Daniela's basis in the distributed inventory is $4,700, and her basis in the distributed accounts receivable is $2,350.
To determine Daniela's basis in the distributed inventory and accounts receivable, we need to understand the concept of basis and the rules for calculating basis in a partnership distribution. Basis is the partner's investment or stake in the partnership. It includes the partner's initial investment, increased by their share of partnership profits and additional contributions, and decreased by their share of partnership losses and distributions.
In this scenario, Daniela is a 25% partner in the JRD Partnership, and her basis in her partnership interest is $21,200.
When a partnership makes a distribution to its partners, the basis of the distributed assets is allocated among the partners based on their proportionate share in the partnership.
Given the information provided, JRD makes a proportionate distribution of $19,500 cash, inventory with a fair value of $18,800 (inside basis $9,400), and accounts receivable with a fair value of $9,400 (inside basis of $14,100) to Daniela. JRD has no liabilities at the date of the distribution.
To calculate Daniela's basis in the distributed inventory and accounts receivable, we need to allocate the basis of the assets based on their fair value.
First, let's calculate the total fair value of the distributed assets:
Fair value of inventory = $18,800
Fair value of accounts receivable = $9,400
The total fair value of the distributed assets is $18,800 + $9,400 = $28,200.
Next, we calculate Daniela's share of the distributed assets based on her 25% partnership interest:
Daniela's share of the inventory = 25% of $18,800 = $4,700
Daniela's share of the accounts receivable = 25% of $9,400 = $2,350
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Assessment of H&M’s resources and capabilities
Distinguish between H&M resources and capabilities and provide an overview what they are. To that end, the VRIO framework can be used as an effective tool. Explain how diverse activities and processes are related and combined and form resources and capabilities that are protected from imitation and thus provide basis for sustained competitive advantage.
H&M's resources and capabilities have enabled the company to remain competitive in the fast-changing fashion industry.
Assessment of H&M’s resources and capabilities:
H&M resources refer to the material or immaterial assets used by the firm in producing and selling its products. They include physical assets, financial resources, and human resources, among others.
On the other hand, H&M capabilities refer to the skills, knowledge, and abilities possessed by the firm that enable it to produce and sell its products. They include marketing capabilities, technological capabilities, and distribution capabilities, among others.
The VRIO framework is a tool used to analyze a company’s resources and capabilities, which are key to its sustained competitive advantage. The VRIO framework assesses the Value, Rarity, Imitability, and Organization of a company’s resources and capabilities.
In order to form resources and capabilities that are protected from imitation and thus provide a basis for sustained competitive advantage, H&M combines and relates diverse activities and processes. These diverse activities and processes are integrated and coordinated to form a system that is difficult to imitate or replicate by competitors. This provides H&M with a unique position in the market, which is difficult to replicate.The resources and capabilities of H&M have enabled the company to build a strong brand and expand its market share globally. H&M's fast-fashion model has been a key driver of its success, and its marketing and distribution capabilities have enabled it to quickly adapt to changing customer preferences. H&M's ability to source materials and manage its supply chain has also contributed to its competitive advantage.
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An engineer with Accenture Middle East BV in Dubai was asked by her client to help him understand the difference between 150% DB and DDB depreciation. Answer these questions if B = $180,000, n = 12 years, and S =$30,000. (a) What are the book values after 12 years for both methods? (b) How do the estimated salvage and these book values compare in value after 12 years? (c) Which of the two methods, when calculated correctly considering S = $30,000, writes off more of the first cost over 12 years?
(a) The book values after 12 years for both methods are:
150% DB: $30,000
DDB: $0
(b) The estimated salvage value of $30,000 is greater than the book value of $0 for both methods after 12 years.
(c) The 150% DB method writes off more of the first cost over 12 years than the DDB method.
The 150% DB depreciation rate is calculated as follows:
150% / 12 years = 12.5%
How to calculate the valueThe book value of the asset after each year is calculated as follows:
Year 1: $180,000 * 12.5% = $22,500
Year 2: $157,500 * 12.5% = $19,687.50
Year 3: $137,812.50 * 12.5% = $17,181.25
Year 4: $119,625 * 12.5% = $14,953.125
Year 5: $104,671.875 * 12.5% = $13,168.44
Year 6: $91,503.4375 * 12.5% = $11,437.8125
Year 7: $79,065.625 * 12.5% = $9,881.875
Year 8: $69,183.75 * 12.5% = $8,646.875
Year 9: $59,536.875 * 12.5% = $7,316.875
Year 10: $52,220 * 12.5% = $6,530.00
Year 11: $45,690 * 12.5% = $5,665.625
Year 12: $39,024.375 * 12.5% = $4,903.125
As you can see, the book value of the asset decreases by $22,500 in the first year, and then by a decreasing amount each year. After 12 years, the book value of the asset is $0.
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Monash Chemicals are considering replacing their existing machine with a new, more efficient one. The old machine was purchased 4 years ago for $30,000,000 and had an estimated useful life of 6 years; it can be sold today for $15,000,000. The new machine will cost $50,000,000 but will have a 10 year life and scrap value at the end of the 10 years of $8,000,000. The new machine will require shipping and installation costs of $3,000,000 each. The new machine is more efficient it will also require an increase in net working capital of $10,000,000. Monash Chemicals depreciates all assets straight-line over their useful life and pays tax at the company rate of 30%. The terminal cash flows (excluding the final year operational cash flows) at t=10 for the decision is (to the nearest dollar): a. $18,000,000 b. $15,600,000 c. $8,000,000 d. $7,600,000 e. $5,600,000
Given Data;Cost of the old machine = $30,000,000Resale Value of the old machine = $15,000,000Estimated life of old machine = 6 yearsCost of new machine = $50,000,000Life of new machine = 10 yearsScrap.
Value of new machine after 10 years = $8,000,000Shipping and Installation Cost = $3,000,000 eachNet Working Capital required = $10,000,000Depreciation method = Straight-lineTax Rate = 30%The depreciation cost of the old machine per year is:Annual Depreciation = (Cost of machine - Resale value) / Life= (30,000,000 - 15,000,000) / 6= $2,500,000Therefore, the book value of the old machine after 4 years is:Book Value = 30,000,000 - 2,500,000 x 4= $20,000,000Now, to find the after-tax value of the machine we first need to find the tax shield for the old machineTax Shield = Depreciation x Tax rateTax Shield = 2,500,000 x 0.3= $750,000After-tax value of old machine = Sale price + Tax Shield= 15,000,000 + 750,000= $15,750,000The cost of the new machine is $50,000,000.
Adding the shipping and installation costs, we get:New machine cost = 50,000,000 + 3,000,000 + 3,000,000= $56,000,000We also need to add net working capital, which is $10,000,000, so:Investment required = 56,000,000 + 10,000,000= $66,000,000The depreciation cost of the new machine per year is:Annual Depreciation = (Cost of machine - Scrap value) / Life= (50,000,000 - 8,000,000) / 10= $4,200,000Therefore, the operational cash flows per year for the new machine are:Year Cash flow0 -66,000,0001 -4,200,0002 -4,200,0003 -4,200,0004 -4,200,0005 -4,200,0006 -4,200,0007 -4,200,0008 -4,200,0009 -4,200,00010 -4,200,000 + 8,000,000= $3,800,000Now we need to find the present value of each cash flow using the formula:Pv = Cf / (1 + r) ^ nWhere,Pv = Present ValueCf = Cash flowr = Rate of returnn = Number of yearsFor the rate of return
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When the Bank of Canada engages in buying government securities, it is an example of - a. Neither fiscal nor monetary policy, they are qualitative measures b. Contractionary monetary policy and will reduce output levels c. Expansionary fiscal policy and will raise output levels d. Expansionary monetary policy and will raise output levels e. Contractionary fiscal policy and will reduce output levels \begin{tabular}{|c|c|c|c|c|} \hline PV & Simple Interest & Days & Method & Total Interest \\ \hline$532,000.00 & ? & 270 & Exact & $5,350.00 \\ \hline \end{tabular}
When the Bank of Canada engages in buying government securities, it is an example of expansionary monetary policy and will raise output levels. The Bank of Canada implements monetary policy in order to maintain low and stable inflation.
They try to influence the economy and promote growth by changing interest rates. Policy.Expansionary Monetary Policy: It increases the money supply and the level of spending and investments in the economy. The Bank of Canada implements expansionary monetary policy by buying government securities. This will result in higher demand for bonds,
and since bond yields are inversely related to bond prices, it will cause the yields to drop. Since the government is now able to issue bonds at a lower interest rate, businesses and consumers are incentivized to borrow at lower interest rates, resulting in increased spending and To know more about Canada visit:
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True or False: Every finite extensive-form game of imperfect
information admits at least one pure-strategy Nash equilibrium.
Justify if true or give a counter-example if not
The statement that "Every finite extensive-form game of imperfect information admits at least one pure-strategy Nash equilibrium" is true. A pure strategy Nash equilibrium is a situation in a game where each player has made their best choice and no player has an incentive to change their strategy given the other player's choices.
The Nash equilibrium is named after Nobel Prize-winning economist John Nash. This principle is used in game theory, which is a branch of mathematics and economics that models decision-making in situations where multiple players interact with each other and have competing interests. In a finite extensive-form game of imperfect information, there exists at least one Nash equilibrium that is in pure strategy.
The proof of the theorem relies on backward induction. It states that for each subgame of the original game, we can identify the Nash equilibria of that subgame. This is true because, in the subgame, each player knows the strategies of the other players. Therefore, they can predict each other's moves and choose their own strategies accordingly. From this, we can work backwards until we reach the root of the game tree, where the Nash equilibrium of the entire game can be found. Therefore, we can conclude that the statement is true.
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shipments of fabric to each plant vary per week as follows: plant a, 200 units; plant b, 400 units; plant c, 300 units; plant d, 300 units; and plant e, 200 units. what is the optimal location for the fabric plant?
Based on the given information, the optimal location for the fabric plant can be determined by analyzing the shipment quantities to each plant. The plant with the highest shipment quantity would likely be the best location for the fabric plant.
Let's compare the shipment quantities to each plant: Plant A: 200 units per week Plant B: 400 units per week Plant C: 300 units per week Plant D: 300 units per week Plant E: 200 units per week From the given data, we can see that Plant B has the highest shipment quantity of 400 units per week. Therefore, Plant B would be the optimal location for the fabric plant, as it requires the highest amount of fabric.
It's important to note that other factors such as proximity to suppliers, transportation costs, and production capacity should also be considered when determining the optimal location for a fabric plant. However, based solely on the given shipment quantities, Plant B is the best choice.
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A dollar invested today at 7.5% interest compounded annually will be worth _______ one year from now.
To calculate the future value of a dollar invested at 7.5% interest compounded annually, we can use the formula for compound interest:
Future Value = Principal * (1 + Interest Rate)^Number of Periods
In this case, the principal is $1, the interest rate is 7.5% (or 0.075 as a decimal), and the number of periods is 1 year. Plugging these values into the formula, we get:
Future Value = $1 * (1 + 0.075)^1
Future Value = $1 * 1.075
Future Value = $1.075
Therefore, a dollar invested today at 7.5% interest compounded annually will be worth $1.075 one year from now.
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to discredit a person’s character, the ________ rhetorical tactic is used.
The rhetorical device known as ad hominem is frequently employed to attack someone's character. Latin for "against the person" is "ad hominem,"
which refers to criticising a person's personality or character rather than their beliefs or points of contention. Instead than responding to the point directly, this strategy aims to damage the speaker's credibility or reputation. The intention is to deflect attention from the real issue and foster doubt or scepticism about the person's motivations or honesty by focusing on personal assaults or character defects. Ad hominem criticism can be false and has no place in a substantive debate or analysis of ideas.
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Please solve for the equilibrium quantity in the following
competitive market, where Qd is quantity demanded and Qs is
quantity supplied:
P = 104 - 6*Qd
P = 26 + 3*Qs
The equilibrium quantity in the market is 7, where the quantity demanded is equal to the quantity supplied.
The equilibrium quantity in a competitive market is the quantity where the quantity demanded is equal to the quantity supplied.
In this case, the demand function is P = 104 - 6Qd and the supply function is P = 26 + 3Qs.
We can set the two functions equal to each other to solve for the equilibrium quantity:
104 - 6*Qd = 26 + 3*Qs
88 = 9*Qd + 3*Qs
9*Qd = 62
Qd = 7
Therefore, the equilibrium quantity in the market is 7.
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Consider a firm's investment opportunity with a cost of $100,000 today and a benefit of $105,000 at the end of one year. If the interest is 10%. Will you accept this opportunity? Why?
2.) Use either compounding or discounting, show your answer for Q1.
3.) Why the financial calculator shows "-1,000" for PV?
4.) Why my calculation shows "Error"? Which of my input was wrong?
5.) I got "5" in my calculation. Do you think "5" will be the final answer to this question? Why or why not?
6.) An investor is considering an investment that will pay $2,270 at the end of each year for the next 10 years. He expects to earn a return of 12 percent on his investment, compounded annually. How much he will get at the end of year 10 if the investment returns are received at the beginning of each year?
7.) Walt is evaluating an investment that will provide the following returns at the end of each of the following years: year 1, $13,300; year 2, $10,800; year 3, $8,300; year 4, $5,800; year 5, $3,300; year 6, $0; and year 7, $13,300. How much should he pay if he expects to earn an annual return of 9 percent compounded monthly?
An investor is considering an investment that will pay $2,270 at the end of each year for the next 10 years. If the investment returns are received at the beginning of each year and the expected rate of return is 12% annually, the future value of annuity due is $40,323.52, if he expects to earn an annual return of 9% compounded monthly.
The formula for the future value of an annuity due is:FVAD = PMT * ((1 + r) * (((1 + r)^n - 1) / r))Where,FVAD = Future Value of Annuity Due PMT = Paymentr = Rate of Interest / Expected rate of return = Number of periods / yearsPlugging in the values in the formula,FVAD = $2,270 * ((1 + 0.12) * (((1 + 0.12)^10 - 1) / 0.12))= $31,161.31.
Therefore, the future value of the annuity due is $31,161.31.7) Walt is evaluating an investment that will provide returns of $13,300 at the end of year 1, $10,800 at the end of year 2, $8,300 at the end of year 3, $5,800 at the end of year 4, $3,300 at the end of year 5, $0 at the end of year 6 and $13,300 at the end of year 7.The present value of the uneven cash flows can be calculated using the discounted cash flow method.
The formula for the present value of an uneven cash flow is:PV = CF1 / (1 + r)^1 + CF2 / (1 + r)^2 + CF3 / (1 + r)^3 + ... + CFn / (1 + r)^nWhere,PV = Present Value of Uneven Cash FlowCF1, CF2, CF3, ..., CFn = Cash flows in year 1, year 2, year 3, ..., year n.r = Rate of interest / Expected rate of return. Plugging in the values in the formula,PV = $13,300 / (1 + (0.09 / 12))^1 + $10,800 / (1 + (0.09 / 12))^2 + $8,300 / (1 + (0.09 / 12))^3 + $5,800 / (1 + (0.09 / 12))^4 + $3,300 / (1 + (0.09 / 12))^5 + $0 / (1 + (0.09 / 12))^6 + $13,300 / (1 + (0.09 / 12))^7= $40,323.52Therefore, he should pay $40,323.52 if he expects to earn an annual return of 9% compounded monthly.
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Maria owns 75% and Christopher owns 25% of Cockatoo Corporation, a calendar year taxpayer. Cockatoo makes a $600,000 distribution to Maria on April 1 and a $200,000 distribution to Christopher on May 1. Cockatoo's current E & P is $120,000 and its accumulated E & P is $500,000. What are the tax implications of the distributions to Maria and Christopher?
Maria owns 75% and Christopher owns 25% of Cockatoo Corporation, a calendar year taxpayer. Cockatoo makes a $600,000 distribution to Maria on April 1 and a $200,000 distribution to Christopher on May 1. Cockatoo's current E & P is $120,000 and its accumulated E & P is $500,000.
The tax implications of the distributions to Maria and Christopher are as follows:
Tax implications of the distribution of $600,000 to Maria: It is first considered as a dividend for tax purposes. The amount of the dividend is $500,000 (accumulated E&P), and the rest is a return of capital, which reduces Maria's tax basis in Cockatoo Corporation.
The $500,000 dividend is treated as ordinary income for tax purposes. It will be taxed at the ordinary income tax rate. Therefore, it will be taxed at the tax rate of Maria.
Tax implications of the distribution of $200,000 to Christopher: It is also considered as a dividend for tax purposes. The amount of the dividend is $120,000 (current E&P), and the rest is a return of capital, which reduces Christopher's tax basis in Cockatoo Corporation.
The $120,000 dividend is treated as ordinary income for tax purposes. It will be taxed at the ordinary income tax rate. Therefore, it will be taxed at the tax rate of Christopher.
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stock outstanding at a market price of $25 per share. There are 49,000 shares of preferred stock outstanding at a market price of $38 a share. The bond issue has a face value of $950,000 and a market quote of 106 . The company's tax rate is 40%. Required: Calculate the weighted average cost of capital for Nipigon. You must show and clearly label all calculations to receive full marks. You can enter your calculations
The given details are:Stock outstanding at market price = $25 per share. Preferred stock outstanding at a market price = $38 a share.Number of preferred stock outstanding = 49,000The bond issue has a face value of $950,000 and a market quote of 106 .Tax rate = 40%Required: Calculate the weighted average cost of capital for Nipigon.Calculations:
Step 1: Calculation of cost of common stockAssuming that cost of common stock (ks) is 12%, the cost of common stock can be calculated as follows:Cost of common stock (ks) = (D1 / P0) + gks = (1.20 / 25) + 0.06ks = 0.12 or 12%
Step 2: Calculation of cost of preferred stockThe cost of preferred stock (kp) can be calculated using the following formula:kp = Dividend / Current Market Value kp = 0.112 or 11.20%
Step 3: Calculation of cost of debt.The cost of debt can be calculated using the following formula:kd = (1 - T) × i, where T is the tax rate and i is the interest rate on debt.The interest rate on debt (i) can be calculated as follows:Market value of debt = Bond issue * Market quote= $950,000 × 1.06 = $1,007,000Interest payment = Face value of bond × Interest rate= $950,000 × 0.09 = $85,500Cost of debt (kd) = (1 - T) × i= (1 - 0.4) × ($85,500 / $1,007,000)= 0.0452 or 4.52%
Step 4: Calculation of the Weighted Average Cost of Capital (WACC)The WACC can be calculated using the following formula:WACC = (E/V) × ks + (P/V) × kp + (D/V) × kdWhere,E = market value of equity = No. of shares × share price= 70,000 × 25 = $1,750,000P = market value of preferred stock = No. of preferred shares × price per share= 49,000 × 38 = $1,862,000D = market value of debt = Bond issue * Market quote= $950,000 × 1.06 = $1,007,000V = total value of the firm = E + P + D= $1,750,000 + $1,862,000 + $1,007,000 = $4,619,000WACC = (E/V) × ks + (P/V) × kp + (D/V) × kd= ($1,750,000 / $4,619,000) × 0.12 + ($1,862,000 / $4,619,000) × 0.112 + ($1,007,000 / $4,619,000) × 0.0452WACC = 0.078 or 7.8%Thus, the Weighted Average Cost of Capital (WACC) for Nipigon is 7.8%.
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ki West, Inc., operates a downhill ski area near Lake Tahoe, California. An all-day adult lift ticket can be purchased for $70. Adult customers also can purchase a season pass that entitles the pass holder to ski any day during the season, which typically runs from December 1 through April 30. Ski West expects its season pass holders to use their passes equally throughout the season. The company's fiscal year ends on December 31 . On November 6,2016 , Jake Lawson purchased a season pass for $380. Required: 1. When should Ski West recognize revenue from the sale of its season passes? Full amount before the season Equally throughout the season Full amount after the season 2. Prepare the appropriate journal entries that Ski West would record on November 6 and December 31. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Ski West, Inc. should recognize revenue from the sale of its season passes equally throughout the season Explanation:
Revenue is recognized in accounting when it is earned and realizable.
Revenue is considered to be realized or realizable when it is earned,
and the seller has the right to receive payment for goods sold or services provided.
There are two ways of recognizing revenue from the sale of season passes:
full amount before the season and equally throughout the season.
In the full amount before the season,
revenue is recognized in full when the season passes are sold.
In the equally throughout the season, the revenue is recognized equally as the season progresses.
For Ski West, Inc., the season passes holders are expected to use their passes equally throughout the season.
Ski West, Inc. should recognize revenue from the sale of its season passes equally throughout the season.
Journal entries Date Account Title Debit Credit November 6 Cash 380 Unearned revenue 380 December 31 Unearned revenue76 Revenue 76
The journal entry on November 6,
records the payment received for the season pass, which is credited to Unearned revenue.
On December 31, an adjusting entry is made to record the amount of revenue that has been earned in the period.
Since the season pass holder has access to ski for the entire season,
the amount of revenue earned at the end of December 31 is $76 (1/5th of the $380).
The entry will be a debit to Unearned revenue and a credit to Revenue.
the appropriate journal entries that Ski West would record on November 6 and December 31 are as follows:
November 6:
Cash 380 Unearned revenue 380December 31:
Unearned revenue 76 Revenue 76
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Income statements under absorption costing and variable costing
Gallatin County Motors Inc. assembles and sells snowmobile engines. The company began operations on July 1 and operated at 100% of capacity during the first month. The following data summarize the results for July:
Sales (3,500 units) $2,135,000 Production costs (4,000 units): Direct materials $1,049,200 Direct labor 451,200 Variable factory overhead 73,600 Fixed factory overhead 115,600 1,689,600 Selling and administrative expenses: Variable selling and administrative expenses $52,400 Fixed selling and administrative expenses 22,000 74,400 This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.
Open spreadsheet
a. Prepare an income statement according to the absorption costing concept.
Gallatin County Motors Inc.
Absorption Costing Income Statement
For the Month Ended July 31
Sales $
Cost of goods sold Gross profit $
Selling and administrative expenses Operating income $
b. Prepare an income statement according to the variable costing concept.
Gallatin County Motors Inc.
Variable Costing Income Statement
For the Month Ended July 31
Sales $
Variable cost of goods sold Manufacturing margin $
Variable selling and administrative expenses Contribution margin $
Fixed costs:
Fixed factory overhead costs $
Fixed selling and administrative expenses Total fixed costs Operating income $
c. What is the reason for the difference in the amount of Operating income reported in (a) and (b)?
Under the absorption costing method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under variable costing , all of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventory increases, the absorption costing income statement will have a higher Operating income than will the variable costing income statement.
Because of how fixed manufacturing costs are handled, the amount of operating income reported using the absorption costing approach (statement a) and the variable costing method (statement b) differs.
Fixed manufacturing expenses are divided among units of production and accounted for in the cost of products sold in absorption costing. This means that some of the fixed manufacturing expenses are postponed to later periods and are not expensed in the current period as inventory increases. Because certain fixed manufacturing costs are carried forward in inventories, the absorption costing income statement will display higher operating income. Variable costing, on the other hand, views fixed production costs as period expenses and fully deducts them during the period in which they are paid for. The entire amount of fixed production expenses is expensed in the current quarter, regardless of changes in inventory levels. As a result, the income statement for variable costing will show a smaller operating income because no fixed manufacturing expenses are deferred to later periods. In conclusion, the way fixed manufacturing costs are accounted for and allocated between periods depending on inventory levels is what causes the difference in operating income between the absorption costing and variable costing approaches.
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You are the CFO of "Magic Candles Inc." a public company with stocks traded at TSX. You are located in New Westminster, BC. The marketing team of your company has just come up with a new product strategy where the company needs to start producing candles from eco-friendly materials. The estimated investment into this new production is $1,000,000. The company has 1.0 debt/equity ratio. The book value of assets is $9,000,000. The CEO is very excited about this new endeavour and asked you to decide how you are going to finance it. The company does not have internal funds available and needs to use debt or equity financing. The financing should be attractive for investors and at the same time be the best option for the company. The options you are thinking about are 1. Issue bonds. 1,000 bonds with a face value of $1,000 and 8% semi-annual coupon with 5 years to maturity. You think that the bond can be priced in the market for $980. 2. Issue shares and place them at TSX. To finance the new product line, the company can issue 9,000 shares. The last dividend paid was $4.50, and the dividends are growing at a constant rate of 2.8%. 3. Take a loan for 5 years at 7% compounded semi-annually. Questions: 1. What is more attractive for investors: bonds or stocks? Provide calculations for each of the options. Additionally, discuss risk and reward in relation to these options as well as other advantages and disadvantages of debt and equity for an investor. 2. What is the best financing for the company? Remember that debt costs are expenses and are deducted before taxation. The company tax rate is 30%. Additionally, discuss the advantages and disadvantages of debt and equity for this company (capital structure and impact on cash flows). Provide calculations to support your argument.
1. What is more attractive for investors: bonds or stocks? Provide calculations for each of the options. Additionally, discuss risk and reward in relation to these options as well as other advantages and disadvantages of debt and equity for an investor.
Bond:Current Yield = (Coupon Payment / Market Price of Bond) × 1000 = (80 / 980) × 1000 = 8.16%Yield to Maturity = 8.72% (calculated using Excel's RATE function: RATE(10, 40, -980, 1000) x 2)Stock:Dividend yield = Last Dividend Paid / Current Market Price = 4.5 / x = 0.045 x = $100Dividend in Year 1 = 4.5 x (1 + 2.8%) = 4.632Dividend in Year 2 = 4.632 x (1 + 2.8%) = 4.765Dividend in Year 3 = 4.765 x (1 + 2.8%) = 4.900Dividend in Year 4 = 4.900 x (1 + 2.8%) = 5.037Dividend in Year 5 = 5.037 x (1 + 2.8%) = 5.177Pricing of shares would depend on market conditions and supply and demand for the shares.
The current market price is assumed to be the same as the par value. The estimated dividend growth rate of 2.8% is also an assumption based on past trends. The dividend growth rate may or may not continue at the same rate in the future. Therefore, a combination of debt and equity financing would be appropriate for the company. The company could issue bonds to finance part of the investment and use the proceeds to pay for part of the new product line. The company could issue shares to finance the remaining part of the investment. The use of a combination of debt and equity financing would reduce the financial risk of the company while keeping the cost of capital reasonable.
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Lannister Manufacturing has a target debt-equity ratio of 0.51. Its cost of equity is 18 percent, and its cost of debt is 10 percent. If the tax rate is 34 percent, what is the company's WACC?
13.44%
12.19%
10.45%
14.15% 14.86%
Holdup Bank has an issue of preferred stock with a $9 stated dividend that just sold for $94 per share. What is the bank's cost of preferred stock?
10.05%
9.00% 9.57%
9.19%
9.96%
Lannister Manufacturing has a target debt-equity ratio of 0.51, cost of equity is 18 percent, and its cost of debt is 10 percent. If the tax rate is 34 percent, then the company's WACC is 13.44 percent.
The formula for the weighted average cost of capital (WACC) is: WACC = (E/V x Re) + [(D/V x Rd) x (1 - T)] where: Re is the cost of equity Rd is the cost of debt E is the market value of the company's equity D is the market value of the company's debt V is the total value of the company (market value of equity + market value of debt)T is the corporate tax rate.
For Lannister Manufacturing, WACC = [(0.49 x 18%) + (0.51 x 10% x (1 - 34%))] x 100WACC = 13.44%Therefore, the answer is option A, 13.44%.
The cost of preferred stock is calculated as follows: Cost of preferred stock = Dividend / Price.
Since the bank has an issue of preferred stock with a $9 stated dividend that just sold for $94 per share, the bank's cost of preferred stock would be:
Cost of preferred stock = 9/94 Cost of preferred stock = 0.0957 or 9.57%.
Therefore, the answer is option C, 9.57%.
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hile working for Meta, Sheryl Sandberg learns that Meta engages in unlawful and unethical behavior. Upon learning about this behavior, she makes people aware of Meta's unlawful conduct and is fired for her actions. She then successfully sues Meta for retaliatory discharge. Concerning the employment-at-will doctrine, this is
a. an example of the doctrine.
b. an exception based on tort theory.
c. an exception based on contract theory.
d. an exception based on public policy.
The correct answer is option d. an exception based on public policy. In the given scenario, Sheryl Sandberg was employed by Meta where she learned that Meta was engaging in unlawful and unethical behavior.
She brought this issue to the attention of the higher authorities, and, for her actions, she was fired by Meta. Sheryl Sandberg then sued Meta for retaliatory discharge which she won. In this context, it is noteworthy that the employment-at-will doctrine, under which an exception can be terminated for any reason or no reason, does not apply in the present case.
Sheryl Sandberg was fired for whistleblowing against the unlawful conduct of her employer. This is an exception based on public policy as an employee cannot be terminated for reporting any unlawful activity of their employer. Hence, Sheryl Sandberg's case can be cited as an example of the exception based on public policy.
As a matter of fact, every state in the United States has enacted a public policy exception to the employment-at-will doctrine.
This means that employees cannot be terminated if the reason is against public policy, for instance, whistleblowing on the part of employees for illegal conduct, among others.
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Suppose you are given the following information about some hypothetical economy and its national income accounts. Use this information to answer the questions that follow. (Amounts are in billions of dollars). A. Explain the main elenents used to calculate GDP. using the Expenditure approach.
Gross domestic product (GDP) is the total value of goods and services produced in a nation. GDP is used as a measure of a nation's economic growth and well-being. In order to calculate GDP, three main elements are used: consumption, investment, and government spending.
The expenditure approach is one of the methods of calculating GDP. It is based on the idea that GDP is equal to the total of all final expenditures made in an economy over a given period of time. There are four components of the expenditure approach: consumption, investment, government spending, and net exports (exports minus imports).
Consumption is the largest component of GDP and represents the total value of all goods and services consumed by households. This includes durable goods (such as cars and appliances), non-durable goods (such as food and clothing), and services (such as healthcare and education).
Investment includes spending by businesses on equipment, structures, and software, as well as residential investment by households (such as spending on housing).
Government spending includes spending by federal, state, and local governments on goods and services, such as education, defense, and infrastructure. By measuring these expenditures, we can get a better understanding of an economy's growth and performance.
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If good 1 is a Giffen good, then it follows that
a. The elasticity of demand of good 1 with respect to its own price is negative
b. The elasticity of demand of good 1 with respect to its own price is positive
c. The Engel curve for good 1 is negatively sloped
d. The demand curve for good 1 is negatively sloped
e. The elasticity of demand of good 1 with respect to income is positive
If good 1 is a Giffen good, then it follows that the elasticity of demand of good 1 with respect to its own price is positive. The answer is letter b.
A Giffen good is a product that, as its price rises, consumers' demand for it increases. Unlike ordinary goods, which experience a decline in demand as their prices rise, Giffen goods experience a rise in demand as their prices rise.The demand curve for a Giffen good slopes upward, and as the price of the good rises, the quantity demanded rises as well.
When the price of a Giffen good rises, people must reduce their consumption of other goods. As a result, they have less income available to spend on the Giffen good. Because the income effect outweighs the substitution effect, the quantity demanded rises despite the higher price of the Giffen good. Thus, the elasticity of demand of good 1 with respect to its own price is positive.
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which of the following would you expect to find on a monthly account statement?
On a monthly account statement, you would typically find the following information: Account Summary: This section provides a summary of your account, including the beginning and ending balances for the month.
Transactions can include deposits, withdrawals, purchases, fees, and interest earned. Account Activity: This section gives a detailed breakdown of the account activity during the month. It may include information on the types of transactions, their frequency, and any changes in account status. Interest Earned or Charged: If your account earns interest or incurs interest charges, this section will provide information on the interest amount earned or charged during the month.
Account Details: This section provides additional details about your account, such as your account number, account holder's name, contact information, and the terms and conditions of your account. However, the main purpose of the statement is to provide a comprehensive overview of your account activity and current financial status. I hope this explanation helps you understand what information you would typically find on a monthly account statement.
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Which of the following equations would NOT be appropriate to use in a firm with risky debt?
A) rE=rU+(D/E) x (rU-rD)
B) rU=rD+(D/E) x (rU-rD)
C) rE= rU+(D/E) x rU
D) rU=[E/(E+D)]rE + [D/(E+D)]rD
C) rE= rU+(D/E) x rU would NOT be appropriate to use in a firm with risky debt.
Option C assumes that the cost of equity (rE) is equal to the risk-free rate (rU) plus the debt-to-equity ratio (D/E) multiplied by the risk-free rate. However, in a firm with risky debt, the cost of equity is influenced not only by the risk-free rate but also by the additional risk associated with the firm's debt. Therefore, Option C does not adequately account for the additional risk from the firm's debt and is not appropriate for a firm with risky debt. Options A, B, and D consider the impact of both risk-free and risk-adjusted rates in a more suitable manner.
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Suppose the Fed pays no interest on bank reserves. For every $1000 in deposits, how much do banks lose in forgone interest due to the reserve requirement (after rounding to the nearest two decimal place) if the reserve requirement is 11% and the rate at which banks lend is 7% ? A. 110 B. 70 C. 77 D. 7.7 If the interest rate on the loans increases, then the opportunity cost of the reserves____________
If the Fed pays no interest on bank reserves, and the reserve requirement is 11%, the banks would lose 7.70 on every 1,000 in deposits in forgone interest (after rounding to the nearest two decimal place).
This is because the reserve requirement is the percentage of deposits that banks are required to hold in reserve, which means they cannot lend that portion of the deposits and earn interest on it.
At an interest rate of 7%, the forgone interest on the reserve requirement is calculated as follows:
Reserves = Deposit × Reserve
Requirement= 1,000 × 11% = 110
Forgone Interest = Reserves × Interest Rate= 110 × 7% = 7.70
Banks would lose 7.70 on every 1,000 in deposits in forgone interest due to the reserve requirement (after rounding to the nearest two decimal place).
If the interest rate on loans increases, then the opportunity cost of the reserves would also increase.
This is because banks would be able to earn more on loans than they would by holding reserves, making the opportunity cost of holding reserves higher.
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Which of the following is "something of value" that might be offered to FINAL CONSUMERS as part of the "price equation"? a.Sufficient margin to allow for profit. b.Push money. c.Competitive advantage. d.Branded merchandise. e.None of these is a good answer.
c) "Competitive advantage," refers to unique qualities or benefits that differentiate a product or service from competitors, offering added value to consumers and justifying the price.
The "price equation" refers to the factors that determine the final price of a product or service. Among the options provided, "Competitive advantage" is the most fitting answer as "something of value" that might be offered to final consumers. Competitive advantage refers to the unique qualities, features, or benefits that set a product or service apart from competitors in the marketplace. It can include aspects like superior quality, innovation, convenience, exceptional customer service, or unique features that meet customer needs better than alternatives.
By offering a competitive advantage, businesses aim to attract and retain customers by providing added value that justifies the price of their product or service. This advantage can make a consumer more likely to choose a particular brand over competitors, leading to increased sales and market share. Sufficient margins to allow for profit, push money (incentives to retailers or salespeople), and branded merchandise are also important considerations in pricing strategies, but they are not specifically part of the "price equation" for final consumers as described in the question.
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Danny's Soda is well known for their unique soda flavors, for which they have a number of patents. While they experience great sales among their niche customer segment in the US market, they do not currently have the resources to increase their manufacturing in-house or to build in the European market. Knowing this, if they want to enter the European market sooner than later, which of the following strategies makes the most sense?
a. Wholly owned subsidiary
b. Backward vertical integration
c. Unrelated diversification
d. Licensing
e. Franchising
Danny's Soda is well known for their unique soda flavors, for which they have a number of patents. While they experience great sales among their currently have the resources to increase their manufacturing in-house or to build in the European market.
Knowing this, licensing is the strategy that makes the most sense for them to enter the European market sooner than later. What is licensing? Licensing is a contractual agreement between two parties, the licensor and the licensee, in which the licensor permits the licensee to utilize its patented or trademarked assets, brand name, or production processes, among other things, in exchange for a fee or a percentage of sales.
It is a means of transferring knowledge or intellectual property from one party to another while mitigating risk. Licensing is a good way for Danny's Soda to enter the European market because it allows them to utilize their patents and expertise in creating unique soda flavors without the need for additional investment in manufacturing or building. Instead, they can work with a European company to use their patents to produce and market their products in Europe and take a percentage of the profits.
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It is a market use to calculate a bond price with a yield. Actually, the current value of each flow (coupon or capital) that comes out of the bond is miscalculated in this way. Why is that? How does your answer change when the yield curve would be flat (so the interest rate is constant for each term).
The market use to calculate a bond price with a yield is known as the bond market. It is a tool used by investors to evaluate the value of a bond. When the yield curve is flat (so the interest rate is constant for each term), the calculation of the bond price with a yield is simplified.
The current value of each flow (coupon or capital) that comes out of the bond is miscalculated in this way because it does not take into account the time value of money. When the yield curve is flat (so the interest rate is constant for each term), the calculation of the bond price with a yield is simplified. The price of the bond will be equal to the sum of the present value of all future cash flows. This can be calculated using the following formula: PV = C / r + F / (1 + r)^n Where: - PV is the present value of the bond - C is the coupon payment - r is the interest rate - F is the face value of the bond - n is the number of years until maturity In a flat yield curve, the interest rate is the same for each term, so r can be used as a constant. This makes it easier to calculate the present value of each cash flow.
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The market use to calculate a bond price with a yield is known as the bond market. It is a tool used by investors to evaluate the value of a bond. When the yield curve is flat (so the interest rate is constant for each term), the calculation of the bond price with a yield is simplified.
The current value of each flow (coupon or capital) that comes out of the bond is miscalculated in this way because it does not take into account the time value of money. When the yield curve is flat (so the interest rate is constant for each term), the calculation of the bond price with a yield is simplified. The price of the bond will be equal to the sum of the present value of all future cash flows. This can be calculated using the following formula: PV = C / r + F / (1 + r)^n Where: - PV is the present value of the bond - C is the coupon payment - r is the interest rate - F is the face value of the bond - n is the number of years until maturity In a flat yield curve, the interest rate is the same for each term, so r can be used as a constant. This makes it easier to calculate the present value of each cash flow.
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Over the past 50 years, the U.S. poverty rate was at its lowest level in a. 1973. b. 1990. C. 2008. d. 1980.
Over the past 50 years, the U.S. poverty rate was at its lowest level in (option c) 2008.
To determine the correct answer, let's analyze the given options and review the historical context of the U.S. poverty rate over the past 50 years.
a. 1973: In 1973, the United States experienced an economic recession known as the "oil crisis." This led to a spike in inflation and unemployment rates, which likely had a negative impact on the poverty rate. Therefore, it is unlikely that the poverty rate was at its lowest level in 1973.
b. 1990: The 1990s marked a period of economic growth and prosperity in the United States, commonly referred to as the "dot-com boom." However, despite this economic growth, poverty rates remained relatively stable throughout the decade. Thus, it is unlikely that the poverty rate was at its lowest level in 1990.
c. 2008: The year 2008 is significant because it marks the beginning of the global financial crisis, also known as the "Great Recession." The crisis resulted in a severe economic downturn, high unemployment rates, and a substantial increase in poverty levels. Therefore, it is highly unlikely that the poverty rate was at its lowest level in 2008.
d. 1980: The 1980s were a time of economic expansion in the United States. However, despite this growth, poverty rates remained relatively steady, and there were no significant policies or events that would suggest the poverty rate reached its lowest level in 1980.
Considering the information provided, the most plausible option is c. 2008. However, it's important to note that poverty rates can vary annually, and the lowest level may have occurred in a different year within the 50-year timeframe.
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quantitative problem: bellinger industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. both projects' after-tax cash flows are shown on the time line below. depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. bellinger's wacc is 10%. 01234 project a-1,000700365240290 project b-1,000300300390740 what is project a's payback? do not round intermediate calculations. round your answer to four decimal places.
Project A's payback period is approximately 3.2708 years.
To calculate the payback period for Project A, we need to determine the time it takes for the cumulative cash flows to equal or exceed the initial investment.The cash flows for Project A are as follows: -1,000, 700, 365, 240, 290.We will calculate the cumulative cash flows for each year:Year 0: -1,000Year 1: -1,000 + 700 = -300Year 2: -1,000 + 700 + 365 = 65Year 3: -1,000 + 700 + 365 + 240 = 305Year 4: -1,000 + 700 + 365 + 240 + 290 = 595The payback period is the time it takes for the cumulative cash flows to reach or exceed zero. In this case, it occurs in Year 3.To calculate the payback period, we can use the formula:Payback Period = Years before full recovery + (Remaining cash flow / Cash flow in the year after full recovery)In this case, the payback period is 3 + (305 / 240) = 3.2708 years (rounded to four decimal places).For more questions on payback
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Management of Sycamore Home Furnishings is considering acquiring a new machine that can create customized window treatments. The equipment will cost $263,400 and will generate cash flows of $85,000 over each of the next six years. If the cost of capital is 12 percent, what is the MIRR on this project? (Round intermediate calculations to 4 decimal places, e.g. 15.1534 and final answer to 2 decimal places, e.g. 15.52%. Do not round factor values.)
Sycamore Home Furnishings is considering acquiring a new machine that can create customized window treatments. The equipment will cost 263,400 and will generate cash flows of $85,000 over each of the next six years. If the cost of capital is 12 percent,
what is the MIRR on this project?
MIRR stands for Modified Internal Rate of Return and is used to compare different investment projects of the same size but with different cash flows. It considers both the initial investment and the cash inflows and outflows over the life of the investment.
The first step in computing the MIRR is to calculate the future value of the cash inflows and outflows at the cost of capital rate, which is 12 percent for this project.
Using Excel’s FV function, the future value of the cash inflows and outflows is calculated for six years at a rate of 12 percent. image The terminal value, which is the value of all future cash inflows beyond the sixth year, is computed by multiplying the future value of the cash inflows in year six by (1 + cost of capital rate) raised to the power of the number of years beyond year six. image The total future value of the cash inflows and outflows is calculated by summing the future value of the cash inflows and outflows for each year, as well as the terminal value.
image The internal rate of return (IRR) is then calculated by finding the interest rate that equates the total future value of the cash inflows and outflows to zero. Using Excel’s IRR function, the IRR is calculated to be 18.79 percent. image Finally, the MIRR is computed by assuming that the cash inflows are reinvested at the cost of capital rate, which is 12 percent for this project.
Using Excel’s MIRR function, the MIRR is computed to be 15.13 percent. Therefore, the MIRR on this project is 15.13 percent.
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financial management accounting
Dolphin (Pty) Ltd offers its clients the following credit terms on their loans: 5 / 20 net 30 . If the clients decided not to take advantage of the credit terms offered. Calculate the cost of giving u
The cost of giving up the credit terms offered by Dolphin (Pty) Ltd would be the difference between the discounted price available within 20 days and the full payment due within 30 days.
If the clients decide not to take advantage of the credit terms, they would have to pay the full amount within 30 days. However, if they choose to take advantage of the credit terms, they can pay within 20 days and receive a 5% discount. The cost of giving up the credit terms is the discount amount they would have received by paying early.
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Exercise 10-1 Cost of plant assets LO C1
Rizio Co. purchases a machine for $13,900, terms 1/10, n/60, FOB shipping point. Rizio paid within the discount period and took the $139 discount. Transportation costs of $314 were paid by Rizio. The machine required mounting and power connections costing $961 Another $453 is paid to assemble the machine and $40 of materials are used to get it into operation. During installation, the machine was damaged and $355 worth of repairs were made.
Complete the below table to calculate the cost recorded for this machine.
Amount included in Cost of Equipment:
Invoice price of machine
Net purchase price
Total cost to be recorded
The total cost recorded for the machine is $16,884.
To calculate the cost recorded for the machine, we need to consider the various components included in the cost. Let's complete the table:
Amount included in Cost of Equipment:
Invoice price of machine: $13,900
Net purchase price: Invoice price - Discount
Net purchase price = $13,900 - $139 = $13,761
Total cost to be recorded: Net purchase price + Transportation costs + Mounting and power connections + Assembly costs + Materials used + Repairs
Total cost to be recorded = $13,761 + $314 + $961 + $453 + $40 + $355 = $16,884
Therefore, the total cost recorded for the machine is $16,884.
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