods sold/ average inventory
Average inventory = ($118,000 + $110,000) / 2 = $114,000
Inventory turnover = $1,300,000 / $114,000 = 11.40
days of sales of inventory = 365 / inventory turnover = 365 / 11.40 = 32 days
Script, Inc., has two product lines. The September income statements of each product line and the company are as follows: SCRIPT, INC. Product Line and Company Income Statements For Month of September Pens Pencils Total Sales $30,000 $30,000 $60,000 Less variable expenses (12,000) (12,000) (24,000) Contribution margin 18,000 18,000 36,000 Less direct fixed expenses (9,000) (7,000) (16,000) Product margin $9,000 $11,000 20,000 Less common fixed expenses (6,000) Net income $14,000Pens and pencils are sold in two territories, Florida and Alabama, as follows: Florida AlabamaPen sales $18,000 $12,000Pencil sales 9,000 21,000Total sales $27,000 $33,000The common fixed expenses are traceable to each territory as follows:Florida fixed expenses $2,000Alabama fixed expenses 3,000Home office administration fixed expenses 1,000Total common fixed expenses $6,000The direct fixed expenses of pens, $9,000, and of pencils, $7,000, cannot be identified with either territory. The company's accountants were unable to allocate any of the common fixed expenses to the various segments.Required:Prepare income statements segmented by territory for September.
Answer:
Script, Inc.
Territory and Company Income Statements
For the Month of September
Florida$ Alabama$ Company Total$
Sales
Pens 18000 12000 30000
Pencils 9000 21000 30000
Total sales [A] 27000 33000 60000
Variable cost
Pens 7200 4,800 12000
[18000*.4] [12000*.4]
[12000 Variable cost / 30000 = 0.40 per pen ]
Pencils 3600 8400 12000
[9000*.4] [21000*.4]
[12000 Variable cost /30000 = 0.4 per pencil]
Total var. cost [B] 10800 13200 24000
Contribution A-B 16200 19800 36000
D. fixed expenses 2000 3000 5000
Territory margin 14200 16800 31000
Common fixed expenses
Pen 9000
Pencil 7000
Home office 1000
Total 17,000 (17000)
Net income 14000
A firm has a long-term debt-equity ratio of .4. Shareholders’ equity is $1 million. Current assets are $200,000, and the current ratio is 2. The only current liabilities are notes payable. What is the total debt ratio?
Answer:
Total debt ratio is 33.33%
Explanation:
A long term debt to equity ratio of 0.4 tells that the value of long term debt is 0.4 or 40% of the value of the equity. If the value of the equity is $1 million, the value of long term debt is,
Long term debt = 0.4 * 1000000 = $400000
A current ratio is calculated by dividing the current assets by the current liabilities. It tells how many current assets are available to satisfy $1 of current liabilities. A current ratio of 2 means that for every $1 of current liability, $2 of current assets are available. Thus, current liabilities are half of current assets. If the value of current assets is $200000, the value of current liabilities is,
Current liabilities = 200000 * 1/2 = $100000
Total liabilities = 400000 + 100000 = $500000
A debt ratio is calculated by dividing the value of total debt or total liabilities by the value of total assets.
Total assets = total liabilities + total equity
Total assets = 500000 + 1000000
Total assets = $1500000 or $1.5 million
Total debt ratio = 500000 / 1500000
Total debt ratio = 1/3 or 0.3333 or 33.33%
The_______hypothesis postulates that top managers typicalljy overstate their ability to create value from acquisition primarily because rising to the top of a corporation has given then an exaggerated sense of the own capabilities.
a. recognition.
b. optimistic.
c. hybrid.
d. hubris.
Answer:
Option D
Hubris hypothesis
Explanation:
The hubris hypothesis attempts to explain the effect of overconfidence at a managerial level, and how it affects business practices negatively. It can lead to several actions like rash decisions, expensive company acquisitions, and buy-outs e.t.c.
In summary, it tries to explain the effect of pride on clear reasoning and progress at a managerial level in companies.
Therefore, it fits perfectly into the sentence in the question above, as the question is explaining the effect of pride on the performance of newly promoted managers.
Option D is the correct answer
The Rhaegel Corporation’s common stock has a beta of 1.2. If the risk-free rate is 4.3 percent and the expected return on the market is 13 percent, what is the company’s cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Answer:
Cost of equity = 14.74%
Explanation:
The capital asset pricing model is a risk-based model for estimating the return on a stock..
Here, the return on equity is dependent on the level of reaction of the the equity to changes in the return on a market portfolio. These changes are captured as systematic risk.
Systematic risks are those which affect all economic actors in the market, they include factors like changes in interest rate, inflation, etc. The magnitude by which a stock is affected by systematic risk is measured by beta.
Under CAPM,
E(r)= Rf + β(Rm-Rf)
E(r)- cost of equity , Rf-risk-free rate , β= Beta, Rm= Return on market.
Using this model, we can work out the value of beta as follows:
β-1.2 Rf- 4.3%, Rm = 13%
E(r) = 4.3% + 1.2 × (13 - 4.3)%=14.74 %
Expected return = 14.74 %
Cost of equity = 14.74%
Which of the following is an advantage of the corporate form of business? A. limited liability of stockholders B. less degree of government regulation C. separation of ownership and management D. low start-up costs
Answer: Limited liability of stockholders
Explanation:
Limited liability in a corporate fo.of business means that the shareholders will be legally responsible for debts of a company based on the on their share's nominal value.
This is an advantage of the corporate form of business along with the easy generation of huge equity.
Quantitative Problem 1: Hubbard Industries just paid a common dividend, D0, of $1.50. It expects to grow at a constant rate of 2% per year. If investors require a 8% return on equity, what is the current price of Hubbard's common stock? Do not round intermediate calculations. Round your answer to the nearest cent. $ per share
Answer:
The current price of Hubbard's common stock is $25.50.
Explanation:
This can be calculated using the Gordon growth model (GGM) formula that assumes growth is dividend will be constant as follows:
P = D1/(r - g) ............................ (1)
Where,
P = Current stock price = ?
D1 = Next dividend = D0 * (1 + g) = $1.50 * (1 + 2%) = $1.53
r = required return = 8%, or 0.08
g = growth rate = 2%, or 0.02
Substituting the values into equation (1), we have:
P = $1.53 / (0.08 - 0.02) = $25.50
Therefore, the current price of Hubbard's common stock is $25.50.
A food manufacturer reports the following for two of its divisions for a recent year.
($millions) Beverage Division Cheese Division
Invested assets, beginning $ 2,662 $ 4,455
Invested assets, ending 2,593 4,400
Sales 2,681 3,925
Operating income 349 634
1. Compute return on investment.
2. Compute profit margin.
3. Compute investment turnover for the year.A food manufacturer reports the following for two of its divisions for a recent year.
Answer and Explanation:
1. Return on investment is
= Operating Income ÷ Average invested Assets
here, average invested assets is
= (Invested assets, beginning + Invested assets, ending) ÷ 2
For Beverage Division
= $349 ÷ (($2,662 + $2,593) ÷ 2)
= $349 ÷ $2,628
= 13.28%
For Cheese Division
= $634 ÷ (($4,455 + $4,400) ÷ 2)
= $634 ÷ $4,428
= 14.32%
2. Profit margin = (Operating income ÷ sales) × 100
For Beverage Division
= ($349 ÷ $2,681) × 100
= 13.02%
For Cheese Division
= ($634 ÷ $3,925) × 100
= 16.15%
3. Investment turnover = Sales ÷ Average Operating Assets
For Beverage Division
= $2,681 ÷ (($2,662 + $2,593) ÷ 2)
= $2,681 ÷ $2,628
= 1.02 times
For Cheese Division, it would be
= $3,925 ÷ (($4,455 + $4,400) ÷ 2)
= $3,925 ÷ $4,428
= 0.89 times
Members of the board of directors of have received the following operating income data for the year just ended:
Safety Step Income Statement For the Year Ended May 31, 2018,
Product Line
Industrial Household
Systems Systems Total
Net Sales Revenue $310,000 $330,000 640,000
Cost of Goods Sold
Variable 33,000 48,000 81,000
Fixed 230,000 68,000 298,000
Total Cost of Goods Sold 263,000 116,000 379,000
Gross Profit 47,000 214,000 261,000
Selling and Administrative Expenses
Variable 68,000 72,000 140,000
Fixed 43,000 28,000 71,000
Total Selling and Administrative Expenses 111,000 100,000 211,000
Operating Income (Loss) $(64,000) $114,000 $50,000
Members of the board are surprised that the industrial systems product line is losing money. They commission a study to determine whether the company should discontinue the line. Company accountants estimate that dropping industrial systems will decrease the fixed cost of goods sold by $82,000 and decrease fixed selling and administrative expenses by $15,000.
Required:
a. Prepare a differential analysis to show whether Safety Step should drop the industrial systems product line.
b. Prepare contribution margin income statements to show Safety Step's total operating income under the two alternatives: (a) with the industrial systems line and (b) without the line. Compare the difference between the two alternatives' income numbers to your answer to Requirement 1.
c. What have you learned from the comparison in Requirement 2?
Answer:
a) with industrial without industrial differential
systems systems amount
sales revenue 640,000 330,000 (310,000)
variable COGS (81,000) (48,000) 33,000
fixed COGS (298,000) (216,000) 82,000
gross profit 261,000 66,000 (195,000)
variable S&A (140,000) (72,000) 68,000
fixed S&A (71,000) (56,000) 15,000
operating 50,000 (62,000) (112,000)
income
b) contribution margin income statements:
with industrial systems
Sales revenue $640,000
- Variable COGS ($81,000)
- Variable S&A ($140,000)
Contribution margin $419,000
- Fixed COGS ($298,000)
- Fixed S&A ($71,000)
Operating income $50,000
without industrial systems
Sales revenue $330,000
- Variable COGS ($48,000)
- Variable S&A ($72,000)
Contribution margin $210,000
- Fixed COGS ($216,000)
- Fixed S&A ($56,000)
Operating loss ($62,000)
c) sometimes certain product lines help to amortize fixed costs and even though they are not profitable by themselves, without them, the company's operating profits and net income could be negatively affected.
Your parents put $300 into an account paying 11 percent interest for you when you were ten. Ten years later they tell you that you can take the money out of the account. What is the balance to the nearest penny
Answer:
The balance in the account = $851.8
Explanation:
The future value of a lump sum is the amount expected at a future date when a sum of money is invested today at a particular rate of interest for certain number of years
.
This implies compounding the initial amount invested ($300) at the given interest rate(11%) for 10 years.This will be done as follows:
FV = PV × (1+r)^(n)
FV-Future value
r- rate of return per period
n- Number of period
PV - 300
r-11%
DATA
FV- ?
PV - 300
n- 10
FV= 300 × 1.11^10 = 851.83
The balance in the account = $851.8