Answer:
May 1, 2016
DR Investments Bonds.................................$170,000
CR Cash ...........................................................................$170,000
(To record acquisition of bonds)
Nov 1, 2016
DR Cash............................................................$4,250
CR Interest Revenue......................................................$4,250
(To record interest received)
Working
Cash = $170,000*5%*6/12
= $4,250
Nov 1, 2016
DR Cash........................................................... $48,000
DR Loss on sale of investment...................... $2,000
CR Investment Bonds .....................................................$50,000
(To record sales of bonds)
Working
Cash = $50,000*0.96
= $48,000
Loss on investment = 50,000 - 48,000
= $2,000
Dec 31, 2016
DR Interest receivable........................................$1,000
CR Interest revenue...........................................................$1,000
When Production decreases what is a very likely possibility? a hire new workers b expand production c purchase new equipment d downsizing
The correct answer is D. Downsizing
Explanation:
In businesses, the term "downsizing" is used to describe a reduction in the number of workers or the total labor force. This often means non-essential workers are fired or even complete departments are eliminated. Moreover, this is likely to occur if the business expenses are higher than its profits or if the production decreases because in both situations fewer workers are needed to eliminate unnecessary expenses. In this context, if production decreases it is likely downsizing occurs.
Rank the following investments from lowest to highest, for overall historical returns experienced by investors over long periods of time:
a. Treasury Bills
b. AAA Rated Corporate Bonds
c. Common Stocks
Answer:
Treasury BillsAAA Rated Corporate BondsCommon StocksExplanation:
Treasury Bills are considered risk-less investments. As a result the interest rate will not be adjusted for risk and will be relatively low compared to other securities. It will give the lowest return overtime here.
AAA Rated Corporate Bonds are the highest rated Corporate bonds there are. Even still, they will pay an interest rate that has a little risk premium in it which will make its returns overtime higher than a T-bill.
Common Stocks will provide the highest rate of return overtime on average simply because as well as the dividend payments that are paid to holders, the stock also has a chance of rising in value overtime which will give the holder a Capital gain as well. Something that the other 2 investments cannot give.
The Federal Reserve has been aggressively expanding the money supply by using repurchase agreements in its open market operations. Ignoring other factors, this is likely to result in:
Answer: decrease in interest rates and an increase in inflation
Explanation:
From the question, we are informed that The Federal Reserve has been aggressively expanding the money supply by using repurchase agreements in its open market operations.
This will result in a reduction in the interest rate and since there's more money in circulation, it will bring about an increase in the prices of goods.
Eastern Corporation has $1,000 par value bonds with 4 years to maturity. The bonds pay an 8% coupon rate with semi-annual coupon interest payments. The bond's closing price is quoted at 101.25. Suppose you purchase the bond for the closing price. What is the bond's yield to maturity?
Answer:
7.64%
Explanation:
For computing the yield to maturity we have to applied the RATE formula i.e to be shown in the attachment
Given that,
Present value = $1,000 × 101.25 = $1,012.50
Future value or Face value = $1,000
PMT = 1,000 × 8% ÷ 2 = $40
NPER = 4 years × 2 = 8 years
The formula is shown below:
= Rate(NPER;PMT;-PV;FV;type)
The present value come in negative
So, after applying the above formula,
The yield to maturity is
= 3.82% × 2
= 7.64%
The bond's yield to maturity:
Given Information,
Present value = $1,000 × 101.25 = $1,012.50 Future value or Face value = $1,000 PMT = 1,000 × 8% ÷ 2 = $40 NPER = 4 years × 2 = 8 years
Yield to maturity = 3.82% × 2
Yield to maturity= 7.64%
Know more :
https://brainly.com/question/14104087?referrer=searchResults
A technical analyst has been charting the price movements of ABC stock. The stock has been fluctuating in price between $63 and $67 per share for the past 3 months. If the analyst expects a breakout through the support level, which order should be placed
Answer:
The trader should orders to buy ABC stock or take a long position to the stock.
Explanation:
The stock has been fluctuating for 3 months, hence, its value should be well analysed. Now if there is a breakout through the support level, usually with a good quarterly performance report, the stock is likely to go "bull". Buying and holding the stock is a rational decision.
Stephen Battista argues that public relations should help Under Armour convince customers that the company has a new kind of sports apparel. One way that public relations differs from other kinds of marketing communications is that it substitutes the term ________ for target market. Multiple Choice target audience consumer referent group public market segment
Answer:
The correct answer is the option: Public.
Explanation:
To begin with, the term of "Public Relations" refers to the instrument that the marketing managers have in order to establish better relationships with agents that are outside the company with the primary focus of increasing those relations that will eventually increase the company's public image. Moreover, one the variables that changes when the company decides to use this type of strategy is the fact that the target audience or market changes to be the public in general and that is why that the company forgets about their customers and focus on the public as a whole.
Widgeon Co. manufactures three products: Bales, Tales, and Wales. The selling prices are $55, $78, and $32, respectively. The variable costs for each product are $20, $50, and $15, respectively. Each product must go through the same processing in a machine that is limited to 2,000 hours per month. Bales take 5 hours to process; Tales 7 hours; and Wales 1 hour. Assuming that Widgeon Co. can sell all of the products it can make, what is the maximum contribution margin it can earn per month?
a. $56,000.
b. $34,000.
c. $49,000.
d. $70,000.
Answer:
b. $34,000.
Explanation:
The computation of contribution margin is shown below:-
Particulars Bales Tales Wales
Seeling price $55 $78 $32
Variable cost $20 $50 $15
Contribution
margin $35 $28 $17
Required hour to
process 5 7 1
Contribution margin
per hour 7 4 17
Maximum contribution margin is
= Contribution margin per hour × number of machine hours
= 17 × 2,000
= $34,000
Waterway Industries expects to purchase $260000 of materials in July and $270000 of materials in August. Three-fourths of all purchases are paid for in the month of purchase, and the other one-fourth are paid for in the month following the month of purchase. How much will August's cash disbursements for materials purchases be
Answer:
Total cash disbursement= $267,500
Explanation:
Giving the following information:
Purchase:
July= $260,000
August= $270,000
Three-fourths of all purchases are paid for in the month of purchase, and the other one-fourth are paid for in the month following the month of purchase.
Cash disbursement August:
Purchase in cash from August= 270,000*0.75= 202,500
Purchase on account July= 260,000*0.25= 65,000
Total cash disbursement= $267,500
Net present value method The following data are accumulated by Geddes Company in evaluating the purchase of $160,000 of equipment, having a four-year useful life: Net Income Net Cash Flow Year 1 $43,500 $83,500 Year 2 23,000 63,000 Year 3 13,500 53,500 Year 4 6,500 46,500 This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet Assuming that the desired rate of return is 12%, determine the net present value for the proposal. If required, round to the nearest dollar. Net present value $ 86,500 Would management be likely to look with favor on the proposal
Answer:
A.$32,396
B. Yes
Explanation
A. Calculation to determine the net present value for the proposal
Year Net Cash Flow Present value Discounting factor at 12% Discounted Cash Flow
1 $ 83,500.00 0.893 $ 74,565.50
2 $63,000.00 0.797 $ 50,211.00
3 $ 53,500.00 0.713 $ 38,145.50
4 $ 46,500.00 0.636 $ 29,574.00
Present value of net cash flows $ 192,496.00
Amount to be invested $ 160,000.00
Net Present Value $ 32,496
Net Present Value $ 32,496/Amount to be invested $160,000.00 =0.2031*100
=20.31%
B.Yes the management would likely to look with favor on the proposal because the net present value of 20.31% is higher than the expected rate of return of 12%.
The bookkeeper prepared a check for $48 but accidently recorded it as $95. When preparing the bank reconciliation, this should be corrected by:
Answer:
Adding $47 to the book balance.
Explanation:
The above is an example of transposition error, which is caused by substituting two or more sequential digits ; mistake would be corrected by adding $47 ($95 -$48) to the book balance.
What is the present value of a perpetuity that pays you annual, end-of-year payments of $950? Use a nominal rate (monthly compounding) of 7.50%.
Answer:
The present value of the perpetuity is $12,242.27.
Explanation:
A perpetuity is an annuity that provide cash flow for an infinite period .Examples are Non -redeemable Preference Share.
Present Value (perpetuity) = Payments ÷ Required Rate
But, first change the 7.50 % nominal rate to Annual Effective Rate to match the period of Cash flow.
Effective Rate = (1 + r / m)^m - 1
= ( 1 + 0.0750 / 12) ^12 -1
= 7.76%
Therefore, Present Value (perpetuity) = $950 ÷ 7.76%
= $12,242.27
At the certain interest rate, present value (PV) is the current value of a future sum of money or stream of cash flows.
The discount rate determines the present value of the cash flows, and the higher the discount rate, the lower the current value of future cash flows.
The present value of the perpetuity is $12,242.27.
A perpetuity is an annuity that payments out during an indefinite period of time. Non-redeemable Preference Share is an example.
Present Value (perpetuity) = [tex]\frac{\text{Payments}}{\text{Required Rate}}[/tex]
However, to match the Working capital period, change a 7.50 percent nominal rate to a Yearly Effective Tax rate.
[tex]\text{Effective Rate} = (1 + \frac{r}{m} )^m - 1= [1 + \frac{0.0750}{12}]^{12} -1= 7.76\%[/tex]
Therefore, Present Value (perpetuity)= [tex]\frac{\$950}{7.76\%} = $12,242.27[/tex]
To know more about the calculations of the present value, refer to the link below:
https://brainly.com/question/15036500
Presented below is selected information for three regional divisions of Medina Company. Divisions North West South Contribution margin $300,300 $499,000 $399,200 Controllable margin $139,700 $360,600 $209,900 Average operating assets $997,857 $1,567,826 $1,499,286 Minimum rate of return 13 % 14 % 9 % Compute the return on investment for each division. (Round ROI to 0 decimal places, e.g. 15.) North Division % West Division % South Division % Compute the residual income for each division. (Round final answers to 0 decimal places, e.g. 1,255.) North Division $ West Division $ South Division $ Assume that each division has an investment opportunity that would provide a rate of return of 16%. (1) If ROI is used to measure performance, which division or divisions will probably make the additional investment? (2) If residual income is used to measure performance, which division or divisions will probably make the additional investment?
Answer:
North West South
Contribution margin $300,300 $499,000 $399,200
Controllable margin $139,700 $360,600 $209,900
Average operating assets $997,857 $1,567,826 $1,499,286
Minimum rate of return 13% 14% 9%
return on investment (ROI) = controllable margin / average operating assets
North's ROI = $139,700 / $997,857 = 14%
West's ROI = $360,600 / $1,567,826 = 23%
South's ROI = $209,900 / $1,499,286 = 14%
residual income = controllable margin - (average operating assets x minimum rate of return)
North's RI = $139,700 - ($997,857 x 13%) = $9,978.59
West's RI = $360,600 - ($1,567,826 x 14%) = $141,104.36
South's RI = $209,900 - ($1,499,286 x 9%) = $74,964.26
(1) If ROI is used to measure performance, which division or divisions will probably make the additional investment?
North and South divisions should probably make the additional investments since their current ROI is less than 16%
(2) If residual income is used to measure performance, which division or divisions will probably make the additional investment?
All the divisions since their minimum required rate of return is less than 16%.
The ROI of North, West and South are 14%, 23% and 14% respectively. North and south divisions need to make more investment as their ROI is less than 16%. All the division need to make investments.
What is ROI?Return on Investment is the performance measure to evaluate the earnings or profit earned from an investment.It is the ration between the net profit/loss to the initial investment made.
North West South
Given:
Contribution margin= $300,300 $499,000 $399,200
Controllable margin= $139,700 $360,600 $209,900
Average operating assets= $997,857 $1,567,826 $1,499,286
Minimum rate of return= 13% 14% 9%
Return on Investment= (controllable margin/ average operating assets) X 100
North= ($139,700 / $997,857) X 100= 14%West = ($360,600 / $1,567,826) X 100= 23% South= ($209,900 / $1,499,286) X 100 = 14%Residual Income= controllable margin - (average operating assets x minimum rate of return)
North = $139,700 - ($997,857 x 13%) = $9,978.59West = $360,600 - ($1,567,826 x 14%) = $141,104.36South= $209,900 - ($1,499,286 x 9%) = $74,964.26North and South divisions are required to make the additional investments since their current ROI is less than 16%If residual income is used to measure performance, all the divisions requires additional investment, as their minimum required rate of return is less than 16%.
Therefore, the above calulations aptly describes the statements.
Learn more about ROI here:
https://brainly.com/question/20829287
Mr. Dow bought 100 shares of stock at $17 per share. Three years later, he sold the stock for $23 per share. What is his annual rate of return
Answer:
10.60%
Explanation:
The compound annual growth rate formula stated below can be used to determine the annual rate of return on the stock investment.
CAGR=(future value/present value)^(1/n)-1
future value is the future worth of the stock after three years i.e100*$23=$2300
Present value is the initial cost of the stock which is 100*$17=$1700
n is the number of years the stocks have been owned
CAGR=($2300/$1700)^(1/3)-1=10.60%
Rahman stock just paid a dividend of $3.00 per share. Future dividends are expected to grow at a constant rate of 6% per year. What is the value of the stock if the required return is 12%
Answer:value of stock for the required return of 12 % = $53
Explanation:
Given
current dividend just paid = $3.00
dividend to grow at constant rate of 6%
required rate of return =12%
to calculate the value of stock for the requitred return of 12 % , we use the dividend growth model which is
Current price = dividend ( 1 + growth rate )/ (required rate -growth rate )
= 3 x (1+6%) / 12-6 = 3 x 1.06 /6% =3.18/0.06= $53
Therefore value of stock for the requitred return of 12 % ,= $53
The most widely used presentation software program is Microsoft PowerPoint. You can produce a professional and memorable presentation using this program if you plan ahead and follow important design guidelines.
1. What text and background should you use in a darkened room?
A. Dark text on a light background
B. Dark text on a dark background
C. Light text on a dark background
2. How can you customize existing templates?
A. Eliminate boldface and italics
B. Adjust the color scheme
C. Add "visual cliches"
D. Add a company logo
E. Select different fonts
Answer:
1. C. Light text on a dark background
2. B. Adjust the color scheme
D. Add a company logo
E. Select different fonts
Explanation:
In order to produce a professional and memorable presentation using Microsoft Powerpoint program, the design guidelines should be applied in certain situations.
The text and background one should use in a darkened room is "Light text on a dark background"
Also, the correct way one can customize existing templates is to do the following:
1. Adjust the color scheme
2. Add a company logo
3. Select different fonts
What is your standard deviation of demand during lead time if your average lead time = 5 days, standard deviation of demand = 4, average demand is 12, and standard deviation of lead time is 1.2 days.
Answer:
4.47
Explanation:
The computation of the standard deviation of lead time is shown below:
= √lead time × standard deviation of demand
= √ 5 days × 4
= √20
= 4.47
We simply applied the above formula to determine the standard deviation of demand during lead time
Hence, all the other items would be ignored
good is excludable if: a. it is Wi-Fi or a similar service. b. people who do not pay cannot be easily prevented from using the good. c. one person's use of the good does not reduce the ability of another person to use the same good. d. people who do not pay can be easily prevented from using the good.
Answer:
The correct answer is:
people who do not pay can be easily prevented from using the good. (d)
Explanation:
Excludable goods or services are those to which the consumer cannot have access unless payment of some form is made. By contrast, a non-excludable good or service is one to which the consumer cannot be prevented from using even without payment. Excludable goods can be further divided into rivalrous and non-rivalrous.
A rivalrous excludable good or service is one in which usage by a consumer or usage by one party prevents or reduces significantly, its use by another consumer or party examples are goods such as clothes, food, cars etc, while non-rivalrous excludable goods/services include tv subscriptions, cinemas, etc.
Instruments had retained earnings of at December 31, . Net income for totaled , and dividends declared for were . How much retained earnings should report at December 31, ?
Answer:
B. $ 490,000
Explanation:
According to the given situation, the computation of retained earning in the year end is shown below:-
Ending retained earning = Beginning Retained Earnings + Net Income for the year - Dividend
= $360,000 + $180,000 - $50,000
= $490,000
Therefore for computing the ending retained earning we simply applied the above formula.
Assume that a purely competitive firm has the following schedule of average and marginal costs:
Output AFC AVC ATC MC
1 $300 $100 $400 $100
2 150 75 225 50
3 100 70 170 60
4 75 73 148 80
5 60 80 140 110
6 50 90 140 140
7 43 103 146 180
8 38 119 156 230
9 33 138 171 290
10 30 160 190 360
Instructions: Enter all values as whole numbers. If any values are negative, please enter them with a (-) sign.
a) At a price $55, the firm would produce ____ units of output. At a price of $120, the firm would produce ____ units of output. At a price of $200, the firm would produce ____ units of output.
b) The per-unit economic profit (or loss) is calculated by subtracting at a particular level of output from the product price. This per-unit economic profit is then multiplied by the number of units of ___ to determine the economic profit for the competitive firm.
i) At the product price of $200, the average total costs are $____, so per-unit economic profit is
$____. Multiplying this amount by the number of units of output results in an economic
profit of $____.
ii) At the product price of $120, the average total costs are $____, so per-unit economic losses are $____. Multiplying this amount by the number of units of output results in an economic loss of $____.
Answer:
a) At a price $55, the firm would produce 3 units of output.
At a price of $120, the firm would produce 6 units of output.
At a price of $200, the firm would produce 7 units of output.
The rule is Price = Marginal Cost for a competitive firm
b) The per-unit economic profit (or loss) is calculated by subtracting ATC at a particular level of output from the product price. This per-unit economic profit is then multiplied by the number of units of output to determine the economic profit for the competitive firm.
i) At the product price of $200, the average total costs are $146 , so per-unit economic profit is $54 . Multiplying this amount by the number of units of output results in an economic profit of $378 .
Explanation:
At P = 200, output produced is 7 units
ATC is $146
Per-unit economic profit = 200 - 146 = $54
Hence, Total economic profit = $54 x 7 = $378
ii) At the product price of $120, the average total costs are $140 , so per-unit economic losses are $ -20. Multiplying this amount by the number of units of output results in an economic loss of $-100.
Explanation: At P = 20, output produced will be 5 units. 6th unit will not be produced as it will result in even greater loss.
Total loss = ($140 - $120) x 5 = $100
You own of the stock of a company that has 10 directors on its board. How much representation can you get on the board if the company has cumulative voting? How much representation can you ensure if the company has straight voting?
Answer:
B.With cumulative voting you are able to get proportional representation by putting all of your votes toward 3directors, allowing you to elect representatives to 3 seats (30% of ten seats) on the board. B.With non-cumulative voting you vote on each director individually, and without a majority of the shares you cannot ensure that your representative will win any of the elections (you could lose 70% to 30% in each of the ten individual elections).Explanation:
Cumulative voting is a method of voting that allows a shareholder to place all the votes they have to one or more person. Normally, during elections for a Board member, each shareholder will be given a certain number of votes and this is usually related to the number of shares they hold. In cumulative voting, they can place all these allowed votes in the corner of one person thereby increasing their chances of getting voted. By owning 30%, you will get 30% of the votes. If you decide to place all 30% for 3 people out of 10, you will get them elected.
With straight voting though, you can only vote once per share owned. That means that you cannot pledge all your votes to a single person or group of people. Should that happen, you cannot ensure that your representative will win as people may outvote your 30% in in each candidate.
Due Diligence refers to diligently monitoring the interview for lies or half-truths the interviewee might include. Select one: True False
Answer: False
Explanation:
Due diligence is a review, audit or an investigation that is performed in order to confirm certain facts. Due diligence also involves looking at the financial records of w company before having a transaction with the company in order to ascertain some facts.
Due Diligence is not diligently monitoring the interview for lies or half-truths the interviewee might include. This is false.
When analyzing the changes on a spreadsheet used to prepare a statement of cash flows, the cash flows from operating activities generally are affected by
Answer: a. Net income, current assets, and current liabilities
Explanation:
The Operating Cashflow relates to cash transactions that have to do with the normal operations of the business. In other words, the business that the firm does to make revenue. It therefore includes, production, purchases, admin expenses, net income and the assets required to run the business.
Operating cashflows will therefore be affected by the Net Income as this is the end result of the business transactions the business engaged in. The current assets were needed to sell goods as well as being derived from selling goods and the current liabilities enabled the company to buy goods that they sell amongst other things.
Net income, current assets, and current liabilities are directly related to the operations of the business and so affect the Operating cashflows.
A small manufacturer that makes clothespins and other household products buys new injection molding equipment for a cost of $500,000. This will allow the manufacturer to make more clothespins in the same amount of time with an estimated increase in sales of %. If the manufacturer currently makes tons of clothespins per year, which sell at per ton, what will be the increase in revenue next year from the new equipment?
Answer:
$337,500
Explanation:
the questions was missing some numbers. I looked for similar questions and found:
increase in sales = 25%current annual production in tons = 75sales price per ton = $18,000increase in total sales = 75 tons x 25% = 18.75 tons
increase in revenue = 18.75 tons x $18,000 = $337,500
Since the question only asks for the increase in revenue, we do not have to calculate anything else.
If a beneficiary wants to make sure that the life insurance proceeds being paid out are not exhausted before he or she dies, the beneficiary would choose which of the following settlement options?
a. Fixed amount
b. Fixed income
c. Fixed time
d. Fixed period
Answer:
Option d. Fixed period
Explanation:
time is very essential. Anytime the policy owner specifies payment to be guaranteed for a specific period regardless of who is the beneficiary, policy owner or who receive the payment,is the fixed period settlement option.
Anything that occur to annuity after the owner's death is dependent on the type of annuity and its payout plan.
A fixed-period, is that which is for a certain period of time. the annuity guarantees payments to the annuitant for a set length of time. example is about 10, 15, or 20 years and case payments will continue to be paid to the beneficiary until the time given or period is due or when account’s balance reaches zero.
2. Explain the following corporate/partnership documents and procedures for healthcare
organizations
Sole Proprietorship
Partnership
Corporation
Limited Liability Entities
The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows:
Year Wind Turbines Biofuel Equipment
1 $280,000 $300,000
2 280,000 300,000
3 280,000 300,000
4 280,000 300,000
The wind turbines require an investment of $887,600, while the biofuel equipment requires an investment of $911,100. No residual value is expected from either project.
Year 6% 10% 12% 15% 20%
1 0.943 0.909 0.893 0.870 0.833
2 1.833 1.736 1.690 1.626 1.528
3 2.673 2.487 2.402 2.283 2.106
4 3.465 3.170 3.037 2.855 2.589
5 4.212 3.791 3.605 3.353 2.991
6 4.917 4.355 4.111 3.785 3.326
7 5.582 4.868 4.564 4.160 3.605
8 6.210 5.335 4.968 4.487 3.837
9 6.802 5.759 5.328 4.772 4.031
10 7.360 6.145 5.650 5.019 4.192
Required:
a. Compute the net present value for each project. Use a rate of 6% and the present value of an annuity of $1 in the table above. If required, round to the nearest dollar.
b. Compute a present value index for each project.
c. Determine the internal rate of return for each project by (a) computing a present value factor for an annuity of $1 and (b) using the present value of an annuity of $1 in the table above. If required, round your present value factor answers to three decimal places and internal rate of return to the nearest percent.
Answer:
A. Wind Turbines = $82,629.57
Biofuel Equipment = $128,431.68
B. Wind Turbines = 1 + ($82,629.57 / $887,600) = 1.093
Biofuel Equipment = 1 + ($128,431.68 / $911,100) = 1.141
C. Wind Turbines = 10%
Biofuel Equipment = 12%
Explanation:
Net present value is the present value of after tax cash flows from an investment less the amount invested.
Internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested
NPV and IRR can be calculated using a financial calculator
Wind Turbines
Cash flow in year 0 = $-887,600,
Cash flow each year from year 1 to 4 = $280,000
I = 6%
NPV = $82,629.57
IRR = 10%
Biofuel Equipment
Cash flow in year 0 = $-911,100
Cash flow each year from year 1 to 4 = $300,000
I = 6%
NPV = $128,431.68
IRR = 12%
present value index = 1 + (NPV / Initial investment)
Wind Turbines = 1 + ($82,629.57 / $887,600) = 1.093
Biofuel Equipment = 1 + ($128,431.68 / $911,100) = 1.141
To find the NPV using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
To find the IRR using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. After inputting all the cash flows, press the IRR button and then press the compute button
A corporate bond currently yields 8.5%. Municipal bonds with the same risk, maturity, and liquidity currently yield 5.5%. At what tax rate would investors be indifferent between the two bonds?
Answer: 35.29%
Explanation:
Municipal Bonds are attractive in that they give the tax benefit of being tax exempt whereas a corporate bond is liable for taxation. The tax rate that will therefore make an investor indifferent between the two bonds is the one that will equate the Corporate bond's yield net of tax to the yield on the Municipal bond.
5.5% = 8.5% * ( 1 - x)
5.5% = 8.5% - 0.085x
0.085x = 8.5% - 5.5%
0.085x = 3%
x = 35.29%
Internal rate of return method The internal rate of return method is used by Testerman Construction Co. in analyzing a capital expenditure proposal that involves an investment of $149,630 and annual net cash flows of $45,000 for each of the six years of its useful life. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the question below. Open spreadsheet Determine the internal rate of return for the proposal.
Answer:
Testerman Construction Co.
Internal rate of return method in analyzing capital expenditure:
Present value of expenditure = $149,630
Present of cash inflows annuity = $149,630 (using 20% discount rate and present value annuity factor of 3.3251 x $45,000)
NPV = $0 (PV of cash outflow - PV of cash inflow)
Therefore, the IRR = 20%
Explanation:
a) Data and Calculations:
Investment cost = $149,630
Annual net cash flows = $45,000
Investment period = 6 years
Annuity of future cash flows = 3.3251
b) Testerman’s IRR (Internal Rate of Return) is a capital budgeting and analysis tool which determines the discount rate that makes the present value of future inflows equal to the present value of outflows from a project. This IRR helps the managers to determine the projects that add value and are worth undertaking. IRR is based on assumptions. Similar projects with the same IRR will differ in returns due to the differences in timing and the size of the cash, the amount of debts and equity used to generate the returns, and the assumption of a constant reinvestment may which IRR makes.
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 820 Selling price per unit $ 2,130 Cost per unit $ 1,500 Variable selling and administrative expense (per unit) $ 75 Fixed selling and administrative expense (per year) $ 400,000 Interest expense for the year $ 29,000 Required: Prepare the company’s budgeted income statement for the year.
Answer:
Budgeted Income Statement for the year
Sales (820 units × $ 2,130) $1,746,600
Less Cost of Sales (820 units × $ 1,500) ($1,230,000)
Gross Profit $516,000
Less Operating Expenses :
Selling and administrative expense
Variable (820 units × $ 75) ($61,500)
Fixed ($400,000)
Operating Profit $54,500
Less Non - Operating Expenses :
Interest ( $29,000)
Net Income / (Loss) $25,500
Explanation:
Income Statement shows the company`s performance from its operations.
Income / (Loss) = Sales - Expenses.
Computer Corp. just paid a dividend of $0.75. If the firm's growth in dividends is expected to remain at a flat 3 percent forever, then what is the cost of equity capital for Computer Corp. if the price of its common shares is currently $12.00
Answer:
9.44%
Explanation:
According to the given situation, the computation of the cost of equity capital is shown below:-
Cost of equity capital = Dividend × (1 + Expected rate of return) ÷ Common shares + Expected rate of return
Now, we will put the values into the above formula.
= ($0.75 × (1.03) ÷ $12) + 0.03
= 0.0944
or
= 9.44%
Therefore for computing the cost of equity we simply applied the above formula.