Answer: c. If the risk-free rate remains unchanged but the market risk premium increases by 2%, Gretta's portfolio's required return will increase by more than 2%.
Explanation:
To prove the above option, the Capital Asset Pricing Model can be used.
Required Return = Risk free rate + portfolio beta(market premium)
Portfolio Beta
This the weighted average of the individual betas.
Total portfolio value = 700,000 + 300,000 = $1,000,000
= ( 1.2 * 700,000/1,000,000) + ( 0.8 * 300,000/1,000,000)
= 0.84 + 0.24
= 1.08
Required return = 6% + 1.08 ( 5%)
= 6% + 5.4%
= 11.4%
Assuming risk-free rate remains unchanged but the market risk premium increases by 2%.
Required return = 6% + 1.08 ( 5% + 2%)
= 6% + 7.56%
= 13.56%
The change in required return
= (13.56% - 11.4%)/11.4%
= 18.9%
Proving that if the risk-free rate remains unchanged but the market risk premium increases by 2%, Gretta's portfolio's required return will increase by more than 2%.
Lucas Corp. has a debt-equity ratio of .8. The company is considering a new plant that will cost $115 million to build. When the company issues new equity, it incurs a flotation cost of 8.5 percent. The flotation cost on new debt is 4 percent.
A. What is the initial cost of the plant if the company raises all equity externally?
B. What is the initial cost of the plant if the company typically uses 55 percent retained earnings?
C. What is the initial cost of the plant if the company typically uses 100 percent retained earnings?
Answer:
$122,475,000; $119,489,600; $117,047,000
Explanation:
Given the following :
Cost of new plant = $115m
Debt to equity ratio =. 0.8
After issuing new equity:
Floatation cost incurred (equity) = 8.5%
Floatation on new debt = 4%
Calculating weighted return of debt and equity:
Debt: = [0.8/(1 + 0.8)] × 4% = 0.0178
Equity : [1 / (1+ 0.8)] * 8.5% = 0.0472
A) all equity raised externally:
Weighted average Floatation cost:
0.0178 + 0.0472 = 0.065
Initial cash flow will the be :
(1 + 0.065) * cost of new plant
1.065 * $115,000,000 = $122,475,000
B.) company uses 55% Retained earning:
Weighted return on equity will the be :
0.0472 * (1 - 55%) = 0.02124
Weighed Floatation cost = 0.02124 + 0.0178 = 0.03904
(1+0.03904) * $115,000,000 = $119,489,600
C.) Company uses 100% Retained earnings :
Equity return will be 0%
(1 + 0.0178) * 115000000
= $117,047,000
Best Foods, Inc. has an unlevered cost of capital of 10 percent. The company generates EBIT of $4,250 per year and has a tax rate of 35 percent. If the firm adds $10,000 of debt to its capital structure, what is the value of the levered firm?
Answer:
The value of the levered firm $31,125
Explanation:
Value of Firm is the value of present value of expected future earning. It is calculated by dividing the earning after tax by the cost of capital while considering that the business will operate for the foreseeable future time.
EBIT $4,250.00
Less
Interest $0.00
EBT $4,250.00
Tax 35% x 4250 $1,487.50
EAT $2,762.50
Cost of Capial 10%
Value of firm = EAT / Cost of Capital = $2,762.5 / 10% = $27,625
Debt after tax = $10,000 x ( 1 - 0.35 ) = $6,500
Value of Equity = Value of firm - Debt after tax = $27,625 - $6,500 = $21,125
Value of debt = $10,000
Value of levered Firm = $21,125 + $10,000 = $31,125
Onslow Co. purchases a used machine for $178,000 cash on January 2 and readies it for use the next day at a $2,840 cost. On January 3, it is installed on a required operating platform costing $1,160, and it is further readied for operations. The company predicts the machine will be used for six years and have a $14,000 salvage value. Depreciation is to be charged on a straight-line basis. On December 31, at the end of its fifth year in operations, it is disposed of.Required:Prepare journal entries to record the machine's disposal under each of the following separate assumptions: a. It is sold for $22,000 cash. b. It is sold for $88,000 cash. c. It is destroyed in a fire and the insurance company pays $32,500 cash to settle the loss claim.
Answer:
All the requirements are solved below
Explanation:
Purchase = $178,000
Ready to use cost = $2,480
Installation cost = $1,160
Salvage value = $14,000
Depreciation method = Straight line
Useful life = 6 years
Solution
Requirement A If sold for $22,000
Entry DEBIT CREDIT
Cash $22,000
Accumulated depreciation $140,000
Profit/loss on disposal $20,000
Machinery $182,000
Requirement B If sold for $88,000
Entry DEBIT CREDIT
Cash $82,000
Accumulated depreciation $140,000
Profit/loss on disposal $40,000
Machinery $182,000
Requirement C If destroyed in fire and insurance company paid $32,500
Entry DEBIT CREDIT
Cash $30,000
Accumulated depreciation $140,000
loss from fire $12,000
Machinery $182,000
Workings
Cost =$178,000 + $2,480 + $1,160
Cost = $182,000
Accumulated depreciation = ([tex]\frac{182,000-14,000}{6}x5[/tex]
Accumulated depreciation = 140,000
Four companies were sued by customers for injuries sustained from faulty products. All four companies settled out of court for $400,000. For which of the following companies is this event the LEAST material?a. A company with assets totaling $36 billion.b. A company with assets totaling $40 billion.c. A company with assets totaling $15 billion. d. A company with assets totaling $50 billion.
Answer:
d. A company with assets totaling $50 billion.
Explanation:
In order to calculate the material impact of the lawsuit on each company, we must divide the settlement by total assets. In this case, we do not need to do the math, we simply have to select which company has the most assets. The more assets a company has, the lesser the material impact of any unfavorable settlement.
a. What were HCA's liabilities-to-assets ratios and times-interest-earned ratios in the years 2005 through 2009?
b. What percentage decline in EBIT could HCA have suffered each year between 2005 and 2009 before the company would have been unable to make interest payments out of operating earnings, where operating earnings is defined as EBIT?
c. How volatile have HCA's cash flows been over the period 2005 - 2009?
d. Calculate HCA's return on invested capital (ROIC) in the years 2005 - 2009.
HCA INC
ANNUAL INCOME STATEMENT
($ MILLIONS, EXCEPT PER SHARE)
Dec09 Dec08 Dec07 Dec06 Dec05
Sales $ 30,052 $ 28,374 $ 26,858 $ 25,477 $ 24,455
Cost of Goods Sold 24,826 24,023 22,480 21,448 20,391
Gross Profit 5,226 4,351 4,378 4,029 4,064
Depreciation 1,425 1,416 1,426 1,391 1,374
Operating Profit 3,801 2,935 2,952 2,638 2,690
Interest Expense 1,987 2,021 2,215 955 655
Non-Operating Income/Expense 188 256 661 179 412
Pretax Income 2,002 1,170 1,398 1,862 2,327
Total Income Taxes 627 268 316 625 725
Minority Interest 321 229 208 201 178
Net Income $ 1,054 $ 673 $ 874 $ 1,036 $ 1,424
ANNUAL BALANCE SHEET
ASSETS Dec09 Dec08 Dec07 Dec06 Dec05
Cash & Equivalents $ 312 $ 465 $ 393 $ 634 $ 336
Net Receivables 3,692 3,780 3,895 3,705 3,332
Inventories 802 737 710 669 616
Other Current Assets 1,771 1,319 1,207 1,070 931
Total Current Assets 6,577 6,301 6,205 6,078 5,215
Gross Plant, Property & Equipment 24,669 23,714 22,579 21,907 20,818
Accumulated Depreciation 13,242 12,185 11,137 10,238 9,439
Net Plant, Property & Equipment 11,427 11,529 11,442 11,669 11,379
Investments at Equity 853 842 688 679 627
Other Investments 1,166 1,422 1,669 1,886 2,134
Intangibles 2,577 2,580 2,629 2,601 2,626
Deferred Charges 418 458 539 614 85
Other Assets 1,113 1,148 853 148 159
TOTAL ASSETS 24,131 24,280 24,025 23,675 22,225
LIABILITIES
Long Term Debt Due In One Year 846 404 308 293 586
Accounts Payable 1,460 1,370 1,370 1,415 1,484
Taxes Payable - 224 190 - -
Accrued Expenses 2,007 1,912 1,981 1,868 1,825
Total Current Liabilities 4,313 3,910 3,849 3,576 3,895
Long Term Debt 24,824 26,585 27,000 28,115 9,889
Deferred Taxes - - - 390 830
Minority Interest 1,008 995 938 907 828
Other Liabilities 2,825 2,890 2,612 1,936 1,920
TOTAL LIABILITIES 32,970 34,380 34,399 34,924 17,362
Preferred Stock 147 155 164 125 -
Common Stock 1 1 1 1 4
Capital Surplus 226 165 112 - -
Retained Earnings (9,213) (10,421) (10,651) (11,375) 4,859
Common Equity (8,986) (10,255) (10,538) (11,374) 4,863
TOTAL EQUITY (8,839) (10,100) (10,374) (11,249) 4,863
TOTAL LIABILITIES & EQUITY $ 24,131 $ 24,280 $ 24,025 $ 23,675 $ 22,225
Answer:
HCA
a. HCA's Liabilities-to-assets ratios and times-interest-earned ratios in the years 2005 through 2009:
1. Liabilities-to-assets ratios = Total liabilities/Total Assets
Dec. 09 Dec. 08 Dec. 07 Dec. 06 Dec. 05
136.63% 141.60% 143.18% 147.51% 78.12%
2. Times-interest-earned ratios = EBIT/Interest Expense
Dec. 09 Dec. 08 Dec. 07 Dec. 06 Dec. 05
1.91 times 1.45 times 1.33 times 2.76 times 4.11 times
b. The percentage decline in EBIT that HCA could have suffered each year between 2005 and 2009 to make it unable to make interest payments out its operating earnings, where operating earnings is defined as EBIT:
Dec. 09 Dec. 08 Dec. 07 Dec. 06 Dec. 05
191% 145% 133% 276% 411%
c. The volatility of HCA's cash flows over the period 2005 to 2009:
The standard deviation of the cash flows (cash and cash equivalents) is 115, showing that there is so much volatility in the cash flows.
d. HCA's return on invested capital (ROIC) in the years 2005 - 2009:
= Net Income - Dividend / Total Liabilities + Equity x 100
ROIC = 4.37% 2.77% 3.64% 4.38% 6.41%
Explanation:
a) Data and Calculations:
HCA INC
ANNUAL INCOME STATEMENT
($ MILLIONS, EXCEPT PER SHARE)
Dec. 09 Dec. 08 Dec. 07 Dec. 06 Dec. 05
Sales $ 30,052 $ 28,374 $ 26,858 $ 25,477 $ 24,455
Cost of Goods Sold 24,826 24,023 22,480 21,448 20,391
Gross Profit 5,226 4,351 4,378 4,029 4,064
Depreciation 1,425 1,416 1,426 1,391 1,374
Operating Profit 3,801 2,935 2,952 2,638 2,690
Interest Expense 1,987 2,021 2,215 955 655
Non-Operating
Income/Expense 188 256 661 179 412
Pretax Income 2,002 1,170 1,398 1,862 2,327
Total Income Taxes 627 268 316 625 725
Minority Interest 321 229 208 201 178
Net Income $ 1,054 $ 673 $ 874 $ 1,036 $ 1,424
ANNUAL BALANCE SHEET
ASSETS Dec. 09 Dec. 08 Dec. 07 Dec. 06 Dec. 05
Cash & Equivalents $ 312 $ 465 $ 393 $ 634 $ 336
Net Receivables 3,692 3,780 3,895 3,705 3,332
Inventories 802 737 710 669 616
Other Current
Assets 1,771 1,319 1,207 1,070 931
Total Current
Assets 6,577 6,301 6,205 6,078 5,215
Gross Plant, Property
& Equipment 24,669 23,714 22,579 21,907 20,818
Accumulated
Depreciation 13,242 12,185 11,137 10,238 9,439
Net Plant, Property
& Equipment 11,427 11,529 11,442 11,669 11,379
Investments
at Equity 853 842 688 679 627
Other Investments 1,166 1,422 1,669 1,886 2,134
Intangibles 2,577 2,580 2,629 2,601 2,626
Deferred Charges 418 458 539 614 85
Other Assets 1,113 1,148 853 148 159
TOTAL ASSETS 24,131 24,280 24,025 23,675 22,225
LIABILITIES
Long Term Debt Due
In One Year 846 404 308 293 586
Accounts
Payable 1,460 1,370 1,370 1,415 1,484
Taxes Payable - 224 190 - -
Accrued
Expenses 2,007 1,912 1,981 1,868 1,825
Total Current
Liabilities 4,313 3,910 3,849 3,576 3,895
Long Term
Debt 24,824 26,585 27,000 28,115 9,889
Deferred Taxes - - - 390 830
Minority
Interest 1,008 995 938 907 828
Other
Liabilities 2,825 2,890 2,612 1,936 1,920
TOTAL LIA-
BILITIES 32,970 34,380 34,399 34,924 17,362
Preferred
Stock 147 155 164 125 -
Common
Stock 1 1 1 1 4
Capital
Surplus 226 165 112 - -
Retained
Earnings (9,213) (10,421) (10,651) (11,375) 4,859
Common
Equity (8,986) (10,255) (10,538) (11,374) 4,863
TOTAL
EQUITY (8,839) (10,100) (10,374) (11,249) 4,863
TOTAL LIABILITIES &
EQUITY $24,131 $ 24,280 $ 24,025 $ 23,675 $ 22,225
ii) Liabilities-to-assets ratio:
Dec. 09 Dec. 08 Dec. 07 Dec. 06 Dec. 05
Liabilities 32,970 34,380 34,399 34,924 17,362
Assets 24,131 24,280 24,025 23,675 22,225
136.63% 141.60% 143.18% 147.51% 78.12%
iii) Times Interest Earned:
Operating Profit 3,801 2,935 2,952 2,638 2,690
Interest Expense 1,987 2,021 2,215 955 655
1.91 times 1.45 times 1.33 times 2.76 times 4.11 times
iv) Volatility: This is the degree of change of the cash flows, showing its tendency to change from one period to the other. As calculated, the volatility is very high, showing that the cash flows have higher risk of change. See below:
Dec. 09 Dec. 08 Dec. 07 Dec. 06 Dec. 05
Cash & Equivalents $ 312 $ 465 $ 393 $ 634 $ 336
Mean = $428
Deviation from mean -116 37 -35 206 -92
Squared deviation 13,456 1,369 1,225 42,436 8,464
Sum of squared deviation = 66,950
Mean = 13,390
Square root of mean or Standard Deviation = 115
v) Return on Invested Capital = Net Income/Total liabilities + Equity
Dec. 09 Dec. 08 Dec. 07 Dec. 06 Dec. 05
Net Income $ 1,054 $ 673 $ 874 $ 1,036 $ 1,424
TOTAL LIABILITIES &
EQUITY $24,131 $ 24,280 $ 24,025 $ 23,675 $ 22,225
ROIC = 4.37% 2.77% 3.64% 4.38% 6.41%
Q3) Creative Sports Design (CSD) manufactures a standard-size racket and an oversize racket. The firm’s rackets are extremely light due to the use of a magnesium-graphite alloy that was invented by the firm’s founder. Each standard-size racket uses 0.125 kilograms of the alloy and each oversize racket uses 0.4 kilograms; over the next two-week production period only 80 kilograms of the alloy are available. Each standard-size racket uses 10 minutes of manufacturing time and each oversize racket uses 12 minutes. The profit contributions are $10 for each standard-size racket and $15 for each oversize racket, and 40 hours of manufacturing time are available each week. Management specified that at least 20% of the total production must be the standard-size racket. How many rackets of each type should CSD manufacture over the next two weeks to maximize the total profit contribution? Assume that because of the unique nature of their products, CSD can sell as many rackets as they can produce.
Answer:
165 oversize rackets = 32 machine hours (79.71% of total production)
42 standard size rackets = 7 machine hours (20.29% of total production)
total profit contribution = (165 x $15) + (42 x $10) = $2,895
Explanation:
materials machine hours profit
standard size 0.125 kg 1/6 $10
oversize 0.4 kg 1/5 $15
constraints 80 kilograms of materials
40 hours of manufacturing
profit per machine hour:
standard size $10 x 6 = $60 x 40 hours = $2,400 (total possible production = 240 rackets)
oversize $15 x 5 = $75 x 40 hours = $3,000 (total possible production = 200 rackets)
profit per kilogram of alloy:
standard size $10 / 0.125 = $80 x 80 kgs = $6,400 (total possible production = 480 rackets)
oversize $15 / .4 = $37.50 x 80 hours = $3,000 (total possible production = 200 rackets)
since the most important constraint is the manufacturing hours available, the company should try to produce the products that yield the highest contribution margin per machine hour. In this case, at least 20% of total production must be standard size rackets, so the remaining 80% should be oversize rackets that yield a higher profit.
165 oversize rackets = 32 machine hours (79.71% of total production)
42 standard size rackets = 7 machine hours (20.29% of total production)
total manufacturing time = 40 hours
if we produce 166 oversize rackets and 41 standard size rackets, total manufacturing time will exceed 40 hours (40.03 hours exactly).
Which of the following refers to how companies remain in business? sustainability corporate social responsibility carbon footprint closed-loop supply chains economic sustainability
Answer:
Economic sustainability
Explanation:
9) Selected information regarding a company's most recent quarter follows (all data in thousands). 9) _______ Direct labor $540 Beginning work in process inventory $330 Ending work in process inventory $420 Cost of goods manufactured $1620 Manufacturing overhead $830 What was the cost of direct materials used for the quarter
Answer:
Direct material= $340
Explanation:
Giving the following information:
Direct labor $540
Beginning work in process inventory $330
Ending work in process inventory $420
Cost of goods manufactured $1620
Manufacturing overhead $830
To calculate the direct material used in production, we need to use the following formula:
cost of goods manufactured= beginning WIP + direct materials + direct labor + allocated manufacturing overhead - Ending WIP
1,620= 330 + DM + 540 + 830 - 420
Direct material= $340
Consider a project with a first cost (investment) of $250,000, an annual O&M cost of $50,000, annual revenue of $160,000, and a salvage value of $40,000 after a 10-year life. Find the annual worth of the project assuming an interest of 12% per year.
Answer:
$68,030
Explanation:
According to the given situation, the computation of annual worth is shown below:-
Annual worth = -250,000 (A/P, 12%, 10) - $50,000 + $160,000 + $40,000 (A/F, 12%, 10)
= -$250,000 × 0.1770 - $50,000 + $160,000 + $40,000 × 0.0570
= -$44,250 - $50,000 + $160,000 + $2,280
= $68,030
So, the right answer is $68,030
Household members tend to have different preferences, but empirical evidence shows that overall, most households are Pareto efficient.
a. True
b. False
Highly liquid assets: A. include all intangible assets. B. generally produce a high rate of return. C. increase the probability a firm will face financial distress. D. appear on the right side of a balance sheet. E. can be sold quickly at close to full value.
Answer:
E. can be sold quickly at close to full value.
Explanation:
Highly liquid assets are assets that can be sold quickly at close to full value. They are assets that can be easily converted to cash. Cash is the most liquid asset.
You find a zero coupon bond with a par value of $10,000 and 14 years to maturity. The yield to maturity on this bond is 5.1 percent. Assume semiannual compounding periods. What is the price of the bond
Answer:
Bond Price = $4940.8468 rounded off to $4940.85
Explanation:
The price of a zero coupon bond is simply calculated by calculating the present value of the face value of the bond that the bond pays at maturity. The formula for the price of a zero coupon bond is,
Bond Price = Face Value / ( 1 + r )^n
Where,
r is the rate or YTM n is the number of periods left to maturityAssuming that the r or YTM is always stated in annual terms, the semi annual YTM will be 5.1% / 2 = 2.55%
Assuming semi annual compounding periods, the total number of periods or n will be,
n = 14 * 2 = 28
Bond Price = 10000 / (1 + 0.0255)^28
Bond Price = $4940.8468 rounded off to $4940.85
Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 8.2%, and its cost of preferred stock is 9.3%. If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 12.4%. However, if it is necessary to raise new common equity, it will carry a cost of 14.2%. If its current tax rate is 40%, how much higher will Turnbull’s weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings? (Note: Round your intermediate calculations to two decimal places.)
Answer:
Turnbull's weighted average cost of capital will be higher by 0.65% if it has to raise additional common equity capital.
Explanation:
By combining the WACC formula and retained earnings cost of capital,we will arrive at;
WACC = Debt W × after tax cost of debt + Preferred stock weight × cost of capital + Equity W × Cost of capital
= 58% × 4.92% + 6% × 9.3% + 36% × 12.4%
= 2.85% + 0.56% + 4.46%
= 7.87%
Also, using the same WACC formula and using common equity cost of capital, , we will arrive at the below;
WACC = Debt W × after tax cost of debt + preferred stock weight × cost of capital + Equity W × cost of capital
= 58% × 4.92% + 6% × 9.3% + 36% × 14.2%
= 2.85% + 0.56% + 5.11%
= 8.52%
Therefore, increase cost using common equity over retained earnings is [ 8.52% - 7.87%]
= 0.65%
N.B we arrived at 4.92% for after tax by;
Pre tax 8.2%
Current tax rate 40%
= Pre tax × ( 1 - cost of debt)
= 8.2% × ( 1 - 40%)
= 8.2% × 0.6%
= 4.92%
Which of the following statements regarding fiscal policy are true according to the macroeconomic consensus in the United States?
a. Congress, not the Federal Reserve, should be in charge of monetary policy.
b. Expansionary monetary policies should be used to keep unemployment below its natural rate.
c. Monetary policy should focus on price stability.
Answer: Monetary policy should focus on price stability.
Explanation:
The statements regarding fiscal policy that is true according to the macroeconomic consensus in the United States is that monetary policy should focus on price stability.
The statements that Congress, not the Federal Reserve, should be in charge of monetary policy and that Expansionary monetary policies should be used to keep unemployment below its natural rate are both wrong.
The Chinese government chooses to control the value of its currency so that it is consistently worth some fixed amount of U.S. dollars. Which of the following terms would relate to what the Chinese government would be doing?
a. floating exchange rate
b. flexible exchange rate
c. exchange rate freedom
d. pegged exchange rate
Answer: pegged exchange rate
Explanation:
A pegged exchange rate also referred to as the fixed exchange rate, sometimes is an exchange rate regime type whereby the value of a currency is fixed by the monetary authority of a particular country against the value of the currency of another country.
This is the type of exchange rate used by the Chinese government in the question above.
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Answer:
of the three other members who have submitted their report on 6th century
Gig Harbor Boating is the wholesale distributor of a small recreational catamaran sailboat. Management has prepared the following summary data to use in its annual budgeting process:
Budgeted unit sales 500
Selling price per unit $1,970
Cost per unit $1,460
Variable selling and administrative expenses (per unit) $ 50
Fixed selling and administrative expenses (per year) $196,000
Interest expense for the year $ 13,000
Required:
Prepare the company’s budgeted income statement using an absorption income statement format shown below.
Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows:
Sales in Units
April 74,000
May 85,000
June 114,000
July 92,000
The company is now in the process of preparing a production budget for the second quarter. Past experience has shown that end-of-month inventory levels must equal 10% of the following month’s sales. The inventory at the end of March was 7,400 units.
Required:
Prepare a production budget for the second quarter; in your budget, show the number of units to be produced each month and for the quarter in total.
Garden Depot is a retailer that is preparing its budget for the upcoming fiscal year. Management has prepared the following summary of its budgeted cash flows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Total cash receipts $310,000 $430,000 $360,000 $380,000
Total cash disbursements$365,000 $335,000 $325,000 $345,000
The company’s beginning cash balance for the upcoming fiscal year will be $25,000. The company requires a minimum cash balance of $10,000 and may borrow any amount needed from a local bank at a quarterly interest rate of 3%. The company may borrow any amount at the beginning of any quarter and may repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest is not compounded.
Required:
Complete the company's cash budget for the upcoming fiscal year. (Cash deficiency, repayments, and interest, should be indicated by a minus sign.)
The management of Mecca Copy, a photocopying center located on University Avenue, has compiled the following data to use in preparing its budgeted balance sheet for next year:
Ending Balances
Cash ?
Accounts receivable $ 8,500
Supplies inventory $ 4,700
Equipment $ 36,000
Accumulated depreciation $ 14,600
Accounts payable $ 2,200
Common stock $ 5,000
Retained earnings ?
The beginning balance of retained earnings was $32,000, net income is budgeted to be $16,300, and dividends are budgeted to be $2,700.
Required:
Prepare the company’s budgeted balance sheet. (Amounts to be deducted should be indicated by a minus sign.)
Answer:
Gig Harbor Boating
Budgeted Income Statement using absorption costing format:
Sales Revenue $985,000
Cost of Boats Sold 730,000
Gross profit $255,000
Total variable selling and
administrative expenses $25,000
Fixed selling and
administrative expenses (per year) 196,000 $221,000
Income before interest and taxes $34,000
Interest expense for the year 13,000
Pretax Income $21,000
2. Down Under Products, Ltd. of Australia
Production Budget for the second quarter
April May June Total
Sales in Units 74,000 85,000 114,000 273,000
Ending Inventory 8,500 11,400 9,200 9,200
Beginning Inventory 740 8,500 11,400 740
Units to be produced 81,760 87,900 111,800 241,460
3. Garden Depot
Summary of Cash Budget for the upcoming fiscal year:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Beginning cash bal. $25,000 $10,000 $63,800 $98,800
Total cash receipts $310,000 $430,000 $360,000 $380,000
Total cash available $335,000 $440,000 $423,800 $478,800
Total cash
disbursements ($365,000) ($335,000) ($325,000) ($345,000)
Bank loan (repyt) 40,000 (40,000)
Bank loan Interest (1,200)
Cash Balance ($30,000) $63,800 $98,800 $133,800
Required Minimum $10,000 $10,000 $10,000 $10,000
4. Mecca Copy
Budgeted Balance Sheet for the coming year:
Budgeted Balance Sheet for the next year:
Ending Balances
Cash $ 18,200
Accounts receivable $ 8,500
Supplies inventory $ 4,700
Equipment $ 36,000
Accumulated depreciation $ 14,600 $ 21,400
Total Assets $ 52,800
Accounts payable $ 2,200
Common stock $ 5,000
Retained earnings $ 45,600
Total Liabilities and Equity $ 52,800
Explanation:
1. Gig Harbor Boating:
Data and Calculations:
Budgeted unit sales 500
Selling price per unit $1,970
Sales Revenue = $985,000 ($1,970 x 500)
Cost per unit $1,460
Cost of Boats Sold = $730,000 ($1,460 x 500)
Variable selling and administrative expenses (per unit) $ 50
Total variable selling and administrative expenses = $25,000 ($50 x 500 )
Fixed selling and administrative expenses (per year) $196,000
Interest expense for the year $ 13,000
2. Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows:
a) Data and Calculations:
March April May June July
Sales in Units 7,400 74,000 85,000 114,000 92,000
Ending Inventory 740 8,500 11,400 9,200
Beginning Inventory 740 8,500 11,400 9,200
Units to be produced 81,760 87,900 111,800
3. Garden Depot
Data and Calculations:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Beginning cash bal. $25,000 $10,000 $63,800 $98,800
Total cash receipts $310,000 $430,000 $360,000 $380,000
Total cash available $335,000 $440,000 $423,800 $478,800
Total cash
disbursements ($365,000) ($335,000) ($325,000) ($345,000)
Bank loan (repyt) 40,000 (40,000)
Bank loan Interest (1,200)
Cash Balance ($30,000) $63,800 $98,800 $133,800
Required Minimum $10,000 $10,000 $10,000 $10,000
4. Mecca Copy:
Data and Calculations:
Budgeted Balance Sheet for the next year:
Ending Balances
Cash ?
Accounts receivable $ 8,500
Supplies inventory $ 4,700
Equipment $ 36,000
Accumulated depreciation $ 14,600
Accounts payable $ 2,200
Common stock $ 5,000
Retained earnings ?
Retained Earnings:
Beginning = $32,000
Net income = 16,300
Dividends = (2,700)
Ending = $45,600
Gig Harbor Boating's budgeted income statement gives a snapshot into the future of its revenue, cost of boats sold, gross profit, and pretax income. Thus, it uses the projections to guide management towards the achievement of its targets.
Similarly, Down Under Products, Ltd. of Australia prepares a production budget for the second quarter to determine how much units it needs to produce to meet sales or customers' demand.
Garden Depot, as a retailer, ascertains its cash needs by preparing budgeted cash flows for the coming year.
Finally, Mecca Copy cannot operate its center without an idea about its financial position for the next year. Therefore, it prepares a budgeted balance sheet. All these budgets guide managements of these various entities and prepare them for taking necessary actions to plan and keep their companies afloat.
On January 1 of the current year, Paisley Company issues a 4-year, non-interest-bearing note with a face value of $7,000 and receives $4,852 in exchange. The recording of the issuance of the note includes a
Answer and Explanation:
The journal entry is shown below:
Cash Dr $4,852
Discount on note payable $2,148
To Note payable $7,000
(Being the issuance of the note is recorded)
Here we debited the cash and discount on note payable as it increased the assets and discount are always debited and credited the note payable as it also increased the liabilities so that the proper posting could be done
In December of each year, Eleanor Young contributes 10% of her gross income to the United Way (a 50% organization). Eleanor, who is in the 24% marginal tax bracket, is considering the following alternatives for satisfying the contribution.
Fair Market Value
(1) Cash donation $152,200
(2) Unimproved land held for six years ($22,830 basis) $152,200
(3) Blue Corporation stock held for eight months ($22,830 basis) $152,200
(4) Gold Corporation stock held for two years ($182,640 basis) $152,200
Eleanor has asked you to help her decide which of the potential contributions listed above will be most advantageous tax-wise. Evaluate the four alternatives and complete a letter to Eleanor.
Required:
Determine the amount of the charitable contribution for each option.
When estimating the incremental after-tax free cash flows for a project, we include which one of the following costs?A. Investment costsB. Opportunity costsC. Sunk costsD. Costs that impact another product that the firm does not produce.
Answer: Opportunity cost
Explanation:
Opportunity cost is the cost of what one forgoes when one makes another decision or another choice. When estimating the incremental after-tax free cash flows for a project, the opportunity cost is included.
A sunk cost is a type of cost that an economic agent such as the individual, the firm or the government has already spent and therefore cannot be recovered again. This isn't included.
Identify whether each of the following examples belongs in M1 or M2.
a. Van has $2,500 in a savings account.
b. Paolo has a $10 bill in his wallet.
c. Amy has $7,000 in a six-month certificate of deposit (CD).
Answer: The answer is given below
Explanation:
It should be noted that M1 will be derived as Currency plus the Travelers check while M2 will be M1 plus the certificate of deposit plus the money market account.
a. Van has $2,500 in a savings account.
It should be noted that money in a savings account will have to be included in M2.
b. Paolo has a $10 bill in his wallet.
This fits into the description of both M1 and M2 forms of money.
c. Amy has $7,000 in a six-month certificate of deposit (CD)
The certificate of deposit is included in the M2.
Answer:
Option A is M2
Option B is M1
Option C is M2
Explanation:
The above classifications speak to various categories of money supply.
M1 refers to the supply of money that is composed of physical currency such as notes, coins, demand deposits other checkable deposits, etc.
Simply put, M1 would include forms of money that are liquid or easy to convert into cash.
M2 and M3 which are also known as "near money" and "near, near money," are money types which cannot be converted to currency as quickly as M1.
Another example of M2 is Money Market Mutual Funds. M1 is often included when calculating for M2.
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PlZ Help 70 points
Look at the circular flow diagram. Choose and define an environmental issue. Using the diagram as a guide, explain how the environmental issue you chose affects the relationship between the business and factor market. (4 points)
Answer:
Family and government are related to each other in terms of financial unit. Family pay charges to government and after that government utilize that cash for the individuals. Family gain the money by working in firms or by running their possess commerce. Natural issues such as discuss contamination can influence the relationship between family and government. Popleuses their possess transport to go to firms and the number of vehicles are expanding day by day which causes discuss contamination. The government can shape arrangements against personal transport and persuade individuals to utilize open transport which can be advantageous for government as government will straightforwardly get cash from family.
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On January 1, 2021, Kendall Inc. began construction of an automated cattle feeder system. The system was finished and ready for use on September 30, 2022. Expenditures on the project were as follows: January 1, 2021 $ 235,000 September 1, 2021 $ 342,000 December 31, 2021 $ 342,000 March 31, 2022 $ 342,000 September 30, 2022 $ 235,000 Kendall borrowed $764,000 on a construction loan at 7% interest on January 1, 2021. This loan was outstanding throughout the construction period. The company had $4,570,000 in 7% bonds payable outstanding in 2021 and 2022. Average accumulated expenditures for 2021 was:
Answer:
Average accumulated expenditures for 2021 was: $349,000.
Explanation:
Note: See the attached excel file for the calculation of the Average accumulated expenditures for 2021.
Average accumulated expenditures is calculated by adding the weighted average amount of each expenditure which is the product of the weight of each expenditure in a year and the amount of each expenditure. That is;
Weight of each expenditure = Number of relevant months the expenditure is used 2021 / 12 months
Weighted average amount of each expenditure = Weight of each expenditure * The amount of the expenditure
"A small business owner of a firm that has 25 employees wants to establish a retirement plan and make contributions for her employees. What type of plan can the employer establish?"
Answer:
SEP IRA
Explanation:
For this type of company, the best type of plan would be a SEP IRA. This refers to a Simplified Employee Pension Plan and is a plan that is set up by an employer, with deductible contributions made by the employer themselves. The employer sets the actual contribution rate when creating the plan, and provides all employees the same contribution rate. The annual contribution of such an account is capped at $56,000 in 2019 and the individuals may withdraw the total amount of the account tax-free when they turn 59 1/2 years old.
Torque corporation is expected to pay a dividend of $1 in the upcoming year. dividends are expected to grow at a rate of 6% per year. the risk free rate of return is 5% and the expected return on the market portfolio is 13%. the stock of torque corporation has a beta of 1.2. what is the return you should require on torque stock?a) 12%,
b) 14.6%,
c) 15.6%,
d) 20%
Answer:
The required rate of return on stock is 14.6% and option b is the correct answer.
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 rate rM is the return on market
r = 0.05 + 1.2 * (0.13 - 0.05)
r = 0.146 or 14.6%
A perpetual bond with a par value of $1,000 and a coupon rate of 8.25% (semiannual coupon) has a current market price of $935. What is its yield to maturity?
Answer:
8.88%
Explanation:
Price of the perpetual bond = Interest / Cost of debt
$935 = 82.50 / Cost of debt
Cost of debt = 82.50 / 935
Cost of debt = 0.08824
Cost of debt = 8.88%
Aakash has a liability of 6000 due in four years. This liability will be met with payments of A in two years and B in six years. Aakash is employing a full immunization strategy using an annual effective interest rate of 5%. Calculate ∣∣A−B∣∣.
Answer:
∣A−B∣ = 586.411
Explanation:
The effective interest rate is 0.05 so at the end of a year total amount will be 1.05 multiplied by principal
Liability = 6,000 ÷ 1.05^4 = Asset
Therefore
6,000 ÷ 1.05^4 = (A ÷ 1.05^2) + (B ÷ 1.05^6) (equation 1)
Multiply through by 1.05^6
6000(1.05^2) = A(1.05^4) + B
B = 6000(1.05^2) - A(1.05^4) (equation 2)
Finding differential from equation 1
4= 2((A ÷ 1.05^2) ÷ (6000 ÷ 1.05^4)) + 6(B ÷ 1.05^6) ÷ (6000 ÷ 1.05^4))
4(6000 ÷ 1.05^4) = 2(A ÷ 1.05^2) +6 (B ÷ 1.05^6)
Multiply through by 1.05^6
4(6000 ÷ 1.05^2) = 2(A ÷ 1.05^4) + 6B
Substitute value of B from equation 2
4(6000 ÷ 1.05^2) = 2(A ÷ 1.05^4) + 6 *6000(1.05^2) - 6*A(1.05^4)
A= 2721.0884
Substitute A in equation 2
B = 6000(1.05^2) - 2721.0884(1.05^4)
B= 3307.5
∣A−B∣ = |2721.0884 - 3307.5|
∣A−B∣ = 586.411
As the leader of your newly formed 9-person team, one of your key concerns is that the team performs as a cohesive unit. Which of the following descriptions is most likely to indicate that your team is cohesive?
A. There is very little conflict between team members.
B. Team members prioritize the team’s goals over their own goals.
C. Whenever tackling a new team task, members typically divide into the same 3 subgroups.
D. Team members have no problem working independently or alone.
Answer:
b. Team members prioritize the team’s goals over their own goals.
Explanation:
Team cohesiveness is mostly seen in teams that perform highly. People in such teams are usually more likely to cooperate and they have an effective way of achieving their set objectives.
Team cohesiveness would have members of a team acting together rather than individually. It is an interpersonal relationship that is alive within members of the group and this pushes and motivates them to participate more and do what is necessary to achieve all of their objectives.
5. Suppose that a firm is in an industry which has a very rapid rate of growth (in sales and output), and is characterized by technological change and innovation. Firms attempt to maximize profits causing new firms to enter the industry attracted by profit potential. The result is that profits are competed away, leading to even greater innovation and change. Is there a limit to this continuous change
Answer:
If we use high tech industry as our subject here, I would say that there is no limit to continuous change. We can look at he last 45 years and ever since Steve Jobs developed the Apple I, PCs have continuously evolved into different products and their rate of technological evolution has currently increased. Any modern smartphone is hundreds of times more powerful than the first PCs, they are even more powerful than huge computers that existed back then. Currently high tech companies are trying to develop AI, and who knows what after. The only problem is that project lives tend to be very short, but that is part of the game. The profit margins of the firms that are successful are huge, just look at how Apple became the first company to be worth more than 2 trillions.
On March 15, a fire destroyed Sheridan Company's entire retail inventory. The inventory on hand as of January 1 totaled $5900000. From January 1 through the time of the fire, the company made purchases of $2032000, incurred freight-in of $242000, and had sales of $4140000. Assuming the rate of gross profit to selling price is 20%, what is the approximate value of the inventory that was destroyed
Answer:
the approximate value of the inventory that was destroyed is $4,862,000.
Explanation:
Use the Gross Profit percentage to find the value of the inventory that was destroyed.
Sales $4,140,000
Less Cost of Goods Sold
Opening Inventory $5,900,000
Add Purchases $2,032,000
Add Freight In $242,000
Available $8,174,000
Less Inventory Lost ($4,862,000)
Cost of Sales (3,312,000)
Gross Profit at 20% $828,000
Conclusion :
The Value of inventory that was destroyed is $4,862,000.