Answer:
Consumers would not keep buying ice cream at $2.75 because after purchasing a certain amount of ice cream, utility would be maximised and consumers would not value ice cream at $2.75 anymore. Consumers would not purchase a product it the marginal utility that would be derived from consuming the product is less than the price.
According to the law of diminishing marginal utility, as more units of a product is increased, total utility increases but at a decreasing rate.
Explanation:
Marginal utitiy is the increase in utility that is derived from consuming one more unit of a product.
Cole Corporation was organized on January 1, Year 1. The company was authorized to issue 100,000 shares of $1 par value common stock. During the year, the company had the following transactions relating to stockholders’ equity: Issued 40,000 shares of common stock at $8 per share. Reported a net income of $60,000. Paid dividends of $30,000. Purchased 5,000 shares of treasury stock at $10 per share. What is total stockholders’ equity at the end of Year 1? Multiple Choice a) $300,000 b) $350,000 c) $400,000 d) $460,000
Answer: a)$300,000
Explanation:
Stockholders Equity shows just how much of the company is being financed by the shareholders. It is calculated by,
Total Stockholders Equity for the Year = Issued and Outstanding Shares + Retained Earnings - Treasury Stock
Retained Earnings = Opening Retained Earnings + Net Income - Dividends
First year of operation so no Opening Retained Earnings.
= $0 + 60,000 - $30,000
= $30,000
Total Stockholders Equity for the Year = (40,000* $8) + $30,000 - (5,000 * 10)
= 320,000 + 30,000 - 50,000
= $300,000
Orrick Company reported total assets of $4,200,000, total liabilities of $700,000, and total equity of $3,500,000 at the end of the year and total sales of $15,000,000 during the year. The company's debt-to-equity ratio (stated in a percentage rounded to one decimal point) is _____. 0.2% 0.5% 2.0% 20.0%
Answer:
The correct option is 20.0%
Explanation:
debt to equity ratio considers the total liabilities of a company as percentage of its equity stockholders' value.
Total liabilities in this case is $700,000 compared to total equity of $3,500,000.
company's debt-to-equity ratio=$700,000/$3,500,000=20.0%
The debt-to-equity ratio should not be confused with debt-to-assets ratio,which has a different formula altogether.
sadik inch's bonds currently sell for $1,300 and have a par value of $1,000. They pay a $105 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,100. What is their yield to call
Answer:
5.31%
Explanation:
For computing the yield to call we need to use the RATE formula i.e shown in the attachment below:
Given that,
Present value = $1,300
Future value or Face value = $1,100
PMT = 105
NPER = 5 years
The formula is shown below:
= Rate(NPER;PMT;-PV;FV;type)
The present value come in negative
So, after applying the above formula, the yield to call is 5.31%
Vang Enterprises, which is debt-free and finances only with equity from retained earnings, is considering 7 equal-sized capital budgeting projects. Its CFO hired you to assist in deciding whether none, some, or all of the projects should be accepted. You have the following information: rRF= 4.50%; RPM = 5.50%; and b = 0.93. The company adds or subtracts a specified percentage to the corporate WACC when it evaluates projects that have above- or below-average risk. Data on the 7 projects are shown below. If these are the only projects under consideration, how large should the capital budget be?
Project Risk Risk Factor Expected Return Cost (Millions)
1 Very low -2.00% 7.60% $25.00
2 Low -1.00% 9.15% $25.00
3 Average 0.00% 10.10% $25.00
4 High 1.00% 10.40% $25.00
5 Very high 2.00% 10.80% $25.00
6 Very high 2.00% 10.90% $25.00
7 Very high 2.00% 13.00% $25.00
a. $ 125
b. $ 100
c. $ 25
d. $50
e. $75
Answer:
E $75
Explanation:
Using CAMP we solve for the Cost of equity on each and determinate which project are worht to invest on it
A
[tex]Ke= r_f + \beta (r_m-r_f)[/tex]
risk free = 0.045
rate premium market = (market rate - risk free) = 0.055
beta(non diversifiable risk) = 0.93
[tex]Ke= 0.045 + 0.93 (0.055)[/tex]
Ke 0.09615 = 9.615%
A 9.615% - 2.00% = 7.615% As the return is 7.60% we should reject
B 9.615% - 1% = 8.615% return of 9.15% we should Accept
C return of 10.10% while Ke 9.615% Accepted
D 9.615% + 1% = 10.615% return of 10.40% rejected
E 9.615% + 2% = 11.615% against 10.80% yield rejected
F cost of 11.615% ith return of 10.90% rejected
G cost of 11.615% with return of 13.00% Accepted
We accept three projectthus, we require $75
A review of the ledger of Remina Company at December 31, 2017, produces the following data pertaining to the preparation of annual adjusting entries.
1. Prepaid Insurance $10,680. The company has separate insurance policies on its buildings and its motor vehicles. Policy B4564 on the building was purchased on April 1, 2016, for $8,640. The policy has a term of 3 years. Policy A2958 on the vehicles was purchased on January 1, 2017, for $4,200. This policy has a term of 2 years.
2. Unearned Rent Revenue $345,600. The company began subleasing office space in its new building on November 1. At December 31, the company had the following rental contracts that are paid in full for the entire term of the lease.
Date Term (in months) Monthly Rent Number of Leases
Nov. 1 9 $5,400 4
Dec. 1 6 $8,400 3
3. Notes Payable $130,000. This balance consists of a note for 9 months at an annual interest rate of 9%, dated November 1.
4. Salaries and Wages Payable $0. There are 9 salaried employees. Salaries are paid every Friday for the current week. 5 employees receive a salary of $750 each per week, and 4 employees earn $500 each per week. Assume December 31 is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of December.
Required:
Prepare the adjusting entries at December 31, 2017.
Answer:
1)
December 31,2017, insurance expense
Dr Insurance expense 2,880
Cr Prepaid insurance - Policy B4564, 2,880
December 31,2017, insurance expense
Dr Insurance expense 2,100
Cr Prepaid insurance - Policy A2958, 2,100
2)
December 31,2017, rental revenue
Dr Unearned revenue 10,800
Cr Rental revenue 10,800
December 31,2017, rental revenue
Dr Unearned revenue 8,400
Cr Rental revenue 8,400
3)
December 31,2017, interest expense
Dr Interest expense 1,950
Cr Interest payable 1,950
4)
December 31,2017, wages expense
Dr Wages expense 2,300
Cr Wages payable 2,300
Heinz Ketchup holds 54% of the U.S. ketchup market, and nine of every 10 restaurants feature Heinz ketchup. However, Heinz has learned that many restaurant owners simply refill Heinz bottles with cheaper ketchup, thereby capitalizing on the Heinz name without the cost. One restaurant owner explains, "It’s just ketchup. The customers don’t notice." There are no specific health regulations that apply, and owners are not breaking the law by refilling the bottles. Do you think this practice is ethical?
Answer:
No, not at all. The practice is NOT ethical.
Explanation:
So, from the question above let us take each statement one after the other.
(1). "Heinz Ketchup holds 54% of the U.S. ketchup market, and nine of every 10 restaurants feature Heinz ketchup"
DEDUCTION FROM (1): this shows that Heinz Ketchup is a popular brand in the United States of America.
(2). " Heinz has learned that many restaurant owners simply refill Heinz bottles with cheaper ketchup, thereby capitalizing on the Heinz name without the cost. One restaurant owner explains, "It’s just ketchup. The customers don’t notice." There are no specific health regulations that apply, and owners are not breaking the law by refilling the bottles"
DEDUCTION FROM (2): What these other restaurants owners are doing is purely CHEAT that is "refill Heinz bottles with cheaper ketchup". CHEATING IS UNETHICAL!
Closet Links Clothing Company provided the following manufacturing costs for the month of June. Direct labor cost $ 132 comma 000 Direct materials cost 83 comma 000 Equipment depreciation (straightminusline) 20 comma 000 Factory insurance 18 comma 000 Factory manager's salary 10 comma 000 Janitor's salary 3 comma 000 Packaging costs 19 comma 800 Property taxes 16 comma 000 From the above information, calculate Closet Link's total variable costs.
Answer:
Closet Link's total variable costs is $234,800
Explanation:
Given:
Direct labor cost = $ 132,000
Direct materials cost = $83,000
Equipment depreciation (straight-line) = $20,000
Factory insurance = $18,000
Factory manager's salary = $10,000
Janitor's salary = $3,000
Packaging costs = $19,800
Property taxes = $16,000
Total variable costs = Direct materials cost + Direct labor cost + Packaging costs
= $83,000 + $132,000 + $19,800 = $234,800
Cherokee Spring Mill produces four varieties of corn meal based on how finely the corn is ground. The mill makes long production runs of high volume. Cherokee Spring Mill uses a(n) _____ process.
Answer:
The correct answer is "continuous"
Explanation:
A continuous process is also called continuous production. In a continuous process, materials being processed for example the four varieties of cornmeal used in the question above are undergoing continuous chemical reactions or physical processing which involves mechanical treatment to ensure a final product without any break in time, substance.
A continuous process is a process where the materials to be used are also processed. Here, production is uninterrupted.
A continuous process has advantages such as, it is cheaper making use of concurrent running of production. It is also a simple process with the aim of minimizing wastage. One of the disadvantages is the maintenance cost of the equipment used.
A type of entity that must have one general partner and at least one limited partner. b. A type of entity in which owners are "members". c. A type of entity in which all owners are jointly and severally liable for the entity's debts. d. A type of entity in which there can be only one owner.
Answer: a) Limited Liability Partnership (LLP)
b) Limited Liability Company (LLC)
c) General Partnership
d) Sole Proprietorship
Explanation: Limited Liability Partnership (LLP) - A type of entity that must have one general partner and at least one limited partner.
Limited Liability Company (LLC)- A type of entity in which owners are "members".
General Partnership - A type of entity in which all owners are jointly and severally liable for the entity's debts.
Sole Proprietorship - A type of entity in which there can be only one owner.
Your company rents computers to local businesses and schools. You have 1,600 computers with a book value of $163,000. As a result of changing technology, your computers are more difficult to rent so you must drastically reduce your rental price, which causes a decrease in estimated future cash flows. The fair value of the computers is estimated to be $123,500 because of their outdated technology. Your company should report an asset impairment loss of:
Answer:
Your company should report an asset impairment loss of : $39,500
Explanation:
Impairment loss is recognized when the Carrying Amount of an Asset exceed its Recoverable Amount.
Carrying Amount
Carrying Amount is the Cost of Asset less its Accumulated Depreciation
Carrying Asset of Computers = $163,000
Recoverable Amount
Recoverable Amount is the Higher of :
Value in Use of Asset orFair Value less Cost to Sale the AssetIn this case the Recoverable amount is $123,500
Analysis for impairment loss
Carrying Amount : $163,000 > Recoverable Amount : $123,500,
Thus we have an impairment situation.
Impairment loss is $39,500 ($163,000 - $123,500)
The inventory was destroyed by fire on December 31. The following data were obtained from the accounting records: Jan. 1 Inventory $ 360,000 Jan. 1 to Dec. 31 Purchases (net) 2,870,000 Sales 4,470,000 Estimated gross profit rate 30% A. Estimate the cost of the inventory destroyed. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. B. In which situations would the gross profit method be useful
Answer:
A. Estimate the cost of the inventory destroyed is $101,000
B. Gross profit method would be useful in estimating the cost of merchandise destroyed by the fire.
Explanation:
Particulars Debit ($) Credit ($)
Beginning merchandise inventory 360,000
Add: Net purchase 2,870,000
Merchandise available for sale 3,230,000
Less: Net sales 4,470,000
Estimated gross profit (30%) (1,341,000)
Estimated cost of merchandise sold 3,129,000
Estimate the cost of the inventory destroyed 101,000
A government worker surveys a number of households and comes up with the following information: there were a total of 90 people in the households, 10 of the people were children under 16, 10 of the people were retired but still capable of working, 35 people had full-time jobs, 5 had part-time jobs, 5 were stay-at-home parents, 5 were full-time students over the age of 16, 5 were disabled people who could not work, 10 people had no job but were looking for jobs, and there were 5 people who wanted a job but were not looking for a job.
According to the information in the survey, the unemployment rate is:_______
Answer:
27%
Explanation:
Number of Persons in the Household = 90
Neither Employed Nor Unemployed
Children Under 16 =10Disabled = 5Retired =10Stay at Home Parents = 5Full Time Students over the age of 16= 5Total =35
Unemployed
10 people had no job but were looking for jobs5 people who wanted a job but were not looking for a job.Total =15Employed
35 people had full-time jobs5 had part-time jobsTotal =35+5=40
Total Labour Force = Unemployed +Employed = 40+15 =55
Unemployment Rate = (Unemployed People / Total Labor) x 100
=15/55 X 100
=27%
According to the information in the survey, the unemployment rate is: 27%
Three identical units of merchandise were purchased during July, as follows: Date Product Basic H Units Cost July 3 Purchase 1 $35 10 Purchase 1 36 24 Purchase 1 37 Total 3 $108 Average cost per unit $36 Assume one unit sells on July 28 for $45. Determine the gross profit, cost of merchandise sold, and ending inventory on July 31 using the (a) first-in, first-out, (b) last-in, first-out, and (c) average cost flow methods.
Answer and Explanation:
The computation is shown below:
Particulars Gross profit Cost of merchandise sold Ending inventory
a. FIFO $10 $35 $73
($45 - $35) ($108 - $35)
It takes the first cost per unit
b. LIFO $8 $37 $71
($45 - $37) ($108 - $37)
It takes the last cost per unit
c. Average cost $9 $36 $72
($45 - $36) ($45 - $36)
It takes the average cost per unit
Last winter, your service fraternity volunteered at an elementary school in a lower income neighborhood in your city. You noticed many of the children did not have hats or mittens to wear in the cold weather. You decided to start a business that will provide hats and mittens to children in need. You quickly realize you will need help in this venture and set out to find a cofounder. Which of the following characteristics and traits would you like to see in a cofounder?
A) Persistent.
B) Economically motivated.
C) Hard working.
D) Creative.
Answer:
A) Persistent.
C) Hard-working.
D) Creative.
Explanation:
In the given situation, it is mentioned that an individual wants to start a business that deals in hats and mittens so the needs of the children could be fulfilled. But for that, we need to find out a cofounder that should be have following traits and characteristics
a. Persistent: The person should be trying his best o achieve it rather than escape from it
b. he should be hardworking so that every child's need could be fulfillled
c. He should be creative or we can say who bring innovative ideas to the firm so that the people get attracted to the company products so that the sale of the firm could rise up
Consider a firm with an annual net income of $30 million, revenue of $70 million and cost of goods sold of $35 million. If the balance sheet amounts show $3.5 million of inventory and $800,000 of property, plant & equipment, what is the inventory turnover?
a. 12.50
b. 4.44
c. 17.50
d. 5.00
e. 10.00
Answer:
The answer is 5.2 million
Explanation:
Solution
Given that:
The cost of good sold is =$35 million
Inventory = $3.5 million
Thus we compute for the Inventory turnover which is given below:
Inventory turn over ratio (ITR)
=Cost of goods sold/Inventory
=35$million/$3.5 million
=$10 million
So,
The weekly supply = The number of week in a year /ITR
= 52 Weeks/$10 million
=5.2
Therefore the turnover of inventory is 5.2 million which is close to option (d) 5.00
On December 2, Coley Corp. acquired 1,800 shares of its $4 par value common stock for $23 each. On December 20, Coley Corp. resold 1,400 shares for $13 each. Which of the following is correct regarding the journal entry for the resold shares?
a. Credit Additional Paid-in Capital $7,000
b. Credit Treasury Stock $20,000
c. Debit Cash $15,400
d. Credit Treasury Stock $11,000
e. None of these
Answer:
b. Credit Treasury Stock $20,000
Explanation:
General Journal
For the reacquisition of shares of common stock
Date Account Titles and Explanation Debit Credit
Dec 2 Treasury stock $28,000
Cash (1,400 shares * $20 each) $28,000 (To record the repurchase of shares of common shares
General Journal
For the reissue of shares treasury stock
Date Account Titles and Explanation Debit Credit
Dec 20 Cash (1,000 shares * $11 each) $11,000
Paid-in-capital in excess of par $9,000
- Treasure stock
Treasury stock $20,000
(1,000 shares * $20 per share)
(To record the reissue of treasury stock)
Conclusion: The journal entry to record the reissue of treasury stock is Credit Treasury Stock $20,000.
Conroy Copper Mines has $940 million in total liabilities and $620 million in shareholder's equity. It discloses operating lease commitments over the next five years with a present value of $120 million. If the lease commitments are treated as debt, the debt-to-total-capital ratio is closest to:
Answer:
0.63
Explanation:
Total debt = 940 + 120 =1060
Total sharesholder's equity = $620 million
We can find the debt to total capital ratio by dividing debt by total capital
Debt-to-total-capital ratio = Debt / Total capital = 1060 / (1060+620)
Debt-to-total-capital ratio = 0.63
Star Corp. has a rate of return on assets of 10% and a debt/equity ratio of 2 to 1 before entering into an operating lease. Not including any indirect effects on earnings, when Star Corp. records the operating lease, the immediate impact on these ratios is a(an):
Answer:
The return on assets and debt/equity ratio does not change
Explanation:
An operating lease does not affect assets and liabilities. From the formula:
Equity = Assets - Liabilities, since both assets and liabilities are not affected (they remain unchanged) therefore the equity is also the same.
The debt/ equity ratio = total liabilities/total equity. Since liabilities and equity remain unchanged, therefore The debt/ equity ratio is the same.
Also the return of assets (earnings/assets) remain the same
The debt ratio is used: Question 23 options: To measure the ratio of equity to expenses. To assess the risk associated with a company's use of liabilities. Only by banks when a business applies for a loan. To determine how much debt a firm should pay off. To determine how much debt a company should borrow.
Answer:
To assess the risk associated with a company's use of liabilities
Explanation:
The formula for debt =total liabilities/equity
It is evident from the formula above that debt ratio does not measure the ratio of equity to expenses, neither does it determine the amount of debt that could be borrowed.
In actual fact, it measures the risk inherent in making use of debt as a source of finance instead of equity.
Hall Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below:
Beginning work in process inventory:
Units in beginning work in process inventory 1,000
Materials costs $7,100
Conversion costs $6,400
Percent complete with respect to materials 65%
Percent complete with respect to conversion 30%
Units started into production during the month 13,600
Units transferred to the next department during the month 12,300
Materials costs added during the month $137,224
Conversion costs added during the month $215,050
Ending work in process inventory:
Units in ending work in process inventory 2,300
Percent complete with respect to materials 60%
Percent complete with respect to conversion 25%
The total cost transferred from the first processing department to the next processing department during the month is closest to:______
a. $356,256
b. $380,435
c. $341,325
d. $349,856
Answer:
c. $341,325
Explanation:
First determine the Equivalent Units of Production
Materials
Units completed and transferred (12,300 × 100%) = 12,300
Units in Ending Work In Process Inventory ( 2,300 ×60%) = 1,380
Equivalent Units of Production = 13,680
Conversion
Units completed and transferred (12,300 × 100%) = 12,300
Units in Ending Work In Process Inventory ( 2,300 ×25%) = 575
Equivalent Units of Production = 12,875
Next Determine the Total Cost Incurred during the period
Materials
Cost in Units of Opening Work In Process = $7,100
Incurred during the period = $137,224
Total Cost = $144,324
Conversion
Cost in Units of Opening Work In Process = $6,400
Incurred during the period = $215,050
Total Cost = $221,450
Then Determine the Total Cost per Equivalent unit of Production
Cost per Equivalent unit = Total Cost / Total Equivalent Units
Materials = $144,324 / 13,680
= $10.54
Conversion = $221,450 / 12,875
= $17.20
Total = $10.54 + $17.20 = $27.74
Finally calculate total cost transferred from the first processing department to the next processing department
total cost transferred = Units transferred × Total cost per equivalent unit of production.
= 12,300 × $27.74
= $341,202
Conclusion :
The total cost transferred from the first processing department to the next processing department during the month is closest to $341,325
The Ethics of Care recognizes that human relationships are often asymmetrical and tries to incorporate this fact into the view by claiming that moral responsibility is partially determined by how vulnerable a person is in a relationship.
a. True
b. False
Answer:
True
Explanation:
Care means meeting the needs of ourselves and others. Ethics of care involves practising virtues as it maintain relationship and promote the well-being of those who give and receive care in social relations. It is hinged on the theory of what makes an action right or wrong.
Ideally, ethics of care is inspired to take care of the less privilege, the dependants and vulnerable. It place relevance on relationships, responsibility, concern over traditional rule. Ethics of care recognize that human relationships are not similar or do not perfectly match up hence incorporate this fact into the view and claiming that moral duty is partially determined by how vulnerable a person is in a relationship.
While ethics of care seems to place emphasis on social well being of vulnerable, yet it has being a foremost part of ethical issues among professionals such as medical practitioners.
ABC Appliance offers a warranty requiring an annual fee. The warranty may be purchased at the time of sale or at any time within the first year after the appliance was purchased. The warranty fee after the date of purchase is twice the time-of-purchase fee. When asked why the fee was higher after the date of purchase, ABC's president said, "Buying a warranty is voluntary. We've noted that those who buy the warranty after the purchase date have a greater need for service." Charging the same rate or a lower rate after the date of purchase would expose ABC to what problem that also impacts private insurers?
Answer: adverse selection
Explanation:
Adverse selection is a situation whereby the sellers possesses information that the buyers do not have. It may also be the other way round whereby the buyers have information which the sellers don't have regarding the quality of a product.
There is information failure between both parties; typically, it's usually the sellers who has more information. Therefore, base on the scenario above, charging same rate or lower rate after the date of the purchase would expose ABC to adverse selection problems.
If the government began providing free textbooks to college students who would otherwise have bought their books from the private sector, the government's action would result in:_______
A) a Ricardian dilemma.
B) a direct expenditure offset.
C) an increase in real Gross Domestic Product (GDP).
D) a reduction of the government deficit.
Answer:
Option (B) is the correct answer to this question.
Explanation:
As the government spends more money, businesses within the private sector typically spend less.
Specific budget offsets refer to the private-sector expenditures through which compensation was generated as a result of expansionary budgetary policy decisions becoming implemented. The private sector activities in investment profits that counter government spending behavior by the state. Some income from federal spending in an environment competing with corporate companies must be offset by any government expenditure.
Other options are incorrect because they are not related to the given scenario.
Cullumber Company purchased machinery on January 1 at a list price of $320000, with credit terms 4/10, n/30. Payment was made within the discount period. Cullumber paid $21750 sales tax on the machinery and paid installation charges of $5900. Prior to installation, Cullumber paid $11200 to pour a concrete slab on which to place the machinery. What is the total cost of the new machinery
Answer:
the total cost of the new machinery is $302,550
Explanation:
Cost of a Property Plant and Equipment (PPE) item includes Purchase price of asset and other costs directly incurred in bringing the asset in the location and condition required by management for operation excluding taxes that can be claimed.
Thus the Cost of this Machinery Can be Calculated as :
List Price $320,000
Less Cash Discount at 4% ($12,800)
Purchase Price $307,200
Less Sales Tax ($21,750)
$285,450
Add installation charges $5,900
Add Cost of concrete slab $11,200
Total Cost of Machinery $302,550
The payroll register for Gamble Company for the week ended April 29 indicated the following: Salaries $1,250,000 Social security tax withheld 75,000 Medicare tax withheld 18,750 Federal income tax withheld 250,000 In addition, state and federal unemployment taxes were calculated at the rate of 5.4% and 0.6%, respectively, on $225,000 of salaries.Required: a. Journalize the entry to record the payroll for the week of April 29. b. Journalize the entry to record the payroll tax expense incurred for the week of April 29.
Answer with its Explanation:
Part A. The with held taxes will adjusted against the salaries which means with held taxes will be credited and the salaries accrued will be debited and the difference of the accrued salary and with held taxes will go to the salaries payables (Credit).
The double entry is given as under:
Dr Salaries Expenses $1,250,000
Cr Social Security Payables $75,000
Cr Medicare Tax Payables $18,750
Cr Federal Income Tax Payables $250,000
Cr Salaries Payables $906,250
Part B. The state and federal unemployment taxes will also result in the increase in the salaries expense just like the with held taxes.
The double entry would be as under:
Dr Salaries Expense $13,500
Cr State Unemployment Taxes $12,150 (225,000 * 5.4%)
Cr Federal Unemployment Taxes $1,350 (225,000 * 0.6%)
Cotton On Ltd. currently has the following capital structure: Debt: $3,500,000 par value of outstanding bond that pays annually 10% coupon rate with an annual before-tax yield to maturity of 12%. The bond issue has face value of $1,000 and will mature in 20 years.
Answer and Explanation:
This question is incomplete. Kindly find the incomplete question here
Ordinary shares: $5,500,000 book value of outstanding ordinary shares. Nominal value of each share is $100. The firm plan just paid a $8.50 dividend per share. The firm is maintaining 4% annual growth rate in dividends, which is expected to continue indefinitely.
Preferred shares: 45,000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 12%
The firm's marginal tax rate is 30%.
Required:
a) Calculate the current price of the corporate bond?
b)Calculate the current price of the ordinary share if the average return of the shares in the same industry is 9%?
c) Calculate the current price of the preferred share if the average return of the shares in the same industry is 10%
The computation is shown below:
a. For the current price of the corporate bond
Before that first we have to determine the after tax yield to maturity i.e
After tax YTM = Before tax YTM × (1 - tax rate)
= 12% × ( 1 - 30%)
= 12% × (1 - 0.3)
= 12% × (0.7)
= 8.4%
Now
Price of bond = Interest × PVIFA(YTM%,n) + Redemption value × PVIF(YTM%,n)
Interest = 1000 × 10% = $100
YTM% = 8.4%
n = 20
PVIFA(YTM%,n) = [1 - (1 ÷ (1 + r)^n ÷ r ]
PVIFA(8.4%,20) = [1 - (1 ÷ (1 + 8.4%)^20 ÷ 8.4%]
= [1 - (1 ÷ (1 + 0.084)^20 ÷ 0.084]
= [1-(1 ÷ (1.084)^20 ÷ 0.084]
= [1 - 0.1993 ÷ 0.084]
= 0.8007 ÷ 0.084
= 9.5327
PVIF(8.4%,20) = 1 ÷ (1 + 8.4%)^20
= 1 ÷ (1.084)^20
= 0.19926
So, the price of bond is
= $100 × 9.5327 + $1000 × 0.19926
= $953.27 + $199.26
= $1,152.52
b)Price of stock = Dividend of next year ÷ (Required rate of return - growth rate )
where,
Growth rate = 4%
Required rate of return = 9%
The Dividend of next year = Dividend paid × (1 + growth rate)
= 8.50 × (1 + 4%)
= 8.50 × (1 + 0.04)
= 8.50 × (1.04)
= $8.84
Thus the price of the stock is
= $8.84 ÷ (9% - 4%)
= $8.84 ÷ 5%
= $176.80
c) Price of preference shares is
= Dividend ÷ Required rate of return
where,
Dividend = 100 × 12% = $12
And, the Required rate of return = 10%
So, the price of preference shares is
= 12 ÷ 10%
= $120
Hemming uses a periodic inventory system. Assume that ending inventory is consists of 45 units from the March 14 purchase, 75 units from the July 30 purchase, and all 100 units from the October 26 purchase. Using the specific identification method, calculate the (a) the cost of goods sold and (b) the gross profit.
Question:
Use the following information for the Exercises below.
Hemming CO. reported the following current year purchases and sales for its only product.
Date Activities Units Acquired at Cost Units Sold at Retail
Jan. 1 Beginning inventory 200 units at $10 = $2,000
Jan. 10 Sales 150 units at $40
Mar. 14 Purchase 350 units at $15= 5,250
Mar. 15 Sales 300 units at $40
July. 30 Purchase 450 units at $20 = 9,000
Oct. 5 Sales 430 units at $40
Oct. 26 Purchase 100 units at 25 = 2,500
Totals 1,100 units $18,750
Required:
Hemming uses a periodic inventory system. Assume that ending inventory is consists of 45 nits from the March 14 purchase, 75 units from the July 30 purchase, and all 100 units from the October 26 purchase. Using the specific identification method calculate the (a) cost of goods sold and (b) the gross profit.
Answer:
a) Cost of goods sold = Cost of goods available for sale minus ending inventory = $18,750 - $4,675 = $14,075
b) Gross profit = Sales - Cost of goods sold
= $35,200 - 14,075 = $21,125
Explanation:
a) Sales:
Jan. 10 Sales, 150 units at $40 = $6,000
Mar. 15 Sales, 300 units at $40 = 12,000
Oct. 5 Sales, 430 units at $40 = 17,200
Total sales = $35,200
b) Determination of Ending Inventory:
March 14 purchase 45 units x $15 = $675
July 30 purchase 75 units x $20 = $1,500
October 26 purchase 100 units x $25 = $2,500
Total cost of Ending Inventory $4,675
c) Specific Identification Method:
These inventory costing methods are used to ascertain the cost of goods sold and the ending inventory values. Using periodic inventory, the valuation is done at the end of the period. They are FIFO (First-In-First-Out) method, LIFO (Last-In-First-Out) method, weighted average method, and specific identification method. These methods can be applied under perpetual inventory system or periodic inventory system. The difference is in the timing of the valuation activity.
Which of the following is a major difference between Internet banks and traditional banks? The government does not regulate Internet banks. Traditional banks are prohibited from having ATMs. Internet banks have lower overhead costs. Traditional banks offer less personal care and attention to customers.
Answer:
Internet Banks have lower overhead costs.
Explanation:
Online Banks and traditional banks are basically the same with the main difference being that Internet Banks have lower overhead costs. These are costs on the income statement usually including accounting fees, advertising, insurance, interest, legal fees, labor burden, rent, repairs, supplies, taxes, telephone bills, travel expenditures, and utilities. Since Internet Banks do not need many physical locations they save on many of these overhead fees.
Which of the following statements is most correct? a. All else equal, if a bond’s yield to maturity increases, its price will fall. b. All else equal, if a bond is down graded by the rating agencies its yield to maturity will increase. c. If a firm has two bond issues that are identical except one is subordinate to the other, the subordinate issue will have a higher yield to maturity than the other issue. d. A B and C are correct. e. None of the above are correct
Answer: d. A B and C are correct.
Explanation:
A bond's price and it's Yield to Maturity (YTM) are inversely related such that when Yield to Maturity rises, the price of the bond falls. This is a because a higher YTM signifies that the bond is riskier so it will compensate by being cheaper.
If a bond is downgraded by Ratings agencies then it means that the bond is now riskier. As it is riskier investors will charge more interest for taking on the risk. The interest is the YTM and so it rises.
A Subordinate bond means that if the company were to go into bankruptcy for instance, the Subordinate bond would only be paid for after the bond that is not Subordinated. This means that there is a chance that Subordinate bond holders will not get anything from the liquidation of the company. Investors will therefore charge a higher YTM to cater for the risk that this happens.
g Suppose the banking system has $100,000 in outstanding deposits and actual reserves of $50,000. Using the simple money multiplier formula (i.e., individuals hold no cash), if the required reserve ratio is 40%, the maximum possible amount that the banking system can now add to the money supply is:Group of answer choices$15,000$20,000$25,000$40,000
Answer: $25,000
Explanation:
The Money Multiplier allows us to calculate how much money banks can create in an economic given a certain reserve ratio.
The formula is;
Money Multiplier = 1 /reserve ratio
= 1/ 0.4
= 2.5
The reserve ratio is 40% which means the bank should be holding 40% of deposits as reserves.
= 100,000 * 40%
= $40,000
Yet they are holding $50,000. They are holding $10,000 more than required. Should they release that $10,000 then they will create;
= 10,000 * money Multiplier
= 10,000 * 2.5
= $25,000