Answer:
The answer is 22%
Explanation:
Margin of Safety equals:
(Current sales level - break-even point) ÷ Current sales level
Break-even sales = $2,652,000 (10,608 units x $250 per unit)
Current sales = $3,400,000 (13,600 units x $250 per unit)
Therefore, Margin of Safety is:
($3,400,000 - $2,652,000) ÷ $3,400,000
= 0.22
Expressed as a percentage = 22%
Comparing payback period and discounted payback period. Nielsen, Inc. is switching from the payback period to the discounted payback period for small-dollar projects. The cutoff period will remain at three years. Given the following four projects' cash flows, LOADING..., and using a discount rate of %, determine which projects it would have accepted under the payback period and which it will now reject under the discounted payback period. Which projects that would have been accepted under payback period method will now be rejected under the discounted payback period method?
Question Completion:
Given the following four projects' cash flows, and using a discount rate of 10%, ...
project 1 project 2 project 3 project 4
Cost $10,000 $15,000 $8,000 $18,000
Cash Flow Year 1 4,000 7,000 3,000 10,000
Cash Flow Year 2 4,000 5,500 3,500 11,000
Cash Flow Year 3 4,000 4,000 4,000 0
Answer:
Nielsen, Inc.Determination of Projects Acceptance under Payback Period and NPV:
Payback Period NPV
Project 1 Accepted Rejected
Project 2 Accepted Rejected
Project 3 Accepted Accepted
Project 4 Accepted Accepted
Explanation:
1. Data and Calculations:
project 1 project 2 project 3 project 4
Cost $10,000 $15,000 $8,000 $18,000
Cash Flow Year 1 4,000 7,000 3,000 10,000
Cash Flow Year 2 4,000 5,500 3,500 11,000
Cash Flow Year 3 4,000 4,000 4,000 0
Total inflows $12,000 $16,500 $10,500 $21,000
Discount rate = 10%
Payback period Year 3 Year 3 Year 3 Year 2
2. Discount factors: Year 1 = 0.909; Year 2 = 0.826; and Year 3 = 0.751
3. PV of Cash Flows:
project 1 project 2 project 3 project 4
Cost $10,000 $15,000 $8,000 $18,000
Cash Flow Year 1 3,636 6,363 2,727 9,090
Cash Flow Year 2 3,304 4,543 2,891 9,086
Cash Flow Year 3 3,004 3,004 3,004 0
Total PV inflow $9,944 $13,910 $8,622 $18,176
4. NPV ($56) ($1,090) $622 $176
5. Nielsen, Inc.'s payback period is the number of years (or length of time) it takes an investment to reach its break-even point (the point where there is no gain or loss). Nielsen's NPV is the difference between total cash inflows and cash outflows over some periods. A positive NPV for Nielsen shows that the projects should be accepted, while a negative NPV points to some underlying problems with the projects, especially with respect to cash inflows and outflows.
Projectized organizations are especially effective at helping team members to maintain their discipline-specific competencies. Group of answer choices
Answer: False
Explanation:
A projectized organization is a form of organization structure is that is designed such that it is hierarchical and headed by the project manager who is typically involved in every decision that is made regarding the project as he or she is the one that team members report to.
Therefore, projectized organizations are not effective at helping team members to maintain their discipline-specific competencies.
Additional workers will increase a company's to a certain point until gains frombegin to decline. At this point, will continue to increase, but ___________ will diminish with each additional worker. Eventually there will be too many workers and not enoughto keep them busy inevitably slowing down production.
Answer:
Marginal product
Explanation:
There would be an increase in the marginal product of labour. more workers would result in more specialization in skilled areas. As workers increase, it is expected that work done would rise also.
Such that a time would come when the workers would be enough and no more gains would be accrued from specialization. We refer to this as the point of diminishing marginal product. capital would be fixed such that as more workers are used capital declines for each worker.
Identify whether each of the following items would appear on the bank side or the book side of a bank reconciliation. Outstanding checks Answer 1 Choose... Deposits in transit Answer 2 Choose... Bank service charges Answer 3 Choose... NSF Check
Answer:
Outstanding checks - Book side
Deposits in transit - Book side
Bank service charges - Bank side
NSF Check - Book side
Explanation:
The bank reconciliation helps identify the transactions that have been recorded in the cash book but omitted from the bank statement and vice versa.
Considering the given items
Outstanding checks - These are checks that have been written and deducted from the cash balance in the book but yet to be recognized or cleared in the bank statement.
Deposits in transit - The amount would appear on the book side as it represents amounts that have been collected but yet to be deposited and subsequently recognized in the bank statement.
Bank service charges - These are charges that have been recognized in the bank but yet to be recorded or deducted from the cash balance in the books.
NSF Check - This represents customer's debt settlement via check that has not been honoured by the bank. Hence this will have to be deducted from the cash balance in the books
Northwest Fur Co. started 2021 with $105,000 of merchandise inventory on hand. During 2021, $510,000 in merchandise was purchased on account with credit terms of 3/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $8,900. Merchandise with an invoice amount of $3,700 was returned for credit. Cost of goods sold for the year was $362,000. Northwest uses a perpetual inventory system. What is ending inventory assuming Northwest uses the gross method to record purchases
Answer:
The ending inventory by using the gross method is $243,011
Explanation:
Purchases = Net purchases + Freight inwards
Purchases = 491,111 + 8,900
Purchases = 500,011
When Net purchase = Gross Purchase - Purchase return - Discount
Net purchase = 510,000 - 3,700- 15,189
Net purchase = 491,111
Working
Discount = (Purchases - Purchase return) × Discount rate
Discount = (510,000 - 3,700) * 3%
Discount = 15,189
Ending inventory = Beginning inventory + Purchases− Cost of good sold
Ending inventory = (105,000 + 500,011) - 362,000
Ending inventory = $243,011
Thus, the ending inventory by using the gross method is $243,011.
Division ABC has $750,000 invested in assets and earned $200,000 in income. Division XYZ has $800,000 invested in assets and earned $210,000 in income. The company's target rate is 10%. Which division has the highest residual income
The division that has the highest residual income is:.Division XYZ.
Residual incomeResidual income for ABC
Residual income=200,000-(0.10×750,000)
Residual income=200,000-75,000
Residual income=$125,000
Residual income for XYZ
Residual income=210,000 -(0.10×80,000)
Residual income=210,000-80,000
Residual income=$130,000
Inconclusion the division that has the highest residual income is:.Division XYZ.
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Income Statement Debit and Credit columns of an end-of-period spreadsheet are $27,000 and $29,000, respectively, after all account balances have been extended, the amount of the net loss is $2,000.
a. True
b. False
Answer: False
Explanation:
Revenues are an equity entry and as such are credited when they increase therefore the credit side of an income statement contains revenue. Expenses on the other hand are debited to remove them from revenue.
A credit of $29,000 and a debit of $27,000 means that there was a net income of $2,000 not a net loss. If the debits are less than the credits then that means that there are less expenses than revenue which would bring about a profit.
MAD’s target capital structure is 60 percent debt and 40 percent equity. The yield to maturity on the company’s new debt will be 10 percent. MAD’s beta is 1.7, the risk free rate is 4% and the required market return is 12%. If the company’s tax rate is 30 percent, then which of the projects will be accepted?
Answer: D) Projects A and C
Explanation:
The projects to be taken should have a higher IRR than the company's Weighted Average Cost of Capital.
Cost of Equity
= Risk free rate + beta( market return - risk free rate)
= 4% + 1.7 (12% - 4%)
= 17.6%
After tax cost of debt
= Yield ( 1 - tax rate)
= 10% * ( 1 - 30%)
= 7%
WACC = (Weight of debt * after tax cost of debt) + (weight of equity * cost of equity)
= (0.6 * 7% ) + ( 0.4 * 17.6%)
= 4.2% + 7.04%
= 11.24%
Projects A and C both have IRR higher than the company's WACC and so should be accepted.
Income statement.
Use the data from the following financial statement in the popup window, Complete the partial income statement if the company paid interest expense of $18,100 for 2014 and had an overall tax rate of 40% for 2014. Complete the income statement below:
(Round to the nearest dollar.)
Income Statement Year Ending 2014
Sales revenue $360,000
Cost of goods sold $150,000
Fixed costs $42,900
Selling, general, and administrative expenses $27,200
Depreciation $45,900 EBIT $
Interest expense $ 18100
Taxable income $
Taxes $
Net income $
Find the accumulated depreciation for 2014 first.
The accumulated depreciation for 2014 is:_____(Round to the nearest dollar.)
Answer:
Income Statement Year Ending 2014
Sales revenue $360,000
Cost of goods sold $150,000
Gross profit $210,000
Fixed costs $42,900
Selling, general, and
administrative expenses $27,200
Depreciation $45,900
EBIT $94,000
Interest expense $18,100
Taxable income $ 75,900
Taxes $ 30,360
Net income $ 45,540
Find the accumulated depreciation for 2014 first.
The accumulated depreciation for 2014 is:_$45,900____(Round to the nearest dollar.)
Explanation:
A company's income statement is one of the three financial statements prepared by the entity at the end of its fiscal period. The statement compares the company's revenue with the expenses. After deducting the total expenses from the total revenue, the net income or loss is obtained. But before arriving at the net income or loss, there are other profit points that are usually calculated. The first is the gross profit, which is the difference between the sales revenue and the cost of goods sold. It shows the ability of the management to generate enough revenue to cover the cost of goods sold and make a profit from its trading or primary activities.
The next profit point is the Earnings before Interests and Taxes (EBIT). This is an important index for checking the financial performance of a company. The next is the Taxable Income on which the tax rate is determined and paid to government as Company Income Tax. After deducting the tax expense from the pre-tax income, the final profit point is the After-Tax Income or the Net Income. This determines the dividends policy and the share of retained earnings of the entity.
A company has a merit pay plan based on the relative performances of workers teams. Each worker is a team gets the same wage as other team members, but those in more productive teams get higher wages. Which of the following would NOT explain why this incentive might be better than other methods for motivating workers to work harder?
A) If a worker works harder, it increases the productivity of other team members.
B) If a team works harder, it does not affect the productivity of other teams.
C) One worker can easily sabotage the productivity of other workers.
D) One team can easily sabotage the productivity of other teams.
Answer:
C) One worker can easily sabotage the productivity of other workers.
Explanation:
This is a form of compensation by merit that comprises the performance of a team as a whole, so this is a way of motivating both group work and individual work.
In the scenario above, we can see that this compensation plan would be effective in leveraging the performance of individual workers, and of teams, because if each member of the team is more productive, it will benefit the team as a whole. And this method will not affect the productivity of other teams, as each team will be encouraged and engaged to do the best job possible to achieve merit pay.
The alternative that does not correspond to the question that this incentive may be better than other methods to motivate workers to work harder, is the one that says that a worker can sabotage the productivity of other workers, as that worker is also likely to be engaged in not sabotaging the work of other team members, as the remuneration bonuses depend on the effort of the entire team to work together, and not just one employee.
On January 15, the end of the first pay period of the year, North Company’s employees earned $40,000 of sales salaries. Withholdings from the employees’ salaries include FICA Social Security taxes at the rate of 6.2%, FICA Medicare taxes at the rate of 1.45%, $3,100 of federal income taxes, $593 of medical insurance deductions, and $230 of union dues. No employee earned more than $7,000 in this first period. Prepare the journal entry to record North Company’s January 15 salaries expense and related liabilities.
Answer:
Dr Salaries expense 40,000
Cr FICA - Social security taxes payable 2,480
Cr FICA - medicare taxes payable 580
Cr Employee medical insurance deduction 593
Cr Union dues 230
Cr Salaries payable 33,017
Cr Federal income taxes payable 3,100
Explanation:
Preparation of the journal entry to record North Company’s January 15 salaries expense and related liabilities
Jan 15
Dr Salaries expense 40,000
Cr FICA - Social security taxes payable 2,480 (6.2%*40,000)
Cr FICA - medicare taxes payable 580
(1.45%*40,000)
Cr Employee medical insurance deduction 593
Cr Union dues 230
Cr Salaries payable 33,017
Cr Federal income taxes payable 3,100
Salaries payable is calculated as:
Salaries expense 40,000
Less: FICA - Social security taxes payable (2,480)
FICA - medicare taxes payable (580)
Employee medical insurance deduction (593)
Union dues (230)
Federal income taxes payable (3,100)
=$33,017
Here, we are to prepare the journal entry to record North Company’s January 15 salaries expense and related liabilities.
Salaries payable = Salaries expense - FICA - Social security taxes payable - FICA - medicare taxes payable - Employee medical insurance deduction - Union dues - Federal income taxes payable
Salaries payable = $40,000 - $2,480 - $580 - $593 - $230 - $3,100
Salaries payable = $33,017
Date Account titles and Explanation Debit Credit
Jan 15 Salaries expense $40,000
FICA - Social security taxes payable $2,480
(6.2%*40,000)
FICA - medicare taxes payable $580
(1.45%*40,000)
Employee medical insurance deduction $593
Union dues $230
Salaries payable $33,017
Federal income taxes payable $3,100
(To record salaries expense and related liabilities)
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To initiate a strategic move that allows a firm to open up new and uncontested market space through value innovation, managers must address four key questions when formulating a blue ocean business strategy.
a. True
b. False
2. Whom would you choose as a referent on this job? What steps would your manager take to make you feel that you were being equitably treated? What would you do if, after a year on the job, you experienced underpayment equity?
Answer is given below
Explanation:
The comparison is an indication to determine if the treatment is the same. Mentioned may be another person or a group of people similar to them. The Reference Canal may be a person with a previous job or anyone has guesses as to what the result/input ratio will be. Employees are treated equally when they feel that their result / input ratio is equal to the output or input ratio mentioned. Equity is related to the fairness of the results relative to the inputs. Managers help treat employees equally by ensuring that those who provide multiple inputs are rewarded with more results than those who provide less input. If a person changes one aspect of his ratio, the manager must ensure that the other side of the ratio also changes. As the input increases, so does the outcomhold. If the input decreases, the results also decrease. Equity is present when an individual's own result / input ratio is less than the forecast. This happens when an employee compares him or her to a reference and does not want to achieve the results he or his investment has achieved. Equity can be restored by trying to increase growth (by inputs, bonuses or allocating time) or by removing inputs (being late or falling short, doing less work) and turning it into a more accurate indication. If these methods fail, a planned company will choose to departTo be effective, your goals must be balanced in the following areas:a. Career, Fun, Health, Relationship, Spiritualityb. Environmental, Spirituality, Organicc. Career, Financial, Health and Fitness, Relationships, Spirituality
Answer:
Career , Financial , Health and Fitness, Relationships, Spirituality
Explanation:
Goals are what one plan to achieve within a specified period of time. Goal could be short term , usually one year or long term goal, which is more than a year. People that want to succeed must set goals because setting goal gives direction. When people set goals, it gives them the opportunity to work harder towards achieving that goal and also provides benchmark for determining if one is actually succeeding or on the right path.
People set goals on daily basis. The question is; how effective are those goals. It therefore means that for a goal to be effective, it must touch or cover the following areas ; career, financial, health and fitness, relationships, spirituality.
Which of the following statements is CORRECT? a. Commercial paper can be issued by virtually any firm so long as it is willing to pay the going interest rate. b. Short-term debt is favored by firms because, while it is generally more expensive than long-term debt, it exposes the borrowing firm to less risk than long-term debt. c. Commercial paper is a form of short-term financing that is primarily used by large, strong, financially stable companies. d. Trade credit is provided only to relatively large, strong firms. e. Commercial paper is typically offered at a long-term maturity of at least five years.
Answer: Commercial paper is a form of short-term financing that is primarily used by large, strong, financially stable companies.
Explanation:
Commercial papers a promissory notes which are issued by companies on a short term basis that are unsecured. It should be noted that that they are used by the strong, large, and financially stable companies.
Commercial paper are issued in order to finance payroll, and also meet a company's short-term liabilities.
Dvorak Company produces a product that requires 5 standard pounds per unit. The standard price is $2.50 per pound. If 1,000 units required 4,500 pounds, which were purchased at $3.00 per pound, what is the direct materials (a) price variance, (b) quantity variance, and (c) total direct materials cost variance
Answer:
Direct material price variance= $2,250 unfavorable
Direct material quantity variance= $1,250 favorable
Total variance= $1,000 unfavorable
Explanation:
To calculate the direct material price and quantity variance, we need to use the following formulas:
Direct material price variance= (standard price - actual price)*actual quantity
Direct material price variance= (2.5 - 3)*4,500
Direct material price variance= $2,250 unfavorable
Direct material quantity variance= (standard quantity - actual quantity)*standard price
Standard quantity= 5*1,000= 5,000
Direct material quantity variance= (5,000 - 4,500)*2.5
Direct material quantity variance= $1,250 favorable
Total variance= 1,250 - 2,250= $1,000 unfavorable
Harvey’s Hardware is thinking about starting a line of lawnmowers to serve its customer base in the summer. The lawnmowers would be priced at $100 and Harvey the manager believes that they would sell 3 units. They have the following estimated costs.
Units Produced Labor Cost Total cost
0 0 100
1 50 150
2 100 200
3 200 300
4 350 450
What is the marginal cost of producing the third unit?
a. $400
b. $300
c. $200
d. $100
Answer:
Harvey's Hardware
Marginal cost of producing the third lawnmowers:
d. $100
Explanation:
Harvey's marginal cost for producing the third unit of lawnmowers is the additional cost that resulted when the total cost increased from $200 to $300. However, it can be deciphered from the case that the marginal cost for Harvey, which it is supposed to be a variable cost, is traceable to the direct labor costs. This implies that the fixed cost element for Harvey in the production of the lawnmowers has been relatively fixed at $100. It does not vary with the volume of production, while the direct labor costs vary with the volume of lawnmowers produced by Harvey.
Your client in the 25% federal income tax bracket lives in a state where his earnings place him in the 6% bracket for state income tax purposes. If he were to purchase a 4% bond issued by a political subdivision of another state, his total tax-equivalent yield would be
Answer:
Slightly more than 5.33%.
Explanation:
In case when the municipal bond owned by an individual i.e. issued is not for interest free tax rate but also it is non tax on that particular state
So here the tax-equivalent yield is
= Purchase bond percentage ÷ (1 - tax rate)
= 0.04 ÷ (1 - 0.25)
= 5.33%
Hence, his total tax-equivalent yield is 5.33% i.e. calculated by applying the above formula
Quantitative Problem 1: Hubbard Industries just paid a common dividend, D0, of $1.50. It expects to grow at a constant rate of 2% per year. If investors require a 8% return on equity, what is the current price of Hubbard's common stock? Do not round intermediate calculations. Round your answer to the nearest cent. $ per share
Answer:
The current price of Hubbard's common stock is $25.50.
Explanation:
This can be calculated using the Gordon growth model (GGM) formula that assumes growth is dividend will be constant as follows:
P = D1/(r - g) ............................ (1)
Where,
P = Current stock price = ?
D1 = Next dividend = D0 * (1 + g) = $1.50 * (1 + 2%) = $1.53
r = required return = 8%, or 0.08
g = growth rate = 2%, or 0.02
Substituting the values into equation (1), we have:
P = $1.53 / (0.08 - 0.02) = $25.50
Therefore, the current price of Hubbard's common stock is $25.50.
Schuepfer Inc. bases its selling and administrative expense budget on budgeted unit sales. The sales budget shows 2,600 units are planned to be sold in March. The variable selling and administrative expense is $3.10 per unit. The budgeted fixed selling and administrative expense is $35,760 per month, which includes depreciation of $4,100 per month. The remainder of the fixed selling and administrative expense represents current cash flows. The cash disbursements for selling and administrative expenses on the March selling and administrative expense budget should be:________.a. $40,210.b. $44,410.c. $31,570.
Answer:
$39,720
Explanation:
Total fixed costs that represent current cash flows = $35,760 - $4,100
Total fixed costs that represent current cash flows = $31,660
Variable costs = 2,600 units * $3.10
Variable costs = $8,060
The cash disbursements for selling and administrative expenses on the March selling and administrative expense budget will be
= $31,660 + $8,060
= $39,720
4. Giving specific examples of global companies, discuss the following concepts which are contemporary issues of concern to Global Businesses: a) Corporate Social Responsibility b) Off-shoring c) Business Sustainability
Answer:
a) Corporate Social Responsibility
This is a type of international private business that is self-regulated which helps a company to become socially responsible, that is, giving back to the society through philanthropic activities which may include volunteer work or environmental activism.
b) Off-Shoring
Offshoring is simply taking advantage of difference in the cost of production or labor to relocate a business to another country in order to get cheaper labor for manufacturing operations.
Typically, it moves the production of materials from a country where such materials are expensive to another country where the materials are cheap in order to save costs.
c) Business Sustainability
This is simply taking care of all the major facets of a business in order to ensure that the success they have enjoyed in the past is sustained.
These facets could include management of social and economic demands to ensure optimal performance.
A business that is sustainable has a very little negative impact, rather it impacts its immediate environment positively.
Neelon Corporation has two divisions: Southern Division and Northern Division. The following data are for the most recent operating period: Total Company Southern Division Northern Division Sales $ 418,000 $ 193,000 $ 225,000 Variable expenses $ 130,880 $ 79,130 $ 51,750 Traceable fixed expenses $ 186,000 $ 77,000 $ 109,000 Common fixed expense $ 79,420 $ 36,670 $ 42,750 The common fixed expenses have been allocated to the divisions on the basis of sales. What is the company's overall net operating income if it operates at the break-even points for its two divisions?
Answer:
Neelon Corporation
Total Company Southern Northern
Division Division
Sales $ 418,000 $ 193,000 $ 225,000
Variable expenses $ 130,880 $ 79,130 $ 51,750
Traceable fixed expenses $ 186,000 $ 77,000 $ 109,000
Common fixed expense $ 79,420 $ 36,670 $ 42,750
Net operating income $ 21,700 $200 $21,500
Explanation:
a) Data and Calculations:
Total Company Southern Northern
Division Division
Sales $ 418,000 $ 193,000 $ 225,000
Variable expenses $ 130,880 $ 79,130 $ 51,750
Traceable fixed expenses $ 186,000 $ 77,000 $ 109,000
Common fixed expense $ 79,420 $ 36,670 $ 42,750
Net operating income $ 21,700 $200 $21,500
Neelon Corporation reaches break-even point when it will make no profit or loss. This implies that its break-even point is reached when sales revenue equals both variable and fixed costs. The excess that Neelon Corporation generates from sales revenue over total costs is regarded as operating income.
As a long-term investment at the beginning of the 2018 fiscal year, Florists International purchased 30% of Nursery Supplies Inc.'s 10 million shares for $58 million. The fair value and book value of the shares were the same at that time. During the year, Nursery Supplies earned net income of $30 million and distributed cash dividends of $3.00 per share. At the end of the year, the fair value of the shares is $54 million.
Required:
Prepare the appropriate journal entries from the purchase through the end of the year.
Answer and Explanation:
The Journal entry is shown below:-
1. Investment in Nursery supplies shares Dr, $58 million
To Cash $58 million
(Being purchase of shares is recorded)
2. Investment in Nursery supplies shares Dr, $9 million
To Investment revenue $9 million ($30 million × 30%)
(Being investment revenue is recorded)
3. Cash Dr, $9 million
To Investment in Nursery supplies shares $9 million
(30% × 10 million × $3.00)
(Being a cash dividend is recorded)
4. No Journal entry is required
If the government wants to minimize the deadweight loss of taxation, which of the following items are good candidates for an excise tax? (select all that apply)A. emergency plumber servicesB. Coca-ColaC. insulinD. food at restaurants
Answer:
A. emergency plumber services and C.insulin.
Explanation:
From the list provided the best candidates for this would be emergency plumber services and insulin. That is because these are items or services that have a high supply but low demand due to the population of customers being a minority. This, therefore, causes market inefficiency which leads to deadweight loss. Other items like Coca-Cola and food mostly stay in equilibrium because products are made depending on the current demand and the customer population is the vast majority.
A beta of 0.5 for a security indicates Group of answer choices the security has no market risk. the security has above average market risk. the security has above average company-unique risk. the security has below average company-unique risk. the security has below average market risk.
Answer:
the security has below average market risk.
Explanation:
As we know that the beta is the systematic risk i.e. market risk of the stock.
if we assume that the average risk in the market is 1 so the beta of the market or market beta is the average risk
Now if the beta of the stock is less than 1 i.e. 0.5 so it is below the average risk of the market
Hence, the correct option is d.
Organizational learning works best when there is integrated thinking and acting at all levels of the organization, according to Peter Senge.
a) true
b) false
Answer: True
Explanation:
According to Peter Senge, he described team learning as a team skill which is required to be practiced by the team members that are involved so that they will all be able to develop their learning skills collectively.
Organizational learning works best when there is integrated thinking and acting at all levels of the organization.
The Rhaegel Corporation’s common stock has a beta of 1.2. If the risk-free rate is 4.3 percent and the expected return on the market is 13 percent, what is the company’s cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Answer:
Cost of equity = 14.74%
Explanation:
The capital asset pricing model is a risk-based model for estimating the return on a stock..
Here, the return on equity is dependent on the level of reaction of the the equity to changes in the return on a market portfolio. These changes are captured as systematic risk.
Systematic risks are those which affect all economic actors in the market, they include factors like changes in interest rate, inflation, etc. The magnitude by which a stock is affected by systematic risk is measured by beta.
Under CAPM,
E(r)= Rf + β(Rm-Rf)
E(r)- cost of equity , Rf-risk-free rate , β= Beta, Rm= Return on market.
Using this model, we can work out the value of beta as follows:
β-1.2 Rf- 4.3%, Rm = 13%
E(r) = 4.3% + 1.2 × (13 - 4.3)%=14.74 %
Expected return = 14.74 %
Cost of equity = 14.74%
On August 1, 2010, a company issues bonds with a par value of $600,000. The bonds mature in 10 years and pay 6% annual interest, payable each February 1 and August 1. The bonds sold at $592,000. The company uses the straight-line method of amortizing bond discounts. The company's year-end is December 31. Prepare the general journal entry to record the interest accrued at December 31, 2010.
Answer:
Dr Discount on BP 8,000
Cr Cash 592,000
Cr Bond payable 600,000
Dr Interest expense 15,333.33
Cr Interest payable 15,000
Cr Discount on BP 333.33
Dr Interest payable 15,000
Dr interest expense 3,066.67
Cr Cash 18,000
Cr Discount on BP 333.33
Explanation:
Preparation of the general journal entry to record the interest accrued at December 31, 2010.
Based on the information given we were told that the company issues bonds with a par value of the amount of $600,000 in which the bonds mature in 10 years with a 6% annual interest and sold at the amount of $592,000 this means that the transaction will be recorded as:
Dr Discount on BP 8,000
(600,000-592,000)
Cr Cash 592,000
Cr Bond payable 600,000
(To record issuance of the bonds)
Dr Interest expense 15,333.33
Cr Interest payable 15,000 (600,000 x 6% x 5/12 )
Cr Discount on BP 333.33
(8,000 / (10years* 2 payment =400*5/6=333.33)
(To record year end adjustment entry)
Dr Interest payable 15,000
(600,000 x 6% x 5/12 )
Dr interest expense 3,066.67
(600,000 x 6% x 1/12=3,000)
(400 - 333.33= 66.67)
(3,000+66.67=3,066.67)
Cr Cash 18,000
(600,000 x 6% x 6/12)
Cr Discount on BP 333.33
(8,000 / (10years* 2 payment =400*5/6=333.33)
(To record first interest payment to bondholders)
A company’s common stock has a market value of $63.18 per share and its next dividend is expected to be $3.26 per share. The stock’s beta is 1.2, the tax rate is 35%, and the market risk premium is 6.1% per year. The yield to maturity for the company’s long-term debt is 6.4% per year. If the riskiness of the company’s equity requires that it provide a risk premium of 3.2% per year over the yield on its long-term debt, what is the company’s annual cost of internal equity financing?
Answer:
Cost of equity = 9.6%
Explanation:
The cost of equity is the return a firm theoretically pays to its equity investors, In order to calculate the cost of equity here we need to add up the yield to maturity for the company's long term debt and the risk premium per year over the yield on its long term debt.
Solution
Cost of equity = Yield to maturity + Risk premium
Cost of equity = 6.4% + 3.2%
Cost of equity = 9.6%
Presented below are the ending balances of accounts for the Kansas Instruments Corporation at December 31, 2021.Account Title Debits CreditsCash $40,000 Accounts receivable 170,000 Raw materials 44,000 Notes receivable 120,000 Interest receivable 23,000 Interest payable $25,000 Investment in debt securities 52,000 Land 70,000 Buildings 1,700,000 Accumulated depreciation—buildings 640,000 Work in process 62,000 Finished goods 109,000 Equipment 340,000 Accumulated depreciation—equipment 150,000 Patent (net) 140,000 Prepaid rent (for the next two years) 80,000 Deferred revenue 56,000 Accounts payable 200,000 Notes payable 600,000 Restricted cash 100,000 Allowance for uncollectible accounts 33,000 Sales revenue 1,200,000 Cost of goods sold 470,000 Rent expense 48,000 Additional Information:1. The notes receivable, along with any accrued interest, are due on November 22, 2022.2. The notes payable are due in 2025. Interest is payable annually.3. The investment in debt securities consist of treasury bills, all of which mature next year.4. Deferred revenue will be recognized as revenue equally over the next two years.Required:Determine the company’s working capital (current assets minus current liabilities) at December 31, 2021.
Answer:
Working capital = $ 374,000
Explanation:
Calculation to Determine the company’s working capital at December 31, 2021
Formula for Working Capital
Working capital = Current assets - Current liabilities
First is to find the Current assets
Current assets =Cash $40,000 + Accounts receivable 170,000 +Raw materials 44,000+Work in process 62,000 +Finished goods 109,000 +Notes receivable 120,000 +Interest receivable 23,000 +Investment in debt securities 52,000+Prepaid rent 40,000 (80,000/2)
Current assets=$660,000
Second step is to find the Current liabilities
Current liabilities =Interest payable $25,000+Accounts payable 200,000+Deferred revenue 28,000 (56,000/2) +Allowance for uncollectible accounts 33,000
Current liabilities =$286,000
Let plug in the formula
Working capital =$660,000 - $286,000
Working capital = $ 374,000
Therefore the company’s working capital at December 31, 2021 will be $374,000