Answer:
Angela and Stenbach Service Centre
Contract for Service and Contract of Service:
1. Angela has a contract for service.
2. Factors used to decide whether a contract is for service or of service:
a) Employment terms are slightly different from business contract terms.
b) Employees are paid Wages and Salaries, while contractors are paid fees.
c) Employees do not submit monthly invoices for payment, but contractors do.
d) Angela fills tax forms for herself and remits the taxes, so she is self-accounting with respect to her income taxes, unless withholding taxes like Sales taxes. An employee's income tax is deducted from her salary before payment and the company remits the taxes to the IRS.
Explanation:
The agreement between Angela, a self-employed individual, and Stenbach Service Centre is a contract for service. A contract of service is an employment contract between Stenbach Service Centre, the employer, and the Payables Supervisor, an employee, for example. Essentially, Angela can be described as an outsourcer for services vendor or service provider to Stenbach Service Centre, an outsourcer of service company. Angela is engaged for a fee to carry out property maintenance services, including lawn care, snow removal, and parking lot maintenance. She is an independent contractor with Stenbach. She does not need to work on any day and she can subcontract her work by hiring others to help her discharge the service. An employee, like Chris, cannot hire another person to discharge his responsibilities and must work on designed days.
Another important difference is that Angela submits monthly invoices for actual work done. An employee does not have to submit an invoice in order to be paid for work done. Angela's invoices will not be of the same amount from one month to the other, unlike Chris' whose salary pay sheet may be static in amount from month to month.
Fenwick operates a grocery store and his retail building was completely destroyed by a hurricane on August 22, Year 10. The fair market value of the building before the hurricane was $1,200,000 with an adjusted basis of $800,000. His insurance company reimbursed him $1,200,000 of December 2, Year 10. When is the last date that Fenwick can replace this building with qualifying property and avoid recognizing gain from this transaction.A. December 31, 2013.B. August 22, 2015.C. December 31, 2015.D. December 31, 2016.
Answer:
D. December 31, 2016.
Explanation:
Fenwick company had retail building which was destroyed on August 22, hurricane. The hurricane was so intense that complete building was damaged. The building already had an insurance policy due to which the fair value of the building is reimbursed. Fenwick can claim the fair value of the building from an insurance company. If he replaces the building with qualifying building on the date he gets the insurance claim he will not be required to record gain of the transaction.
Computing and Recording Proceeds from the Sale of PPE The following information was provided in the 2018 10-K of Hilton Worldwide Holdings, Inc.
2018 2017
Property and equipment, gross $678 $642
Accumulated depreciation (385) (360)
Property and equipment, net 293 282
Note 7 also revealed that depreciation expense on property and equipment totaled $43 million in 2018. The cash flow statement reported that expenditures for property and equipment totaled $58 million in 2018 and that there was no gain or loss on the sale of property and equipment during the year.
Required:
Using the information provided, prepare a journal entry to record the sale of property and equipment in 2018.
Answer:
Cash $4
Accumulated Depreciation $18
To Property & equipment $22
(Being the sale of the property and equipment is recorded)
Explanation:
The journal entry is shown below:
Cash $4
Accumulated Depreciation $18
To Property & equipment $22
(Being the sale of the property and equipment is recorded)
For recording this we debited the cash and accumulated depreciation as it increased the assets and reduced the accumulated depreciation balance and credited the property & equipment as it decreased the assets
The workings are as follows
For PPE
PPE Beginning Balance Beginning $642
Add: Purchases during the year $58
Less: PPE Ending Balance Ending ($678)
Cost of the sold equipment $22
For Accumulated depreciation
Beginning Accumulated Depreciation $360
Add: Depreciation expense 2018 $43
Less: Ending Accumulated Depreciation ($385)
Accumulated Depreciation left $18
Here, we need to first compute the amount of the Property and equipment and the Accumulated depreciation to allow us prepare the journal entry to record the sale of property and equipment in 2018.
For the Property and equipment computation
Particulars Amount
PPE Beginning Balance Beginning $642
Add: Purchases during the year $58
Less: PPE Ending Balance Ending ($678)
Cost of the sold equipment $22
For the Accumulated depreciation computation
Particulars Amount
Beginning Accumulated Depreciation $360
Add: Depreciation expense 2018 $43
Less: Ending Accumulated Depreciation ($385)
Accumulated Depreciation balance $18
Date Account titles and Explanation Debit Credit
Cash $4
Accumulated Depreciation $18
To Property & equipment $22
(Being the sale of the property and equipment is recorded)
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At the end of the first year of operations, Mayberry Advertising had accounts receivable of $21,200. Management of the company estimates that 9% of the accounts will not be collected. What adjustment would Mayberry Advertising record for Allowance for Uncollectible Accounts
Answer: Credit Allowance for Uncollectible Accounts $1,908
Explanation:
The Allowance for Uncollectible Accounts is an account where an estimate of receivables that may not be received is recorded. It is the result of companies being proactive in collection management so as not to overstate assets because there will always be a risk of customers defaulting.
The allowance/estimate is made by the company and then reduced from the Receivables account. That amount removed is credited to the Allowance for Uncollectible Accounts.
= 21,200 * 9%
= $1,908
What type of lawsuit occurs if an employee decides to file a lawsuit against a company?
A. Civil case
B. Liability case
C. Criminal case
D. Prosecution case
Answer: A. Civil case
Explanation:
The court cases that associate disputes between persons or businesses over funds or some incident to private rights are known as civil cases. It starts by one party (business or a person) known as "plaintiff" claims to have been harmed by the actions of another party (person or business) known as the "defendant".Hence, the lawsuit occurs if an employee decides to file a lawsuit against a company is "Civil case".
Hence, the correct option is "A".
Answer:
it would be a civil case
Explanation:
I took the test
Starset Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $425,000 is estimated to result in $169,000 in annual pretax cost savings. The press falls in the 5-year MACRS class, and it will have a salvage value at the end of the project of $69,000. The press also requires an initial investment in spare parts inventory of $28,000, along with an additional $3,500 in inventory for each succeeding year of the project. The shop’s tax rate is 23 percent and its discount rate is 10 percent.
1. Calculate the NPV of this project.
2. Should the company buy and install the machine press?
A. No.
B. Yes.
Answer:
96,287
Explanation:
Cost of Machine $425,000
5 years MACRS rate is
Year 1 - 425,000 * 20% = 85,000
Year 2 - 425,000 * 32% = 136,000
Year 3 - 425,000 * 19.20% = 81,600
Year 4 - 425,000 * 11.52% = 48,960
Total depreciation in 4 years = 351,560
New Book Value of asset = 73,440
Salvage value at the end of 4 years = 69,000
Gain on disposal = 4,440
The NPV can be calculated based on tax savings
169000 for 4 years using annuity at 23% rate.
The NPV of the project is;
-425,000 + 251,787 + 169,000 +3,500 + 28,000 + 69000
Net Present Value = 96,287
1. A small-scale businessman deposits money at the beginning of each year into his savings account, depending on the level of the business’ returns. He deposits $1000 in the first year, $3000 in the second year, $5000 in the third and $7000 in the fourth year and annual interest rate of 7%. What is the value of the investment at the time of his first deposit?
Answer:
The value of the investment at the time of his first deposit is $13,855.
Explanation:
The Value of the Investment at the time of his first deposit is its Net Present Value.
Calculation of the Net Present Value of this Investment is as follows ;
Hint : Find the Present Value of individual deposits and sum them up
PV = FV / (1 + r) ^n
Year 0 = $1000 / (1.07)^0
= $1,000
Year 1 = $3000 / (1.07)^1
= $2,804
Year 2 = $5000 / (1.07)^2
= $4,367
Year 2 = $7000 / (1.07)^3
= $5,714
Net Present Value = $1,000 + $2,804 + $4,367 + $5,714
= $13,855
Analysis reveals that a company had a net increase in cash of $21,430 for the current year. Net cash provided by operating activities was $19,300; net cash used in investing activities was $10,650 and net cash provided by financing activities was $12,780. If the year-end cash balance is $25,950, the beginning cash balance was:
Answer:
i thinktheanswer would be 87 or 98 few dw
Explanation:
[The following information applies to the questions displayed below.] Hudson Co. reports the contribution margin income statement for 2017. HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2017 Sales (11,300 units at $175 each) $ 1,977,500 Variable costs (11,300 units at $140 each) 1,582,000 Contribution margin $ 395,500 Fixed costs 315,000 Pretax income $ 80,500 Assume the company is considering investing in a new machine that will increase its fixed costs by $37,000 per year and decrease its variable costs by $8 per unit. Prepare a forecasted contribution margin income statement for 2018 assuming the company purchases this machine.
Answer:
Pretax income= $133,900
Explanation:
Giving the following information:
Selling price= $175
New unitary variable cost= $132
New fixed costs= 315,000 + 37,000= 352,000
Now, we can determine the new operating income:
Sales= 11,300*175= 1,977,500
Total variable cost= 11,300*132= (1,491,600)
Total contribution margin= 485,900
Fixed costs= (352,000)
Pretax income= 133,900
When preparing the operating activities section of the statement of cash flows using the indirect method, non-operating gains are added to net income. true or false
Answer:
True
Explanation:
A company uses the perpetual inventory system and recorded the following entry: Accounts Payable 2,500 Merchandise Inventory 50 Cash 2,450 This entry reflects a:
Answer:
The entry reflects a debit to the Accounts Payable and a credit to the Merchandise Inventory and Cash, signifying full settlement of debt with merchandise $50 and cash $2,450.
Explanation:
When Accounts Payable is debited, it means that it is being paid. In this case, there are two stated ways for the settlement. The supplier was paid $50 in goods and $2,450 in cash. While, the supplier was being owed the sum of $2,500, he agreed to accept merchandise at cost of $50 and the remainder in cash of $2,450. This entry also satisfies the accounting equation, keeping the two sides in balance, as Liabilities are reduced by $2,500 and Assets are reduced by the same amount.
Smith & Smith has a bond rating of B and an Altman s Z-score of 1.0. This suggests that:
Answer:
"The firm has high credit risk" is the correct answer.
Explanation:
A Z-Score exceeding 2.99 indicates an organization becomes focused mostly on the economic projections throughout the safe space. Throughout the Grey Zone, a Z-Score among 1.8 as well as 2.99 means that there is indeed a reasonable possibility that the business will go bankrupt throughout the next 2 years. In the meantime, mostly in Distress Zone, just one Z-Score under 1.80 suggests a high likelihood of discomfort during this timeframe.Messaging systems range from semi-public systems such as standard text messaging on mobile phones, to private systems that are closed to anyone outside of invited members.
A. True
B. False
Answer:
True.
Explanation:
Messaging systems range from semi-public systems such as standard text messaging on mobile phones, to private systems that are closed to anyone outside of invited members.
A messaging system can be defined as an electronic device which enables users to send text messages to one or more users depending on the configuration and it ranges from semi-public systems to private systems.
In a semi-public messaging system, messages can be sent between users with little or no restriction to who can send or receive these messages. An example is sending short standard text on mobile phones.
On the other hand, a private messaging system is a type of system that denies access to individuals outside of the group, only invited members are able to send and receive messages.
Sonic Inc. manufactures two models of speakers, Rumble and Thunder. Based on the following production and sales data for June, prepare (a) a sales budget and (b) a production budget: Rumble Thunder Estimated inventory (units), June 1 260 64 Desired inventory (units), June 30 299 56 Expected sales volume (units): Midwest Region 3,650 3,200 South Region 4,900 4,250 Unit sales price $135 $210 a. Prepare a sales budget.
Answer:
Sonic Inc.
a) Sales Budget:
Rumble Thunder
Total units sold 8,550 7,450
Unit sales price $135 $210
Sales value $1,154,250 $1,564,500
b) Production Budget:
Rumble Thunder
Total units sold 8,550 7,450
Desired inventory (units), June 30 299 56
Estimated inventory (units), June 1 260 64
Units to be produced 8,589 7,442
Explanation:
a) Data and Calculations:
Rumble Thunder
Total units sold 8,550 7,450
Desired inventory (units), June 30 299 56
Estimated inventory (units), June 1 260 64
Units Produced 8,589 7,442
Rumble Thunder
Expected sales volume (units):
Midwest Region 3,650 3,200
South Region 4,900 4,250
Total units sold 8,550 7,450
Unit sales price $135 $210
a) The Sonic Inc.'s sales budget determines the production budget. When the quantity to be sold is obtained, then production planning can take place based on meeting customers' demand for goods or services.
b) The Production budget is a bye-product of the sales budget, though, it is critical in the whole value chain. It is the production budget that guides production planning, including the type, design, and other features of the product.
Fortune, Inc., is preparing its master budget for the first quarter. The company sells a single product at a price of $25 per unit. Sales (in units) are forecasted at 45,000 for January, 55,000 for February, and 50,000 for March. Cost of goods sold is $14 per unit. Other expense information for the first quarter follows.
Commissions....8% of sales
Rent....$14,000 per month
Advertising....15% of sales
Office salaries....$75,000 per month
Depreciation....$40,000 per month
Interest....15% annually on a $250,000 note payable
tax rate....30%
Prepare a budgeted income statement for this first quarter.
Answer:
Fortune, Inc.
Budgeted Income Statement
For the first quarter, 202x
January February March Total
Sales revenue $1,125,000 $1,375,000 $1,250,000 $3,750,000
Cost of goods sold $630,000 $770,000 $700,000 $2,100,000
Gross profit $495,000 $605,000 $550,000 $1,650,000
S&A expenses:
Rent $14,000 $14,000 $14,000 $42,000Office salaries $75,000 $75,000 $75,000 $225,000Sales comm. $90,000 $110,000 $100,000 $300,000Advertising $168,750 $206,250 $187,500 $562,500Depreciation $40,000 $40,000 $40,000 $120,000EBIT $107,250 $159,750 $133,500 $400,500
Income taxes $32,175 $47,925 $40,050 $120,150
Net income $75,075 $111,825 $93,450 $280,350
A parent company exchanges 5,000 shares of its $2 par value common stock, with a market value of $10/share, for all of the shares owned by the subsidiary's shareholders, resulting in a $50,000 total purchase price. On the acquisition date, the subsidiary reported a book value of Stockholders' Equity of $37,500, comprised of $15,000 of Common Stock and $22,500 of Retained Earnings. An examination of the subsidiary's balance sheet revealed that book values were equal to fair values for all assets except for PPE (net), which has a book value of $20,000 and a fair value of $32,500.
a. Prepare the entry that the parent makes to record the investment.
b. Prepare the [E] and [A] consolidation entries.
Answer:
a. The entry that the parent makes to record the investment
Investment in Subsidiary $50,000 (debit)
Common Stocks $50,000 (credit)
b. Consolidation Entries
Common Stock (Subsidiary) $15,000 (debit)
Retained Earnings (Subsidiary) $35,000 (debit)
Investment in Subsidiary $50,000 (credit)
Explanation:
The entry that the parent makes to record the investment
Investment in Subsidiary $50,000 (debit)
Common Stocks $50,000 (credit)
Recognize the Investment in Subsidiary and recognize the Equity element : Common Stocks
Consolidation Entries
Common Stock (Subsidiary) $15,000 (debit)
Retained Earnings (Subsidiary) $35,000 (debit)
Investment in Subsidiary $50,000 (credit)
Eliminate Common Items and recognize Goodwill or Gain on Bargain Purchase if any.
The following cost behavior patterns describe anticipated manufacturing costs for 2013: raw material, $8.20/unit; direct labor, $11.20/unit; and manufacturing overhead, $386,400 + $9.20/unit. Required: If anticipated production for 2013 is 42,000 units, calculate the u
Answer:
Note: The missing part of the question is "using variable costing and absorption costing. Explain the difference"
Solution
According to variable costing, the unit cost based was
= $8.20 + $11.20 + $9.20
= $28.6
According to absorption costing,
Total Manufacturing costs= Direct material + Direct labor + Overhead
= $8.20 + $11.20 + ($386,400/42,000 units) + $9.20
= $8.20 + $11.20 + $9.2 + $9.2
= $37.8
The difference between the variable costing and the absorption cost is because the product costing using variable costing method only includes variable costs.
Fortune Enterprises is an all-equity firm that is considering issuing $13.5 million of perpetual debt. The interest rate is 10%. The firm will use the proceeds of the bond sale to repurchase equity. Fortune distributes all earnings available to stockholders immediately as dividends. The firm will generate $3 million of earnings before interest and taxes (EBIT) every year into perpetuity. Fortune is subject to a corporate tax rate of 40%. Suppose the personal tax rate on interest income is 55%, and the personal tax rate on equity income is 20%.
What is the annual after-tax cash flow to debt holders under each plan?
a. Debt holders get $0 mil. under the unlevered plan vs. 1.2 mil. under the levered plan
b. Debt holders get $1.2 mil. under the unlevered plan vs. 0.66 mil. under the levered plan
c. Debt holders get $0 mil. under the unlevered plan vs. 0.66 mil. under the levered plan
d. Debt holders get $0 mil. under the unlevered plan vs. 0.6075 mil. under the levered plan
Answer:
d. Debt holders get $0 mil. under the unlevered plan vs. 0.6075 mil. under the levered plan
Explanation:
interests paid to debt holders = $13,500,000 x 10% = $1,350,000
generally, interest revenue is taxed as ordinary revenue = corporate income tax rate (if debt holder is a business) or personal income tax (if debt holder is an individual).
under the first plan, debt holders get nothing because there is no outstanding debt since the company is an all equity firm.
under the second plan, if the personal tax rate on interest income is 55%, which is really high, the debt holders will earn $1,350,000 x (1 - 55%) = $607,500
Zeke Company sells a single product. The selling price per unit is $32 and unit variable cost is $24. Fixed costs for the year are $100,200. What if selling price goes up by 0.15%, variable costs go up by 0.15% and fixed costs go up by 0.16%? What is the new breakeven point in units?
Answer:
Break-even point in units= 12,562 units
Explanation:
Giving the following information:
Selling price= 32*1.0015= 32.048
Unitary variable cost= 24*1.0015= 24.036
Fixed costs= 100,200*1.0016= 100,360.32
To calculate the break-even point in units, we need to use the following formula:
Break-even point in units= fixed costs/ contribution margin per unit
Break-even point in units= 100,360.32/(32.048 - 24.036)
Break-even point in units= 12,562 units
Choose three distinct but related business functions (e.g., inventory control, purchasing, payroll, accounting, etc.). Write a short paper describing how interfacing the information systems of these three functions can improve an organization’s performance.
Answer:
The three functions can be described as follows:
i) Inventory control
ii) Procurement
iii) Sales
Explanation:
Following are the description of the given points:
In point (i):
It is also the center of the operational activities, in which it would be accountable to always get rid of a perfect product inventory and thus not have an untouched inventory in the storage facility.
In point (ii):
This is the first step for just a brand until it hits the end user. It is sourcing, which most appropriate and progressed necessity for both the manufacturing of the company.
In point (iii):
For the business, it primarily provides, a large number of alternative considerations. However, certain expenses it control, including the expense of keeping as well as the wastefulness in raw resources, all will be determined from selling price.
what is the annual percentage yield(APY) for money at an annual rate of (a)4.57% monthly (b)4.58% compunded quartelty
Answer:
a)Annual rate of return = 4.67%
(b)Annual rate of return = 4.66%
Explanation:
Annul rate of return where compounding is done more frequenting could be worked out as follows:
Annual rate of return = (1+r)^n - 1
r - rate of return per period
n- number of periods in a year
a) Monthly rate of 4.57%
r- monthly rate = 4.57%/12 = 0.38% per month
n- 12 months
Annual rate of return = (1+ 0.003808)^12 - 1 × 100 = 4.67%
Annual rate of return = 4.67%
b) 4.58% compounded quarterly
r- quarterly rate = 4.58%/4 = 1.145 %
n- 4 quarters in a year
Annual rate of return = (1+0.01145)^4 - 1 × 100= 4.66%
a)4.57% monthly
Annual rate of return = 4.67%
(b)4.58% compounded quarterly
Annual rate of return = 4.66%
Kim's brokerage company offers dual agency. Tom and Don are two of her licensed agents. Tom ha been appointed to represent the seller, and Don has been appointed to represent the buyer in an in-house transaction. In this situation, who is a dual agent ? A. Kim only B. Kim, Tom, and Don only C. all licensed agents Kim's broker age D. no one.
Answer:
A. IS THE ANSWER
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A firm always has a competitive disadvantage when its return on invested capital is:_________
A. 2 percent or lower in a declining industry.
B. declining steadily over two or more years.
C. about the same as its closest competitor.
D. below the industry average.
Answer:
A firm always has a competitive disadvantage when its return on invested capital is:_________
D. below the industry average.
Explanation:
A firm's competitive disadvantage shows when the return on investment is below the industry average. For instance, let us assume that Niposte, Inc. operates in the paper milling industry and that its return on investment of 10% falls below the industry average of 15%, then one can conclude that Niposte, Inc. is not favored in this industry. The cause of such a situation for Niposte, Inc. may be that the ability of its management to turn revenue into profits for stockholders is hampered with excessive costs. This is because the return on investment is a profitability ratio that shows how Niposte, Inc. and its competitors are performing in terms of generating profit from revenue through efficient management of operating costs.
Statfeld Company's income statement for the current month shows that the company sold 300,000 units of its product and earned a net operating income of $450,000, Management is very pleased with the result and believes the company's financial position is strong because sales would have to go down by 40% from the current level before losses would occur. Management further believes that if the company runs a new TV commercial at a cost of $50,000 per month, sales volume next month could grow by 20% from the current sales level without the need to lower the sales price. If this action is taken, what will be the increase decrease in the next month's net operating income from the current month?
a. Increase of $175,000
b. Increase of $40,000
c. Increase of $225,000
d. Decrease by $50,000
e. None of the above.
Answer:
b. Increase of $40,000
Explanation:
Incremental Analysis of the Operating Profit arising from new TV commercial
Hint : Consider Incremental amounts Only
Operating Income ( $450,000 × 20 %) $90,000
Less Cost of new TV commercial ($50,000)
Incremental Income / (loss) $40,000
Conclusion :
There will be an increase in next month's net operating income from the current month of $40,000 .
Following are selected account balances from Penske Company and Stanza Corporation as of December 31, 2018:
Penske Stanza
Revenues 700,000 400,000
Cost of goods sold 250,000 100,000
Depreciation expense 150,000 200,000
Investment income Not given __
Dividend declared 80,000 60,000
Retained earnings 600,000 200,000
Current assets 400,000 500,000
Copyrights 900,000 400,000
Royal agreements 600,000 1,00,0000
Investment in stanza ---- -------
Liabilities 500,000 13,80,000
Common stock 600,000 200,000
Additional paid capital 150,000 80,000
On January 1, 2018, Penske acquired all of Stanza's outstanding stock for $680,000 fair value in cash and common stock. Penske also paid $10,000 in stock issuance costs. At the date of acquisition, copyrights (with a six-year remaining life) have a $440,000 book value but a fair value of $560,000.
a. As of December 31, 2018, what is the consolidated copyrights balance?
b. For the year ending December 31, 2018, what is consolidated net income?
c. As of December 31, 2018, what is the consolidated retained earnings balance?
d. As of December 31, 2018, what is the consolidated balance to be reported for goodwill?
Answer:
a. Consolidated Copyright
Penske (Book value) $900,000
Stanza (Book value) $400,000
Allocation $120,000
Less: Excess Amortization ($20,000)
Total $1,400,000
b. Consolidated Net Income 2019
Revenues $1,100,000
Expenses:
Cost of goods sold $350,000
Depreciation Expenses $350,000
$700,000
Excess amortization $20,000 $720,000
Consolidated Net Income $380,000
Workings
Cost of goods sold = 250,000 + 100,000 = 350,000
Depreciation Expenses = 150,000 + 200,000 = 350,000
3. Consolidated Retainer earnings on December 31,2018
Retained Earnings 1/1/28 $600,000
Net Income 2018 $380,000
Less: Dividend Declared 2018 (Penske) ($80,000)
Total $900,000
d. Consolidated Balance to be reported for goodwill
Stanza acquisition fair value $680,000
(10,000 in stock issue costs reduced
additional paid in capital)
Book value of subsidiary $480,000
(1/1/18 Stockholder equity balance)
Fair value in excess of book value $200,000
Less: Excess fair value allocated $120,000
to copy right based on fair value
Goodwill $80,000
Workings
Stockholder equity balance 1/1/18
Common stock 200,000
Additional paid-in capital 80,000
Retained earnings 200,000
Stockholder equity 480,000
Excess fair value
Copyright fair value 560,000
Less Copyright book value 440,000
Excess fair value allocated 120,000
Copyright year 6 years
Annual Excess Amortization $20,000
Piedmont Hotels is an all-equity company. Its stock has a beta of .82. The market risk premium is 6.9 percent and the risk-free rate is 4.5 percent. The company is considering a project that it considers riskier than its current operations so it wants to apply an adjustment of 1.7 percent to the project's discount rate. What should the firm set as the required rate of return for the project?
Answer:
11.86%
Explanation:
Piedmont hotels can be described as an all-equity company
Its stock has a beta of 0.82
The market risk premium is 6.9%
The risk free rate is 4.5%
The adjustment is 1.7%
Therefore, the required rate of return can be calculated as follows
Required rate of return= Risk free rate of return + ( beta×market risk premium) + adjustment
= 4.5% + (0.82×6.9%) + 1.7%
= 4.5% + 5.658 + 1.7%
= 11.86%
Hence the required rate of return for the project is 11.86%
Presented here are the comparative balance sheets of Hames Inc. at December 31, 2020 and 2019. Sales for the year ended December 31, 2020, totaled $580,000.
HAMES INC.
Balance Sheets
December 31, 2020 and 2019
2020 2019
Assets
Cash $ 24,000 $ 21,000
Accounts receivable 78,000 72,000
Merchandise inventory 103,000 99,000
Total current assets $ 205,000 $ 192,000
Land 50,000 40,000
Plant and equipment 125,000 110,000
Less: Accumulated depreciation (65,000) (60,000)
Total assets $ 315,000 $ 282,000
Liabilities
Short-term debt $ 18,000 $ 17,000
Accounts payable 66,000 76,000
Other accrued liabilities 20,000 18,000
Total current liabilities $ 104,000 $ 111,000
Long-term debt 22,000 30,000
Total liabilities $ 126,000 $ 141,000
Stockholders’ Equity
Common stock, no par, 100,000 shares authorized
40,000 and 25,000 shares issued, respectively $ 74,000 $ 59,000
Retained earnings:
Beginning balance $ 82,000 $ 85,000
Net income for the year 53,000 2,000
Dividends for the year (20,000) (5,000)
Ending balance $ 115,000 $ 82,000
Total stockholders’ equity $ 189,000 $ 141,000
Total liabilities and stockholders’ equity $ 315,000 $ 282,000
Required:
1. Calculate ROI for 2020. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
2. Calculate ROE for 2020. (Round your answer to 1 decimal place.)
3. Calculate working capital at December 31, 2020.
4. Calculate the current ratio at December 31, 2020. (Round your answer to 2 decimal places.)
5. Calculate the acid-test ratio at December 31, 2020. (Round your answer to 2 decimal places.)
Answer:
1. 16.83%
2. 28.04%
3. $101,000
4. 1.97
5. 0.98
Explanation:
Return On Investment (ROI) = Net Profit After Tax / Total Assets × 100
= $53,000 / $ 315,000 × 100
= 16.825 or 16.83%
Return On Equity (ROE) =Net Profit After Tax / Total Shareholders Funds × 100
= $53,000 / $ 189,000 × 100
= 28.0423 or 28.04 %
Working Capital = Current Assets - Current Liabilities
= $ 205,000 - $ 104,000
= $101,000
Current Ratio = Current Assets / Current Liabilities
= $ 205,000 / $ 104,000
= 1.9712 or 1.97
Acid Test Ratio = (Current Assets - Inventory) / Current Liabilities
= ($ 205,000 - $ 103,000) / $ 104,000
= 0.98077 or 0.98
g Exodus Limousine Company has $1,000 par value bonds outstanding at 15 percent interest. The bonds will mature in 30 years. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Compute the current price of the bonds if the percent yield to maturity is
Question:
Exodus Limousine Company has $1,000 par value bonds outstanding at 15 percent interest. The bonds will mature in 30 years. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Compute the current price of the bonds if the percent yield to maturity is 10%
Note the tutor added 10% as the yield
Answer:
Price of bond= $1,471.35
Explanation:
The value of the bond is the present value (PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV) discounted at the yield rate
Value of Bond = PV of interest + PV of RV
The value of bond Exodus Limousine Company can be worked out as follows:
Step 1
PV of interest payments
PV = A × (1+r)^(-n)/r
A-annul interest payment:
= 15% × 1,000 = 150
r-Annual yield = 10%
n-Maturity period = 30
PV of interest payment:
=150× (1- (1+0.1)^(-30)/0.1= 1,414.037
Step 2
PV of Redemption Value
= 1000 × (1.1)^(-30) = 57.308
Step 3
Price of bond
=1,414.037 + 57.308 = 1,471.345
Price of bond= $1,471.345
Mary buys an annuity that promises to pay her $1,500 at the end of each of the next 20 years. The appropriate interest rate is 7.5%. What is the value of this 20-year annuity today?
Answer:
PV= $15,291.74
Explanation:
Giving the following information:
Annual cash flow= $1,5000
Number of years= 20
Interest rate= 7.5%
To calculate the present value, first, we need to determine the future value using the following formula:
FV= {A*[(1+i)^n-1]}/i
A= annual cash flow
FV= {1,500*[(1.075^20) - 1]} / 0.075
FV= $64,957.02
Now, we can calculate the present value:
PV= FV/(1+i)^n
PV= 64,957.02/(1.075^20)
PV= $15,291.74
Meredith, the General Manager at Gladfle Inc., is planning to use certain new strategies to control and reduce the health care benefit costs to her company. What should she include in her list of strategies?
Answer:
Switching to consumer driven health plans
Explanation:
Meridith should include switching to consumer driven health plans in her list of strategies since she is trying to reduce health care benefits costs.
A consumer-driven health plan allows the workers in an organization, it could be both employers and their employees, to put aside amounts of money usually pre-tax money, which could be used to pay for qualified medical expenses not covered by their health plan.
On January 1, Beckman, Inc., acquires 60 percent of the outstanding stock of Calvin for $54,480. Calvin Co. has one recorded asset, a specialized production machine with a book value of $10,000 and no liabilities. The fair value of the machine is $78,000, and the remaining useful life is estimated to be 10 years. Any remaining excess fair value is attributable to an unrecorded process trade secret with an estimated future life of 4 years. Calvin’s total acquisition date fair value is $90,800.
At the end of the year, Calvin reports the following in its financial statements:
Revenues 65,550 Machine 13,590 Common stock 10,000
Expenses 29,250 Other assets 27,710 Retained earnings 31,300
Net income 36,300 Total assets 41,300 Total equity 41,300
Dividends paid 5,000
Required:
Determine the amounts that Beckman should report in its year-end consolidated financial statements for noncontrolling interest in subsidiary income, noncontrolling interest, Calvin’s machine (net of accumulated depreciation), and the process trade secret.
Answer:
Beckman noncontrolling interest in subsidiary income $10,520
Calvin Machine (net of accumulated depreciation) $71,200
Explanation:
To calculate noncontrolling interest in subsidiary's income;
Revenue $65,550
Expenses $39,250 (29,250 + $6,800 + $3,200)
Net Income $26,300
Noncontrolling percentage = 40%
NonControlling Income = $10,520
Depreciation of Machine = [tex]\frac{Fair value of Machine - Book value}{estimated useful life}[/tex]
[tex]\frac{78,000 - 10,000}{10 years}[/tex] = 6,800 per annum
Amortization of trade secrets = [tex]\frac{Fair Value Total - Machine value}{Useful life}[/tex]
Amortization of trade secrets = [tex]\frac{90,800 - 78,000}{4 years}[/tex]
= 3,200