Answer:
a)
period interest interest discount amortized bond's
payment expense on BP discount carrying value
0 49,320.60 750,679.40
1 32,000 37,533.97 43,786.63 5,533.97 756,213.37
2 32,000 37,810.67 37,975.96 5,810.67 762,024.04
3 32,000 38,101.20 31,874.76 6,101.20 768,125.24
4 32,000 38,406.26 43,786.63 6,406.26 774,531.50
b)
December 31, 2017, accrued interest on bonds payable
Dr Interest expense 19,050.60
Cr Interest payable 16,000
Cr Discount on bonds payable 3,050.60
c)
total interest expense year 2007:
($37,533.97/2) + $37,810.67 + ($38,101.20/2) = $18,776.99 + $37,810.67 + $19,050.60 = $75,638.26
Explanation:
the market price of the bonds:
$800,000 / 1.05¹⁰ = $491,130.60
$32,000 x 8.1109 (PV annuity factor, 4%, 10 periods) = $259,548.80
market price = $750,679.40
discount on bonds payable $49,320.60
discount amortization first payment = (750,679.40 x 0.05) - 32,000 = 5,533.97
discount amortization second payment = (756,213.37 x 0.05) - 32,000 = 5,810.67
discount amortization third payment = (762,024.04 x 0.05) - 32,000 = 6,101.20
discount amortization fourth payment = (768,125.24 x 0.05) - 32,000 = 6,406.26
You have an annuity which pays $1,200 every two years. The first payment is two years from now and the last payment is ten years from now. You can trade that annuity for another annuity of equivalent present value, which pays $180 per quarter starting today. The interest rate for both annuities is 4% per annum convertible quarterly. If you took the second annuity, how many quarterly payments would you receive? The last payment may be less than $180 but not more than $180.
Answer:
31 payments
Explanation:
the present value of the first annuity is:
$1,200 / (1 + 1%)⁸ + $1,200 / (1 + 1%)¹⁶ + $1,200 / (1 + 1%)²⁴ + $1,200 / (1 + 1%)³² + $1,200 / (1 + 1%)⁴⁰ = $1,108.18 + $1,023.39 + $945.08 + $872.76 + $805.98 = $4,755.39
to determine the length of the second annuity:
PV = annuity payment x annuity factor
annuity factor = PV / annuity payment = $4,755.39 / $180 = 26.4188333
using an annuity table we must look for a present value annuity factor that corresponds to 1% interest rate and is close to 26.4188333
the annuity factor is between 30 and 31 payments. Since the final payment has to be less or equal to $180, we have to choose 31 payments.
Yield curves for corporate and government securities have similar shapes, but the corporate rates track below the government rates.
a. True
b. False
The answer is false mate.
hope it will help you.
A company is considering a new project that will cost $19,000. This project would result in additional annual revenues of $6,000 for the next 5 years. The $19,000 cost is an example of a(n):
Answer:
Incremental cost
Explanation:
The Incremental cost is the cost that is to be incurred for producing an additional unit of product
Here the company considered a new project which cost $19,000 so this is an example of an incremental cost as the additional cost is incurred for producing additional units
Therefore the given situation represents the incremental cost
You are the manager of a firm that produces goods X and Y. Your rm receives revenues of $40,000 per year from product X and $90,000 per year from product Y. The price elasticity of demand for product X is |-0.75| and the cross price elasticity of demand between product Y and X is -1.7.
Required:
How much will your firm's total revenues (revenues from both products) change if you increase the price of good X by 2 percent?
Answer:
price elasticity of demand = % change in quantity / % change in price
-0.75 = % change in quantity / 2%
-1.5 = % change in quantity
lets assume that 1,000 units of X were sold at $40 each, total revenue = $40,000
new total revenue = 985 x $40.80 = $40,188
revenue generated by good X will increase by 0.47%, from $40,000 to $40,188
price elasticity of demand = % change in quantity of Y / % change in price of X
-1.7 = % change quantity of Y / 2%
-3.4% = % change quantity of Y
lets assume that 1,000 units of Y were sold at $90 each, total revenue = $90,000
new total revenue = 966 x $91.80 = $88,678.80
revenue generated by good Y will decrease by -1.47%, from $90,000 to $88,678.80
The ending finished goods inventory for each month equals 50% of next month's sales in units . How many units must be produced in February?
Answer: 15,751.5 units
Explanation:
Units produced in February are calculated as;
Units Produced = Ending Finished goods - Beginning Finished goods + Budgeted Sales
Ending finished goods inventory for each month equals 50% of next month's sales in units.
Ending finished goods for February
= 50% * 15,581
= 7,790.5 units
Ending finished goods for January is beginning for February
= 50% * 15,922
= 7,961
Units Produced = Ending Finished goods - Beginning Finished goods + Budgeted Sales
= 7,790.5 - 7,961 + 15,922
= 15,751.5 units
Lopez Plastics Co. (LPC) issued callable bonds on January 1, 2021. LPC's accountant has projected the following amortization schedule from issuance until maturity:
Date Cash Effective Decrease in Outstanding
interest interest balance balance
1/1/2021 $207,020
6/30/2021 $7,000 $6,211 $789 206,230
12/31/2021 7,000 6,187 813 205,417
6/30/2022 7,000 6,163 837 204,580
12/31/2022 7,000 6,137 863 203,717
6/30/2023 7,000 6,112 888 202,829
12/31/2023 7,000 6,085 915 201,913
6/30/2024 7,000 6,057 943 200,971
12/31/2024 7,000 6,029 971 200,000
What is the annual stated interest rate on the bonds?
a. 3.5%
b. 6%
c. 7%
d. none of the above
Answer:
c. 7%
Explanation:
According to the given scenario, the computation of the annual stated interest rate on the bonds is shown below:-
Sated interest Rate = Cash interest ÷ Face Value of the bond × 2
= $7,000÷ $200,000 × 2
= 7%
Therefore for computing the annual stated interest rate on the bonds we simply applied the above formula. hence the correct option is c
Which of the following do you NOT include when calculating the closing balance of PP&E?
a) Cash capital expenditures
b) PP&E acquired through acquisitions
c) PP&E acquired under capital or financing leases
d) Changes in working capital
Answer:
d) Changes in working capital
Explanation:
the formula used for calculating net PP&E is:
Net PP&E = gross PP&E + capital expenditures - accumulated depreciation
PP&E represents fixed assets (plant, property, and equipment).
On the other hand, working capital involves current assets and liabilities such as cash, accounts receivables, accounts payable, inventories, taxes payable, etc.
34. Pension gains related to plan assets occur when: A. The return on plan assets is higher than expected. B. The vested benefit obligation is less than expected. C. Retiree benefits paid out are less than expected. D. The accumulated benefit obligation is more than expected.
Answer: A. The return on plan assets is higher than expected
Explanation:
Pension gains related to plan assets is said to occur when the return on plan assets is higher than expected. In a situation whereby an individual or a firm expect a certain return on an asset and when the asset's return was eventually more than the expected return on it, this means that there is a pension gains related to plan assets.
Tom Company reports the following data.
Sales $385,187
Variable costs 200,887
Fixed costs 87,300
Required:
Determine Tom Company's operating leverage. Round your answer to one decimal place.
Answer: 1.9
Explanation:
The Operating Leverage is calculated by;
Operating leverage = Contribution margin / Operating income
Contribution Margin
= Sales - Variable Costs
= 385,187 - 200,887
= $184,300
Operating Income
= Contribution Margin - Fixed Costs
= 184,300 - 87,300
= $97,000
Operating Leverage = 184,300/ 97,000
= 1.9
Idaho Industries Inc. is considering a project that has an initial aftertax outlay or aftertax cost of $450,000. The respective future cash inflows from its fiveyear project for years 1 through 5 are $95,000 each year. Idaho expects an additional cash flow of $60,000 in the fifth year. The firm uses the IRR method and has a hurdle rate of 10%. Will Idaho accept the project? A. Idaho accepts the project because it has an IRR greater than 10%. B. Idaho accepts the project because it has an IRR greater than 5%. C. Idaho rejects the project because it has an IRR less than 10%. D. There is not enough information to answer this question.
Answer:
c
Explanation:
Internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested
IRR can be calculated using a financial calculator
Cash flow in year 0 = $-450,000
Cash flow each year from year 1 to 4 = $95,000
Cash flow in year 5 = $95,000 + $60,000 = $155,000
IRR = 5.62%
Idaho would reject the project because the IRR is less than the hurdle rate
To find the IRR using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. After inputting all the cash flows, press the IRR button and then press the compute button.
ABC issued callable bonds on January 1, 2018. ABC's accountant has projected the following amortization schedule from issuance until maturity: Date Cash Paid Interest Expense Increase in Carrying Value Carrying Value 1/1/2018 $194,758 6/30/2018 $7,000 $7,790 $790 195,548 12/31/2018 7,000 7,822 822 196,370 6/30/2019 7,000 7,855 855 197,225 12/31/2019 7,000 7,889 889 198,114 6/30/2020 7,000 7,925 925 199,039 12/31/2020 7,000 7,961 961 200,000 ABC buys back the bonds for $196,000 immediately after the interest payment on 12/31/2018 and retires them. What gain or loss, if any, would ABC record on this date (use a minus sign in front of the number if it is a loss)?
Answer:
Gain $370
Explanation:
Calculation for the gain or loss, if ABC record on this date 12/31/2018
Based on the information given on the amortization schedule, on this date 12/31/2018 the Carrying value was $196,370 while we were still told that ABC buys back the bonds for $196,000 on 12/31/2018
Now let calculate for the gain or loss using this formula
Gain/Loss = Carrying value- Stock bond
Let plug in the formula
Gain/Loss =$196,370-$196,000
Gain/Loss=$370
Therefore if ABC record on this date 12/31/2018, ABC will have a gain of $370
Charger Company's most recent balance sheet reports total assets of $28,413,000, total liabilities of $16,113,000 and total equity of $12,300,000. The debt to equity ratio for the period is (rounded to two decimals):
Answer:
Debt to equity ratio is 1.31
Explanation:
Given the above inflation, the formula for debt to equity ratio is
= Total debt / Total equity
= $16,113,000 / $12,300,000
= 1.31
Therefore, debt to equity ratio is 1.31
if the growth rate of the money supply is 8%, velocity is constant, and reald GDP grows at 2% per year on average, then the inflation rate will be
Answer:
4%
Explanation:
The quantity theory of money states that :
Money supply x Velocity = price x real GDP
8% = 2% x price
Price = 4%
The standard quantity allowed for the units produced was 4000 pounds, the standard price was $2.50 per pound, and the materials quantity variance was $350 favorable. Each unit uses 1 pound of materials. How many units were actually produced
Answer:
Unites actually produced = 4,000 units
Explanation:
Material quantity variance occurs when the actual quantity used to achieved a given level of output is more or less than the standard quantity.
It is determined by the difference between the actual and standard quantity of material for the actual level of output multiplied by the the standard price
Material quantity variance in unit = Materials quantity variance in value /standard price
Material quantity variance in unit = 350/2.50 =140 pounds
Actual quantity used (in pounds) = standard quantity allowed - Material quantity variance
= 4000 - 140 = 3,860 pounds
Actual units produced = Standard quantity allowed/ standard quantity per unit
= 4,000/1 = 4000 units
Unites actually produced = 4,000 units
Pam Erickson Construction Company changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2015. For tax purposes, the company employs the completed-contract method and will continue this approach in the future. (Hint: Adjust all tax consequences through the Deferred Tax Liability account.) The appropriate information related to this change is as follows.
Pretax Income from:
Percentage-of-Completion Completed-Contract Difference
2014 $752,200 $586,700 $165,500
2015 683,500 444,700 238,800
(a) Assuming that the tax rate is 30%, what is the amount of net income that would be reported in 2015?
Net income $
(b) What entry(ies) are necessary to adjust the accounting records for the change in accounting principle?
Answer:
a. $478,450
b.Dr Construction in Process $165,500
Cr Deferred tax liability $49,650
Cr Retained earnings $115,850
Explanation:
A. Calculation for the amount of net income that would be reported in 2015 for Pam Erickson Construction Company
Using this formula
Net income =(Income before income tax ) Income before income tax-Tax rate
Let plug in the formula
Net income= $683,500 - (683,500 × 30%)
Net income= $683,500 - $205,050
Net income= $478,450
B. Preparation of the Journal entry(ies) that are necessary to adjust the accounting records
For Pam Erickson Construction Company
Dr Construction in Process $165,500
Cr Deferred tax liability $49,650
($165,500 × 30%)
Cr Retained earnings $115,850
($165,500 × (100%-30%)
Hank purchased a $28,000 car two years ago using an 8 percent, 5-year loan. He has decided that he would sell the car now, if he could get a price that would pay off the balance of his loan. What is the minimum price Hank would need to receive for his car
Answer:
$18,117.58
Explanation:
the question requires that we find the minimum price Hank would need to receive his first car.
loan = $28,000
rate = 0.08/12 = 0.0067
the monthly payment can be calculated as:
loan /[0.0067/1-(1/(0.0067)^60))]
= 28000/[1-1/(1.0067^60)/0.0067]
= 28000/(1-(1/1.0067)^60)/0.0067
= $567.74
The minimum price can be calculated as:
pmt = 567.74 x [(1-(1/1.0067^36))/0.0067) x 0.0067
= $18,117.58
g how much money should be deposited today in account that earns 5% compounded interest quarterly so that it will accumulate to 7600 in 9 years
Answer:
Present value of 7600 in 9 years at 5% compounded quarterly = 4,859.51
Explanation:
You will need to invest $4,859.51 at the beginning to reach the future value of $7,600.00 in 9 years at 5% compounded quarterly.
Using an online financial calculator:
FV (Future Value) = $7,600
PV (Present Value) = $4,859.51
N (Number of Periods) = 36 quarters (9 x 4)
I/Y (Interest Rate) = 1.250% (5%/4)
PMT (Periodic Payment) = $0.00
Starting Investment = $4,859.51
Total Principal = $4,859.51
Total Interest = $2,740.49
The compound interest rate is divided into the number of quarters, which is 4 and the number of periods will become 9 x 4 = 36. Then the present value of $7,600 is determined using the PV table or an online calculator, as above.
Pharoah Company had the following two transactions related to its delivery truck. 1. Paid $280 for an oil change. 2. Paid $600 to install a special gear unit, which increases the operating efficiency of the truck.Required:Prepare Pharoah's journal entries to record these two transactions.
Answer:
1.
Oil change expense $280 Dr
Cash $280 Cr
2.
Delivery Truck Account $600 Dr
Cash $600 Cr
Explanation:
1.
The cost incurred to cover the day to day expenses related to an asset which does not increase the asset's useful life or benefit but merely maintains them are recorded as revenue expenditure. Such expenses are charged as expenses to the income statement. The cost incurred for oil change which is for maintenance purpose is a revenue expenditure.
2.
The cost incurred for capital expenditure is added to the cost of the asset and systematically charged to the income statement using the depreciation. Any expense that will increase the life or operating efficiency and benefit form a fixed asset is a capital expenditure and is capitalized by adding it to the cost of the asset. So, installation of a special gear unit giving increased efficiency is a capital expenditure.
Ultimate Butter Popcorn issues 5%, 15-year bonds with a face amount of $58,000. The market interest rate for bonds of similar risk and maturity is 5%. Interest is paid semiannually. At what price will the bonds issue
Answer:
So, the bonds will issue at par which means that they will issue at their face value of $58000
Explanation:
If the coupon rate paid by the bond and the market interest rates are same, the bonds are always issued at par. We can check this through the following.
To calculate the price of the bond, we need to first calculate the coupon payment per period. We assume that the interest rate provided is stated in annual terms. As the bond is a semi annual bond, the coupon payment, number of periods and semi annual YTM will be,
Coupon Payment (C) = 0.05 * 1/2 * 58000 = $1450
Total periods (n)= 15 * 2 = 30
r or YTM = 5% * 1/2 = 2.5% or 0.025
The formula to calculate the price of the bonds today is attached.
Bond Price = 1450 * [( 1 - (1+0.025)^-30) / 0.025] + 58000 / (1+0.025)^30
Bond Price = $58000
In 2019, Tim sells Section 1245 property for $28,000 that he had purchased in 2009. Tim has claimed $5,000 in depreciation on the property and originally purchased it for $15,000. How much of the gain is taxable as ordinary income?
Answer:
The taxable amount at an ordinary rate = $5000
Explanation:
The selling price of a property in 2019 is = $28000
The depreciation on the property = $5000
Original purchased price of property = $15000
Adjusted tax = an orginal price – depreciation
Adjusted tax = 15000 – 5000 = $10000
Gain = selling price – adjusted tax
Gain = 28000 – 10000 = $18000
The part of gain ($18000) that is taxable as ordinary rate = $5000
Here, $13000 will be taxed as section 1231 as a gained tax at capital gain rate.
A customer buys 1,000 shares of XYZ at $60 in a margin account, regular way settlement. Two days after the trade, XYZ has dropped to $40. The minimum maintenance margin requirement is:
Answer:
$10,000
Explanation:
A customer buys 1,000 shares of XYZ
The shares are bought at $60 in a margin account
Two days after the price of XYZ drops to $40
The first step is to calculate the current market value
= 1,000 shares×$40
= $40,000
Therefore, the minimum maintenance margin requirement can be calculated as follows
= 25/100 × current market value
= 25/100 × 40,000
= 0.25×40,000
= $10,000
Hence the minimum maintenance margin requirement is $10,000
You just sold 500 shares of Wesley, Inc. stock at a price of $30.92 a share. Last year, you paid $32.04 a share to buy this stock. What is your capital gain on this investment
Answer:
-$560
Explanation:
The computation of capital gain on this investment is shown below:-
Capital gain = (Stock price - Paid shares) × Sold shares
where,
The Stock price is $30.92
Paid shares is $32.04
And, the sold shares is 500 shares
Now placing these values to the above formula
So, the capital gain on this investment is
= ($30.92 - $32.04) × 500
= -$1.12 × 500
= -$560
Suppose taxi fares from Logan Airport to downtown Boston is known to be normally distributed and a sample of seven taxi fares produces a mean fare of $22.31 and a 95% confidence interval of [$20.5051, $24.2091]. Which of the following statements is a valid explanation of the confidence interval.
A) 95% of all taxi fares are between $20.51 and $24.21.
B) We are 95% confident that a randomly selected taxi fare will be between $20.51 and $24.21.
C) The mean amount of a taxi fare is $22.31, 95% of the time.
D) We are 95% confident that the average taxi fare between Logan Airport and downtown Boston will fall between $20.51 and $24.21.
Answer: D) We are 95% confident that the average taxi fare between Logan Airport and downtown Boston will fall between $20.51 and $24.21.
Explanation:
The Confidence interval allows one to speculate between which values the average of a population will be. In a 95% confidence interval, this means that we are 95% certain that the average value of a variable will be between the higher and lower limits set by the interval.
The 95% confidence interval here has an upper limit of $24.2091 and a lower limit of $20.5051 for taxi fares from Logan Airport to downtown Boston. This means that with a 95% certainty, the taxi charge from Logan Airport to downtown Boston will be between these 2 charges so you can expect to pay an amount between them.
TB MC Qu. 7-137 Farris Corporation, which has ... Farris Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $ 144 Units in beginning inventory 0 Units produced 9,350 Units sold 8,950 Units in ending inventory 400 Variable costs per unit: Direct materials $ 26 Direct labor $ 68 Variable manufacturing overhead $ 14 Variable selling and administrative expense $ 18 Fixed costs: Fixed manufacturing overhead $ 140,250 Fixed selling and administrative expense $ 9,600 What is the net operating income (loss) for the month under variable costing
Answer:
Net operating income= $11,250
Explanation:
Giving the following information:
Selling price $144
Units sold 8,950
Variable costs per unit:
Direct materials $26
Direct labor $68
Variable manufacturing overhead $14
Variable selling and administrative expense $18
Total variable cost= $126
Fixed costs:
Fixed manufacturing overhead $140,250
Fixed selling and administrative expense $9,600
Variable costing income statement:
Sales= 8,950*144= 1,288,800
Total variable cost= (126*8,950)= (1,127,700)
Contribution margin= 161,100
Fixed manufacturing overhead= (140,250)
Fixed selling and administrative expense= (9,600)
Net operating income= 11,250
Lead time for one of your fastest-moving products is 24 days. Demand during this period averages 110 units per day. a) What would be an appropriate reorder point? nothing units (enter your response as a whole number). b) How does your answer change if demand during lead time doubles? nothing units (enter your response as a whole number). c) How does your answer change if demand during lead time drops in half? nothing units (enter your response as a whole number).
Answer:
a.) reorder point = 2,640 units
b.) reorder point = 5,280 units (reorder point doubles)
c.) reorder point = 1,320 units (reorder point drops in half)
Explanation:
Reorder point is the inventory level (point) at which action is taken (order placed) to replenish the stocked item. It is calculated as follows:
Reorder point = (Lead time × average daily sales) + safety stock
Lead time = 24 days
average daily sales = 110 units
safety stock = 0 (not given)
a.) reorder point = (Lead time × average daily sales) + safety stock
reorder point = (24 × 110) + 0 = 2,640 units
b.) if demand during lead time doubles:
lead time = 24 days
average daily sales = (110 × 2) = 220
∴ reorder point = 220 × 24 = 5,280 units
Therefore the reorder point doubles
c.) if demand during lead time drops in half:
lead time = 24 days
average daily demand = (110 ÷ 2) = 55 units
∴ reorder point = 24 × 55 = 1,320 units
Therefore the reorder point drops in half.
g Once supply side effects are taken into account, tax cuts for labor income can change i. the supply of labor ii. potential GDP. iii. the growth rate of potential GDP.
Answer:
i, ii
Explanation:
a Tax is a compulsory sum levied by the government on income, goods or services. A tax cut would increase the supply of labour. As a result, the supply of labour would increase. As a result of the increase in labour, there would be an increase in potential GDP
Cadiz Co. uses flexible budgets to control its selling expenses. Monthly sales are expected to be from $300,000 to $360,000. Variable costs and their percentage relationships to sales are: Sales commissions 5% Advertising 4% Traveling 7% Delivery 1% Fixed selling expenses consist of sales salaries $40,000 and depreciation on delivery equipment $10,000. The actual selling expenses incurred in February, 2019, by Cadiz are as follows: Sales commissions $17,200 Advertising 12,000 Traveling 23,700 Delivery 2,400 Fixed selling expenses consist of sales salaries $41,500 and depreciation on delivery equipment $10,000. Prepare a flexible budget performance report, assuming that February sales were $330,000.
Answer:
Cadiz Co.
Flexible Budget Performance Report:
Budget
Flexible Actual Variance
Sales $330,000 $330,000 $0
Variable costs:
Sales commissions 16,500 17,200 700 U
Advertising 13,200 12,000 1,200 F
Traveling 23,100 23,700 600 U
Delivery 3,300 2,400 900 F
Fixed selling expenses:
Sales Salaries 40,000 41,500 1,500 U
Depreciation: delivery 10,000 10,000 0 None
Total 700 U
Explanation:
a) Data:
Budget
Static Actual Variance
Sales $360,000 $330,000 $30,000 U
Variable costs:
Sales commissions 18,500 17,200 1,300 F
Advertising 14,400 12,000 2,400 F
Traveling 25,200 23,700 1,500 F
Delivery 3,600 2,400 1,200 F
Fixed selling expenses:
Sales Salaries 40,000 41,500 1,500 U
Depreciation: delivery 10,000 10,000 0 None
b) Flexible Variable Expenses:
Sales commission = 5% of $330,000 = $16,500
Advertising = 4% of $330,000 = $13,200
Traveling = 7% of $330,000 = $23,100
Delivery = 1% of $330,000 = $3,300
c) Cadiz Co.'s flexible budget changes with respect to the volume of sales. Since some percentages of the sales are given for Sales commission, advertising, traveling, and delivery, these change as the volume of sales changes. This flexible budget forms the basis for the management of Cadiz Co. to judge the actual performance with the budget, which enables control to be instituted.
The FI Corporation’s dividends per share are expected to grow indefinitely by 5% per year. a. If this year’s year-end dividend is $8 and the market capitalization rate is 10% per year, what must the current stock price be according to the DDM? b. If the expected earnings per share are $12, what is the implied value of the ROE on future investment opportunities? c. How much is the market paying per share for growth opportunities (i.e., for an ROE on future investments that exceeds the market capitalization rate)?
Answer:
a)
P₀ = Div₁ / (Re - g)
P₀ = current stock price = ?Div₁ = next dividend = $8Re = equity cost = 10%g = constant growth rate = 5%P₀ = $8 / (10% - 5%) = $8 / 5% = $160
b)
EPS = $12
Return on equity (ROE) = g / b
b = retention rate = 1 - payout ratio = 1 - ($8/$12) = 0.333
g = 5%
ROE = 5% / 0.333 = 15%
c)
Present value of growth opportunity (PVGO) = P₀ - EPS/Re
P₀ = $160EPS = $12Re = 10%PVGO = $160 - $12/10% = $160 - $120 = $40 per share
Carla Vista Enterprises buys back 600,000 shares of its stock from investors at $6.50 a share. Two years later, it reissues this stock for $6.00 a share. The stock reissue would be recorded with a debit to Cash for:
Answer:
The stock reissue would be recorded with a debit to Cash for $3,600,000, a debit to additional Paid in capital $300,000 and Credit to treasury stock $3,900,000
Explanation:
Description Debit$ Credit$
Cash 3,600,000
(600,000 * $6.00)
Additional Paid in capital 300,000
(600,000 x $0.50)
Treasury stock 3,900,000
(600,000 * 6.50)
All About Animals has two product lines: Cat food and Dog food. Contribution margin income statement data for the most recent year follow:
Total Cat Food Dog Food
Sales revenue $435,000 $350,000 $85,000
Variable expenses $61,000 $21,000 $40,000
Contribution margin $374,000 $329,000 $45,000
Fixed expenses $101.000 $49,000 $52,000
Operating income (loss) $273,000 $280,000 $(7,000)
Assuming the Dog food is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for $26,000 per year, how will operating income be affected?
A. Increase $254,000
B. Decrease $19,000
C. Increase $527,000
D. Increase $19,000
Answer:
B. Decrease $19,000
Explanation:
The computation of the amount affect the operating income is shown below
But before that first we need to find the new operating income
Total operating income for Cat Food $280,000
Less: Fixed costs for Dog Food ($52000)
Add: rented per year $26000
New net operating income $254000
Now decrease in net operating income is
= operating income - new operating income
= $273,000 - $254,000
= $19,000