Fiscal Cliff Inc. has a capital structure that consists of 15 percent common stock and 85 percent long-term debt. In order to calculate Fiscal Cliff’s weighted average cost of capital, an analyst has accumulated the following information: · The company currently has 25-year bonds outstanding with annual coupon payments of 8 percent. The bonds have a face value of $1,000 and sell for $700. · The risk-free rate is 3 percent. · The market risk premium is 8 percent. · The beta on Fiscal Cliff's common stock is 2.3. · The company's retained earnings are sufficient so that they do not have to issue any new common stock to fund capital projects. · The company's tax rate is 40 percent. Given this information, what is Fiscal Cliff's WACC? A. 9.21% B. 12.58% C. 8.17% D. 7.63% E. 11.35%

Answer:

WACC= 8.7%

Explanation:

The weighted Average cost of Capital is the average cost of capital for the different sources of long-term capital available to a firm weighted according to the proportion each source of finance bears to the total capital in the pool.

The Weighted average cost of debt can be worked out using the following steps:

Step 1: Cost of debt

The cost of debt is the same as the yield to maturity. The yield to maturity to Maturity can be used to work out the cost of debt using the formula below:

YM =( C + F-P/n) ÷ ( 1/2× (F+P))

C- annual coupon,

F- face value ,

P- current price,

n- number of years to maturity

YM - Yield to maturity

C- 8%× 1000 =80 , P= 700, F- 1000

AYM = 80 + (1000-700)/25÷ 1/2× (1000+700)

= 92 ÷ 850

= Yield to maturity = 10.82%

After-tax cost of debt=Before-tax × (1-T)

After-tax cost of debt = 10.82%× (1-0.4) =6.49%

Step 2 : Cost of equity

This can be computed using the Capital Asset pricing model

Ke= Rf +β(Rm-Rf)

Ke =? , Rf- 3%, β- 2.3, Rm-Rf= 8%

Ke= 3% + 2.3× 8%

Cost of equity = Ke =21.4%

Step 3: WACC

WACC = (15%*21.4.5)  + (85%*6.49)=8.7%

WACC= 8.7%

Gaston Company is considering a capital budgeting project that would require a $2,400,000 investment in equipment with a useful life of five years and no salvage value. The company’s tax rate is 30% and its after-tax cost of capital is 13%. It uses the straight-line depreciation method for financial reporting and tax purposes. The project would provide net operating income each year for five years as follows:

Sales $3,400,000
Variable expenses 1,600,000
Contribution margin 1,800,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs $680,000
Depreciation 660,000
Total fixed expenses 1,340,000
Operating income $460,000


Required:
Compute the project's net present value.

Shannon Polymers uses straight-line depreciation for financial reporting purposes for equipment costing $760,000 and with an expected useful life of four years and no residual value. Assume that, for tax purposes, the deduction is 40%, 30%, 20%, and 10% in those years. Pretax accounting income the first year the equipment was used was $860,000, which includes interest revenue of $24,000 from municipal governmental bonds. Other than the two described, there are no differences between accounting income and taxable income. The enacted tax rate is 25%.

Required:
Prepare the journal entry to record income taxes.

Marvin is trying to figure out his cash flow. What is the BEST advice for Marvin to accurately determine his cash flow? OA. Add your liabilities to your assets. OB. Subtract your liabilities from your assets. OC. Add your expenditures to your income. OD. Subtract your expenditures from your income.​

ayton Inc. reports in its Year 7 annual report, sales of $7,362 million and cost of goods sold of $2,945 million. For next year, you project that sales will grow by 3% and that cost of goods sold percentage will be 1 percentage point higher. Projected cost of goods sold for Year 8 will be:

Rubin Enterprises had the following sales-related transactions on a recent day:

a. Billed customer $27,500 on account for services already provided.
b. Collected $5,875 in cash for services to be provided in the future.
c. The customer complained about aspects of the services provided in Transaction a. To maintain a good relationship with this customer, Rubin granted an allowance of $1,500 off the list price. The customer had not yet paid for the services.
d. Rubin provided the services for the customer in Transaction b. Additionally, Rubin granted an allowance of $350 because the services were provided after the promised date. Because the customer had already paid, Rubin paid the $350 allowance in cash.

Required:
Prepare the necessary journal entry (or entries) for each of these transactions.

Legos makes multiple lines of products, including Duplos (for toddlers), various Lego kits and games (for boys 7-12 years of age), Friends and Disney Princess Lego kits (for girls 7-12 years of age), Technics (automated kits for teenage boys), and Legos Architecture (for young adults and college students). For each of these product lines, Lego targets a specific segment of consumers and develops different promotional strategies to appeal to each segment. This illustrates:

Consumer surplus is Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a positive in the case of a monopolist practicing perfect price discrimination. b zero for a single-price monopolist. c equal to the price minus the marginal cost. d less in the case of a single-price monopoly than in the case of a perfectly competitive industry.

Price rises from $10 to $11, and the quantity demanded falls from 100 units to 95 units. What is the price elasticity of demand using the midpoint formula between these two prices in absolute terms (round to 2 decimal places)

Rick Co. had 35 million shares of $1 par common stock outstanding at January 1, 2021. In October 2021, Rick Co.'s Board of Directors declared and distributed a 1% common stock dividend when the market value of its common stock was $69 per share. In recording this transaction, Rick would:

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Ewunia Corporation hires nine individuals on January 2, 2020, all of whom qualify for the work opportunity credit. Two of these individuals receive wages of $11,000 during 2020, and each individual works more than 400 hours during the year. The other seven individuals each work 230 hours and receive wages of $6,600 during the year. a. Calculate the amount of Ewunia's work opportunity credit. $fill in the blank 1 b. If Ewunia pays total wages of $235,000 to its employees during the year, how much of this amount can Ewunia deduct, assuming the work opportunity credit is taken

Pluto Inc., a leather goods manufacturer, produces and sells a wide range of leather bags, wallets, purses, and belts. It recently opened an outlet in Mexico. However, since Mexico's per capita income is approximately one-third that of the U.S., Lolita's sales have dipped. Moreover, the extent of available financing in the country is limited. With regard to global marketing research, the dip in Lolita's sales can be attributed to which of the following organizational issues?
A. Political conditions
B. Culture
C. Willingness to buy
D. Ability to buy

Filing Chapter 13 allows you to maintain a sound credit rating because
a. you stand free and clear of debt.
b. your possessions are used to pay your credit obligations.
C. you still fulfill your credit obligations.
d. none of the above.

Marko, Inc., is considering the purchase of ABC Co. Marko believes that ABC Co. can generate cash flows of $5,600, $10,600, and $16,800 over the next three years, respectively. After that time, they feel the business will be worthless. Marko has determined that a rate of return of 10 percent is applicable to this potential purchase. What is Marko willing to pay today to buy ABC Co.

What happens if you only make the minimum payment on your credit card statement? |

If the required direct materials purchases are 15000 pounds, the direct materials required for production is three times the direct materials purchases, and the beginning direct materials are three and a half times the direct materials purchases, what are the desired ending direct materials in pounds?

The options for closing inventory is
A. 10.50
B. 10
C. 10.25

Total cost options are
A. 8,050
B. 8,000
C. 8,200

Blue Corporation purchased a truck at the beginning of 2020 for $61,000. The truck is estimated to have a salvage value of $2,440 and a useful life of 195,200 miles. It was driven 28,060 miles in 2020 and 37,820 miles in 2021. Compute depreciation expense using the units-of-production method for 2020 and 2021.
Depreciation expense for 2020
Depreciation expense for 2021

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Palepu Company owns and operates a delivery van that originally cost $38,080. Straight-line depreciation on the van has been recorded for three years, with a $2,800 expected salvage value at the end of its estimated six-year useful life. Depreciation was last recorded at the end of the third year, at which time Palepu disposes of this van.

a. Compute the net book value of the van on the disposal date.
b. Compute the gain or loss on sale of the van if the disposal proceeds are:

1. A cash amount equal to the van's net book value.

a. $13,000 cash.
b. $10,000 cash

Windsor, the owner of Windsor's Sandwiches, contacts Gary, a new supplier. He promises Gary that he will pay him $375 if Gary delivers 20 pounds of cheese the following morning. Gary promises to make the delivery as requested by Windsor. What type of contract is formed and why?

Greg, a landscaper, is planning on opening his own landscaping company. He currently earns $50,000 per year working for his uncle but he will need to quit that job. He hires one employee at an annual wage of $15,000. He needs to pay rent of $8,000 per year. He plans to use $12,000 in savings to pay for the equipment he needs, the market value of the equipment at the end of the year is $10,000. Also he needs to buy $3,000 of goods and services from other firms. The current interest rate on savings is 7 percent. Greg predicts that the revenue from the new landscaping company is $80,000 a year. What is total opportunity cost incurred by Greg in running his own business

Which of the following is true of scrum?
A) It was developed to overcome the problems that occur when using the Business Process Modeling Notation (BPMN).
B) It does not adapt to change easily.
C) It is generic enough to be used for the development of business processes, information systems, and applications.
D) Its work periods are usually three months or longer.
E) Answers B and D are correct.

The OECD is concerned about transfer pricing practices because ________. a. transfer pricing can help maximize a company's worldwide tax liability b. companies use transfer prices to manipulate prices and, therefore, taxes c. transfer prices tend to be higher in industrial than developing countries d. governments use transfer prices to manipulate companies' investment strategies

Hardy Company must maintain a compensating balance of $50,000 in its checking account as one of the conditions of its short-term 6% bank loan of $500,000. Hardy's checking account earns 2% interest. Ordinarily, Hardy would maintain a $20,000 balance in the account for transaction purposes. What is the loan's approximate effective interest rate

Pacific Cruise Lines is a defendant in litigation involving a swimming accident on one of its three cruise ships.
Required:
1. The likelihood of a payment occurring is probable, and the estimated amount is $1.11 million.
2. The likelihood of a payment occurring is probable, and the amount is estimated to be in the range of $0.91 to $1.11 million.
3. The likelihood of a payment occurring is reasonably possible, and the estimated amount is $1.11 million.
4. The likelihood of a payment occurring is remote, while the estimated potential amount is $1.11 million.
Record the necessary entry for the scenarios given above. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in dollars, not in millions, (i.e. 5.5 should be entered as 5,500,000).)

Ahrends Corporation makes 70,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows: Direct materials $ 17.80 Direct labor 19.00 Variable manufacturing overhead 1.00 Fixed manufacturing overhead 17.10 Unit product cost $ 54.90 An outside supplier has offered to sell the company all of these parts it needs for $48.50 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $273,000 per year. If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $8.20 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products. What is the financial advantage (disadvantage) of purchasing the part rather than making it

Sutherland manufactures and sells 50,000 laser printers each month. A principal component part in each printer is its paper feed drive. Sutherland's plant currently has the monthly capacity to produce 80,000 drives. The unit costs of manufacturing these drives (up to 80,000 per month) are as follows. Variable costs per unit: Direct materials $ 23 Direct labor 15 Variable manufacturing overhead 2 Fixed costs per month: Fixed manufacturing overhead $ 1,300,000 Desk-Mate Printers has offered to buy 10,000 paper feed drives from Sutherland to be used in its own printers. a. Compute the average unit cost of manufacturing each paper feed drive assuming that Sutherland manufactures only enough drives for its own laser printers. b. Compute the incremental unit cost of producing an additional paper feed drive. c. Compute the per-unit sales price that Sutherland should charge Desk-Mate to earn $140,000 in monthly pretax profit on the sale of drives to Desk-Mate.

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Internet users aged 15 and older are expected to buy about ________ worth of products and services online in 2022 (excluding travel, automobile, and prescription drugs).
Multiple Choice
$200 million
$900 million
$40 billion
$100 billion
$500 billion

1. You are evaluating the purchase of HypeToys, Inc. common stock that just paid an annual dividend of $1.80. You expect the dividend to grow at a rate of 12% per year, indefinitely. You estimate that a required rate of return 17.5% will be adequate compensation for this investment. Assuming that your analysis is correct, and the company pays dividends once a year, what is the most that you’re willing to pay for the common stock if you were to purchase it today? Round to the nearest $.01.