Answer:
$67,150
Explanation:
The computation of cost of goods manufactured for this period is shown below:-
Cost of goods sold = Beginning finished goods + Cost of goods manufactured - Ending finished goods
$71,400 = $84,000 + Cost of goods manufactured - $79,750
$71,400 = $4,250 + Cost of goods manufactured
Cost of goods manufactured = $71,400 - $4,250
= $67,150
Therefore for computing the cost of goods manufactured we simply applied the above formula.
7. Pompeii, Inc., has sales of $48,500, costs of $22,400, depreciation expense of $2,100, and interest expense of $1,850. If the tax rate is 25 percent, what is the operating cash flow, or OCF
Answer:
OCF $20,562
Explanation:
Computation of Pompeii, Inc., operating cash flow
Using this formula
OCF = EBIT + Depreciation - Taxes
Where:
EBIT 24,000
Depreciation Expense 2,100
Taxes 5,538
Let plug in the formula
OCF = $24,000 + 2,100 - 5,538
OCF = $20,562
Therefore the Operating Cash flow is $20,562
Calculation for EBIT
Sales $48,500 - Costs $22,400 -Depreciation expense $2,100 = 24,000
Calculation for taxes
EBIT -Interest
24,000-1,850
=22,150
25%×22,150
=5,538
You are considering purchasing a stock that currently sells for $50. The expected price of the stock in a year is $45, and during the coming year a $2 dividend is expected to be paid. The risk-free rate is 5% and the market return is 10%. The stock has a beta of 0.85. What is the holding period return of the stock
Answer:
The holding period return of the stock is - 6 % or - 6.0%
Explanation:
Solution
Given that:
You are thinking of purchasing a stock that currently sells for= $50
The expected price of the stock =$45
Dividend expected to be paid =$2
Risk free rate = 5%
Market return = 10%
Stock (beta) = 0.85
We will now find the holding period return of the stock which is given below:
The formula for calculating the holding period return of a stock is given as,
= The Expected price in a year + Dividend earned during the year – Purchase Price / Purchase Price
We recall that:
The Purchase Price = $ 50
Expected price in a year = $ 45
Dividend earned during the year = $ 2
Now,
By Applying the above values in the formula we have the holding period return of the stock as :
= [45 + 2 – 50] / 50
= - 3 / 50
= - 0.0600 = - 6.00 %
= - 6.0 % ( when rounded off to one decimal place )
Therefore, the Holding period return of the stock is - 6 % or - 6.0%
3. Problems and Applications Q3 This chapter discusses companies that are oligopolists in the market for the goods they sell. Many of the same ideas apply to companies that are oligopolists in the market for the inputs they buy. If sellers who are oligopolists try to increase the price of goods they sell, the goal of buyers who are oligopolists is to try to decrease the prices of goods they buy. Major league baseball team owners have an oligopoly in the market for baseball players. The owners' goal is to keep players' salaries . True or False: This goal is difficult to achieve because teams have different budgets. True False Baseball players went on strike in 1994 because they would not accept the salary cap that the owners wanted to impose. True or False: The owners felt the need for a salary cap to help prevent any team from cheating. True False
Answer: 1. Low
2. False
3. False
Explanation:
1. The owners' goal is to keep players' salaries Low.
As the text says, Oligopolist buyers would try to reduce the price of goods that they buy. In the MLB world, the teams are the buyers and the players are the sellers with the salaries being their price. Team owners will therefore try to keep salaries at a low level so that they make more profit.
2. False
This goal is not difficult to achieve due to budget differences but rather because different payers offer varying contributions to the team's game. Some players push the team forward more and hence are able to demand their fair share. This makes it difficult to cap their salaries.
3. False
They only tried to impose the salary cap so that they could reduce the cost of running the basketball teams and not to prevent teams from cheating. The salaries they were paying were high enough that they felt they weren't making enough profit. So they conspired to impose a salary cap so that they could make more profit.
Consider the demand for Russian rublesRussian rubles in exchange for British poundsBritish pounds. Which of the following will not increase the foreign currency demand for the rubleruble? A. Currency traders who believe that the value of the rubleruble in the future will be less than its value today. B. Foreign firms and consumers who want to buy goods and services from RussiaRussia. C. Currency traders who believe that the value of the rubleruble in the future will be greater than its value today.
Answer: A. Currency traders who believe that the value of the ruble in the future will be less than its value today.
Explanation:
In the foreign exchange market, currencies are traded at different prices. From the options given in the question, the correct option is option A (Currency traders who believe that the value of the rubleruble in the future will be less than its value today).
When the currency traders believe that the value of the rubel is going to depreciate in the future, they will start selling the rubels and this will lead to a decrease in the demand for it because it will depreciate. Here, the supply will increase but the demand will reduce.
With reference to the Strategy Highlight 8.2, the Tata Group's corporate strategy is attempting to:______
a. pursue a focused differentiation strategy over a focused cost-leadership strategy.
b. integrate different strategic positions, pursued by different strategic business units.
c. depend on a single product market to generate most of its revenues.
d. move from unrelated diversification to related-constrained diversification.
Answer: integrate different strategic positions, pursued by different strategic business units
Explanation:
Tata group is a global enterprise that is made up of about 30 companies and operates in more than hundred countries. There are several companies under Tata such as Tata motors, Tata steels, Tata Communications, Tata consumer products, Tata chemicals etc.
Tata Group's corporate strategy is attempting to integrate different strategic positions, pursued by different strategic business units. Even though the companies are all under the general body of Tata Group, each business unit bears the profit and loss it makes.
An investment adviser has placed a block trade for 500,000 shares of ABCD stock. The trade is filled in 5 separate lots of 100,000 shares each, at prices ranging from $13.56 to $14.04 per share. The adviser must allocate the shares to customers on a:
Answer: Pro-rata basis across all customers participating in the block.
Explanation:
Pro-rata basis in Business finance means that the resource being distributed which in this case is shares should be distributed according to the proportion of shares applied for by customers.
Essentially, the adviser should allocate a proportion of shares to the corresponding proportion of application requests by customers. This is usually used when shares are oversubscribed or differently priced as in the above.
For instance, If there were 3 customers and Customer 1 applied for 50,000 shares, Customer 2 applied for 30,000 and Customer 3 applied for 20,000. If there were only 10,000 shares available then using the Pro-rata basis, Customer 1 would get 5,000 shares, Customer 2 would get 3,000 and Customer 3 would get 2,000.
An athlete signs a five-year endorsement deal with a prominent sponsor. Under this deal, the athlete will receive $5,000 each year for the first three years and $6,500 each year for the final two years. What is the present value of the total deal if the payments are discounted 6%
Answer:
PV= $23,370.85
Explanation:
Giving the following information:
Cash flow (1-3)= $5,000
Cash flow (4-5)= $6,500
Discount rate= 6%
To calculate the present value, first, we need to calculate the final value:
FV= {A*[(1+i)^n-1]}/i
A= annual cash flow
Year 1-3:
FV= {5,000*[(1.06^3) - 1] / 0.06
FV= 15,918
Year 4-5:
FV= {6,500*[(1.06^2) - 1]} / 0.06
FV= 13,390
Now, the present value:
PV= FV/(1+i)^n
PV= 15,918/(1.06^3)= 13,365.06
PV= 13,390/(1.06^5)= 10,005.79
PV= $23,370.85
ACNielsen conducts weekly surveys of television viewing throughout the United States. The ACNielsen statistical ratings indicate the size of the viewing audience for each major network television program. Rankings of the television programs and of the viewing audience market shares for each network are published each week.
A. What is the ACNielsen organization attempting to measure?
B. What is the population?
C. Why would a sample be used for this situation?
D. What kinds of decisions or actions are based on the ACNielsen studies?
Answer: The answers are given below
Explanation:
A. What is the ACNielsen organization attempting to measure?
ACNielsen organization attempting to measure the Television Rating Point of the major television network. The TRP helps us to know the programmes that the viewers watch the most.
B. What is the population?
The population will have to be the viewers who watch the programmes and the television networks in the United States.
C. Why would a sample be used for this situation?
Sampling is when few people are selected from a larger population in order to carry out an experiment. In this situation, sampling is required because gathering data from the larger population will be time consuming and costly.
D. What kinds of decisions or actions are based on the ACNielsen studies?
A new strategy can be devised by the television networks of they know the number of people or the particular age group who normally watches the programmes, then they can tune their strategy towards that direction.
Excel Electronics Excel Electronics is nearing completion of a three-year project to develop and produce a new pocket Phone-Fax-Internet device (PFI). The PFI is no larger than a cigarette pack but has all the power and features of full sized devices. The assembly line and all the production facilities will be completed in six months and the first units will begin production in seven months. The plant manager believes it is time to begin winding the project down. He has three methods in mind for terminating the project: extinction, addition, and integration, but he is not sure which method would be best. Question: Which of the three methods would you recommend, and why
Answer:
Excel ElectronicsRecommended Method for Terminating the PFI Project:I recommend addition. The way the PFI project is described shows that it is a major success. Production facilities are still being built and units of the PFI will start rolling off the production line in seven months' time. In such a situation, the PFI should naturally become a new division. It should become part of the organization and all required resources should be transferred to it to enable the division to take off smoothly and become self-sustaining and profit-generating.
Explanation:
There are four ways to terminate a project. They include:
a) Termination by Extinction: Here the project is murdered naturally. Budget support is withheld without actually calling the project off in its entirety.
b) Termination by Addition: The project becomes a new division of the organization with more resources and assigned responsibility.
c) Termination by Integration: Resources of the project are distributed to all parts of the organization.
d) Termination by Starvation: The project in this situation suffers kwashiorkor. It is starved to death by being deprived of resources. The budget for the project is withdrawn.
The chosen method depends on the project outcome, outlook, and opportunities. For example, the development of an advanced technology in manufacturing can render a formerly shining project commercially unprofitable. In such a situation, the best management decision may be to terminate it by extinction.
Essentially, the following may be reasons to terminate a project:
#1: Project outruns estimated cost and looks unlikely to recover investments.
#2: Competitors may be doing a better job in the project line.
#3: Failure is witness during the testing process.
#4: Company's strategic plan (goal) will not be met with continuation.
#5: Another priority project crops up during the process.
Testbank Multiple Choice Question 96 On June 30, 2021, when Bonita Industries's stock was selling at $66 per share, its capital accounts were as follows: Capital stock (par value $50; 58000 shares issued) $2900000 Premium on capital stock 580000 Retained earnings 4150000 If a 100% stock dividend were declared and distributed, capital stock would be $3480000. $5800000. $7656000. $2900000.
Answer:
$5800000
Explanation:
Stock dividend refers to a form of dividend payment whereby additional stock shares of the company are distributed to shareholders instead of paying the shareholders in cash.
Stock dividends are also known as stock spills and it increases the common stock par value by its declared percentage.
Since the a 100% stock dividend were declared and distributed, this would increase the common stock as follows:
Increase in common stock = $2,900,000 * 100% = $2,900,000.
Therefore, the new common stock would be:
New common stock = Existing common stock + Increase in common stock = $2,900,000 + $2,900,000 = $5,800,000.
Therefore, If a 100% stock dividend were declared and distributed, capital stock would be $5,800,000.
Cantlivia is a small and poor nation, but its current prime minister has a desire to create more wealth for her citizens. The prime minister has received recommendations from several of her advisors. Which of the following recommendations is likely to create the most wealth for Cantilever?
a. Acquire more land by invading a nelghboring country that is even poorer and weak.
b. Use foreign aid from other nations to purchase more tools and machinery.
c. Establish a business environment that promotes and rewards entrepreneurship.
d. Establish barriers to trede to protect Cantlivia businesses from foreign competition.
Answer: Establish a business environment that promotes and rewards entrepreneurship
Explanation:
Entrepreneurship simply means setting up a business or an enterprise in order to make profit and also create wealth.
From the question, we are informed that Cantlivia is a small and poor nation, but its current prime minister has a desire to create more wealth for her citizens. The best recommendation will be for the prime minister to establish a business environment whereby entrepreneurship is promoted and rewarded.
When this is done, wealth will be created among the people in the nation as most of them will have their own businesses. This will also lead to the economic growth of the country as there will be an increase in it's gross domestic product. Also, more businesses will lead to creation of more jobs.
You are hired by the Chair of the Federal Reserve to manage the trading desk at the New York Fed and the Chair tells you that he wants you to increase the money supply (M1) by 33.33 percent. They warn you to be careful because in these uncertain times, the money multiplier tends to become very unstable. They suggest that you stay ‘closely connected’ with the banking sector and then gives you a list of phone numbers to do so. Note that in this problem we are targeting the growth rate of M1. Reserve Market Initial Conditions (Scenario A) rr/D= .10 C = 500 billion D = 2000 billion ER = 0 (not a typo) M = C + D Use the initial conditions IN SCENARIO A above to answer #1-3. What is the MB?
Answer:
700
Explanation:
The Monetary Base is a mixture of circulation currency and commercial bank deposits retained in central bank reserves.
The computation of Monetary Base is shown below:-
[tex]MB = C + RR + ER[/tex]
[tex]= C + (RR\times D) \times ER[/tex]
Where ER = Excess reserve
RR = Required reserve
C = Circulation Currency
D = Demand deposits
Now, we are placing these values to the above formula:
[tex]= 500 + (0.10\times 2,000)[/tex]
= 500 + 200
= 700
Therefore for computing the Monetary Base we simply applied the above formula.
"The Federal Reserve has been aggressively expanding the money supply by using repurchase agreements in its open market operations. Ignoring other factors, this is likely to result in:"
Answer: Increased Inflation and Reduced Interest Rates.
Explanation:
If the Fed is increasing the monetary supply in the Economy through Open Market Operations it will have the effect of increasing inflation.
A higher amount of money in the Economy usually leads to an increase in inflation because more people have money in their hands and as a result Demand increases. If supply remains the same the prices must increase.
Interest rates however will reduce because there is now a high supply of money in the Economy. Higher supply means lower price to get money which is the interest rate.
Indicate where each item should be presented in the statement of cash flows (indirect method) using these four major classifications: operating activity (that is, the item would be listed among the adjustments to net income to determine net cash provided by operating activities under the indirect method), investing activity, financing activity, or significant noncash investing and financing activity.
a. Payment of interest on notes payable.
b. Exchange of land for patent.
c. Sale of building at book value.
d. Payment of dividends.
e. Depreciation.
f. Receipt of interest on notes receivable
g. Issuance of capital stock.
h. Amortization of patent.
i. Issuance of bonds for land.
j. Purchase of land.
Answer:
a. Payment of interest on notes payable - Operating Activity
b. Exchange of land for patent - Non Cash investing activity
c. Sale of building at book value - Investing Activity
d. Payment of dividends - Financing Activity
e. Depreciation - Operating Activity
f. Receipt of interest on notes receivable - Operating Activity
g. Issuance of Capital Stock - Financing Activity
h. Amortization of patent - Operating Activity
i. Issuance of bonds for land - Non Cash investing activity
j. Purchase of land - Investing Activity
Huprey Co. is the defendant in the following legal claims. For each of following claims, does Huprey (a) record a liability, (b) disclose in notes, or (c) have no disclosure. 1. Huprey can resonably estimate that a pending lawsuit will result in damages of $1,280,000it is probable that Huprey will lose the case. Have no disclosure. Record a liability. Disclose in notes. 2. It is reasonably possible that Huprey will lose a pending lawsuit. The loss cannot be estimable. Have no disclosure. Disclose in notes. Record a liability. 3. Huprey is being sued for damages of $2,400,000. It is very unlikely (remote) that Huprey will lose the case. Have no disclosure. Record a liability. Disclose in notes. rev: 02_07_2018_QC_CS-117158
Answer:
1. Huprey can resonably estimate that a pending lawsuit will result in damages of $1,280,000, it is probable that Huprey will lose the case.
Record a liability.2. It is reasonably possible that Huprey will lose a pending lawsuit. The loss cannot be estimable.
Disclose in notes.3. Huprey is being sued for damages of $2,400,000. It is very unlikely (remote) that Huprey will lose the case.
Have no disclosure.Explanation:
Contingent liabilities must be recorded only when it is probable that the liability will happen and you can estimate the associated costs.
When contingent liabilities are only reasonably possible or you cannot estimate the amount, they must be included in the footnotes of the financial statements.
When contingent liabilities are not reasonably possible, nothing needs to be disclosed.
Bengal Co. provides the following sales forecast for the next three months: July August SeptemberSales units 4,200 4,900 4,760The company wants to end each month with ending finished goods inventory equal to 25% of the next month's sales. Finished goods inventory on June 30 is 1,050 units. The budgeted production units for July are: a. 4,200 b. 4,900 c. 4,760
Answer:
Hie, on the choice of answers provided by your question there is no correct answer.
The correct answer for budgeted production units for July are 4,375 units
Please see below explanation and calculation i have prepared for the answer.
Prepare a Production Schedule for July as follows :
July
Budgeted Sales 4,200
Add Budgeted Closing Inventory (4,900 × 25%) 1,225
Total Production Needed 5,425
Less Budgeted Opening Inventory (1,050)
Budgeted Production 4,375
Suppose a new manufacturing technology results in an expansion in the supply of golf balls in the United States of 15%. If the elasticity of demand of golf balls sold in the US is -0.4, the new equilibrium price will be
Answer:
If the elasticity of demand of golf balls sold in the US is -0.4, the new equilibrium price will be -37.5% less price
Explanation:
In order to calculate the new equilibrium price If the elasticity of demand of golf balls sold in the US is -0.4 we would have to use the following formula:
Price elasticity of demand= percentage change in quantity demanded /percentage change in price of the good
According to the given data we have the following:
Price elasticity of demand=-0.4
percentage change in quantity demanded=15%
Therefore, -0.4=15%/percentage change in price of the good
percentage change in price of the good=15%/-04
percentage change in price of the good=-37.5%
Therefore, If the elasticity of demand of golf balls sold in the US is -0.4, the new equilibrium price will be -37.5% less price
If Japan uses a certain amount of resources to produced cars, then it cannot use these sames resources to produce corn. The foregone corn production as a result of this resource allocation is ____________
Answer:
The opportunity cost of producing cars
Explanation:
In business , every action and decision comes with opportunity cost as resources for production will always have alternative usage. Therefore , opportunity cost of a decision is defined as the alternative forgone in arriving at a chosen decision. That is , the related benefits of an option sacrificed to produce another item.
Looking at the given scenario , Japan was confronted with using the available resources to produce either cars or corns , but finally decided to produce cars at the expense of corn, With this decision , every benefit related to the production of corn has to be forgone for the production of cars, therefore, the opportunity cost of the decision to produce cars is the forgone production of corn.
What is the proper adjusting entry at December 31, the end of the accounting period, if the balance in the prepaid insurance account is $8,350 before adjustment, and the unexpired amount per analysis of policies is $3,550?
Answer:
Insurance $4,800 (debit)
prepaid insurance $4,800 (credit)
Explanation:
In order to find out adjusting entries. firstly, we need to calculate the difference between prepaid insurance account and Insurance account.
That could be done by subtracting $3,550 from $8,350.
Difference = 8350-3550= 4800
Which type of communication has replaced many other types of
communication over the years?
O A Faxes
O B. Phone calls
C. Email
D. Memos
Answer:
Phone calls
Explanation:
It is the type communication used commonly
Email is the type of communication that has replaced many other types of communication over the years. Thus, option C is the correct option.
What is communication?Communication can be defined as a process through which the person communicate from one person or a group of person to another communication helps a person to easily tell what the other person to express or give the information communication can be of two type verbal and nonverbal communication.
Email is the type of communication that has replaced any other communication as the electronic mail helps us to send photos and even videos to someone in a span of some seconds also we can do it from any place and from any devices that we have at the moment. Therefore options C is the correct option.
Learn more about communication, here:
https://brainly.com/question/22558440
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In the individual level adoption process for a low involvement good, such as a new pack of gum or candy bar, what two steps in the adoption process are often switched? Group of answer choices interest and evaluation adoption and awareness trial and adoption evaluation and trial awareness and interest
Answer:
evaluation and trial
Explanation:
In low involvement goods such as a new pack of gum or candy bar the evaluation and trial stages are often reversed. This is mainly due to there being very low risk for trying out a new unrecognized brand of such a product, this combined with the amount of time needed in order to evaluate other options greatly outweighs the benefit. Therefore most individuals try the product out instead of evaluating all options which isn't done for higher risk purchases.
You own 500 shares of Great, Inc., stock. It is currently priced at $50. You are going on vacation and you realize that the company will be reporting earnings while you are away. To protect yourself against a rapid drop in the price, you place a stop-limit order to sell 500 shares at $40. It turns out the earnings report was not so good and the stock price fell to $30 right after the announcement. It did, however, bounce back, and by the end of the day it was back to $42. What happened in your account
Answer:
Reduced by $4000
Explanation:
Your account will be reduced by $4000 this is how it will happen
You sell at $40 and again bought it back at $40
And at the end of the day, it was back to $42
You will lose value as it was $50 before and $42 at the end of the day
Difference = $50 - $42 = $8
loss = $8 x 500 = $4,000
NOTE: However number of shares remain same.
Privott, Inc., manufactures and sells two products: Product Z9 and Product N0. The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: EstimatedExpected ActivityActivity Cost PoolsActivity MeasuresOverhead CostProduct Z9Product N0TotalLabor-relatedDLHs$324,0186,4003,0009,400Product testingtests 45,747400500900Order sizeMHs 471,1084,0004,3008,300 $840,873 The activity rate for the Labor-Related activity cost pool under activity-based costing is closest to:____________
A. $91.49 per DLH
B. $934.30 per DLH
C. $34.47 per DLH
D. $114.37 per DLH
Answer:
Activity rate per labour hour= $34.47 per hour
Explanation:
Activity-based costing is a form of absorption costing where overheads are charged to product using cost drivers. Under this method, overheads are first analyzed and categorized by the activities responsible for them and then charged to product based on the amount of benefits enjoyed using cost drivers.
Activity rate is calculated as:
Activity cost for the period / Total cost drivers for the period
In this question, the appropriate cost driver is direct labour hours
= $324,018/(6,400 +3,000) labour hours
= $324,018/9000 labour hours =
= $34.47 per hour
Your division is considering two projects with the following cash flows (in millions): 0 1 2 3 Project A -$16 $7 $9 $10 Project B -$26 $14 $20 $11 What are the projects' NPVs assuming the WACC is 5%
Answer:
NPV project A = $7.47 million
NPV project B = $14.98 million
Explanation:
Net present value is the present value of after tax cash flows from an investment less the amount invested.
NPV can be calculated using a financial calculator:
For project A :
Cash flow in year 0 = -$16
Cash flow in year 1= $7
Cash flow in year 2 = $9
Cash flow in year 3 = $10
I = 5%
NPV = $7.47 million
For project B
Cash flow in year 0 = -$26
Cash flow in year 1 = $14
Cash flow in year 2 = $20
Cash flow in year 3 = $11
I = 5%
NPV = $14.98 million
To find the NPV using a financial calacutor:
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 NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
I hope my answer helps you
Which of the following factors could explain why Regal Industrial Fixtures had a negative net cash flow provided (used) by operations year, even though the cash on its balance sheet increased?
a. The company repurchased 20% of its common stock.
b. The company sold a new issue of bonds.
c. The company made a large investment in new plant and equipment.
d. The company paid a large dividend.e.The company had high amortization expenses.
Answer:
The answer is B.
Explanation:
Option B is correct. When a bond is issued, money comes in and this is under Financing section in the cash flow BUT when an already issued bond is sold, cash goes out from the business and this will be in the operating activities under cash flow.
Option A. is incorrect because this will be under Financing activities in cash flow.
Option C. is incorrect because this will be under investing activities in cash flow.
Option A. is incorrect because this will be under investing activities in cash flow.
Option D is incorrect, this is under the operating activities in cash flow but instead of reducing, it will be added back to the net income.
Accounts payable are: Multiple Choice Long-term liabilities. Estimated liabilities. Amounts owed to suppliers for products and/or services purchased on credit. Always payable within 30 days. Not usually due on specific dates.
Answer: Amounts owed to suppliers for products and/or services purchased on credit.
Explanation: Account payable as a liability arises on account of credit purchases and therefore, are amounts owed to suppliers for products and/or services purchased on credit. While accounts payable can be either a short-term or a long-term liability based on the duration available to pay the same, they are typically paid within thirty or sixty days which makes them current liabilities. However, the duration of credit that is available to companies making such purchases are based on both the credibility of such companies, the history of past purchases and how timely they repay their debts.
Ernesto owns a house painting company. Total sales for the past year were $75,000. His bills for running the business were $30,000. Stan, who owns a furniture-making company, previously asked Ernesto to come work for him at a salary of $40,000. Ernesto's accounting profit is______ and his economic profit is ________$
Answer:
Accounting profit = $45,000
Economic profit = $5,000
Explanation:
The computation of accounting profit and economic profit is shown below:-
Accounting profit = Sales - External expenses
= $75,000 - $30,000
= $45,000
Economic profit = Accounting profit - Implicit cost
= $45,000 - $40,000
= $5,000
Therefore for computing the accounting profit and economic profit we simply applied the above formula so that each one could arrive
Your employer, a mid-sized human resources management company, is considering expansion into related fields, including the acquisition of Temp Force Company, an employment agency that supplies word processor operators and computer programmers to businesses with temporary heavy workloads. Your employer is also considering the purchase of a Biggerstaff & McDonald (B&M), a privately held company owned by two friends, each with 5 million shares of stock. B&M currently has free cash flow of $24 million, which is expected to grow at a constant rate of 5%. B&M’s financial statements report marketable securities of $100 million, debt of $200 million, and preferred stock of $50 million. B&M’s weighted average cost of capital (WACC) is 11%. Answer the following questions.
a. Describe briefly the legal rights and privileges of common stockholders.
b. What is free cash flow (FCF)? What is the weighted average cost of capital? What is the free cash flow valuation model?
c. Use a pie chart to illustrate the sources that comprise a hypothetical company’s total value. Using another pie chart, show the claims on a company’s value. How is equity a residual claim? d. Suppose the free cash flow at Time 1 is expected to grow at a constant rate of gL forever. If gL < WACC, what is a formula for the present value of expected free cash flows when discounted at the WACC? If the most recent free cash flow is expected to grow at a constant rate of gL forever (and gL < WACC), what is a formula for the present value of expected free cash flows when discounted at the WACC?
Answer:
a. Debt holders have first claim on corporate value. The Preferred stockholders then have next claim and remaining is left for common stockholders.
b. The value of a financial asset is equal to present value of future cash flows which is provided by the asset. When investor buys a share of stock, (s)he typically expects to receive cash in the form of dividends and to sell the stock to receive cash from sale. However, the price any investor receives is highly dependent upon the dividends which the next investor expects to receive, and so on. Thus, the stock's value depends on cash dividends that the company is expected to provide and the discount rate used to find the present value of those dividends.
d. The formula to calculate present value of expected free cash flows is:
PVn=CFn(1+in)n
The formula for the present value of expected free cash flows when discounted at WACC is:
PV=∑Nn=0CFn(1+in)n
Explanation:
a. Debt holders have first claim on corporate value. The Preferred stockholders then have next claim and remaining is left for common stockholders.
b. The value of a financial asset is equal to present value of future cash flows which is provided by the asset. When investor buys a share of stock, (s)he typically expects to receive cash in the form of dividends and to sell the stock to receive cash from sale. However, the price any investor receives is highly dependent upon the dividends which the next investor expects to receive, and so on. Thus, the stock's value depends on cash dividends that the company is expected to provide and the discount rate used to find the present value of those dividends.
d. The formula to calculate present value of expected free cash flows is:
PVn=CFn(1+in)n
The formula for the present value of expected free cash flows when discounted at WACC is:
PV=∑Nn=0CFn(1+in)n
Madsen Motors's bonds have 21 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 12%, and the yield to maturity is 15%. What is the bond's current market price
Answer:
$810.63
Explanation:
For computing the current market price we need to use the present value formula i.e to be shown in the attachment below
Provided that,
Future value = $1,000
Rate of interest = 15%
NPER = 21 years
PMT = $1,000 × 12% = $120
The formula is shown below:
= -PV(Rate;NPER;PMT;FV;type)
So, after applying the above formula, the bond current market price is $810.63
Ganado's Cost of Capital. Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to be 3.70 %, the company's credit risk premium is 4.10%, the domestic beta is estimated at 1.13, the international beta is estimated at 0.96, and the company's capital structure is now 65% debt. The expected rate of return on the market portfolio held by a well-diversified domestic investor is 9.10% and the expected return on a larger globally integrated equity market portfolio is 8.20 %. The before-tax cost of debt estimated by observing the current yield on Ganado's outstanding bonds combined with bank debt is 8.10% and the company's effective tax rate is 35%. For both the domestic CAPM and ICAPM, calculate the following: a. Ganado's cost of equity b. Ganado's after-tax cost of debt
Answer:
a. Ganado's cost of equity for the domestic CAPM is 9.802% and ICAPM is 8.02%
b. Ganado's after-tax cost of debt for the domestic CAPM is 5.265% and ICAPM is 5.265%
Explanation:
a. In order to calculate for both, the domestic CAPM and ICAPM Ganado's cost of equity we would have to make the following calculation:
for the domestic CAPM
cost of equity=risk free+domestic beat(domestic market rate-risk free rate)
cost of equity=3.70%+1.13(9.10%-3.70%)
cost of equity=3.70%+6.102%
cost of equity=9.802%
for ICAPM
cost of equity=risk free+international beat(international market rate-risk free rate)
cost of equity=3.70%+0.96(8.20%-3.70%)
cost of equity=3.70%+4.32%
cost of equity=8.02%
b. In order to calculate for both, the domestic CAPM and ICAPM Ganado's after-tax cost of debt we would have to make the following calculation:
for the domestic CAPM
after-tax cost of debt=8.10%(1-35%)
after-tax cost of debt=5.265%
for ICAPM
after-tax cost of debt=8.10%(1-35%)
after-tax cost of debt=5.265%
