Answer:
The building would be recorded by Kansas Company for an amount of $216,000
Explanation:
In order to calculate the amount should the building be recorded by Kansas Company we would have to calculate the value of the building with the following formula:
value of the building= shares exchanged*Market value per share
shares exchanged=12,000 shares
Market value per share=$18
Therefore, value of the building=12,000*$18
value of the building=$216,000
The building would be recorded by Kansas Company for an amount of $216,000
One-year Treasury securities yield 4%. The market anticipates that 1-year from now 1-year Treasury securities will yield 2.1%. If the pure expectations theory is correct, what should be the yield today for 2-year Treasury securities? Write your answer as a percentage, i.e. for example write 8% as 8.
Answer:
3.05%
Explanation:
According to Pure Expectation Theory, the future short term interest rates are actually the forward rates.
Mathematically,
(1 + r2,0)^2 = (1 + r1,0)^1 * (1 + r1,1)^1
Here,
r2,0 is the rate of interest for 2 year treasury security from today
r1,0 is the rate of the interest for 1 year treasury security from today
r1,1 is the rate of the interest for 2 year treasury security from Year 1
By Putting Values, we have:
(1 + r2,0)^2 = (1 + 0.04)^1 * (1 + 0.021)^1
(1 + r2,0)^2 = 1.06184
By taking square-root on both sides, we have:
(1 + r2,0) = 1.0305
r2,0 = 3.05%
Tactical decisions define Group of answer choices the day-to-day activities of the organization. the goals and plans of the organization. the domain of operations managers, who are close to the customer. the steps taken to achieve the goals and objectives.
Answer:
E. the steps taken to achieve the goals and objectives.
Explanation:
Tactical decisions are the decisions made by the mid-level management in an organization, in a bid to implement the strategic plans of the director-general of the organization. These decisions are made and implemented within a short period of time. Some tactical decisions include;
1. Structuring of workforce
2. Purchase of items and resources
3. Marketing strategies
4. Allocation of jobs to employees.
When these decisions are made by the middle-level management, they are under obligation to answer to the directors of the organization as to how these decisions were implemented.
If $1200 is borrowed at 9% interest, find the amounts due at the end of 4 years if the interest is compounded as follows. (Round your answers to the nearest cent.) (i) annually $ 1693.9 Correct: Your answer is correct. (ii) quarterly $ 1204.3 Incorrect: Your answer is incorrect. (iii) monthly $ (iv) weekly $ (v) daily $ (vi) hourly $ (vii) continuously $
Answer and Explanation:
(i) The computation of compound interest for annual is shown below:-
Compound interest = A = P × (1 + r ÷ n)^t
= $1,200 × (1 + 9% ÷ 1)^1 × 4
= $1,200 × (1.09)^4
= $1,693.897932
or
= $1,693.90
(ii) The computation of compound interest for quarterly is shown below:-
= $1,200 × (1 + 9% ÷ 4)^4 × 4
= $1,200 × (1.09)^16
= $1,713.145749
or
= $1,713.15
Since it is quarterly so we divide the interest rate by 4 and multiply the time period by 4
(iii) The computation of compound interest for monthly is shown below:-
= $1,200 × (1 + 9% ÷ 12)^4 × 12
= $1,200 × (1.0075)^48
= $1,717.6864
or
= $1,717.69
Since it is monthly so we divide the interest rate by 12 and multiply the time period by 12
(iv) The computation of compound interest for weekly is shown below:-
= $1,200 × (1 + 9% ÷ 52)^4 × 52
= $1,200 × (1.432883461 )^208
= $1719.460154
or
= $1,719.46
Since it is weekly so we divide the interest rate by 52 and multiply the time period by 52
(v) The computation of compound interest for daily is shown below:-
= $1,200 × (1 + 9% ÷ 365)^4 × 365
= $1,200 × (1.43326581 )^1460
= $1719.918972
or
= $1719.92
Since it is daily so we divide the interest rate by 365 and multiply the time period by 365
(vi) The computation of compound interest for hourly is shown below:-
= $1,200 × (1 + 9% ÷ 8760)^4 × 8760
= $1,200 × (1.433326764 )^35,040
= $1,719.992117
or
= $1719.99
(vii) The computation of compound interest for continuously is shown below:-
A = Pe^rt
= 1,200e^0.09 × 4
= 1,200e^0.36
= $1,720.00
The City of Southern Pines maintains its books so as to prepare fund accounting statements and records worksheet adjustments in order to prepare government-wide statements. As such, the City’s internal service fund, a motor pool fund, is included in the proprietary funds statements. Balance sheet asset accounts include: Cash, $102,000; Investments, $150,400; Due from the General Fund, $18,300; Inventories, $396,000; and Capital Assets (net), $1,169,700. Liability accounts include: Accounts Payable, $61,500; Long-Term Advance from Enterprise Fund, $738,000. The only transaction in the internal service fund that is external to the government is interest revenue in the amount of $4,400. Exclusive of the interest revenue, the internal service fund reported net income in the amount of $84,000. An examination of the records indicates that services were provided as follows: one-third to general government, one-third to public safety, and one-third to public works. Prepare necessary adjustments in order to incorporate the internal service fund in the government-wide statements as a part of governmental activities. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
Answer: The answer has been attached
Explanation:
The journal is a book in accounting that is used to record the transactions that affect a business. It should be noted that the double entry method of bookkeeping is utilised while recording in a journal.
The journal has been attached in the following way:
1. The journal was used to record the balance sheet particulars.
2. To record the transaction in the internal service fund that is external to the government.
3. To record the internal service fund in the government-wide statements as a part of governmental activities.
It should also be noted that the net income of $84,000 was to be shared as one-third to general government, one-third to public safety, and one-third to public works. This means they'll all receive ($84,000/3) = $28,000 each.
Further explanation can be found in the attached file.
Daniel acquires a 30 percent interest in the PPZ Partnership from Paolo, an existing partner, for $48,000 of cash. The PPZ Partnership has borrowed $19,000 of recourse liabilities as of the date Daniel bought the interest. What is Daniel's basis in his partnership interest
Joe has just moved to a small town with only one golf course, the Northlands Golf Club. His inverse demand function is pequals 160minus2 q, where q is the number of rounds of golf that he plays per year. The manager of the Northlands Club negotiates separately with each person who joins the club and can therefore charge individual prices. This manager has a good idea of what Joe's demand curve is and offers Joe a special deal, where Joe pays an annual membership fee and can play as many rounds as he wants at $20 , which is the marginal cost his round imposes on the Club. What membership fee would maximize profit for the Club? The manager could have charged Joe a single price per round. How much extra profit does the Club earn by using two-part pricing? The profit-maximizing membership fee (F) is $nothing . (Enter your response as a whole number.)
Answer:
Club membership fee of $60 would maximize profit.
If the club charges tow part pricing the maximum revenue can be $3500.
Explanation:
Joe has entered into a monopoly because he is owner of single golf course in the Northlands.
Demand function for Joe's golf course is:
P = 160 - 2q
P = $20 , q = 50
160 - 2 (50) = 60
Consumer surplus = 0.5 * equilibrium quantity
Consumer Surplus for Joe is ; 0.5 * 50 (160 - 20) = $3500
If MR = MC then demand function will become :
160 - 4q
If q = 25 then
160 - 4 * 25 = 60
1. A company sells a plant asset that originally cost $375,000 for $125,000 on December 31, 2017. The accumulated depreciation account had a balance of $150,000 after the current year's depreciation of $37,500 had been recorded. The company should recognize a
Answer:
The company should recognize a loss on sale of plant asset of $100,00.
Explanation:
The cost = $375,000
Accumulated Depreciation = $150,000
Therefore, book value = $225,000
This book value is compared with the sales value of $125,000.
There is a difference of $100,000 ($225,000 - $125,000).
Since the book value is greater than the sales value, it means that the plant asset was sold at a loss.
The cost is the amount at which the plant asset was purchased. The accumulated depreciation represents the cost that has been expensed so far. The sales value is the amount at which the plant asset was sold.
Production estimates for July are as follows:
Estimated inventory (units), July 1 725
Desired inventory (units), July 31 1, 200
Expected sales volume (units), July 7,500
For each unit produced four hours of direct labor is required. The labor rate per hour is $15. The number of direct labor hours required for July production is:_________
Answer:
31,900
Explanation:
For the computation of the number of direct labor hours required for July production first we need to find out the production in units which is shown below:-
Production in units = Expected sales in Units + Ending Inventory - Beginning inventory
= 7,500 + 1,200 - 725
= 7,975
Total direct labor hours required = Production in units × Hours per unit
= 7,975 × 4
= 31,900
We simply applied the above formulas
Photo Framing's cost formula for its supplies cost is $1,200 per month plus $20 per frame. For the month of November, the company planned for activity of 618 frames, but the actual level of activity was 610 frames. The actual supplies cost for the month was $13,850. The spending variance for supplies cost in November would be closest to:
Answer:
Direct material spending variance= $451.4 unfavorable
Explanation:
Giving the following information:
Photo Framing's cost formula for its supplies cost is $1,200 per month plus $20 per frame.
Actual level of activity was 610 frames. The actual supplies cost for the month was $13,850.
To calculate the spending variance, we need to use the following formula:
Direct material price variance= (standard price - actual price)*actual quantity
Actual price= (13,850 - 1,200)/610= $20.74
Direct material price variance= (20 - 20.74)*610
Direct material price variance= $451.4 unfavorable
All projects are unique:________.
Select one:
A. Therefore all project management circumstances are equally unique.
B. So knowledge should not be transferred to avoid bias in future projects.
C. So knowledge cannot be transferred.
D. But they may have several common points.
Answer:
D. But they may have several common points
Explanation:
Although all projects are unique, they still share similar similarities. So knowledge can be transferred.
Your uncle lends you $2,000 less $100 (interest at 5 percent), and you receive $1,900. Use the APR formula to find the true annual percentage rate. Assume you repay the entire loan in one year
Answer:
APR =5.263%
Explanation:
Computation of the true annual percentage rate
Using the APR formula to find the true annual percentage rate
APR=(2 × n × I) / [P × (N + 1)]
Hence;
APR= (2 × 1 × $100) / [$1,900 × (1 + 1)]
APR=$200/($1,900×2)
APR=$200/$3,800
APR= 0.05263 ×100
APR =5.263%
Therefore the true annual percentage rate using the APR formula will be 5.263%
Using $3,000,000 as the total manufacturing costs, compute the cost of goods manufactured using the following information.
Raw materials inventory, January 1 $ 20,000
Raw materials inventory, December 31 40,000
Work in process, January 1 18,000
Work in process, December 31 12,000
Finished goods, January 1 40,000
Finished goods, December 31 32,000
Raw materials purchases 1,700,000
Direct labor 760,000
Factory utilities 150,000
Indirect labor 50,000
Factory depreciation 400,000
Operating expenses 420,000
a. $3,014,000
b. $3,006,000
c. $3,008,000
d. $2,994,000
Answer:
$3,006,000
Explanation:
The computation of cost of goods manufactured is shown below:-
Cost of Goods Manufactured = Gross Manufacturing Cost + Opening Work in progress - Closing work in progress
= $3,000,000 + $18,000 - $12,000
= $3,006,000
Therefore for computing the cost of goods manufactured we have applied the above formulas and ignore all other values as they are not relevant.
Oscar owns a building that is destroyed in a hurricane. His adjusted basis in the building before the hurricane is $130,000. His insurance company pays him $140,000 and he immediately invests in a new building at a cost of $142,000. What is Oscar's basis on his new building?
Answer: $132,000
Explanation:
Oscar's new basis on the building will be the basis of the old building plus any additional investment he added.
This is the because there is no gain on the $140,000 he received because it was an Involuntary Conversion amount and he reinvested it into another building within a period of 2 years.
As there is no gain, the building will retain it's original basis but will add any amount outside the involuntary replacement cost of the building.
The Additional basis will be,
= Cost of building - Insurance
= 142,000 - 140,000
= $2,000
The Basis for the new building is,
= 130,000 + 2,000
= $132,000
Motorzone offers replacement parts for old Volkswagen Beetles. The company calculates shipping charges based on shipping parts from Boston, even though some parts actually ship from St. Louis. Motorzone most likely practices ________ pricing.
Answer:
basing-point
Explanation:
Basing point pricing is a system used to establish prices in which the business charges a fixed amount for the product and an additional charge for the shipping that is determined according to the customer's distance from a certain place that is called the basing point. According to this, the answer is that Motorzone most likely practices basing-point pricing because they establish the shipping charges based on a pre-determined location even though some products are not in this place.
Value of a retirement annuity Personal Finance Problem An insurance agent is trying to sell you an annuity, that will provide you with $6 comma 200 at the end of each year for the next 20 years. If you don't purchase this annuity, you can invest your money and earn a return of 4%. What is the most you would pay for this annuity right now? Ignoring taxes, the most you would pay for this annuity is
Answer:
The maximum to be paid= $84,260.023
Explanation:
The maximum amount to be paid is the present value of the series of annual cash inflow discounted at the opportunity cost rate of 4% per annum.
This is given in the relationship below:
PV = A ×( 1- (1+r)^(-n))/r )
A- annual amount receivable- 6,200. r-rate of return - 4%, n-number of years- 20
PV = 6,200 × ( 1 - (1+0.04)^(-20)/0.04)
= 6,200 × 13.5903
= $84,260.023
The maximum to be paid= $84,260.023
Rachelle transfers property with a tax basis of $800 and a fair market value of $960 to a corporation in exchange for stock with a fair market value of $765 and $42 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $153 on the property transferred. What is the corporation's tax basis in the property received in the exchange
Answer:
$842
Explanation:
The computation of corporation's tax basis in the property received in the exchange is shown below:-
corporation's tax basis = Fair market value + Transaction
= $800 + $42
= $842
Therefore, The corporation's tax basis should be equivalent to the shareholder's tax basis as the property is transferred for $800 (a substituted basis) and add gain recognized of $42. And If the corporation sells the property for $960, the recognized gain would be $52.
Collins Company borrowed $1,250,000 from BankTwo on January 1, 2016 in order to expand its mining capabilities. The five-year note required annual payments of $325,545 and carried an annual interest rate of 9.5%. What is the amount of expense Collins must recognize on its 2017 income statement
Answer:
Collins Company must recognize $118,750 (which is annual interest paid on the capital) in its 2017 income statement as an expense item if the method of computing the interest is the flat rate method.
If it is reducing balance rate, then the amount deducted will equal $ 87,823
Explanation:
According to the principles of Financial Accounting, the interest portion of any loan must be entered as an expense item. The portion of the principal being paid back is recorded as part of the liability of the company in the period under consideration. It often goes by the term Loan Payable or Notes Payable.
Hence to arrive at the answers given above, you must note that the year in question is 2017 and that the loan took effect from January 2016.
When computing for interest payable, two methods may be used:
Flat rate method: which requires that the interest rate applicable is computed on the capital and multiplied by the number of years the loan will run.That is, $1,250,000 x 9.5% x 5 = Total Interest Rate Applicable.
= $593,750 so going by this method, the interest rate to be entered is
= $593, 750/5
= $118,750
2. Reducing balance rate method: This requires the rate of interest to be applied each year succesievely having taken into account the capital which way paid in the previous year.
That is, [Initial Capital-Annual Payments] *9.5%
For year 2016, annual payment will be Zero. Given that the loan started in that year. In 2017 however, the annual payment will apply as shown below:
= [$1,250,000-$325,545] *9.5%
= $924, 455 * 9.5%
= $87,823 (approximately)
Cheers!
The due diligence process of analyzing and evaluating an existing business ________. Group of answer choices may be just as time consuming as the development of a comprehensive business plan for a start-up helps to determine if the company will generate sufficient cash to pay for itself and leave you with a suitable rate of return on your investment helps to determine what the company's potential for success is All of these
Answer:
All of these.
Explanation:
The due diligence process of analyzing and evaluating an existing business, is the process responsible for revealing the positive and negative aspects of a business.
This process aims to satisfy the buyer and seller by examining the main details of a transaction and ensuring its legality and evaluating most of the facts of the deal.
The agreement must then satisfy the due diligence aspects, so that the two parties involved can price and finalize the transaction effectively.
Therefore, all answer options are correct.
Many consumers buy soft drinks and potato chips together when they shop at a grocery, convenience, or mass merchandiser store. But when querying its marketing information system (MIS), one convenience store discovered that when consumers bought a sandwich, many also purchased toothpaste. This information was obtained from checkout scanner data from its stores nationwide. This convenience store used________ to extract this hidden information from its MIS to find the statistical link between the two product categories.
Answer:
Data mining
Explanation:
Data mining is the process in which we can extract the raw data into useful data that would become beneficial for the company.
Large data is available and if we take the data i.e important or useful so this process we called data mining
In the given situation, it is discovered that when the consumers purchased a sandwich so many customers purchased toothpaste along with it. And for extracting the hiding information from its MIS the store used the data mining technique.
Zappos' product selection includes performance athletic shoes, outdoor coats, contemporary shirts, couture accessories, and more. This selection best illustrates the firm's:
Answer:
Product mix breadth
Explanation:
Product mix breadth refers to varieties of products offer for sale by a store. In a product mix breadth, all products being produced by a brand or company are sold.
Although, product mix breadth comprises varieties of product line, yet it is made up of all products produced and distributed by a company. For example, a store will little space or limited finance may opt to sell fewer product lines but would also make more choices available from the product lines being sold.
Agent Jennings makes a presentation on Medicare advertised as an educational event. Agent Jennings distributes materials that are solely educational in nature. However, she gives a brief presentation that mentions plan-specific premiums. Is this a prohibited activity at an event that has been advertised as educational?
Answer:
Yes it is
Explanation:
Yes. When an event has been advertised as educational, going ahead to discuss plan-specific premiums is impermissible
The event for which Mary made the presentation is clearly an educational event so she should have concentrated fully on only educational contents that pertains to the event. Giving a presentation that mentions plan-specific premiums no matter how brief is a deviation from the main focus of the event. Therefore it is impermissible for her to do so.
An asset has an average return of 10.19 percent and a standard deviation of 22.41 percent. What is the most you should expect to lose in any given year with a probability of 16 percent
Answer:
The answer is 32.6%
Explanation:
Solution
Given that
An assets has a return average of =10.19%
Standard deviation =22.41%
Probability in any given year =16%
Now
The most you should expect to earn in any given year with a probability of 16 percent is = 10.19 + 22.41
= 32.6
Therefore,what you should expect in given year to lose is 32.6%
In 2019, Willow Corporation had three employees. Two of the employees worked full-time and earned salaries of $25,000 each. The third employee worked only part-time and earned $4,000. The employer timely paid state unemployment tax equal to 5.4 percent of each employee's wages up to $7,000. How much FUTA tax is due from Willow Corporation for 2019, after the credit for state unemployment taxes
Answer:
FUTA tax due from the corporation is $108
Explanation:
The First and Second employee earned 7000 each
The Third employee earn earns 4000
Paid under State Unemployment Tax by the employer is = (7000+7000+4000) x 5.40% =$972
How much FUTA tax is due from Willow Corporation for 2019?
Credit of tax paid in State Unemployment Tax is availabe for FUTA tax of 6%, thus FUTA due will be:
=(6% of 18000) - $972
=1080-972
=$108
A firm is considering a replacement project which requires the initial outlay of $300,000 which includes both an after-tax salvage from the old asset of $12,000 and an additional working capital investment of $8,000. The 12-year project is expected to generate annual incremental cash flows of $54,000 and have an expected terminal value at the end of the project of $20,000. The cost of capital is 15 percent, and the firm's marginal tax rate is 40 percent. Calculate the net present value of this project.
Answer:
-3,548.43
Explanation:
DF = Discount factor
Year Cash flow DF(15%) Present Value
0 (300,000) 1 -300,000
1 54,000 0.870 46,956.52
2 54000 0.756 40,831.76
3 54000 0.658 35,505.88
4 54,000 0.572 30,874.68
5 54000 0.497 26,847.54
6 54000 0.432 23,345.69
7 54000 0.376 20,300.06
8 54000 0.327 17,652.70
9 54000 0.284 15,350.17
10 54000 0.247 13,347.97
11 54000 0.215 11,606.93
12 74000 0. 187 13,831.13
Year 12 calculation = 54000 +20000 x 0.6 + 8000
= 74000
NPV = -300,000 + 46,956.52 + 40,831.76 + 35,505.88 + 30,874.68 + 26,847.54 + 23,345.69 + 20,300.06 + 17,652.70 + 15,350.17 + 13,347.97 + 11,606.93 + 13,831.13
NPV = -3,548.43
8. Problems and Applications Q8 The city government is considering two tax proposals: • A lump-sum tax of $300 on each producer of hamburgers. • A tax of $1 per burger, paid by producers of hamburgers. Which of the following statements is true as a result of the lump-sum tax? Check all that apply. Average fixed cost will increase. Average variable cost will remain unchanged. Average total cost will increase. Marginal cost will increase. Which of the following statements is true as a result of the per-burger tax? Check all that apply. Average fixed cost will remain unchanged. Average total cost will increase. Average variable cost will increase. Marginal cost will remain unchanged.
Answer:
Which of the following statements is true as a result of the lump-sum tax?
Average fixed cost will increase.
Average total cost will increase.
The lump-sum tax of $300 is a one time payment that does not depend on the amount of output, for this reason, it is a fixed cost that is spread over the total quantity of burgers that are produced, and that also affect average total cost.
Which of the following statements is true as a result of the per-burger tax?
Average fixed cost will remain unchanged.
Average total cost will increase.
Average variable cost will increase.
The per-burger tax depends on the quanityt of burgers produced, therefore, it is another variable cost. It affects average total cost, and average variable cost, while average fixed cost remains unchaged precisely because it is not a fixed cost.
The average cost of production is computed by dividing the number cost (TC) by the output produced (TO) (Q). When we say "per unit cost of production," we mean that all fixed and variable costs are taken into account when calculating the average cost.
As a result, it's also known as Per Unit Total Cost.
The answers to the above questions are:
1) The $300 lump-sum tax is a one-time contribution that is not based on the amount of output; as a result, it is a fixed cost that is distributed across the total quantity of burgers produced, affecting the average total cost.
So, Option A and C are correct.
2) The per-burger tax is a variable expense that is determined by the number of burgers consumed. It has an effect on average total cost and average variable cost, but it has no effect on average fixed cost because it is not a fixed cost.
So, Option A, B, and C are correct.
Thus these Options are correct for the following question.
For more information about average cost refer to the link:
https://brainly.com/question/20743510
Use the 2012 segment information provided by BMW and Volkswagen to an- swer the following questions: a. Which company is more multinational? b. Which company is more internationally diversified? c. In which region(s) of the world did each company experience the greatest growth from 2011–2012? the greatest decline?
Answer with its Explanation:
a). The total revenue of Volkswagen and BMW in the 2012 segment given shows that the revenue is $192,676 and BMW which is $76,848. As the revenue of Volkswagen is more than the BMW hence Volkswagen is more multinational.
b). The regional sales section shows that the Volkswagen is more internationally recognized as per the regional sales which is substantially higher than the regional sales of BMW. So its crystal clear that Volkswagen is the one which more internationally diversified.
c). The 2012 segment information shows that the BMW greatest growth was in China then in USA and then greatest growth was in Rest of the Europe and the greatest decline was in Rest of the America.
For Volkswagen, the greatest growth was in North America then in Asia and then in South America. The greatest decline wasn't seen in the segment information but lowest increase was seen in Germany and then in the European countries.
Increased Efficiency, Inc. is looking for ways to shorten its cash conversion cycle. It has annual sales of $36,500,000, or $100,000 a day on a 365-day basis. The firm's cost of goods sold is 65% of sales. On average, the company has $9,000,000 in inventory and $8,000,000 in accounts receivable. Its CFO has proposed new policies that would result in a 20% reduction in both average inventories and accounts receivable. She also anticipates that these policies would reduce sales by 10%, while the payables deferral period would remain unchanged at 40 days. What effect would these policies have on the company's cash conversion cycle
Answer and Explanation:
The cash conversion cycle refers to the cycle which includes the days inventory outstanding and days sales outstanding and deduct the days payable outstanding
The cash cycle = Days inventory outstanding + days sale outstanding - days payable outstanding
The computation is shown in the attachment below:
As we can see in the attachment the new proposed policy i.e 234.19 days would decrease the cash conversion cycle by 24.27 days as compared with the current proposal policy i.e 258.46 days
A firm considers to buy a machine in 2020. The cost of that machine is $ 5 000 000. The firm uses 5 year straight line depreciation which allows it to write off $ 1 000 000 depreciation expense each year. The firm is subject to 20% corporate tax rate. The firm's revenue in 2021 is expected to be $ 6 000 000 if the investment is not done. The revenue will be $ 9 000 000 if the investment is done. The firm's total costs (including both COGS and General&Administrative Costs) will be $ 4 000 000 if the investment is not done. The total costs will be $ 5 500 000 if the investment is done. Also the following information is given for the year 2021
Without Investment With Investment
Inventories $ 300 000 $ 500 000
Acc. Receivables $ 200 000 $ 300 000
Acc. Payables $ 100 000 $ 150 000
Given the above information, calculate the free cash flow of that investment for the years 2020 and 2021.
Answer and Explanation:
The computation of the free cash flow of the investment for the year 2020 and 2021 is shown below:
Particulars Case 1 Case 2
Without Investment With Investment
Add: Earnings Before
Interest and
Tax × (1 - Tax Rate) $2,000,000 $2,500,000
Add: Non Cash Expenses $0 $1,000,000
less: Change in
(Current Assets
- Current Liabilities) ($400,000) ($650,000)
Less: Capital Expenditure $0 ($5,000,000)
Free Cash Flows $1,600,000 ($2,150,000)
Working notes:
1.
Particulars Without Investment With Investment
Revenue for the Year 2021 $6,000,000 $9,000,000
Less: Cost of Goods Sold $4,000,000 $5,500,000
(-) Depreciation $0 $1,000,000
Earnings Before
Interest and Tax $2,000,000 $2,500,000
Tax Savings on Depreciation
(Depreciation × 20%) $0 $200,000
2.
Current Assets Without Investment With Investment
Inventories $300,000 $500,000
Accounts Receivable $200,000 $300,000
Total $500,000 $800,000
(Less: Current Liabilities)
Accounts Payable $100,000 $150,000
Less: Change in
(Current Assets
- Current Liabilities) $400,000 $650,000
art E14 is used by M Corporation to make one of its products. A total of 20,000 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity: Per Unit Direct materials $ 4.30 Direct labor $ 8.90 Variable manufacturing overhead $ 9.40 Supervisor's salary $ 4.80 Depreciation of special equipment $ 3.20 Allocated general overhead $ 8.40 An outside supplier has offered to make the part and sell it to the company for $30.30 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including the direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the part were purchased instead of produced internally. In addition, the space used to make part E14 could be used to make more of one of the company's other products, generating an additional segment margin of $32,000 per year for that product. The annual financial advantage (disadvantage) for the company as a result of buying part E14 from the outside supplier should be:
Answer:
It is more profitable to continue making the product. On this level of production, the company saves $26,000 if it makes the product in-house.
Explanation:
Giving the following information:
Units= 20,000
Per Unit Cost:
Direct materials $4.30
Direct labor $8.90
Variable manufacturing overhead $9.40
Supervisor's salary $4.80
An outside supplier has offered to make the part and sell it to the company for $30.30 each.
Rent space= $32,000 per year
We will take into account only the differential costs.
Make in-house:
Total cost= 20,000* (4.3 + 8.9 + 9.4 + 4.8)= $548,000
Buy:
Total cost= 20,000*30.3 - 32,000= $574,000
It is more profitable to continue making the product. On this level of production, the company saves $26,000 if it makes the product in-house.
Six years ago, James Corporation sold a $100 million bond issue to expand its facilities. Each debenture has a $1,000 par value, an original maturity of 20 years (there are now 14 years left to maturity), and an annual coupon rate of 11.5% with semiannual payments. If you require a 14% return, what price would you pay today for a James bond?
Answer:
Price of Bonds=$848.286
Explanation:
The value of the bond is the present value (PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV) discounted at the yield rate
Value of Bond = PV of interest + PV of RV
The value of bond for James Corporation can be worked out as follows:
Step 1
PV of interest payments
PV = A × (1+r)^(-n)/r
A- semiannual interest payment, n-number of periods, r- semi annul yield
A-semi- annul interest payment:
=11.5%× 1,000× 1/2 = 75
r-semi-Annual yield = 14%/2 = 7%
n-Maturity period =1 4 × 2= 28
PV of interest payment:
=57.5 × (1- (1+0.07)^(-28)/0.07)
= 697.88
Step 2
PV of Redemption Value
= 1,000 × (1.07)^(-28) = 150.40
Step 3
Price of bond
=697.88 + 150.40
=$848.286