Answer:
Quality Timber Pty Ltd
In this scenario, the performance norms are _below-average____ and cohesiveness is _ high____, so productivity is _low___.
Explanation:
It has been established that group norms influence individual behavior and group performance. Performance Norms refer to how a person should work in a given group and what his or her output should be.
Cohesion, according to wikipedia.com, "can be more specifically defined as the tendency for a group to be in unity while working towards a goal or to satisfy the emotional needs of its members." Employees of the packaging department tend to be enjoying so much group cohesiveness. But, they need to break some habits to focus on achieving corporate goals by increasing their productivity.
According to Paul Krugman of the Organization for Economic Co-operation and Development, "Productivity is commonly defined as a ratio between the output volume and the volume of inputs. In other words, it measures how efficiently production inputs, such as labour and capital, are being used in an economy to produce a given level of output." A rough assessment of the packaging department employees' performance shows low productivity, as they are "consistently behind schedule and take long lunch breaks, and frequently chat with co-workers," instead of concentrating on their jobs.
The inventory was destroyed by fire on December 31. The following data were obtained from the accounting records: Jan. 1 Inventory $ 360,000 Jan. 1 to Dec. 31 Purchases (net) 2,870,000 Sales 4,470,000 Estimated gross profit rate 30% A. Estimate the cost of the inventory destroyed. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. B. In which situations would the gross profit method be useful
Answer:
A. Estimate the cost of the inventory destroyed is $101,000
B. Gross profit method would be useful in estimating the cost of merchandise destroyed by the fire.
Explanation:
Particulars Debit ($) Credit ($)
Beginning merchandise inventory 360,000
Add: Net purchase 2,870,000
Merchandise available for sale 3,230,000
Less: Net sales 4,470,000
Estimated gross profit (30%) (1,341,000)
Estimated cost of merchandise sold 3,129,000
Estimate the cost of the inventory destroyed 101,000
If the government began providing free textbooks to college students who would otherwise have bought their books from the private sector, the government's action would result in:_______
A) a Ricardian dilemma.
B) a direct expenditure offset.
C) an increase in real Gross Domestic Product (GDP).
D) a reduction of the government deficit.
Answer:
Option (B) is the correct answer to this question.
Explanation:
As the government spends more money, businesses within the private sector typically spend less.
Specific budget offsets refer to the private-sector expenditures through which compensation was generated as a result of expansionary budgetary policy decisions becoming implemented. The private sector activities in investment profits that counter government spending behavior by the state. Some income from federal spending in an environment competing with corporate companies must be offset by any government expenditure.
Other options are incorrect because they are not related to the given scenario.
The internal financial statements of Vera Incorporated show that their beaded purses incurred an operating loss in the most recent year. There were 27 comma 000 purses sold in that year. Selected financial information about the purse line follows. Total sales revenue $ 191 comma 000 Variable costs $ 92 comma 000 Contribution margin $ 99 comma 000 Fixed costs $ 101 comma 000 Net operating loss $( 2 comma 000 ) If the line of purses were to be discontinued, the company would avoid $ 21 comma 000 in fixed costs per year. If Vera Incorporated were to discontinue the line of purses, the change in annual operating income would be
Answer:
Vera Incorporated
Change in annual operating income from discontinued business:
Annual Operating Income would reduce by $78,000.
Explanation:
a) Calculation of the Net Income Lost:
Loss of Contribution ($99,000)
Avoidable fixed cost $21,000
Reduction of Income ($78,000)
b) The line of purses contributes $80,000 towards the company's fixed cost. Therefore, discontinuing this line of business would lead to the loss of this steam of income. The amount of reduced operating income will be $78,000 ($80,000 - 2,000).
A supermarket displays featured items at the ends of aisles. These displays
are called
Answer:
These are the options for the question:
A. exteriors
B. endcaps
C. merchandisers
D. props.
And this is the correct answer:
B. endcaps
Explanation:
The small billboards that display items at the end of aisles are called endcaps.
They are usually used to display items that are on discount. Other times, they are simply used to sign the category of products that can be found in the respective aisle.
Answer:
endcaps
Explanation:
A government worker surveys a number of households and comes up with the following information: there were a total of 90 people in the households, 10 of the people were children under 16, 10 of the people were retired but still capable of working, 35 people had full-time jobs, 5 had part-time jobs, 5 were stay-at-home parents, 5 were full-time students over the age of 16, 5 were disabled people who could not work, 10 people had no job but were looking for jobs, and there were 5 people who wanted a job but were not looking for a job.
According to the information in the survey, the unemployment rate is:_______
Answer:
27%
Explanation:
Number of Persons in the Household = 90
Neither Employed Nor Unemployed
Children Under 16 =10Disabled = 5Retired =10Stay at Home Parents = 5Full Time Students over the age of 16= 5Total =35
Unemployed
10 people had no job but were looking for jobs5 people who wanted a job but were not looking for a job.Total =15Employed
35 people had full-time jobs5 had part-time jobsTotal =35+5=40
Total Labour Force = Unemployed +Employed = 40+15 =55
Unemployment Rate = (Unemployed People / Total Labor) x 100
=15/55 X 100
=27%
According to the information in the survey, the unemployment rate is: 27%
Kansas Company acquired a building valued at $151,000 for property tax purposes in exchange for 12,000 shares of its $3 par common stock. The stock is widely traded and selling for $18 per share. At what amount should the building be recorded by Kansas Company
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
ABC Appliance offers a warranty requiring an annual fee. The warranty may be purchased at the time of sale or at any time within the first year after the appliance was purchased. The warranty fee after the date of purchase is twice the time-of-purchase fee. When asked why the fee was higher after the date of purchase, ABC's president said, "Buying a warranty is voluntary. We've noted that those who buy the warranty after the purchase date have a greater need for service." Charging the same rate or a lower rate after the date of purchase would expose ABC to what problem that also impacts private insurers?
Answer: adverse selection
Explanation:
Adverse selection is a situation whereby the sellers possesses information that the buyers do not have. It may also be the other way round whereby the buyers have information which the sellers don't have regarding the quality of a product.
There is information failure between both parties; typically, it's usually the sellers who has more information. Therefore, base on the scenario above, charging same rate or lower rate after the date of the purchase would expose ABC to adverse selection problems.
Monson sells 29 units for $50 each on December 15. Monson uses a perpetual inventory system. Determine the costs assigned to ending inventory when costs are assigned based on the weighted average method. (Round your per unit costs to 2 decimal places.)
The complete question:
Trey Monson starts a merchandising business on December 1 and enters into the following three inventory purchases. Also, on December 15, Monson sells 29 units for $50 each.
Purchases on December 7 20 units at $20.00 each
Purchases on December 14 34 units at $30.00 each
Purchases on December 21 30 units at $36.00 each
Monson uses a perpetual inventory system. Determine the costs assigned to ending inventory when costs are assigned based on the weighted average method. (Round your per-unit costs to 2 decimal places.)
Answer:
Trey MonsonDetermination of the cost of Ending Inventory based on the Weighted Average Method:Date Quantity Unit Cost Total Cost
Dec. 7 Purchase 20 $20 $400
Dec. 14 Purchase 34 30 1,020
Total 54 26.30 $1,420 .20
Dec. 15 Sale -29 26.30 -762.70
Dec 15 Balance 25 26.30 $657.50
Dec. 21 Purchase 30 36 1,080
Dec. 21 Available 55 31.59 $1,737.50
Dec. 31 Ending Inventory 55 $31.59 $1,737.50
Explanation:
To use the weighted average method, we divide the cost of goods available for sale by the number of units available for sale, which yields the weighted-average cost per unit. The cost of goods available for sale is the sum of beginning inventory and net purchases.
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
Kingbird Company leased equipment from Costner Company, beginning on December 31, 2019. The lease term is 4 years and requires equal rental payments of $32,230 at the beginning of each year of the lease, starting on the commencement date (December 31, 2019). The equipment has a fair value at the commencement date of the lease of $120,000, an estimated useful life of 4 years, and no estimated residual value. The appropriate interest rate is 5%. Prepare Kingbird's 2019 and 2020 journal entries, assuming Kingbird depreciates similar equipment it owns on a straight-line basis.
Date Account Titles and Explanation Debit Credit
Answer:
Kingbird's 2019 and 2020 journal entries, assuming Kingbird depreciates similar equipment it owns on a straight-line basis is prepared in the table below.
_____________________________
Date: 12/31/2019
Account: Right of use asset. Debit: $120,000
Account: Lease liability. Credit: $120,000
(To record lease liability)
_____________________________
Date: 12/31/2019
Account: Lease liability. Debit: $32,230
Account: Cash. Credit: $32,320
(To record lease payment)
_____________________________
Date: 12/31/2020
Account: Interest Expense ($120,000-$32,230)*5%. Debit: $4,389
Account: Lease Liability (Plug in) ($32,320 - $4,389). Debit: $27,841
Account: Cash. Credit: $32,320
______________________________
Date: 12/31/2020
Account: Amortization Expense. Debit: $30,000
Account: Right of use asset. Credit: $30,000
(To record amortization) $120,000/4 years
_____________________________
Three identical units of merchandise were purchased during July, as follows: Date Product Basic H Units Cost July 3 Purchase 1 $35 10 Purchase 1 36 24 Purchase 1 37 Total 3 $108 Average cost per unit $36 Assume one unit sells on July 28 for $45. Determine the gross profit, cost of merchandise sold, and ending inventory on July 31 using the (a) first-in, first-out, (b) last-in, first-out, and (c) average cost flow methods.
Answer and Explanation:
The computation is shown below:
Particulars Gross profit Cost of merchandise sold Ending inventory
a. FIFO $10 $35 $73
($45 - $35) ($108 - $35)
It takes the first cost per unit
b. LIFO $8 $37 $71
($45 - $37) ($108 - $37)
It takes the last cost per unit
c. Average cost $9 $36 $72
($45 - $36) ($45 - $36)
It takes the average cost per unit
Last winter, your service fraternity volunteered at an elementary school in a lower income neighborhood in your city. You noticed many of the children did not have hats or mittens to wear in the cold weather. You decided to start a business that will provide hats and mittens to children in need. You quickly realize you will need help in this venture and set out to find a cofounder. Which of the following characteristics and traits would you like to see in a cofounder?
A) Persistent.
B) Economically motivated.
C) Hard working.
D) Creative.
Answer:
A) Persistent.
C) Hard-working.
D) Creative.
Explanation:
In the given situation, it is mentioned that an individual wants to start a business that deals in hats and mittens so the needs of the children could be fulfilled. But for that, we need to find out a cofounder that should be have following traits and characteristics
a. Persistent: The person should be trying his best o achieve it rather than escape from it
b. he should be hardworking so that every child's need could be fulfillled
c. He should be creative or we can say who bring innovative ideas to the firm so that the people get attracted to the company products so that the sale of the firm could rise up
g A particular brand of toothpaste costs 4 British pounds in London. The nominal exchange rate is .80 and the real exchange rate is about 1.16. These numbers imply that the U.S. price of the same toothpaste is about a. $5.79 b. $4.29 c. $3.70 d. $2.76
Answer:
The answer is option (d)$2.76
Explanation:
Solution
Given that:
The cost of a particular brand of toothpaste = 4 pounds
The exchange rate = .80
Real exchange rate = 1.16
Now
Real exchange rate is given as:
R = real exchange rate
e = nominal exchange rate
PF = foreign price
P = domestic price
Suppose we say that U.S. is a domestic country and British is a foreign country we have the following formula below:
R = e(PF/P)
R = 1.16
e = 0.80
PF = 4
Thus
R = e(PF/P)
1.16 = 0.80(4/P)
P = 3.2/1.16
= 2.7586207
= $2.76
Therefore, The U.S rice of the same toothpaste is about $2.76
Hall Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below:
Beginning work in process inventory:
Units in beginning work in process inventory 1,000
Materials costs $7,100
Conversion costs $6,400
Percent complete with respect to materials 65%
Percent complete with respect to conversion 30%
Units started into production during the month 13,600
Units transferred to the next department during the month 12,300
Materials costs added during the month $137,224
Conversion costs added during the month $215,050
Ending work in process inventory:
Units in ending work in process inventory 2,300
Percent complete with respect to materials 60%
Percent complete with respect to conversion 25%
The total cost transferred from the first processing department to the next processing department during the month is closest to:______
a. $356,256
b. $380,435
c. $341,325
d. $349,856
Answer:
c. $341,325
Explanation:
First determine the Equivalent Units of Production
Materials
Units completed and transferred (12,300 × 100%) = 12,300
Units in Ending Work In Process Inventory ( 2,300 ×60%) = 1,380
Equivalent Units of Production = 13,680
Conversion
Units completed and transferred (12,300 × 100%) = 12,300
Units in Ending Work In Process Inventory ( 2,300 ×25%) = 575
Equivalent Units of Production = 12,875
Next Determine the Total Cost Incurred during the period
Materials
Cost in Units of Opening Work In Process = $7,100
Incurred during the period = $137,224
Total Cost = $144,324
Conversion
Cost in Units of Opening Work In Process = $6,400
Incurred during the period = $215,050
Total Cost = $221,450
Then Determine the Total Cost per Equivalent unit of Production
Cost per Equivalent unit = Total Cost / Total Equivalent Units
Materials = $144,324 / 13,680
= $10.54
Conversion = $221,450 / 12,875
= $17.20
Total = $10.54 + $17.20 = $27.74
Finally calculate total cost transferred from the first processing department to the next processing department
total cost transferred = Units transferred × Total cost per equivalent unit of production.
= 12,300 × $27.74
= $341,202
Conclusion :
The total cost transferred from the first processing department to the next processing department during the month is closest to $341,325
Closet Links Clothing Company provided the following manufacturing costs for the month of June. Direct labor cost $ 132 comma 000 Direct materials cost 83 comma 000 Equipment depreciation (straightminusline) 20 comma 000 Factory insurance 18 comma 000 Factory manager's salary 10 comma 000 Janitor's salary 3 comma 000 Packaging costs 19 comma 800 Property taxes 16 comma 000 From the above information, calculate Closet Link's total variable costs.
Answer:
Closet Link's total variable costs is $234,800
Explanation:
Given:
Direct labor cost = $ 132,000
Direct materials cost = $83,000
Equipment depreciation (straight-line) = $20,000
Factory insurance = $18,000
Factory manager's salary = $10,000
Janitor's salary = $3,000
Packaging costs = $19,800
Property taxes = $16,000
Total variable costs = Direct materials cost + Direct labor cost + Packaging costs
= $83,000 + $132,000 + $19,800 = $234,800
Suppose a firm’s sales for the year = $1200 and its average receivables balance is $200. What is the firm’s Accounts Receivable Turnover Ratio, expressed in days (not times per year)?
Answer:
61 days
Explanation:
Accounts receivable turn over ratio is an efficiency ratio that is used to calculate how efficiently a company is receiving its sales on account payments . This measures the number of times in a period that a company collects its average accounts receivable.
When expressed in days , it reveals the number of days it takes a sales on account customer to make payment
Workings
Annual sales = 1200
Average receivable balance = 200
Receivable turnover ratio = Annual sales /average receivable balance
1200/ 200 = 6
Account receivable turnover ratio in days = 365/receivable turnover ration
365/6 = 60.8 days = approximately 61 days
This shows that it takes a customer approximately 61 days to pay their purchase on account which
Conroy Copper Mines has $940 million in total liabilities and $620 million in shareholder's equity. It discloses operating lease commitments over the next five years with a present value of $120 million. If the lease commitments are treated as debt, the debt-to-total-capital ratio is closest to:
Answer:
0.63
Explanation:
Total debt = 940 + 120 =1060
Total sharesholder's equity = $620 million
We can find the debt to total capital ratio by dividing debt by total capital
Debt-to-total-capital ratio = Debt / Total capital = 1060 / (1060+620)
Debt-to-total-capital ratio = 0.63
CMS Corporation's balance sheet as of today is as follows: Long-term debt (bonds, at par) $10,000,000 Preferred stock 2,000,000 Common stock ($10 par) 10,000,000 Retained earnings 4,000,000 Total debt and equity $26,000,000 The bonds have a 4.0% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt
Answer:
$5,412,000
Explanation:
Given:
Long-term debt (bonds, at par):$10,000,000
Preferred stock :2,000,000
Common stock ($10 par): 10,000,000
Retained earnings: 4,000,000
Total debt and equity :$26,000,000
Coupon rate = 4%(semi annually)
Par value = $1000
YTM = 12%
Required:
Find the current market value of the firm's debt.
Find the bond price:
Bond price [tex] = (C * (\frac{1 - (\frac{1}{(1+i)^n})}{i}) + (\frac{m}{(1+i)^n}) [/tex]
[tex] = (C * (\frac{1 - (\frac{1}{(1+0.06)^2^0})}{0.06}) + (\frac{1000}{(1+0.06)^2^0}) [/tex]
[tex] = 541.20 [/tex]
Bond price = $541.20
Find number of bonds:
Number of bonds [tex] = \frac{10,000,000}{1,000} = 10,000[/tex]
Now, to find the current market value of the firm's debt, use:
Current market value of debt = number of bonds × bond price
= 10,000 × 541.20
= $5,412,000
Current market value of the firm's debt = $5,412,000
Cullumber Company purchased machinery on January 1 at a list price of $320000, with credit terms 4/10, n/30. Payment was made within the discount period. Cullumber paid $21750 sales tax on the machinery and paid installation charges of $5900. Prior to installation, Cullumber paid $11200 to pour a concrete slab on which to place the machinery. What is the total cost of the new machinery
Answer:
the total cost of the new machinery is $302,550
Explanation:
Cost of a Property Plant and Equipment (PPE) item includes Purchase price of asset and other costs directly incurred in bringing the asset in the location and condition required by management for operation excluding taxes that can be claimed.
Thus the Cost of this Machinery Can be Calculated as :
List Price $320,000
Less Cash Discount at 4% ($12,800)
Purchase Price $307,200
Less Sales Tax ($21,750)
$285,450
Add installation charges $5,900
Add Cost of concrete slab $11,200
Total Cost of Machinery $302,550
Using both the supply and demand for bonds and liquidity preference framework, show how interest rate are affected when the riskiness of bonds rises. Are the results the same in the two frame works
Answer:
Yes, the results are the same in both frameworks. Please see below for explanation.
Explanation:
With regards to the bond supply and demand framework, people will look to buy more bonds since they are more wealthy now. Hence, the supply of bonds will increase. The supply curve and the demand curve will both move to the right, with the former shifting more than the latter. The equilibrium interest rate will increase.
With regards to the liquidity preference framework, once the economy experiences a positive shift, there will also be an increase in the demand for money. People will make an increased number of transactions as well and hence, the demand curve will move towards the right. The equilibrium interest rate will rise too.
You come across different kinds businesses every day. The following sentences describes some businesses. Using the description of each business, classify it as a sole proprietorship, a partnership, a corporation, or a Limited liability company/limited liability partnership.
a. Anthony started a tutoring website. After a few months, a publishing company filed a lawsuit against his company for copyright infringement. Anthony had to shut down his business and lost all his personal assets in the process.
b. Willie started a business, based in a different state, with his unde. Due to the business's underperformance, they had to dose the business. Willie, however, ended up losing his house due to a litigation claim.
c. James, the CEO of a beverage company, is required to certify the accuracy of information provided in the company's quarterly reports.
Answer:
The correct answers are:
A - Sole propietorship
B - Partnership
C - Corporation
Explanation:
A) The name of "Sole Propietorship" is refered to a type of enterprise whose main characteristics reside in the fact that the ownership belongs to one person only and that person receives all the profits and is also fully unlimited liable for the debts of the business. Therefore that in that case Anthony started a sole propietorship
B) The name of "Partnership" is refered to a type of enterprise that is characterized for the fact of being a business that is operated and managed by two or more parties that have made a formal arregenment in order to work together and both obtain profits equally and also share the responsibility of the debts and its liability together equally. Therefore that in that case Willie has started a partnership.
C) The name of "Corporation" is refered to a type of enterprise that basically is characterized by the fact of being a different legal person that itw owners and therefore that the ones that own the business do not take unlimited responsibility for the actions of the company and its debts. The most common in this type of companies is that the owners hire many employees, among them, CEOs.
Which of the following is not descriptive of external environmental scanning? used as a tool for corporations to avoid strategic surprise used to monitor, evaluate, and disseminate information relevant to the organizational development of strategy used to identify major stockholders used to determine a firm's competitive advantage used as a tool to ensure a corporation's long-term health
Answer:
used to identify major stockholders
Explanation:
Environmental scanning is a management strategy that focuses on systematically acquiring informations about occasions, trends, events or patterns through surveys and analysis of these information in an organisation's external and internal environment. The informations acquired through environmental scanning is then used by the executive management in strategically planning the organisation's future and exploitation of available opportunities for the success of the organization.
The internal environmental scanning offers an organization strength and weakness while the external environmental scanning provides information about opportunities and threats.
Generally, the external environmental scanning gives an overview of the opportunities in the market as well as potential threats to an organization.
Hence, the following are descriptive of an external environmental scanning;
1. Used as a tool for corporations to avoid strategic surprise.
2. Used to monitor, evaluate, and disseminate information relevant to the organizational development of strategy.
3. Used to determine a firm's competitive advantage.
4. Used as a tool to ensure a corporation's long-term health.
Cherokee Spring Mill produces four varieties of corn meal based on how finely the corn is ground. The mill makes long production runs of high volume. Cherokee Spring Mill uses a(n) _____ process.
Answer:
The correct answer is "continuous"
Explanation:
A continuous process is also called continuous production. In a continuous process, materials being processed for example the four varieties of cornmeal used in the question above are undergoing continuous chemical reactions or physical processing which involves mechanical treatment to ensure a final product without any break in time, substance.
A continuous process is a process where the materials to be used are also processed. Here, production is uninterrupted.
A continuous process has advantages such as, it is cheaper making use of concurrent running of production. It is also a simple process with the aim of minimizing wastage. One of the disadvantages is the maintenance cost of the equipment used.
g Suppose the banking system has $100,000 in outstanding deposits and actual reserves of $50,000. Using the simple money multiplier formula (i.e., individuals hold no cash), if the required reserve ratio is 40%, the maximum possible amount that the banking system can now add to the money supply is:Group of answer choices$15,000$20,000$25,000$40,000
Answer: $25,000
Explanation:
The Money Multiplier allows us to calculate how much money banks can create in an economic given a certain reserve ratio.
The formula is;
Money Multiplier = 1 /reserve ratio
= 1/ 0.4
= 2.5
The reserve ratio is 40% which means the bank should be holding 40% of deposits as reserves.
= 100,000 * 40%
= $40,000
Yet they are holding $50,000. They are holding $10,000 more than required. Should they release that $10,000 then they will create;
= 10,000 * money Multiplier
= 10,000 * 2.5
= $25,000
Platen purchased inventory on August 17 and received an invoice with a list price amount of $5,900 and payment terms of 4/10, n/30. Platen uses the net method to record purchases. For what amount should Platen record the purchase
Answer:
$5,664
Explanation:
Calculation of the amount that Platen should record the purchase.
Using this formula
List price -(Percentage of payment term × list price)
Let plug in the formula
$5,900 -(4%×5,900 )
=$5,900-$236
=$5,664
Therefore Platen should record the purchase on August 17 as a:
Debit to Purchases (periodic system) and a Credit to Accounts Payable for $5,664
Therefore the amount that Platen should record the purchase will be $5,664
Which of the following statements is most correct? a. All else equal, if a bond’s yield to maturity increases, its price will fall. b. All else equal, if a bond is down graded by the rating agencies its yield to maturity will increase. c. If a firm has two bond issues that are identical except one is subordinate to the other, the subordinate issue will have a higher yield to maturity than the other issue. d. A B and C are correct. e. None of the above are correct
Answer: d. A B and C are correct.
Explanation:
A bond's price and it's Yield to Maturity (YTM) are inversely related such that when Yield to Maturity rises, the price of the bond falls. This is a because a higher YTM signifies that the bond is riskier so it will compensate by being cheaper.
If a bond is downgraded by Ratings agencies then it means that the bond is now riskier. As it is riskier investors will charge more interest for taking on the risk. The interest is the YTM and so it rises.
A Subordinate bond means that if the company were to go into bankruptcy for instance, the Subordinate bond would only be paid for after the bond that is not Subordinated. This means that there is a chance that Subordinate bond holders will not get anything from the liquidation of the company. Investors will therefore charge a higher YTM to cater for the risk that this happens.
Suppose that you are the manager and sole owner of a highly leveraged company. All the debt will mature in one year. If at that time the value of the company is greater than the face value of the debt, you will pay off the debt. If the value of the company is less than the face value of the debt, you will declare bankruptcy and the debt holders will own the company.
a) Express your position as an option on the value of the company.
b) Express the position of the debt holders in terms of options on the value of the company.
c) What can you do to increase the value of your position?
Answer:
From my position as an option on the value of the company, the stance or view of the owner is a call option on value of company strike face of debt
Secondly, debt holders have systematically sold a put option value of company strike at face of debt.
Now, to be able to increase or raise the value call option it includes he following, In making sure to raise the value of the company, To boost the unpredictability of the company.
Explanation:
Solution
(a) The position of the owner is a call option on value of company strike at face of debt
(b)The debt holders have efficiently sold a put option on value of company strike at face of debt.
(c) To be able to increase the value option call the following are listed below:
Endeavor or make sure to raise the value of the companyBoost the volatility of the company.QS 9-13 Note receivable interest and maturity LO P4 On December 1, Daw Co. accepts a $12,000, 45-day, 7% note from a customer. (1) Prepare the year-end adjusting entry to record accrued interest revenue on December 31. (2) Prepare the entry required on the note's maturity date assuming it is honored. (Use 360 days a year.)
Answer and Explanation:
The journal entries are shown below;
a. Interest receivable Dr ($12,000 × 7% × 30 days ÷ 360 days) $70
To Interest revenue $70
(Being the interest revenue is recorded)
For recording this we debited the interest receivable as it increased the asset and credited the interest revenue as it also increased the revenue
b. Cash Dr $12,105
To interest receivable $70
To interest revenue ($12,000 × 7% × 15 days ÷ 360 days) $35
To Note receivable $12,000
(being cash received is recorded)
For recording this we debited the cash as it increased the assets and credited the interest receivable, interest revenue and note receivable as it decreased the asset and increased the revenue
Deborah Lewis, general manager of the Northwest Division of Berkshire Co., has significant authority over pricing decisions as well as programs that involve cost reduction/control. The data that follow relate to upcoming divisional operations:
Average invested capital: $15,000,000
Annual total fixed costs: $3,900,000
Variable cost per unit: $80
Number of units expected to be sold: 120,000
Assume the unit selling price is $132 and that Berkshire has a 16% imputed interest charge.
Top management will promote Deborah to corporate headquarters if her division can generate $200,000 of residual income (RI). If Deborah desires to move to corporate, what adjustment must the division do to the amount of annual total fixed costs?
Answer:
The revised fixed costs = $3,640,000
Explanation:
Calculation of Residual Income:
Residual Income = Net income - (Invested capital * Minimum required rate of return)
Net Income = Sales - Variable costs - Fixed costs
Net Income = (120,000*132) - (120,000*80) - 3,900,000
Net Income = $2,340,000
Invested capital = $15,000,000
Minimum required rate of return = 16%
Therefore, residual income = $2,340,000 - ($15,000,000 * 16%)
= -$60,000
Hence, adjustment to be made to the amount of fixed costs so that residual income becomes $200,000 = $200,000+$60,000 = $260,000
Therefore, revised fixed costs = $3,900,000 - $260,000 = $3,640,000
Big Canyon Enterprises has bonds on the market making annual payments, with 17 years to maturity, a par value of $1,000, and a price of $969. At this price, the bonds yield 8.1 percent. What must the coupon rate be on the bonds?
Answer:
7.8%
Explanation:
For computing the coupon rate first we have to determine the PMT by using the PMT formula which is shown in the attachment below:
Given that,
Present value = $969
Future value or Face value = $1,000
RATE =8.1%
NPER = 17 years
The formula is shown below:
= PMT(RATE;NPER;-PV;FV;type)
The present value come in negative
So, after applying the above formula, the PMT is $77.58
Now the coupon rate is
= $77.58 ÷ $1,000
= 7.8%