Answer:
$5,960
Explanation:
Fixed portion of Miscellaneous expenses = $2,000
Variable portion of Miscellaneous expenses = ($5,300 - $2,000) / $275,000
= $3,300 / $275,000
= $0.012 of sales
Miscellaneous expenses in the Year 2 selling expense budget = (Budgeted sales * Variable portion) + Fixed portion
= ($330,000 * $0.012) + $2,000
= $3,960 + $2,000
= $5,960
Barette Consulting currently has no debt in its capital structure, has $500 million of total assets, and its basic earning power is 15%. The CFO is contemplating a recapitalization where it will issue debt at a cost of 10% and use the proceeds to buy back shares of the company's common stock, paying book value. If the company proceeds with the recapitalization, its operating income, total assets, and tax rate will remain unchanged. Which of the following is most likely to occur as a result of the recapitalization? a) The ROA would remain unchanged b) The basic earning power ratio would decline c) The basic earning power ratio would increase d) The ROE would increase e) The ROA would increase
Answer:
d) The ROE would increase
Explanation:
Since the company's operating income will remain unchanged, net income will decrease due to interest expense, but the total number of shares outstanding will decrease. This will result in a higher EPS (earnings per share), and a higher ROE (return on equity), but it would also make the company's risk increase and Re (cost of equity) increase.
Busch Company has these obligations at December 31. For each obligation, indicate whether it should be classified as a current liability, noncurrent liability, or both.
(a) A note payable for $100,000 due in 2 years.
Current liabilityNoncurrent liabilityBoth
(b) A 10-year mortgage payable of $200,000 payable in ten $20,000 annual payments.
BothCurrent liabilityNoncurrent liability
(c) Interest payable of $15,000 on the mortgage.
Noncurrent liabilityBothCurrent liability
(d) Accounts payable of $60,000.
Current liabilityNoncurrent liabilityBoth
Answer:
(a) A note payable for $100,000 due in 2 years. - Noncurrent liability
Non-current liabilities are obligations of payments by the company that extend for over a year. This note payable is due in 2 years and so is a Non-current liability.
(b) A 10-year mortgage payable of $200,000 payable in ten $20,000 annual payments. - Noncurrent liability
This obligation also extends for over a year thereby satisfying the definition of a Non-current liability
(c) Interest payable of $15,000 on the mortgage. - Current liability
Current Liabilities being the opposite of Non-current liabilities are obligations that are due within a year. The $15,000 interest payment is the amount due for the year and so is a Current Liability.
(d) Accounts payable of $60,000. - Current liability
Accounts Payable are payable within the year and as such are current liabilities.
You consider buying a share of stock at a price of $10. The stock is expected to pay a dividend of $1.00 next year, and your advisory service tells you that you can expect to sell the stock in 1 year for $12. The stock's beta is 1.0, rf is 16%, and E[rm] = 26%. What is the stock's abnormal return? rev: 03_30_2019_QC_CS-164617 Multiple Choice 4% 10% 6% 0%
Answer: 4%
Explanation:
Abnormal returns are the excess actual returns received over the expected return.
The actual return can be calculated as;
= [tex]\frac{New Stock price + dividends - Old Stock Price}{Old stock price}[/tex]
= [tex]\frac{12 - 10 + 1}{10}[/tex]
= 30%
The expected return according to CAPM;
Expected return = Risk free rate + beta( market return - risk free rate)
= 16% + 1 ( 26% - 16%)
= 26%
Abnormal return = 30% - 26%
= 4%
The per-unit standards for direct labor are 2 direct labor hours at $15 per hour. If in producing 2200 units, the actual direct labor cost was $65600 for 4100 direct labor hours worked, the total direct labor variance is
Answer:
400 favorable
Explanation:
The computation of total direct labor variance is presented below:-
Total direct labor variance = (Standard rate - Standard hours) × (Actual rate - Actual hours)
= ($15 × (2 × 2,200)) - $65,600
= ($15 × 4,400) - $65,600
= $66,000 - $65,600
= 400 favorable
Therefore for determining the total direct labor variance we simply applied the above formula.
Record the following transactions on the books of Splish Brothers Inc.a. On July 1, Splish Brothers Inc. sold merchandise on account to Waegelein Inc. for $16,100, terms 2/10, n/30. b. On July 8, Waegelein Inc. returned merchandise worth $4,900 to Splish Brothers Inc.c. On July 11, Waegelein Inc. paid for the merchandise.
Answer and Explanation:
The Journal entries are shown below:-
1. Accounts Receivable Dr, $16,100
To Sales $16,100
(Being sales is recorded)
2. Sales Returns and Allowances Dr, $4,900
To Accounts Receivable $4,900
(Being return of the merchandise is recorded)
3. Cash Dr, $10,976 ($16,100 - $4,900) × 98%
Sales Discounts Dr, $224 ($16,100 - $4,900) × 2%
To Accounts Receivable $11,200 ($16,100 - $4,900)
(Being cash collection on the account is recorded)
On December 31, 2016, when its Allowance for Doubtful Accounts had a debit balance of $1,432, Sunland Company estimates that 9% of its accounts receivable balance of $105,900 will become uncollectible and records the necessary adjustment to Allowance for Doubtful Accounts. On May 11, 2017, Sunland Company determined that B. Jared’s account was uncollectible and wrote off $1,091. On June 12, 2017, Jared paid the amount previously written off.Required:Prepare the journal entries on December 31, 2016, May 11, 2017, and June 12, 2017.
Answer: Please see explanation column for answers
Explanation:
1) To record bad debts expense
Date Account Debit Credit
Dec 31, 2016 Bad Debt Expense $10,963
Allowance for doubtful account $10,963
Calculation ;
Bad debts expense
9% x $105,900 = $9,531
Adjustment= $9,531 + debit balance of $1,432=$10,963
2) To write off uncollectible accounts receivables
Date Account Debit Credit
May 11, 2017 Allowance for doubtful account $1,091.
Accounts receivable--- B. Jared $1,091.
3) To reinstate accounts accounts previously written off
Date Account Debit Credit
June 12, 2017 Accounts receivable--- B. Jared $1,091.
Allowance for doubtful account $1,091.
3b)to collect cash from receivables
Date Account Debit Credit
June 12, 2017 Cash $1,091.
Accounts receivable--- B. Jared $1,091.
Eiffel Corporation is a 100-percent owned French subsidiary of Tower Corporation, a U.S. corporation. During the current year, Eiffel paid a dividend of €500,000 to Tower. Assume an exchange rate of €1 = $1.50. Withholding taxes of €2,500 were imposed on the dividend. The dividend is paid out of earnings and profits that have not been subject to the deemed dividend rules under subpart F or GILTI. Compute the tax consequences to Tower as a result of this dividend.
Answer:
Eiffel Corporation
Computation of the tax consequences to Tower:
Withholding tax = €2,500 x $1.50 = $3,750.00
Domestic Corporation tax = 156,712.50
Total tax consequence = $160,462.50
Explanation:
a) Data and Computations:
Dividend = €500,000
Withholding tax = €2,500
Net after w/tax = €497,500
Exchange rate = €1 = $1.50
Therefore, net dividend after withholding tax = €497,500 x $1.50
= $746,250
Corporation tax rate = 21% of $746,250
= $156,712.50
Tower will suffer a withholding tax burden of $3,750 when translated into dollars and a corporation tax on income totalling $156,712.50 based on the TCJA tax rate of 21% instead of the former 35%.
Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows:
Sales in Units
April 70,000
May 85,000
June 110,000
July 90,000
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 15% of the following month’s sales. The inventory at the end of March was 10,500 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.
Answer:
Results are below.
Explanation:
Giving the following information:
Sales in Units
April 70,000
May 85,000
June 110,000
July 90,000
Desired ending inventory= 15% of the following month’s sales.
The inventory at the end of March was 10,500 units.
To calculate the production required for each month, we need to use the following formula:
Production= sales + desired ending inventory - beginning inventory
April:
Sales= 70,000
Desired ending inventory= 85,000*0.15= 12,750
Beginning inventory= (10,500)
Total production= 72,250
May:
Sales= 85,000
Desired ending inventory= 110,000*0.15= 16,500
Beginning inventory= (12,750)
Total production= 88,750
June:
Sales= 110,000
Desired ending inventory= 90,000*0.15= 13,500
Beginning inventory= (16,500)
Total production= 107,000
Total quarter= 268,000
The Making Ethical Decisions box "Good Finance or Bad Medicine" has an important message for managers who make financial decisions. Which of the following statements summarizes this message?
A. Managers must balance good economic decisions with socially forward thinking.
B. Checking academic credentials of recently graduated doctors is imperative due to the cost of lawsuits that patients may file if they learn that they were served by a surgeon without a license.
C. The support of a good law firm is worth every penny a hospital might pay. The finance manager should always budget for a legal team.
D. Financial decisions must be based on what insurance companies are willing to pay.
Answer:
A. Managers must balance good economic decisions with socially forward thinking.
Explanation:
Good Finance or bad medicine refers that if you are aware of finance or you have studied the finance subject so you are capable of making the financial decisions which give you the better return at less risk in near future and if you are not aware of finance than it would lead to the worst situation
Therefore the first option depicts the given message i.e making a better balance in the economic decisions with the help of forward-thinking i.e. to be social
Sandhill corporation manufactures a single product. montlhly production costs incurred in the manufacturing process are show below for the production of 3900 maintanance costs are mixed costs. the fixed portions of these costs are 387 and 258, respectively.
Production in units 3900
Production cost
Direct materials 9675
Direct labor 27420
Utilities 3702
Property taxes 1290
Indirect labor 5805
Supervisor salaries 2451
Maintanance 1233
Depreciation 3096
Required:
Calculate variable costs per unit, variable cost per unit for utilities and variable cost per unit for maintenance.
Answer:
variable costs per unit = $10.57
variable cost per unit for utilities = $0.85
variable cost per unit for maintenance = $0.25
Explanation:
I believe that the question is incomplete: the missing part is that both utilities and maintenance costs are mixed.
Production in units 3,900
Variable production cost s:
Direct materials $9,675 / 3,900 = $2.4808 per unit
Direct labor $27,420 / 3,900 = $6.9846 per unit
Utilities ($3,702 - $387) / 3,900 = $0.85 per unit
Maintenance ($1,233 - $258) / 3,900 = $0.25 per unit
total variable costs per unit = $10.5654 ≈ $10.57
Seacrest Company has 15,000 shares of cumulative preferred 2% stock, $50 par and 50,000 shares of $5 par common stock. The following amounts were distributed as dividends:
Year 1 $30,000
Year 2 12,000
Year 3 45,000
Required:
Determine the dividends per share for preferred and common stock for each year.
Answer:
Cumulative Preferred Stock must always pay out Dividends and when they cannot, the amount unpaid will be accrued for payment to another year when it can be paid.
When Dividends are declared, Preference Shareholders are paid first and then common shareholders follow.
Year 1
Preference Shares = Number of shares * Par value * %
= 15,000 * 50 * 2%
= $15,000
Common Shareholders will get the rest;
= 30,000 - 15,000
= $15,000
Year 2.
Preference Shareholders are still due $15,000 however only $12,000 is available. They will take all of it and be owed $3,000.
Preference Shares, Year 2 = $12,000
Common Shareholders get nothing.
Year 3.
Preference Shareholders are owed $15,000 for the year. They are also owed $3,000 from the previous year.
Preference Shares = 15,000 + 3,000
= $18,000
Common Shareholders will get the remainder;
= 45,000 - 18,000
= $27,000
"If Jason receives his quarterly bonus of $3,000 and spends $2,100 on a computer and puts the rest in his savings account, what is Jason’s MPC and MPS?"
Answer: 0.70; 0.30
Explanation:
Marginal propensity to consume(MPC) is the additional spending by an economic agent due to a rise in income while the marginal propensity to save is the additional saving by someone due to rise in income.
Increase in income = $3,000
Increase in spending = $2,100
Increase in savings = $3,000 - $2,100 = $900
MPC = $2,100/$3,000
= 0.70
MPS = $900/$3,000
= 0.30
Backus Inc. makes and sells many consumer products. The firm’s average contribution margin ratio is 35%. Management is considering adding a new product that will require an additional $15,000 per month of fixed expenses and will have variable expenses of $7.80 per unit.
Required:
A. Calculate the selling price that will be required for the new product if it is to have a contribution margin ratio equal to 35%.
B. Calculate the number of units of the new product that would have to be sold if the new product is to increase the firm's monthly operating income by $6,000.
Answer:
a) $12 per unit
b) $2,693 units
Explanation:
contribution margin ratio formula = contribution margin / total revenue
contribution margin = total revenue - variable costs
0.35 = (revenue - 7.80) / revenue
0.35revenue = revenue - 7.80
7.80 = 0.65revenue
revenue = 7.80/.65
revenue = 12
number of units required to increase revenue by $6,000:
= (fixed costs + desired profits) / contribution margin
= ($15,000 + $6,000) / $7.80 = $21,000 / $7.80 = 2,692.31 ≈ we must round up to $2,693 units
Alternate Outputs from One Day's Labor Input: USA: 12 bushels of wheat or 3 yards of textiles. India: 3 bushels of wheat or 12 yards of textiles. From the data, the USA:________.
a) has an absolute advantage over India in the production of wheat.
b) should export textiles to India.
c) has an absolute advantage over India in the production of textiles.
d) has a comparative advantage in the production of textiles.
Answer: a) has an absolute advantage over India in the production of wheat.
Explanation:
When a country is said to have an Absolute advantage in the production of a commodity, it means that they can produce more of that commodity than the country being compared to given the same amount of resources, all else being equal.
Given one day's labor input, the US can produce 12 bushels of wheat while India can only manage 3 bushels. The United States therefore has an Absolute advantage in the production of Wheat than India.
If 40 Ps are needed, and on-hand inventory consists of 15 Ps and 10 each of all other components and subassemblies, how many Cs are needed
Answer:
350 units
Explanation:
The computation of the number of Cs is needed is shown below;
The requirement of Ps = 40
Ps still = 15
So, the Net of Ps needed is
=40 - 15
= 25
Bs needed for 25 units of P is
= 3 × 25
= 75
And, B units still = 10
So, the Net of B units needed is
= 75 - 10
= 65
So, Cs needed for 65 units of B is
= 4 × 65
= 260
Cs needed directly for every unit of P is
= 1 × 4
= 4
hence , total Cs needed for 25 units of P is
= 4 × 25
= 100
Now
Total Cs required is
= 260 + 100
= 360
And, C units still = 10
So, the Net Cs needed is
= 360 - 10
= 350 units
An appraiser estimated the replacement cost new of a building at $560,000. The building has an estimated economic life of 40 years and an estimated remaining life of 30 years. What is the current value of the building
Answer:
The answer is $420,000
Explanation:
To find the amount of depreciation being charged years, we use the following formula:
Cost of the asset ÷ number of useful life
Cost of the asset - $560,000
Number of useful life - 40 years
$560,000 ÷ 40 years
$14,000.
The asset has 30 years remaining, that means it has used 10 years. So the accumulated depreciation is $140,000
And the current value of the building now is $420,000($560,000 - $140,000)
The current value of the building is $420000
The estimated economic life is 40 years, hence after 40 years the value of the house would be 0.
Since the estimated remaining life is 30 years. Hence:
Percentage value of house = 30 remaining years / 40 economic year
Percentage value of house = 0.75 * 100 = 75%
The current value of the building = 75% * $560000 = $420000
The current value of the building is $420000
Find out more on current value at: https://brainly.com/question/24304697
When gasoline gallons are priced in terms of number of seashells, seashells serve as: Group of answer choices
Answer:
Unit of account
Explanation:
Money serves three functions :
1. Unit of account : money serves the function of determining the value of a good or service. It is usually assumed that goods that are more highly priced are more valuable that goods that have lower prices
2. Medium of exchange : goods and services can be exchanged for money. For example, if I want to buy a gallon of gasoline and pay 4 seashells, money has served as a medium of exchange.
3. store of value: money can be saved, retrieved and exchanged sometimes in the future
The Auto Division of Big Department Store had a net operating income of $560,000, a net asset base of $4,000,000, and a required rate of return of 12%. Sales for the period totaled $3,000,000. The residual income for the period is
Answer:
Residua income = $80,000
Explanation:
Residual income is the excess of the controllable profit over the opportunity cost of capital invested.
It is used to evaluate the financial performance of a division or department.
The a positive residual value indicate a good performance, hence the higher the residual value the better
It is computed as follows:
Residual income = Controllable profit - (cost of capital× operating assets)
Controllable profit = 560,000,
Interest on capital = × 12% × 4,000,000 = 480,000
Residual income = 560,000 - 480,000= 80,000
Residua income = $80,000
E Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 44,000 units per month is as follows:
Per Unit
Direct materials $44.60
Direct labor $8.50
Variable manufacturing overhead $1.50
Fixed manufacturing overhead $18.10
Variable selling & administrative expense $2.60
Fixed selling & administrative expense $12.00
The normal selling price of the product is $94.10 per unit. An order has been received from an overseas customer for 2,400 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.60 less per unit on this order than on normal sales.
Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $80.40 per unit. The monthly financial advantage (disadvantage) for the company as a result of accepting this special order should be:_______
Answer:
financial advantage for accepting special order = $59,520
Explanation:
relevant production costs for special order (2,400 units):
direct materials $44.60
direct labor $8.50
variable manufacturing overhead $1.50
variable selling & administrative expense $1
total costs per unit = $55.60
total revenue from special order = 2,400 x $80.40 = $192,960
relevant costs associated to special order = 2,400 x $55.60 = ($133,440)
financial advantage for accepting special order = $59,520
A corporate charter specifies that the company may sell up to 23 million shares of stock. The company sells 15 million shares to investors and later buys back 4.5 million shares. The number of authorized shares after these transactions are accounted for is: Multiple Choice 19 million shares. 23 million shares. 15 million shares. 11 million shares.
Answer:
23 million shares
Explanation:
The computation of the number of authorized shares after these transactions are shown below:
Since the corporate charter represent the company could sell till 23 million shares of stock so here the no of authorized shared after the transactions should be 23 million shares
So, the second option is correct
And, the same is to be considered
Suppose that the federal government places a binding price floor on chocolate. To help support the price floor, the government purchases all of the leftover chocolate that consumers do not buy. If the price floor remains in place for a number of years, what do you expect to happen to each of the following?a) Quantity of chocolate demanded by consumers.b) Quantity of chocolate supplied by producers.c) Quantity of chocolate purchased by the government.
Answer And Explanation:
a) Quantity of chocolate demanded by consumers will decrease
This is because there is a minimum price which makes product more expensive. The higher the price, the less the quantity demanded
b) Quantity of chocolate supplied by producers will increase
This is because price has increased with the government's price floor. The higher the price, the higher the quantity supplied.
c) Quantity of chocolate purchased by the government will increase
This is because there is surplus supply and therefore government would need to buy more to support the price floor and buy leftover chocolates in the market
What type of Decision Making Model has the goal of maximizing efficiency by picking the best alternative based on specific criteria
Answer:
Rational model.
Explanation:
Rational decision model uses logic and objectivity while trying to solve a problem. It is not subjective neither does it have to depend on intuition. It helps one to identify a problem and get a solution amongst different options. It maximizes efficiency through picking the best option amongst the rest based on a specific criteria. It is assumed that the person making this choice has enough information about the options.
Part-time workers likely result in A. inaccurately high estimates of the labor force. B. inaccurately low estimates of the labor force. C. a disincentive for the unemployed to seek employment. D. lower incomes and fewer jobs.
Answer:
Correct answer:
A. inaccurately high estimates of the labor force.
Explanation:
Part-time work is the type of work where an individual has a flexible work plan is a given company unlike the traditional full-time work. Doing such work create the impression that, there is high labour force among the various industries and sectors. For example, someone might be working in two different firms under part-time basis same day which create an impression of two different individuals.
You have just been instructed to develop a schedule for introducing a new product into the marketplace. Below are the elements that must appear in your schedule. Arrange these elements into a work breakdown structure (down through level 3), and then draw the arrow diagram. You may feel free to add additional topics as necessary.1. Production layout2. Market testing3. Review plant cost4. Select distributors5. Analyze selling cost6. Analyze customer reactions7. Storage and shipping cost8. Select salespeople9. Training salespeople10. Trained distributors
Answer:
Attached below is the arrangement of these elements with additional topics and arrow diagram
Explanation:
The given Elements are : Production layout , market testing , Review plant cost, select distributors, Analyze selling cost, Analyse customer reactions, storage and shipping cost, select salespeople, training sales people, trained distributors. including additional topics as well
Martine Piccirillo works as the payroll clerk for Centinix, a security company that hires many part-time and temporary workers who are paid on an hourly basis. What law governs the hiring or documenting of these workers?
Answer:
IRCA(Immigration Reform and Control Act of 1986)
FLSA(Fair Labor Standards Act)
Explanation:
The Immigration Reform and Control Act (IRCA) forbids employers from recruiting/hiring any foreign citizen that doesn't have a proper work authorization. That means that all Centinix's employees should have a green card.
The Fair Labor Standards Act (FLSA) sets the federal standards for minimum wage, overtime pay, record keeping, and child labor. This includes any full time or part time worker employed by Centinix.
Following are financial data from year-end financial statements of Portland Company for 2017, 2016 and 2015.
2017 2016 2015
Accounts receivable $136,125 $144,576 $132,000
Cost of goods sold 1,023,750 864,000 960,000
Current assets 450,000 360,000 405,000
Current liabilities 300,000 250,000 310,000
Inventory 225,000 165,000 195,000
Sales 1,642,500 1,752,000 1,200,000
Required:
Compute the following financial ratios for 2016 and 2017.
Answer:
Answers are calculated below
Explanation:
Financial ratios can be calculated according to their formulas. Both formulas and calculation are as follows
CURRENT RATIO
Current ratio = Current assets/current liabilities
Current ratio (2016) = $360,000/$250,000
Current ratio (2016) = 1.44
Current ratio (2017) = $450,000 / $300,000
Current ratio (2017) = 1.50
ACID RATIO
Acid ratio = (Current asset - inventory)/current liabilities
Acid ratio (2016) = (360,000 - 165,000)/250,000
Acid ratio (2016) = 0.78
Acid ratio (2017) = (450,000-225,000)/300,000
Acid ratio (2017) = 225,000/300,000
Acid ratio (2017) = 0.75
INVENTORY TURNOVER RATIO
Inventory turnover ratio = cost of good Sold / Average inventory
Inventory turnover ratio (2016) = 864,000/(360,000 ÷2)
Inventory turnover ratio (2016) = 864,000/180,000
Inventory turnover ratio (2016) = 4.80
Inventory turnover ratio (2017) = 1,023,750 / ( 390,000 ÷ 2)
Inventory turnover ratio (2017) = 1,023,750 / 195,000
Inventory turnover ratio (2017) = 5.25
DAYS SALE IN RECEIVABLE
Days sale in receivable = 365/Average receivable turnover ratio
Days sale in receivable (2016) = 365/ 12.67(w1)
Days sale in receivable (2016) = 28.81 days
Days sale in receivable (2017) =365/11.7(w1)
Days sale in receivable (2017) = 31.20 days
Working 1
Account receivable turnover ratio = Sales/ Average receivable
Account receivable turnover ratio (2016) = 1,752,000/138,288(w2)
Account receivable turnover ratio = 12.67 times
Account receivable turnover ratio (2017) = 1,642,500/140,351(w2)
Account receivable turnover ratio (2017) = 11.7 times
Working 2
Average receivable = (Opening + Closing) /2
Average receivable (2016) = (132,000 + 144,576) /2
Average receivable (2016) = 138,288
Average receivable (2017) = (144,576 +136,125 ) /2
Average receivable (2017) = 140,351
Hunt Inc. intends to invest in one of two competing types of computer-aided manufacturing equipment: CAM X and CAM Y. Both CAM X and CAM Y models have a project life of 10 years. The purchase price of the CAM X model is $3,600,000, and it has a net annual after-tax cash inflow of $900,000. The CAM Y model is more expensive, selling for $4,200,000, but it will produce a net annual after-tax cash inflow of $1,050,000. The cost of capital for the company is 10%.
Required:
Calculate the NPV for each project.
Answer:
NPV of CAM X = $1,930,110.40
NPV of CAM Y = $2,251,795.46
Explanation:
The NPV for each project can be calculated using the following steps:
Step 1: Calculation of present value (PV) for each project
The PV for each project can be calculated using the formula for calculating the present value of an ordinary annuity as follows:
PV of a project = P * [{1 - [1 / (1 + r)]^n} / r] …………………………………. (1)
Where;
For CAM X
P = Net annual after-tax cash inflow = $900,000
r = Cost of capital or interest rate = 10%, or 0.10
n = number of project life = 10
Substitute the values into equation (1) to have:
PV of CAM X = $900,000 * [{1 - [1 / (1 + 0.10)]^10} / 0.10]
PV of CAM X = $900,000 * 6.14456710570468
PV of CAM X = $5,530,110.40
For CAM Y
P = Net annual after-tax cash inflow = $1,050,000
r = Cost of capital or interest rate = 10%, or 0.10
n = number of project life = 10
Substitute the values into equation (1) to have:
PV of CAM Y = $1,050,000 * [{1 - [1 / (1 + 0.10)]^10} / 0.10]
PV of CAM Y = $1,050,000 * 6.14456710570468
PV of CAM Y = $6,451,795.46
Step 2: Calculation of net present value (NPV) for each project
The NPV for each project can be calculated using the following formula:
NPV of each project = PV of each equipment - Purchase price of each equipment ........ (2)
Using equation (2), we have:
NPV of CAM X = PV of CAM X - Purchase price of CAM X = $5,530,110.40 - $3,600,000 = $1,930,110.40
NPV of CAM Y = PV of CAM Y - Purchase price of CAM Y = $6,451,795.46 - $4,200,000 = $2,251,795.46
Additional Note:
Although this not part of the requirement of the question, but note that the final decision is that since the positive NPV of $2,251,795.46 for CAM Y is gereater than the positive NPV of $1,930,110.40 for CAM X, Hunt Inc. will choose to invest in CAM Y.
The internal rate of return method is used to analyze a $831,500 capital investment proposal with annual net cash flows of $250,000 for each of the six years of its useful life. a. Determine a present value factor for an annuity of $1, which can be used in determining the internal rate of return. Carry your answer out to three decimal places.
Answer:
annuity factor for 20% and 6 periods = 3.326
Explanation:
the IRR represents the discount rate at which a project's NPV = 0
NPV = initial outlay + PV of future cash flows
NPV = 0
initial outlay = -$831,500
PV of future cash flows = $831,500 = cash flow x annuity factor
annuity factor = $831,500 / $250,000 = 3.326
using an annuity table and looking for the annuity factors for 6 periods, we find that the annuity factor for 20% and 6 periods = 3.326.
So our IRR = 20%
You bought a painting 7 years ago as an investment. You originally paid $145,000 for it. If you sold it for $307,000, what is your annual return on the investment
Answer:
11.3%
Explanation:
In this scenario a painting was bought at present value of $145,000 and sold at future value of $307,000. The time is 7 years in the future.
Return on investment is the gain on original cost of a project. A positive return on investment will result in profit of the project.
To calculate annual rate we use the following formula
Present value = Future value (1 + rate) ^ -number of years
145,000 = 307,000 {(1+r) ^ -7}
145,000/307,000 = (1+r) ^-7
0.4723 = (1 + r) ^ -7
1.113 = 1+ r
r = 0.113= 11.3%
The date the directors vote to pay a dividend is called the: Multiple Choice Date of declaration. Date of record.
Answer: Date of declaration
Explanation:
The declaration date is also known as announcement date. The date of declaration is the date when the board of directors announces when the next dividend will be paid.
It should be noted that the statement consist of the size of the dividend, date of the previous dividend and also the next dividend payment date.