Answer: Created by investors and traded on various exchanges
Explanation:
Call options are contracts that give the buyer the right to buy the underlying assets of the option on a particular date at a set price by exercising the option. American Call options can be exercised anytime before the date listed in the contract as well.
Call options are created by people who already own stock in the company i.e investors in IBM and traded on various exchanges such as the Chicago Board Options Exchange. It acts as a supplementary way to make income from stock if the investors do not believe that the stock price will go up thus enabling them to make income from the contract price.
A question that respondents can answer in an almost unlimited number of ways is called a ____ question.
Answer:
open question
Explanation:
An open question allows each respondent to interpret the final answer differently.
The declaration, record, and payment dates in connection with a cash dividend of $77,000 on a corporation's common stock are October 1, November 7, and December 15.
Required:
Journalize the entries required on each date.
Answer:
Oct 1
Dr Cash Dividend $77,000
Cr Dividend Payable $77,000
Nov 7
No Entry required on the record date
Dec 15
Dr Dividend Payable $77,000
Cr Cash
Explanation:
Preparation of the Journal entries for each date
Based on the information given we were told that the cash dividend of the amount of $77,000 was a corporation's common stock are October 1, November 7, and December 15 which means that the transaction will be recorded as:
Oct 1
Dr Cash Dividend $77,000
Cr Dividend Payable $77,000
Nov 7
No Entry required on the record date
Dec 15
Dr Dividend Payable $77,000
Cr Cash
The risk-free rate is 6% and the expected rate of return on the market portfolio is 13%. a. Calculate the required rate of return on a security with a beta of 1.25.
Answer:
The required rate of return is r = 0.1475 or 14.75%
Explanation:
The required rate of return is the minimum return that investors demand/expect on a stock based on the systematic risk of the stock as given by the beta. The expected or required rate of return on a stock can be calculated using the CAPM equation.
The equation is,
r = rRF + Beta * (rM - rRF)
Where,
rRF is the risk free raterM is the return on marketr = 0.06 + 1.25 * (0.13 - 0.06)
r = 0.1475 or 14.75%
Kelley Company reports $1,250,000 of net income for 2017 and declares $175,000 of cash dividends on its preferred stock for 2017. At the end of 2017, the company had 380,000 weighted-average shares of common stock. 1. What amount of net income is available to common stockholders for 2017
Answer:
Net income available to common stockholders is $1,075,000
Explanation:
Net Income $1,250,000
To Preferred Shareholders $175,000
Net income available to $1,075,000
common stockholders
Basic earnings per share = Net income available to common stockholders / weighted average shares of common stock
Basic earnings per share = $1,075,000 / 380,000
Basic earnings per share = $2.8290 per share.
In the basic EOQ model, an annual demand of 40 units, an ordering cost of $5, and a holding cost of $1 per unit per year will result in an EOQ of:
Answer:
20
Explanation:
The formula for Economic order quantity ( EOQ ) = √2DS/H,
Where,
D annual demand = 40 units
S Ordering cost = $5
H Holding cost = $1
Hence ,
EOQ = √ 2 × 40 units × $5 / 1$
= √ $400 / $1
= 20
Nordquist Company's net income last year was $44,000. The company did not sell or retire any property, plant, and equipment last year. Changes in selected balance sheet accounts for the year appear below:
Increases
(Decreases)
Asset and Contra-Asset Accounts:
Accounts receivable $17,500
Inventory $(4,400)
Prepaid expenses $13,000
Accumulated depreciation $32,000
Liability Accounts:
Accounts payable $17,000
Accrued liabilities $(8,900)
Income taxes payable $3,500
Based solely on this information, the net cash provided by operating activities under the indirect method on the statement of cash flows would be:
a) $78,600
b) $113,700
c) $61,500
d) $26,500
Answer:
Explanation:
c) $61,500
Particulars Amount$
Net Income 44,000
Add Decrease in Inventory 4,400
Add Accumulated Depreciation 32,000
Add Increase in Accounts Payable 17,000
Add Increase in Taxes Payable 3,500
Less Increase in Accounts Receivables (17500)
Less Increase in Prepaid Expenses (13,000)
Less Decrease in Accrued Liabilities (8,900)
Net cash provided by operating activities $61,500
under the indirect method
On November 15, 20X3, Chow Inc., a U.S. company, ordered merchandise FOB shipping point from a German company for €200,000. The merchandise was shipped and invoiced on December 10, 20X3. Chow paid the invoice on January 10, 20X4. The spot rates for euros on the respective dates were
Answer:
$4,000 gain
Explanation:
Some information was missing:
the spot rates for euros were:
November 15, 20X3 $0.4955 per €1 December 10, 20X3 $0.4875 per €1December 31, 20X3 $0.4675 per €1January 10, 20X4 $0.4475 per €1In Chow's December 31, 20X3, income statement, the foreign exchange gain is ?
the goods costed €200,000 x 0.4875 = $97,500 on December 10, 20x3
the goods costed €200,000 x 0.4675 = $93,500 on December 31, 20x3
Since the goods were sold FOB shipping point, we have to use the shipping date (December 10) to calculate the original price. By December 31, the price in US dollars had decreased by $4,000 resulting in a foreign exchange gain.
The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n)
Answer:
Operating Activity
Explanation:
The Indirect method, reconciles the Operating Profit to the Operating Cash Flow by adjusting the following items (1) Non Cash flow items previously added or deducted from Operating Profit and (2) Changes in Working Capital items.
Amortization of bond premium is an item of non-cash flow that was previously deducted from Operating Profit and needs to be added back.
Avia Company sells a product for $150 per unit. Variable costs are $110 per unit, and fixed costs are $1500 per month. The company expects to sell 660 units in September. The unit contribution margin is ________.
Answer:
"$40 per unit" is the right solution.
Explanation:
Given:
Selling price per unit,
= $150
Variable cost per unit,
= $110
Fixed costs per month,
= $1500
The unit contribution margin will be:
= [tex]Selling \ price - Variable \ cost[/tex]
= [tex]150-110[/tex]
= [tex]40[/tex] ($) per unit
The Treasury bill rate is 4% and the market risk premium is 7%.
Project Beta Internal rate of return %
P 1.0 14
Q 0 6
R 2.0 18
S 0.4 7
T 1.6 20
Required:
a. What are the project costs of capital for new ventures with betas of 0.75 and 1.75?
b. Which of the following capital investments have positive NPVs?
1. P
2. Q
3. R
4. S
5. T
Answer:
the answer is going to be 3. R
Too Young, Inc., has a bond outstanding with a coupon rate of 7 percent and semiannual payments. The bond currently sells for $951 and matures in 23 years. The par value is $1,000. What is the company's pretax cost of debt?
Answer:
The company's pretax cost of debt is 7.45 %.
Explanation:
When it comes to bonds, the cost of debt is the required return on the bond known as the Yield to Maturity (YTM) of the bond.
The Yield to Maturity (YTM) of the bond can be determined as follows :
N = 23 × 2 = 46
PV = $951
Pmt = ($1,000 × 7 %) ÷ 2 = - $35
P/YR = 2
FV = - $1,000
YTM = ?
Using a Financial Calculator, the Yield to Maturity (YTM) of the bond is 7.4484 or 7.45 %
Therefore,
The company's pretax cost of debt is 7.45 %.
Tatham Corporation produces a single product. The standard costs for one unit of its Clan product are as follows:
Direct materials (8 pounds at $0.70 per pound) $5.60
Direct labor (2 hours at $8 per hour) 16.00
Variable manufacturing overhead
(2 hours at $7 per hour) 1,400
Total 3,560
During November Year 2, 3,500 units of Clan were produced. The costs associated with November operations were as follows:
Material purchased (35,000 pounds at $0.80 per pound) 28,000
Material used in production (31,500 pounds)
Direct labor (7,500 hours at $7.50 per hour) 56,250
Variable manufacturing overhead incurred 55,500
What is the variable overhead efficiency variance for Clan for November Year 2?
1. $3,500 favorable.
2. $3,500 unfavorable.
3. $4,000 favorable.
4. $4,000 unfavorable.
Answer:
$3,500 Unfavorable
Explanation:
The computation of variable overhead efficiency variance for Clan for November Year 2 is shown below:-
Variable overhead efficiency variance
= (Standard labor hours - actual labor hours) × (Standard variable overhead rate)
= (3,500 × 2 - 7,500) × $7
= (7,000 - 7,500) × $7
= $3,500 Unfavorable
Therefore for computing the Variable overhead efficiency variance we simply applied the above formula.
The following data were taken from the balance sheet of Nilo Company at the end of two recent fiscal years: Current Year Previous Year Current assets: Cash $655,500 $546,000 Marketable securities 759,000 614,300 Accounts and notes receivable (net) 310,500 204,700 Inventories 1,039,500 674,100 Prepaid expenses 535,500 430,900 Total current assets $3,300,000 $2,470,000 Current liabilities: Accounts and notes payable (short-term) $435,000 $455,000 Accrued liabilities 315,000 195,000 Total current liabilities $750,000 $650,000 a. Determine for each year (1) the working capital, (2) the current ratio, and (3) the quick ratio. Round ratios to one decimal place.
Answer:
1. Previous Year = $1,820,000, Current Year = $2,550,000
2. Previous Year = 3.80 times , Current Year = 4.40 times
3. Previous Year = 2.70 times, Current Year = 3.00 times
Explanation:
working capital = current assets - current liabilities
working capital (Previous Year) = $2,470,000 - $650,000
= $1,820,000
working capital (Previous Year) = $3,300,000 - $750,000
= $2,550,000
Current ratio = current assets ÷ current liabilities
working capital (Previous Year) = $2,470,000 ÷ $650,000
= 3.80 times
working capital (Previous Year) = $3,300,000 ÷ $750,000
= 4.40 times
Quick ratio = (current assets - inventory) ÷ current liabilities
working capital (Previous Year) = ($2,470,000 - 674,100) ÷ $650,000
= 2.70 times
working capital (Previous Year) = ($3,300,000 - 1,039,500) ÷ $750,000
= 3.00 times
Quantitative Problem 1: Assume today is December 31, 2017. Barrington Industries expects that its 2018 after-tax operating income [EBIT(1 – T)] will be $450 million and its 2018 depreciation expense will be $65 million. Barrington's 2018 gross capital expenditures are expected to be $110 million and the change in its net operating working capital for 2017 will be $30 million. The firm's free cash flow is expected to grow at a constant rate of 4.5% annually. Assume that its free cash flow occurs at the end of each year. The firm's weighted average cost of capital is 9%; the market value of the company's debt is $3 billion; and the company has 180 million shares of common stock outstanding. The firm has no preferred stock on its balance sheet and has no plans to use it for future capital budgeting projects. Using the free cash flow valuation model, what should be the company's stock price today (December 31, 2017)? Do not round intermediate calculations. Round your answer to the nearest cent. $ per share
Answer:
$29.630
Explanation:
For computation of stock price first we need to follow some steps which is shown below:-
Free cash flow = EBIT (1 - T) + Depreciation - Capital expenditure - Working capital
= $450 million + $65 million - $110 million - $30 million
= $375 million
Value of firm = Free cash flow ÷ (WACC - Growth)
= $375 million ÷ (9% - 4.5%)
= $375 million ÷ 0.045
= $8,333.33 million
Value of equity = Value of firm - Value of debt
= $8,333.33 million - $3,000 million
= $5,333.33 million
Stock price = Value of equity ÷ Outstanding shares
= $5,333.33 million ÷ 180 million
= $29.630
Cole Co. began constructing a building for its own use in January 20X3. During 20X3, Cole incurred interest of $50,000 on specific construction debt, and $20,000 on other borrowings. Interest computed on the weighted-average amount of accumulated expenditures for the building during 20X3 was $40,000. What amount of interest cost should Cole capitalize
Answer: $40,000
Explanation:
When capitalizing Interest for a PPE, accounting procedure is that one looks at the actual interests incurred vs the interest computed on the weighted-average amount of accumulated expenditures for the PPE and then pick the lower of the two for capitalization.
The actual interest incurred is;
= 50,000 + 20,000
= $70,000
The Interest computed on the weighted-average amount of accumulated expenditures for the building during 20X3 = $40,000. This is the lower one and so will be the amount capitalized.
NoGrowth Corporation currently pays a dividend of per quarter, and it will continue to pay this dividend forever. What is the price per share of NoGrowth stock if the firm's equity cost of capital is ?
Answer: $18.88
Explanation:
The dividends are being paid quaterly so in other to use those dividends, the cost of capital will have to be converted to a quaterly rate as well.
[tex]( 1 + r )^{4} = 1.124[/tex]
r = [tex]\sqrt[4]{1.124} - 1[/tex]
r = 2.966%
Using the Dividend discount model, the price per share is;
= Next Dividend / ( cost of capital - growth rate)
= 0.56 / 0.02966
= $18.88
Note; there is no growth rate as the company will pay that dividend forever.
A company's Office Supplies account shows a beginning balance of $720 and an ending balance of $640. If office supplies expense for the year is $3,700, what amount of office supplies was purchased during the period
Answer:
Purchases= $3,620
Explanation:
Giving the following information:
Beginning inventory= $720
Ending inventory= $640
Purchase= ?
Used in the period= $3,700
To calculate the purchases, we need to use the following formula:
Purchases= used in the period + desired ending inventory - beginning inventory
Purchases= 3,700 + 640 - 720
Purchases= $3,620
justify that business is an integral part of human activity
Answer:
Business is a source of resources to people enabling them to live.
The expected before-tax IRR on a potential real estate investment is 14 percent. The expected after-tax IRR is 10.5 percent. What is the effective tax rate on this investment?
Answer:
25%
Explanation:
The expected before-tax IRR on a potential real estate investment is 14%
The expected after-tax IRR is 10.15%
Therefore, the effective tax rate on this investment can be calculated as follows
Effective tax rate= 1-(after-tax IRR/before-tax IRR)
Effective tax rate= 1-(10.15/14)
= 1-0.75
= 0.25×100
= 25%
Hence the effective tax rate is 25%
g Builtrite has calculated the average cash flow to be $16,000 with a standard deviation of $4000. What is the probability of a cash flow being greater than $11,000? (Assume a normal distribution.)
Answer:
89.44%
Explanation:
As we know that:
Z = (Cash Flow - Mean) / Standard Deviation
Here
Cash flow is the observed value which is the lower limit here and is $11,000
Mean is the average value of the sample and is $16,000
Standard Deviation is $4,000
By putting values, we have:
Z = ($11,000 - $16,000) / $4,000
= -1.25
The Z value lower than -1.25 is 0.1056 or 10.56%
This means that the probability of cash flow lower than $11,000 is 10.56% and the probability of cash flow greater than $11,000 will be
Probability of cash flow = (1- 0.1056) = 0.8944 which is 89.44%
In material requirement planning calculations, gross requirements for finished products are taken from ________________________.
Answer:
Forecasted sales
Explanation:
In the production process amount of inventory purchased for producing goods must be carefully calculated.
This avoids waste incurred from buying excess of materials needed for operation. Also when there is shortage of materials time and resources are wasted getting more materials.
So when calculating material requirements for finished products it is important that we consider sales forecasts.
Materials purchased based on this will just adequately meet the demand for product.
This reduce cost of storage of excess materials.
Hawk Corporation purchased 10,000 Diamond Corporation bonds in 2015 for $55 per bond and classified the investment as securities available for sale. The value of the Diamond investment was $85 per bond on December 31, 2016, and $97 on December 31, 2017. During 2018, Hawk sold all of its Diamond investment at $147 per bond. In its 2018 income statement, Hawk would report:_________.
Answer:
Gain of $920,000
Explanation:
Calculation for what Hawk would report In its 2018 income statement.
First step is the adjustment of Hawk accumulation of unrealized holding gain and fair value for 205-2017
Unrealized holding gain and fair value Adjustment=($97- 55) × 10,000 shares
Unrealized holding gain and fair value Adjustment=$42×10,000 shares
Unrealized holding gain and fair value Adjustment= $420,000
Second step is to find the additional increase that occurred in 2018
Additional increase=($147-$97)×10,000 shares
Additional increase=50×10,000 shares
Additional increase =$500,000
Last step is to find the total gain realized in the income statement
Total gain realized=$500,000+$420,000
Total gain realized=$920,000
Therefore what Hawk would report In its 2018 income statement will be a gain of $920,000
you are forming a new company that delivers food to residents across college campuses. the primary focus is
Answer:
your primary focus should be on making sure that your system works
Explanation:
When doing this your primary focus should be on making sure that your system works. Meaning that you need to make sure that you have all of the necessary equipment to get the deliveries out on time and everything worked out so that you can assure customer satisfaction. Otherwise, customers will begin to review your company badly and as dysfunctional, which will destroy your business before it can even get started.
Today, Li has $900,000 (treat this as a cash inflow) in an account that gives an 8% return each year. He has been investing $7,000 a year at the end of each year for 30 years. How much did he have in his account 30 years ago
Answer:
The present value should be $10,635.116
Explanation:
The computation of the present value is given below:
Interest rate i.e. RATE should be 8%
PMT is $7,000
NPER is 30
FV is $900,000
The formula is given below:
=-PV(RATE,NPER,PMT,FV,TYPE)
After applying the above formula, the present value should be $10,635.116
Buster Evans is considering investing $20,000 in a project with the following annual cash revenues and expenses: Cash Cash Revenues Expenses Year 1 $ 8,000 $ 8,000 Year 2 $12,000 $ 8,000 Year 3 $15,000 $ 9,000 Year 4 $20,000 $10,000 Year 5 $20,000 $10,000 Depreciation will be $4,000 per year. What is the accounting rate of return on the investment
Answer:
Accounting rate of return= 20%
Explanation:
The accounting rate of return is the average annual income expressed as a percentage of the average investment.
The simple rate of return can be calculated using the two formula below:
Accounting rate of return
= Annual operating income/Average investment × 100
Average investment = (Initial cost + scrap value)/2
Average profit = Total profit over investment period / Number of years
Total revenue = 8000+12000+ 15000 + 20,000+ 20,000 = 75000
Total expenses= 8000 + 8000 + 9000 +10,000 + 10,000 = 45000
Cash profit = 75,000 - 45,000 = 30,000
Depreciation = 4000× 5 = 20,000
Accounting profit = Cash profit - Depreciation = 30,000- 20,000 = 10,000
Average profit = 10,000/5 = 2,000
Accounting rate of return = 2,000/20000× 100 = 20%
Accounting rate of return= 20%
What is the difference between gross pay and net pay?
Assuming you are a rational investor, the amount you should be willing to pay for a 20-year ordinary annuity that makes payments of $4,000 per year and you require a 6% rate of return per year is closest to:
Answer:
PV= $45,879.68
Explanation:
Giving the following information:
Cash flow= $4,000 annually
n= 20
i= 6% compunded annually
The maximum that an investor should pay is the present value (PV).
First, we need to calculate the future value using the following formula:
FV= {A*[(1+i)^n-1]}/i
A= annual cash flow
FV= {4,000*[(1.06^20) - 1]} / 0.06
FV= $147,142.36
Now, we can calculate the present value, we need to use the following formula:
PV= FV/(1+i)^n
PV= 147,142.36/(1.06^20)
PV= $45,879.68
To avoid having a voidable contract, all 'time is of the essence' deadlines set by the contract must be met:________
a. within 24 hours of the stated deadline.
b. within 48 hours of the stated deadline.
Answer:
None of the choices are needed
Explanation:
As we know that
The contract is an agreement between two parties who are eligible and enforceable by law
The voidable contract is an agreement that is not unenforceable by law due to various reasons like - party failure to complete the contract on time, fraud, misrepresentation, etc
So in the case of the voidable contract, no grace period is applicable neither 24 hours nor 48 hours as if there is a deadline so the same should be considered
July 1 Purchased merchandise from Boden Company for $6,300 under credit terms of 2/15, n/30, FOB shipping point, invoice dated July 1.
2 Sold merchandise to Creek Co. for $1,000 under credit terms of 2/10, n/60, FOB shipping point, invoice dated July 2. The merchandise had cost S567.
3 Paid $115 cash for freight charges on the purchase of July 1.
8 Sold merchandise that had cost $2, 100 for $2, 500 cash.
9 Purchased merchandise from Light Co. for $2, 700 under credit terms of 2/15, n/60, FOB destination, invoice dated July 9.
11 Received a $700 credit memorandum from Light Co. for the return of part of the merchandise purchased on July 9.
12 Received the balance due from Creek Co. for the invoice dated July 2, net of the discount.
16 Paid the balance due to Boden Company within the discount period.
19 Sold merchandise that cost $1,000 to Art Co. for $1, 500 under credit terms of 2/15, n/60, FOB shipping point, invoice dated July 19.
21 Issued a $250 credit memorandum to Art Co. for an allowance on goods sold on July 19.
24 Paid Leight Co. the balance due after deducting the discount.
30 Received the balance due from Art Co. for the invoice dated July 19, net of discount.
31 Sold merchandise that cost $5, 600 to Creek Co. for $7, 500 under credit terms of 2/10, n/60, FOB shipping point, invoice dated July 31.
Required:
Prepare journal entries to record the above merchandising transactions of Blink Company, which applies the perpetual inventory system.
Answer:
July 1 Purchased merchandise from Boden Company for $6,300 under credit terms of 2/15, n/30, FOB shipping point, invoice dated July 1.
Dr Merchandise inventory 6,300
Cr Accounts payable 6,300
July 2 Sold merchandise to Creek Co. for $1,000 under credit terms of 2/10, n/60, FOB shipping point, invoice dated July 2. The merchandise had cost S567.
Dr Accounts receivable 1,000
Cr Sales revenue 1,000
Dr Cost of goods sold 567
Cr Merchandise inventory 567
July 3 Paid $115 cash for freight charges on the purchase of July 1.
Dr Merchandise inventory 115
Cr Cash 115
July 8 Sold merchandise that had cost $2, 100 for $2, 500 cash.
Dr Cash 2,500
Cr Sales revenue 2,500
Dr Cost of goods sold 2,100
Cr Merchandise inventory 2,100
July 9 Purchased merchandise from Light Co. for $2, 700 under credit terms of 2/15, n/60, FOB destination, invoice dated July 9.
Dr Merchandise inventory 2,700
Cr Accounts payable 2,700
July 11 Received a $700 credit memorandum from Light Co. for the return of part of the merchandise purchased on July 9.
Dr Accounts payable 700
Cr Merchandise inventory 700
July 12 Received the balance due from Creek Co. for the invoice dated July 2, net of the discount.
Dr Cash 980
Dr Sales discounts 20
Cr Accounts receivable 1,000
July 16 Paid the balance due to Boden Company within the discount period.
Dr Accounts payable 6,300
Cr Cash 6,174
Cr Purchase discounts 126
July 19 Sold merchandise that cost $1,000 to Art Co. for $1, 500 under credit terms of 2/15, n/60, FOB shipping point, invoice dated July 19.
Dr Accounts receivable 1,500
Cr Sales revenue 1,500
Dr Cost of goods sold 1,000
Cr Merchandise inventory 1,000
July 21 Issued a $250 credit memorandum to Art Co. for an allowance on goods sold on July 19.
Dr Sales returns and allowances 250
Cr Accounts receivable 250
July 24 Paid Leight Co. the balance due after deducting the discount.
Dr Accounts payable 2,000
Cr Cash 1,960
Cr Purchase discounts 40
July 30 Received the balance due from Art Co. for the invoice dated July 19, net of discount.
Dr Cash 1,225
Dr Sales discounts 25
Cr Accounts receivable 1,250
July 31 Sold merchandise that cost $5, 600 to Creek Co. for $7, 500 under credit terms of 2/10, n/60, FOB shipping point, invoice dated July 31.
Dr Accounts receivable 7,500
Cr Sales revenue 7,500
Dr Cost of goods sold 5,600
Cr Merchandise inventory 5,6000
Horton Corporation is preparing a bank reconciliation and has identified the following potential reconciling items. Indicate how each would be reported on a bank reconciliation.a. Deposit in transit $5,500. b. Bank service charges $25. c. Interest credited to Horton’s account $31. d. Outstanding checks $7,422. e. NSF check returned $377.
Answer:
a. Deposit in transit $5,500.
This is added to the balance on the bank statement because it has already been added to the books of the company but it is yet to be processed by the bank.
b. Bank service charges $25.
Deducted from the book balance because the bank has already deducted this charge from the company's bank account so the company needs to do the same in its books.
c. Interest credited to Horton’s account $31.
Added to the book balance because this is interest earned on the account from the bank. The bank has therefore already added it to the company's bank account and so the company needs to add it to their books.
d. Outstanding checks $7,422.
Deducted from the balance on the bank statement because the company issued a check from their account but it has not be debited from the bank account yet but has been recorded in the books.
e. NSF check returned $377.
Deducted from the book balance.