Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $75,000 or $330,000 with equal probabilities of 0.5. The alternative risk-free investment in T-bills pays 4% per year.
A. If you require a risk premium of 7%, how much will you be willing to pay for the portfolio?
B. Suppose the portfolio can be purchased for the amount you found in (a). What will the expected rate of return on the portfolio be?
C. Now suppose you require a risk premium of 15%. What is the price you will be willing to pay now?

Answer:

B. budget management software

Explanation:

A budget management software would be the best option to combine different segments of data to create a companywide budget.

This is because one of the specific purposes of budget management software is to merge several budgets (for example, the budgets of a company's divisions) into a single one, larger budget (the companywide budget).

Missing information:

ERNST CONSULTING

Income Statement

October 31. 202x

Revenues:

Consulting fees earned $15,600  

Total revenues $15,600

Expenses:

Salaries expense $7,450  

Rent expense $4,070

Telephone expense $810

Miscellaneous expenses $630

Total expenses $12,960

Net income $2,640

Cash dividends $2,530

Answer:

Ernst Consulting

Statement of Cash Flows

October 31, 202x

Cash flows from operating activities:

Cash received from customers                                     $0

Cash paid for:

Rent expense                                                         -$4,070

Telephone expense                                                  -$810

Miscellaneous expenses                                         -$630

Total cash flow from operating activities             -$5,510

Cash flows from investing activities:

Cash paid for equipment                                     -$18,550

Total cash flows from investing activities           -$18,550

Cash flows from financing activities:

Cash investment from stockholders                   $38,600

Cash paid for dividends                                        -$2,530

Total cash flows from financing activities           $36,070

Net cash increase                                                  $12,010

Cash balance October 1, 202x                                     $0

Cash balance October 31, 202x                           $12,010

Answer:

Budget for the Grinding department is $78,000, assuming that it uses flexible budgeting.

Explanation:

Note: Fixed cost remain constant at any level of production

Budgeted Direct labor at 1,100 hours of production is

= Budgeted direct labor / hours

= 19,800 / 1,100

=$18 per hour

Direct labor cost at 1,500 hours of production is:

=1,500 * $18

=$27,000

Budget for the Grinding department at 1,500 hour of production is:

=Direct labor cost + Property tax

=$27,000 + $51,000

=$78,000

Missing information:

Fixed administrative expense $ 16,200 Variable selling expense $ 20,250 Variable administrative expense $ ? Contribution margin $ 81,000 Net operating income $ 24,300

1. Prepare a contribution format income statement.

2. Prepare a traditional format income statement.

3. Calculate the selling price per unit.

4. Calculate the variable cost per unit.

5. Calculate the contribution margin per unit.

Answer:

First we must determine cost of goods sold = $27,000 + $270,000 - $13,500 = $283,500

now we must find total variable costs = total sales - contribution margin = $405,00 - $81,000 = $324,000

variable administrative expenses = total variable costs - COGS - variable selling expense = $324,000 - $283,500 - $20,250 = $20,250

1. Prepare a contribution format income statement.

Total sales                                                              $405,000

Cost of goods sold                                                $283,500

Gross contribution margin                                      $121,500

Variable selling expense                                        $20,250

Variable adm. expense                                          $20,250

Contribution margin                                                $81,000

Fixed period expenses:

Net operating income                                            $24,300

2. Prepare a traditional format income statement.

Total sales                                                              $405,000

Cost of goods sold                                                $283,500

Gross profit                                                              $121,500

Operating expenses:

Selling expenses                                                     $60,750

Adm. expenses                                                       $36,450

Net operating income                                            $24,300

3. Calculate the selling price per unit.

4. Calculate the variable cost per unit.

5. Calculate the contribution margin per unit.

Answer:

$36,000

Explanation:

Temporary duty can't change anything when someone is domiciled in the state and a responsible resident of the state, therefore his whole income would be taxable as usual whether he is in the state or out of state.

Workings:

Financial year= 12 months

Monthly salary = $3,000

Taxable income= $3,000 x 12 months

Taxable income = $36,000

Answer:

$5800000

Explanation:

Stock dividend refers to a form of dividend payment whereby additional stock shares of the company are distributed to shareholders instead of paying the shareholders in cash.

Stock dividends are also known as stock spills and it increases the common stock par value by its declared percentage.

Since the a 100% stock dividend were declared and distributed, this would increase the common stock as follows:

Increase in common stock = $2,900,000 * 100% = $2,900,000.

Therefore, the new common stock would be:

New common stock = Existing common stock + Increase in common stock = $2,900,000 + $2,900,000 = $5,800,000.

Therefore, If a 100% stock dividend were declared and distributed, capital stock would be $5,800,000.

Answer:

A. Compared with the firm's 12 percent cost of capital, Project W has a_______expected return.

1. Project X has a______expected return.

2. Project Y has a_______expected return

3. Project Z has a______expected return.

B. Project W should be_______.

1. Project X should be______.

2. Project Y should be_______.

3. Project Z should be_______.

c. If the firm's overall cost of capital were used as a hurdle rate, Project W would be_______.

1. Project X would be______.

2. Project Y would be_______.

3. Project Z would be________.

Explanation:

Project    Beta     IRR         expected return

W             .62      9.2%       = 5% + (0.62 x 7%) = 9.34%

X              .77      10.3 %     = 5% + (0.77 x 7%) = 10.39%

Y            1.27       14.1 %      = 5% + (1.27 x 7%) = 13.89%

Z            1.42       17.0%     = 5% + (1.42 x 7%) = 14.94%

A. Compared with the firm's 12 percent cost of capital, Project W has a expected lower return 1 is lower, 2 is higher, 3 is higher.  B. Project W should be rejected, 1 is rejected, 2 is accepted and 3 is accepted.  C. Project W would be correctly rejected, 1 is correctly rejected,  2 is correctly accepted and 3 is correctly rejected.  The correct options are A is a, 1 is b, 2 is b, 3 is a, B is b, 1 is b, 2 is a, 3 is a and C is c, 1 is c, 2 is b and 3 is b.

The cost of capital is a company's computation of the minimal return required to justify embarking on a capital budgeting project, like building a new plant.

Analysts and investors use the term cost of capital interchangeably, but it always refers to whether the expense of a proposed choice can be justified. Investors may also use the phrase to describe an assessment of an investment's prospective return in proportion to its cost and hazards.

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Answer:

The break-even point in economics, business—and specifically cost accounting—is the point at which total cost and total revenue are equal, i.e. "even". There is no net loss or gain, and one has "broken even", though opportunity costs have been paid and capital has received the risk-adjusted, expected return.

Explanation:

Answer: exploit a positive deviation and correct a negative deviation

Explanation:

A planning gap is the difference that occurs in revenue or profits gap when current strategies are not changed. The gap analysis can help in the identification of gaps in the market. Therefore, when an organization compares its forecast profits to the company's desired profits, the planning gap will be shown.

When the actual results are lesser than the planned result, the organization would have to fill the gap with a marketing program which has been revised and sometime with new goals. Therefore, the firm can then decide whether to exploit wither a positive deviation and correct a negative deviation.

Answer:

The answer is (a) False (b) False (c) True

Explanation:

Solution

(a)Businesses that do not acquire a differentiation,focus strategy, or  low-cost leadership, is liable to be more successful than businesses that do adopt these strategies - False because Companies or business does not necessarily need to adopt differentiation methods or low cost leadership, they might have their own market strategy to succeed.

(b) Employee abilities to develop innovative products are important for companies that use a low-cost leadership strategy - False .

(c) Companies that use a focus strategy have narrow buyer groups -Focus strategy : This strategy is used when a company knows its segment and has products that can competitively satisfies its needs.In this case it is true.

Answer:

D) not liable.

Explanation:

Duty of Care is the legal expectation from individuals and businesses in the course of discharging their duties, not to engage in conduct that could be foreseen to predispose others to danger or harm. The Duty of Accounting or accounting responsibility requires an accurate record of transactions.  Liability implies being legally answerable. In business transactions, businessmen owe it to their customers to provide their services and products in the best possible way so as to prevent causing harm to them. Employees also owe it to the organization they work for to discharge their duties carefully to avoid causing them loss.

Blythe's honest error in overestimating the value of a particular stock purchase is a mistake that anyone can make and can be easily corrected. Her company would not go the long route of taking her to court over such a mistake. Therefore, Blythe is not liable to her company.

Answer:

The cash payback period is 3.5 years. The answer is True.

Explanation:

According to the given data we have the following:

Year Cash flows Cumulative Cash flows

0           (90,000)         (90,000)

1            36,000          (54,000)

2            30,000        (24,000)

3            18,000                 (6000)

4            12000               6000

5             6000             12,000

To calculate the cash payback period we use the following formula:

Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).

Payback period=3+($6,000/$12,000)

Payback period=3.5 years

The cash payback period is 3.5 years. True

Answer:

(1) [tex]\text{Total Cost}=1246.67+7.60\ \text{Volume}[/tex]

(2) The variable cost per unit produced is $7.60.

(3) The coefficient of determination is 0.96 or 96%.

(4) The estimated total cost is $5,046.67.

Explanation:

A regression analysis for the provided data is performed on Microsoft Excel.

The output is attached below.

(1)

The estimated regression equation that could be used to predict the total cost for a given production volume is:

[tex]\text{Total Cost}=1246.67+7.60\ \text{Volume}[/tex]

(2)

The variable cost per unit produced is given by the slope of the line.

The slope of a regression line represent the value of the dependent variable for one unit of the independent variable.

So, the variable cost per unit produced is $7.60.

(3)

Consider the regression output attached.

The coefficient of determination is 0.96 or 96%.

This implies that the percentage of the variation in total cost that can be explained by production volume is 96%.

(4)

For Volume = 500 units predict the total cost as follows:

[tex]\text{Total Cost}=1246.67+7.60\ \text{Volume}[/tex]

                 [tex]=1246.67+(7.60\times 500)\\\\=1246.67+3800\\\\=5046.67[/tex]

Thus, the estimated total cost is $5,046.67.

Answer:

(a) 0.1585

(b) 0.4713

(c) 0.9545

Explanation:

The random variable X can be defined as the number of heads.

The coin provided is balanced, i.e. P (H) = P (T) = 0.50

The outcome of tossing the coin are: (H and T). Each of these outcomes are independent of each other.

The random variable X thus follows a Binomial distribution with probability of success as 0.50.

For a large sample a Normal approximation to binomial can be applied to approximate the distribution of p if the following conditions are satisfied:

1. np ≥ 10

2. n(1 - p) ≥ 10

(a)

n = 100

Check the conditions as follows:

 [tex]np=100\times 0.50=50>10\\\\n(1-p)=100\times(1-0.50)=50>10[/tex]

Thus, a Normal approximation to binomial can be applied.

So,  [tex]p\sim N(0.50,\ 0.05 )[/tex]

Compute the probability hat the proportion of heads will be anywhere from 0.49 to 0.51 as follows:

[tex]P(0.49<p<0.51)=P(\frac{0.49-0.50}{0.05}<\frac{p-\mu}{\sigma}<\frac{0.51-0.50}{0.05})[/tex]

                              [tex]=P(-0.20<Z<0.20)\\\\=P(Z<0.20)-P(Z<-0.20)\\\\=0.57926-0.42074\\\\=0.15852\\\\\approx 0.1585[/tex]

Thus, the probability hat the proportion of heads will be anywhere from 0.49 to 0.51 when a balanced coin is flipped 100 times is 0.1585.

(b)

n = 1000

Check the conditions as follows:

 [tex]np=1000\times 0.50=500>10\\\\n(1-p)=1000\times(1-0.50)=500>10[/tex]

Thus, a Normal approximation to binomial can be applied.

So,  [tex]p\sim N(0.50,\ 0.016 )[/tex]

Compute the probability hat the proportion of heads will be anywhere from 0.49 to 0.51 as follows:

[tex]P(0.49<p<0.51)=P(\frac{0.49-0.50}{0.016}<\frac{p-\mu}{\sigma}<\frac{0.51-0.50}{0.016})[/tex]

                              [tex]=P(-0.63<Z<0.63)\\\\=P(Z<0.63)-P(Z<-0.63)\\\\=0.73565-0.26435\\\\=0.4713[/tex]

Thus, the probability hat the proportion of heads will be anywhere from 0.49 to 0.51 when a balanced coin is flipped 1000 times is 0.4713.

(c)

n = 10,000

Check the conditions as follows:

 [tex]np=10000\times 0.50=5000>10\\\\n(1-p)=10000\times(1-0.50)=5000>10[/tex]

Thus, a Normal approximation to binomial can be applied.

So,  [tex]p\sim N(0.50,\ 0.005)[/tex]

Compute the probability hat the proportion of heads will be anywhere from 0.49 to 0.51 as follows:

[tex]P(0.49<p<0.51)=P(\frac{0.49-0.50}{0.005}<\frac{p-\mu}{\sigma}<\frac{0.51-0.50}{0.005})[/tex]

                              [tex]=P(-2<Z<2)\\\\=P(Z<2)-P(Z<-2)\\\\=0.97725-0.02275\\\\=0.9545[/tex]

Thus, the probability hat the proportion of heads will be anywhere from 0.49 to 0.51 when a balanced coin is flipped 10,000 times is 0.9545.

Answer:

20%

Explanation:

300-240= 60

60÷300×100%= 20%.

Answer:

partial measure

Explanation:

Based on the information provided it can be said that the kind of productivity measure that can be used would be a partial measure. Partial Productivity measure relates output to a single input unit. For example, capital productivity deals with output per unit of capital while energy productivity relates output per joule of energy used. In this scenario, we would need labor productivity which is output per hour worked.

Answer:

Explanation:

                                  Tannenhill          %            Industry

Sales                             4,000,000      100            100

Cost of goods               2,120,000        53              60

Gross profit                   1,880,000        47               40

Selling Expenses          1,080,000        27               24

Admin Expenses            640,000         16                14

Operating Expenses     1,720,000        43               38

Operating profit              160,000           4                2

Other income                  120,000          3                 3

Total income                   280,000         7                5

Other Expenses                80,000          2                2

Income before tax            200,000        5                3

Income tax                          80,000         2                2

Net Income                         120,000        3                1

B)

Despite the fact that the selling and admin expenses pf Tannenhill was higher than the industry average , it had a better performance in the cost of goods management which in effect caused Tannenhill to record a greater net income percentage compared to the industry performance.

The other income and expenses was the same with the industry average , hence no impact on the overall performance.

Answer:

$27,220

Explanation:

Cost of the truck includes : Cash price + sales tax + motor vehicle license + painting and lettering

accident insurance would not be added because its a revenue expenditure as it will reoccur after a year.

$23,030 + $670 + $2,140 + $1,380 = $27,220

I hope my answer helps you

Answer:

$27,220

Explanation:

From the question above Crane company incurs the following expenditures in purchasing a truck

Cash price = $23,030

Accident insurance during use= $1,690

Sales tax= $1,380

Motor vehicle license= $670

Painting and lettering= $2,140

Therefore, the cost of the truck can be calculated as follows

= $23,030+$1,380+$670+$2,140

= $27,220

The accident insurance is not added to find the cost of the truck because it doesn't add any value and can happen again the following year.

Hence the cost of the truck is $27,220

Answer:$80,000

Explanation:

Opportunity cost refers to an alternative forgone that is  the value one could have received but  declined  to take the next best alternative according to his or her preference.

Here , Nestle has two choices to make, it can  decide to produce oats or sell the machine, but taking the option of producing oats leaves the option of selling the machine at $80,000 as the Opportunity cost.

Answer: Cover up to $500 of liability

Explanation:

When one suspect that there has been unauthorized transactions in ones accounts which could be due to fraud, such business or person can make a complaint as soon as possible.

As soon as the report is made, the person is no longer in charge of the unauthorized use of such card. In a case whereby the loss is reported within two days, the liability is limited to $50 but when the report is made within 60 days after ones statement has been sent to the person or business, this may lead to a liability of $500.

Cover upto liability of $500. If the report is made within 60 days of receiving statement that shows fradulent transactions. If it is not reported within 60 days then the liability is unlimited.

Answer:

C

Explanation:

more labor expense bringing in extras workers. Drives down the profits.

Answer:

The answer is 11.25%

Explanation:

Solution

Given that:

The next step to take is to calculate the required rate of return which is shown below:

The required rate = D₁/P₀₀ + g

Thus,

$1.68/$32 + 0.06%

=0.0525 + 0.06

=0.1125 or 11.25%

Therefore, the required rate of return is 11.25%

Answer:

210 hours

Explanation:

The learning curve rate can be found by log75%

Ln0.75 = 0.12249

1 batch requires 200 hours

The 1500 units batch will require 200 hours

For 3000 units there will be two batches of 1500 units each

200 hours * 2 batches * 0.12249 * 4.5 = 210 hours

Answer:

Direct Materials Control Account:

Debit to the direct materials control account is

d. 37,500

Explanation:

a) Calculation:

Since 5,000 pounds were used at a standard price of $7.50, a debit to the direct materials control account would be $37,500 (5,000 x$7.50).

b) The direct materials control account is a memorandum account where the costs of direct materials are recorded to serve as a check and point of reconciliation with the subsidiary ledger of direct materials account.  This debit shows the standard costs at actual production that is expensed  for the period or during the process.

Answer:

1. Notes payable (due in 13 to 24 months) - Long term Liability

This note will be owed for a period of more than 1 year. When this happens the note is said to be Long term.

2. Notes payable (due in 6 to 11 months). - Current Liability

As this note is due in a period less than a year, it is considered a current Liability.

3. Notes payable (mature in five years). - Long term Liability

This is a note that matures in a period more than a year making it a Long term Liability.

4. Current portion of long-term debt. Current Liability.

The current portion is due to be paid within the period so it is short term and hence a Current Liability.

5. Notes payable (due in 120 days). Current Liability.

Due in less than a year.

6. FUTA taxes payable. Current Liability

Taxes are generally considered a short term Liability until they are paid.

7. Accounts receivable. N (Not a Liability)

Accounts Receivable are Assets.

8. Sales taxes payable. Current Liability.

Taxes are generally considered a short term Liability until they are paid.

9. Salaries payable. Current Liability.

These salaries are owed for the period but have not been paid making them Current.

10. Wages payable. Current Liability.

Same as above. They are owed for the period but not yet paid.

The identification of the following items on the balance sheet of the company are:

Item                                                                  Classification

1. Notes payable (due in 13 to 24 months)    L

2. Notes payable (due in 6 to 11 months)      C

3. Notes payable (mature in five years)         L

4. Current portion of long-term debt             C

5. Notes payable (due in 120 days)               C

6. FUTA taxes payable                                   C

7. Accounts receivable                                   C

8. Sales taxes payable                                   C

9. Salaries payable                                         C

10. Wages payable                                         C

Current liabilities are the payables that the company must settle within its operating cycle of 12 months.  Long-term liabilities are payables settled after the operating cycle, say, from 13 months and above.

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Answer:

Externality

Explanation:

An externality is a loss or benefit generated by a producer not caused or earned directly by the producer. An externality may be positive or negative , and may result whether from the production or consumption of a product or service

Therefore in the given situation, it is mentioned that the two transaction effect between the person with respect to the third party that is not agreed for the transaction i.e to carrying out So this situation describes externality

Answer:

To identify inflation rates in a monthly hyperinflationary process of 26,000 percent inflation, we must multiply that number by 12 months to obtain annual inflation, and divide it by 30 to obtain daily inflation.

Thus, the annual inflation of the country arises from calculating 26,000 x 12, which results in an annual inflation of 312,000 percent, with which a product that at the beginning of the year would cost $ 1 would cost $ 312,000 a year later.

In turn, to identify daily inflation, you have to divide 26,000 / 30, obtaining a daily inflation of 866.6 percent, which implies that a product with a value of $ 1, a day later would be costing $ 866.6.

Answer:

See explanation below

Explanation:

Given:

Current liabilities at April 30 of $69,400

Current ratio = 1.7

a) Calculate the firm's current assets and working capital at April 30:

Use the formula below to find the firm's current assets:

current ratio= current asset/current liability

current asset = current ratio × current liability

current asset = 1.7 × $69,400

Current asset = $117,980

For working capital:

Working capital= current assets-current liability

= $117,980 - $69,400

= $48,580

Working capital = $48,580

b) Calculate the current ratio and working capital at April 30 as if the April 29 payment had not been made:

New current assets = $117,980 + $14,300 = $132,280

New current liability = $69,400 + $14,300 = $83,700

Working capital = $132,280 - $83,700 = $48,580

Current ratio = 132,280/83700 = 1.58

c) There is no change in the working capital.

The current ratio will decrease by 0.12 (1.7 - 1.58) due to payment on 29th April

Answer:

a. Journal Entries for 2015:

Debit Income Tax Expense $40,000

Credit Income Tax Payable $34,000

Credit Deferred Tax Liability $6,000

To record the income tax for the year.

b. Journal Entries for 2016:

Debit Income Tax Expense $66,000

Debit Deferred Tax Asset $2,000

Credit Income Tax Payable $68,000

To record the income tax for the year.

c. Journal Entries for 2017:

Debit Income Tax Expense $54,000

Credit Income Tax Payable $44,000

Credit Deferred Tax Liability $10,000

To record income tax for the year.

d. Journal Entries for 2018:

Debit Income Tax Expense $46,000

Debit Income Tax Payable $56,000

Credit Deferred Tax Asset $10,000

To record income tax for the year.

NB: There is confusion with the years in the question.  So, I decided to give the journal entries for the four years.

Explanation:

 a)            Service      Collections       Pre-tax             Tax        Temporary

               Revenue                         Accounting        Income    Differences

                                                           Income  

2015      $560,000    $545,000     $100,000        $85,000     ($15,000)

2016        660,000      665,000        165,000         170,000          5,000

2017        625,000      600,000        135,000          110,000      (25,000)

2018        610,000       635,000        115,000         140,000       25,000

b)             Accounting                       Tax               Temporary Differences

           Income         Tax          Income    Tax           Income    Deferred Tax

2015  $100,000    $40,000   $85,000   $34,000  ($15,000)    ($6,000) L

2016    165,000      66,000    170,000     68,000       5,000         2,000 A

2017    135,000      54,000     110,000     44,000    (25,000)     (10,000) L

2018    115,000     46,000      140,000   56,000      25,000     (10,000) A

c) The temporary difference between taxes as per accounting income and taxes as per tax regulation is recorded in the books through Deferred tax asset or deferred tax liability. When accounting income is more than tax income it would imply more taxes need to be paid in future, so a deferred tax liability account is created.

d) Tax Computations: The prevalent tax rate of 40% is multiplied with the pre-tax accounting income, the pre-tax taxable income, and the temporary differences in income respectively to obtain their respective taxes.   Ordinarily, the differences in the tax amounts of accounting income and taxable income is deferred tax asset/liability.  The deferred tax asset and liability can still be obtained separately as we have done in this case.  They give the same results.

Answer:

$650,000

Explanation:

The computation of net cash flows from operating activities using the indirect method is shown below:-

Cash Flows from Operating Activities

Net income $640,000

Adjustment made

Add: Depreciation expense $49,000

Less: Increase in accounts receivable ($10,000)

Less: Decrease in accounts payable ($29,000)

Net cash flows from operating activities $650,000

The positive amount reflects the cash inflow and the negative amount reflects the cash outflow