Answer:
Date Account titles Debit Credit
Jul-15 Cash $16,640
Sales revenue $16,000
Sales tax payable $640
($16,000*4%)
Jul-15 Cost of goods sold $8,000
Inventory $8,000
Aug-01 Sales tax payable $640
Cash $640
Nov-03 Cash $480
Unearned ticket revenue $480
Nov-20 Unearned ticket revenue $80
($480*1/6)
Ticket revenue $80
The types of management skills
Answer:
Technical Skills Technical skills involve skills that give the managers the ability and the knowledge to use a variety of techniques to achieve their objectives. ...
Conceptual Skills These involve the skills managers present in terms of the knowledge and ability for abstract thinking and formulating ideas. ...
Human or Interpersonal SkillsTechnical Skills Technical skills involve skills that give the managers the ability and the knowledge to use a variety of techniques to achieve their objectives. ...
Conceptual Skills These involve the skills managers present in terms of the knowledge and ability for abstract thinking and formulating ideas. ...
Human or Interpersonal SkillsTechnical Skills Technical skills involve skills that give the managers the ability and the knowledge to use a variety of techniques to achieve their objectives. ...
Conceptual Skills These involve the skills managers present in terms of the knowledge and ability for abstract thinking and formulating ideas. ...
Human or Interpersonal SkillsTechnical Skills Technical skills involve skills that give the managers the ability and the knowledge to use a variety of techniques to achieve their objectives. ...
Conceptual Skills These involve the skills managers present in terms of the knowledge and ability for abstract thinking and formulating ideas. ...
Human or Interpersonal SkillsTechnical Skills Technical skills involve skills that give the managers the ability and the knowledge to use a variety of techniques to achieve their objectives. ...
Conceptual Skills These involve the skills managers present in terms of the knowledge and ability for abstract thinking and formulating ideas. ...
Human or Interpersonal SkillsTechnical Skills Technical skills involve skills that give the managers the ability and the knowledge to use a variety of techniques to achieve their objectives. ...
Conceptual Skills These involve the skills managers present in terms of the knowledge and ability for abstract thinking and formulating ideas. ...
Human or Interpersonal SkillsTechnical Skills Technical skills involve skills that give the managers the ability and the knowledge to use a variety of techniques to achieve their objectives. ...
Conceptual Skills These involve the skills managers present in terms of the knowledge and ability for abstract thinking and formulating ideas. ...
Human or Interpersonal SkillsTechnical Skills Technical skills involve skills that give the managers the ability and the knowledge to use a variety of techniques to achieve their objectives. ...
Conceptual Skills These involve the skills managers present in terms of the knowledge and ability for abstract thinking and formulating ideas. ...
Human or Interpersonal Skills:
How do you identify the need for the meeting?
The Molding Division of Cotwold Company manufactures a plastic casing used by the Assembly Division. This casing is also sold to external customers for $25 per unit. Variable costs for the casing are $12 per unit and fixed cost is $3 per unit. Cotwold executives would like for the Molding Division to transfer 8,000 units to the Assembly Division at a price of $18 per unit. Assume that the Molding Division has enough excess capacity to accommodate the request.
Calculate the effect on Molding Division’s net income if it accepts the $18 transfer price.
Answer:
the effect on Molding Division’s net income if it accepts the $18 transfer price is $6 per unit
Explanation:
The computation of the effect on Molding Division’s net income if it accepts the $18 transfer price is shown below:
= Transfer price - variable cost per unit
= $18 - $12
= $6 per unit
Hence, the effect on Molding Division’s net income if it accepts the $18 transfer price is $6 per unit
So, the same is to be considered and relevant
Stock A's stock has a beta of 1.30, and its required return is 11.75%. Stock B's beta is 0.80. If the risk-free rate is 4.75%, what is the required rate of return on B's stock?
Answer:
9.054
Explanation:
The first step is to calculate the market risk premium for stock A
11.75%= 4.75% + 1.30 × market risk premium
11.75-4.75= 1.30×mrp
7= 1.30 ×mrp
mrp= 7/1.30
= 5.38
Therefore the required rate on stock B can be calculated as follows
4.75+0.80×5.38
= 4.75 + 4.304
= 9.054
Assume the inflation rate is 0.2% per month. Would you rather earn a nominal return of 0.75% per month compounded monthly, or a real return of 6.5% APR compounded annually? The annual rate for the nominal return of 0.75% per month is:___.
Answer:
6.79%
Explanation:
Use the following formula to calculate the Effective annual rate
Effective annual rate = ( ( ( 1 + Nominal return )^12 ) / ( ( 1 + Inflation return )^12 ) - 1 )
Where
Nominal rate = 0.75%
Inflation rate = 0.20%
Placing values in the formula
Effective annual rate = ( ( ( 1 + 0.75% )^12 ) / ( ( 1 + 0.2% )^12 ) - 1 )
Effective annual rate = 6.79%
Legal Forces Legal forces are important external forces that international managers need to understand. They are developed at the national level, so international ventures should take care to build relationships with local-level lawyers.
The concepts in this exercise are drawn from Chapter 6 and directly address differences in legal approaches at the national level.
Identify each of the legal characteristics by dragging where it is found to the correct characteristic.
U.S. Product Liability Law per se application
EU Competition Law misuse of activity
US and EU extraterritoriality
U.S. Tort Law trade obstacle, nontariff
U.S. Competition Law strict liability
France punitive damages
Answer:
Please find the solution in the attached file.
Explanation:
By having sound policies in place and a framework for the application of controls, you will be able to map existing controls to each regulation, including future regulations. Thereafter, organizations perform a __________ to identify anything that is missing.
Answer:
gap analysis.
Explanation:
Gap analysis can be defined as a strategic process used by businesses or companies to compare their current (present) performance with an expected or desired performance metrics. Thus, it's a framework used by businesses to measure or have a great understanding of the difference between their desired, expected performance and their current or present performance based on certain criteria.
Internal controls can be defined as the policies, set of rules, and procedures implemented or put in place by an organization to protect its assets, boost efficiency, enhance financial accountability, enforce adherence to company policies and prevent fraudulent behaviors among the employees.
The main purpose of internal controls is to guarantee that loss is eliminated by ensuring that there is an accurate and reliable accounting system.
Hence, organizations perform a gap analysis so as to identify anything that is missing within the business and its external environment.
Gabi Gram started The Gram Co., a new business that began operations on May 1. The Gram Co. completed the following transactions during its first month of operations
May
1 G. Gram invested $40,000 cash in the company.
1 The company rented a furnished office and paid $2,200 cash for May’s rent.
3 The company purchased $1,890 of office equipment on credit.
5 The company paid $750 cash for this month’s cleaning services.
8 The company provided consulting services for a client and immediately collected $5,400 cash.
12 The company provided $2,500 of consulting services for a client on credit.
15 The company paid $750 cash for an assistant’s salary for the first half of this month.
20 The company received $2,500 cash payment for the services provided on May 12.
22 The company provided $3,200 of consulting services on credit.
25 The company received $3,200 cash payment for the services provided on May 22.
26 The company paid $1,890 cash for the office equipment purchased on May 3.
27 The company purchased $80 of advertising in this month’s (May) local paper on credit; cash payment is due June 1.
28 The company paid $750 cash for an assistant’s salary for the second half of this month.
30 The company paid $300 cash for this month’s telephone bill.
30 The company paid $280 cash for this month’s utilities.
31 G. Gram withdrew $1,400 cash from the company for personal use.
Required
a. Show effects of the transactions on the accounts of the accounting equation by recording increases and decreases in the appropriate columns.
b. Prepare an income statement for May, a statement of owner’s equity for May, a May 31 balance sheet, and a statement of cash flows for May.
Answer:
1. Asset and capital will increase
2. Current asset decrease
3. Asset and liability increase
4. Asset decrease
5. Asset increase
6. Asset increase
7. Asset decrease, expense increase
8. Asset increase
9. Asset increase
10. Asset decrease, liability decrease
11. Liability increased
12. Asset decrease
13. Asset decrease
14. Capital decrease
Explanation:
Income Statement for the month of May:
Sales Revenue $11,100
Less: Operating Expenses:
Cleaning service $750
Salary expense $750
Advertising expense $80
Salaries expense $750
Telephone bill $300
Utilities expense $280
Net Profit $8,190
The more the lower-level personnel provide input or are actually given the discretion to make decisions, the ________ within that organization.
The more the lower-level personnel provide input or are actually given the discretion to make decisions, the more [tex]\boxed{ decentralization }[/tex] there is within that organization.
[tex]\circ \: \: { \underline{ \boxed{ \sf{ \color{green}{Happy\:learning.}}}}}∘[/tex]
The more the lower-level personnel provide input or are actually given the discretion to make decisions, the Decentralization within that organization.
What do you mean by the decentralization?Decentralization is a type of organisational structure in which the top management delegated power to the middle and lower levels of management in an organisation.
Decentralization in management is the systematic distribution of power among the various levels of management within an organisation. It explains how different organizational levels are given different amounts of decision-making authority.
In a decentralized organisation, subordinates have the chance to demonstrate their skills. Through promotions, management also gains access to a pool of qualified workers who can be deployed in demanding situations and foster responsibility.
Therefore, the more the lower-level personnel provide input or are actually given the discretion to make decisions, the Decentralization within that organization.
To know more about the decentralization, visit:
https://brainly.com/question/12653061
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A company that is at a disadvantage in the marketplace because it lacks competitively valuable resources possessed by rivals:_________
a) nearly always is relegated to a trailing position in the industry.
b) should adopt a new competitive strategy that might better match the circumstances of the marketplace.
c) should abandon strategy elements that have caused its weakness in the marketplace.
Answer:
a) nearly always is relegated to a trailing position in the industry.
Explanation:
Competitive advantage is defined as factors that a business possesses that allows it to produce goods and services that are better or satisfy customers more than those produced by other competitors.
Competitive advantage results in increased sales and higher profit margins.
This can be broken down into:
- Comparative advantage: where a business produces a good more efficiently than its competitors
- Differential advantage: when a good produced is of higher quality or more unique that other competitor products.
When a company lacks competitively valuable resources possessed by rivals, it will nearly always is relegated to a trailing position in the industry. Because they can't meet up to profit margins of others.
The most important/essential results from the latest decision round that company managers need to review/study in order to guide their strategic moves and decisions to improve their company's competitiveness and rank among the top-performing companies in the upcoming decision round are:_________.
a. the celebrity endorsement data and the 4 graphs showing branded price and S/Q rating trends in each of the four geographic regions on p. 7 of the FIR.
b. the Income Statement and Balance Sheet data on p. 5 of the FR.
c. the strategic group maps for the Internet segment and Wholesale segment for each geographic region in the Competitive Intelligence Report.
d. the Industry Scoreboard and each company's performance on EPS, ROE, stock price, credit rating and image rating displayed on the first 3 pages of the FIR.
e. the Market Snapshot data in the top half of the Competitive Intelligence Report that shows each company's competitive efforts (prices, S/Q rating, models available, and so on) in each geographic region.
Answer:
e. the Market Snapshot data in the top half of the Competitive Intelligence Report that shows each company's competitive efforts (prices, S/Q rating, models available, and so on) in each geographic region.
Explanation:
In the case when the results arise from the recent decision that taken place the company or the manager should have to study for improving out the competitiveness and the ranking so that the market snapshot data could be done for all the zones and due to this the good decision could be carried out that helps in attaining the goals and objectives of the company
So, the last option is correct
A minor league baseball team raised the average price of its tickets from $8 to $ and found that average attendance at its games dropped from 5,200 to . Using the arc elasticity of demand formula, the price elasticity of demand for tickets is nothing. (Express your answer as a real number rounded to two decimal places. Don't forget the negative sign.) The demand for tickets is therefore ▼ price elastic price inelastic unit elastic completely elastic completely inelastic .
Answer:
-0.95
inelastic
Explanation:
minor league baseball team raised the average price of its tickets from $8 to $8.90 and found that average attendance at its games dropped from 5, 200 to 4, 700. Using the arc elasticity of demand formula, the price elasticity of demand for tickets is .(Express your answer as a real number rounded to two decimal places. Don't forget the negative sign.) The demand for tickets is therefore
Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good.
Price elasticity of demand = midpoint change in quantity demanded / midpoint change in price
Midpoint change in quantity demanded = change in quantity demanded / average of both demands
change in quantity demanded = 4700- 5200= -500
average of both demands = (4700 + 5200 ) / 2 = 4950
Midpoint change in quantity demanded = 500 / 4950 = -0.101
midpoint change in price = change in price / average of both price
change in price = 8.9 - 8 = 0.9
average of both price = (8.9 + 8) / 2= 8.45
0.9 / 8.45 = 0.107
-0.101 / 0.107 = -0.95
If the absolute value of price elasticity is greater than one, it means demand is elastic. Elastic demand means that quantity demanded is sensitive to price changes.
Demand is inelastic if a small change in price has little or no effect on quantity demanded. The absolute value of elasticity would be less than one
Demand is unit elastic if a small change in price has an equal and proportionate effect on quantity demanded.
Infinitely elastic demand is perfectly elastic demand. Demand falls to zero when price increases
Perfectly inelastic demand is demand where there is no change in the quantity demanded regardless of changes in price.
0.1125
-0.1754
Sheffield Corp. had 205000 shares of common stock, 20300 shares of convertible preferred stock, and $1580000 of 4% convertible bonds outstanding during 2021. The preferred stock is convertible into 39800 shares of common stock. During 2021, Sheffield paid dividends of $1.00 per share on the common stock and $4 per share on the preferred stock. Each $1,000 bond is convertible into 30 shares of common stock. The net income for 2021 was $599000 and the income tax rate was 35%.
Diluted earnings per share for 2021 is :__________
Answer:
Diluted earnings per share for 2021 is: $2.19 per share.
Explanation:
Amount of increase in net income if bonds are converted = Total value of convertible bonds * Bond rate * (100% - Tax rate) = $1580000 * 4% * (100% - 35%) = $41,080
Total earnings available to Equity Shareholders = Net income + Amount of increase in net income if bonds are converted = $599000 + $41,080 = $640,080
Number of shares of common stock = 205,000
Number of common shares obtainable from preferred stock = 39,800
Number of common shares obtainable from convertible bonds = (Total value of convertible bonds / $1,000) * 30 = ($1580000 / $1,000) * 30 = 47,400
Total number of shares outstanding = Number of shares of common stock + Number of common shares obtainable from preferred stock + Number of common shares obtainable from convertible bonds = 205,000 + 39,800 + 47,400 = 292,200
Diluted earnings per share = Total earnings available to Equity Shareholders / Total number of shares outstanding = $640,080 / 292,200 = $2.19 per share
Therefore, we have:
Diluted earnings per share for 2021 is: $2.19 per share.
2. Provide three examples of innovative activities, practices that leaders might undertake. Do not limit your ideas to
those presented in the text.
Answer:
Examples of innovative activities which leaders might undertake are:
1. Reading and reviewing a book with their employees in an area of organizational deficiency;
2. Encouraging and promoting problem-solving rather than rote activities through the use of financial rewards tied to such activities
3. Carrying our regular (weekly performance) feedback of each person's performance including the leader she or himself in order to ensure timely and goal-oriented course correction.
Cheers
mike has $200 in his wallet. He pays a cell phone bill of $89.50. Then he earns $125 shoveling driveways. From mike lends $15 to friend. That night he gets $20 in a card for his birthday. How much money does he have now?
Answer:
$240.50
Explanation:
200-89.50 = 110.50
110.50+125 = 235.50
235.50-15 = 220.50
220.50 + 20 = 240.50
You have just signed a contract for your rental property and you will make monthly payments at the beginning of each month. Your monthly payments is $1000 and the monthly rate is 4% per month. Calculate the present value of your rental payments for the first year.
Answer:
$9,760.48
Explanation:
Present value of annuity due = P* [[1 - (1+r)^-(n-1)] / r] + P. Where P = Periodic payment = $1,000, r = Rate of interest per period 4% (0.48/12), n = number of payments 12 (12*1)
Present value of annuity = $1000 * [[1 - (1 + 0.04)^-(12-1)] / 0.04] + $1000
Present value of annuity = $1000*8.760475 + $1000
Present value of annuity = $8760.48 + $1000
Present value of annuity = $9,760.48
In a closed economy, public saving is the amount of a. income that households have left after paying for taxes and consumption. b. spending that the government undertakes in excess of the taxes it collects. c. income that businesses have left after paying for the factors of production. d. tax revenue that the government has left after paying for its spending.
Answer:
In a closed economy, public saving is the amount of
d. tax revenue that the government has left after paying for its spending.
Explanation:
Public saving or budget surplus in a closed economy describes the excess of government revenue (obtained through taxation of individuals and businesses in the economy) and government expenditures on goods and services. In an open economy, transfers are deducted before arriving at the public saving. In all economies, the addition of private (individual and business) and public savings result to national investments.
The traditional nonprofit sector has experienced considerable change in recent years with new strategies, actors, and funding vehicles, which have increased the quantity of private capital earmarked for social good.
a. True
b. False
Answer:
a. True
Explanation:
The Traditional nonprofit center has been changing like the profit for the business in the current years. It includes the various types of strategies and the techniques for funding and different new sources of funding has been provided due to this it created the large amount of capital for the social good purpose
Therefore the given statement is true
the role of government in real estate at the federal, state, and local level. Which has the most significant impact on real estate markets
Answer:
Local government has the most influence on real estate markets. It affects the supply and cost of real estate through zoning and land use regulations, fees on new land development, and restrictive building codes.
Answer:
It affects the supply and cost of real estate through zoning and land use regulations, fees on new land development, and restrictive building codes.... state government generally has the least influence on real estate.
Explanation:
A registered representative is considering prospecting a wealthy family member to see if she will open a brokerage account at his firm. The registered representative checks the National Do-Not-Call List and finds the family member there. The registered representative checks the firm's Do-Not-Call list and does not find the family member there. Which statement is true?
A. This prospect cannot be called by the registered representative.
B. This prospect can be called by the registered representative.
C. This prospect can only be called by the registered representative between the hours of 8:00 AM and 9:00 PM.
D. This prospect can only be called by the registered representative with written approval of the #24 General Principal.
Answer:
B. This prospect can be called by the registered representative.
Explanation:
A registered representative may be defined as a person working for a client facing financial firm like the brokerage firm and he acts as the representative for the clients who are trading the investment products as well as securities.
In the context, the prospect can be called by the registered representative. But there are three exceptions that are provided for the cold calls to any individual who are on the national Do not call list :
--- Established business relationship exception.
--- Prior express written consent exception
--- Personal relationship with the associated person exception.
Therefore, option (B) is correct.
Preferred stock has characteristics of both debt and common stock. Which characteristics of preferred stock resemble that of common stock
Answer:
The characteristics of preferred stock that resemble that of common stock is that both give the stockholder partial ownership of the entity, otherwise, called equity rights.
Explanation:
Preferred stocks do not confer on the stockholders the right of repayment until the company is liquidated, just like common stock, unless they are redeemable. They can be converted to common stock. Unlike common stock, preferred stock does not give voting rights to the stockholders. Preferred stockholders enjoy priority over a company's income because they are paid dividends before common stockholders.
Bal Corp. declared a $25,000 cash dividend on May 8, 20X5, to stockholders of record on May 23, 20X5, payable on June 3, 20X5. As a result of this cash dividend, working capital
a) Was not affected.
b) Decreased on June 3.
c) Decreased on May 23.
d) Decreased on May 8.
Answer:
b) Decreased on June 3
Explanation:
May 8, 20X5
This is the dividend declaration date. The accountant simply makes an accounting entry to recognize dividend (debit) and increases liabilities arising due to shareholders for dividend obligation (credit)
May 23, 20X5
This date gives us the number of shareholders who are eligible for the dividend.
June 3, 20X5
This date is when the cashflow happens, Cash decreases by $25,000 and the liability once recognized on May 8, 20X5 decreases. Cash is an element of Working Capital. Decrease in cash means a decrease in Assets and consequently a decrease in working capital.
A company issues a 10-year, callable bond at par with 8% annual coupon payments. The bond can be called at par in one year after issue or any time after that on a coupon payment date. The call price is $108 per $100 of face value. What is the yield to call if this bond is called in one year
Answer:
the yield to call is 9%
Explanation:
The computation of the yield to call is as follows:
Given that
NPER is 10 year
PMT = $100 × 8% = $8
FV = $108
PV = $100
The formula is shown below:
= RATE(NPER,PMT,PV,FV,TYPE)
after applying the above formula, the yield to call is 9%
The market value balance sheet for Scotty Inc. shows cash of $42,000, fixed assets of $319,000, and equity of $237,000. There are 7,500 shares of stock outstanding with a par value of $1 per share. The company has declared a dividend of $1.03 per share. The stock goes ex dividend tomorrow. What will be the price of the stock tomorrow morning
Answer:
$30.57
Explanation:
Total assets = Cash + Fixed assets
Total assets = $42,000 + $319,000
Total assets = $361,000.
Total liabilities = Total assets - Equity
Total liabilities = $361,000 total assets - $237,000 equity
Total liabilities = $124,000
Total dividend payments in cash = 7500 shares * $1.03 dividend = $7,725. So, cash will now be reduced by $34,275 ($42,000 - $7725)
So, total assets will be = $361,000 - $7725 = $353,275.
So, total equity will be = $353,275 - $124,000 = $229,275
The price tomorrow morning = New equity / Total shares
The price tomorrow morning = $229,275 / 7500 shares
The price tomorrow morning = $30.57
The accounting records of Whispering Winds Corp. show the following data. Beginning inventory 3,010 units at $6 Purchases 8,130 units at $8 Sales 9,090 units at $11. Determine cost of goods sold during the period under a periodic inventory system using the FIFO method, the LIFO method, and the average-cost method.
Answer:
$66,700
b. LIFO = $70800
67807.81
Explanation:
LIFO means last in first out. It means that it is the last purchased inventory that is the first to be sold.
(8130 x 8) + [(9090 - 8130) x 6) = 70800
FIFO means first in, first out. It means that it is the first purchased inventory that is the first to be sold
(3010 x 6) + [(9090 - 3010) x $8] = 66,700
Average cost = [(3010 x 6) + (8130 x 8)] /
18060
48640
b 65040
5760
Explain the 5 marketing objectives?
Answer:
Creation of Demand 2. Customer Satisfaction 3. Market Share 4. Generation of Profits 5. Creation of Goodwill and Public Image
Explanation:
The basic purpose of marketing management is to achieve the objectives of the business.
1. The ABC Company is producing an item at unit cost of birr 4.
a) If the supply function isq = 160 + 8 p, where q represents the quantity produced
and p represents the market price, then find the total cost function in terms of p.
b) What is the market price at which the company realizes a total profit of birr 500
YIThe
Answer:
I think its A!
Explanation:
Cool Sky reports the following costing data on its product for its first year of operations. During this first year, the company produced 40,000 units and sold 32,000 units at a price of $110 per unit. Manufacturing costs Direct materials per unit $ 42 Direct labor per unit $ 16 Variable overhead per unit $ 5 Fixed overhead for the year $ 360,000 Selling and administrative costs Variable selling and administrative cost per unit $ 10 Fixed selling and administrative cost per year $ 115,000 1a. Assume the company uses absorption costing. Determine its product cost per unit.
Answer:
Cool Sky
The product cost per unit under absorption costing is:
= $7.20
Explanation:
a) Data and Calculations:
First year production units = 40,000
First year sales units = 32,000
Ending inventory = 8,000 (40,000 - 32,000)
Selling price per unit = $110
Sales revenue = $3,520,000 (32,000 * $110)
Manufacturing costs
Direct materials per unit $ 42
Direct labor per unit $ 16
Variable overhead per unit $ 5
Fixed overhead for the year $ 360,000
Selling and administrative costs:
Variable selling and administrative cost per unit $ 10
Fixed selling and administrative cost per year $ 115,000
Production Cost per Unit under Absorption Costing:
Manufacturing costs: Unit Total
Direct materials per unit $ 42
Direct labor per unit $ 16
Variable overhead per unit $ 5
Total variable cost per unit $63 $2,520,000
Fixed overhead for the year $ 360,000
Total production cost for 40,000 $2,880,000
Unit product cost = $7.20 ($2,880,000/40,000)
You own a portfolio that has $2,600 invested in Stock A and $3,600 invested in Stock B. If the expected returns on these stocks are 12 percent and 15 percent, respectively, what is the expected return on the portfolio
Answer:
the expected return on the portfolio is $7,052
Explanation:
The computation of the expected return on the portfolio is shown below:
Stock A return = $2,600 + 12% of 2600 = $2,912
And,
Stock B return = $3,600 + 15% of 3600 = $4,140
So,
Expected return on portfolio is
= $2,912 + $4,140
= $7,052
hence, the expected return on the portfolio is $7,052
A restaurant is considering buying a new coffee making machine, which will be replaced over and over with a new one when an old one dies. Each coffee making machine costs $143,000, and is expected to die after exactly 6-years. Each machine will costs $10,200 per year to operate. The discount rate that the restaurant assigns to this coffee making machine project is 11 percent per year. The straight-line depreciation method would be used when calculating the machine's loss of value for tax purposes. Each coffee making machine will be fully depreciated all the way to zero at the end of its life. Also, each coffee making machine will have a before-tax salvage value of $10,500 at the end of its life. The restaurant's tax rate is 25 percent. As always, assume that all cash flows occur at year end. If the restaurant buys a coffee making machine over and over in perpetuity, as soon as one dies, what would be the average, or the equivalent, annual cost (EAC) of the machine?
Answer:
Coffee Making Restaurant
If the restaurant buys a coffee making machine in perpetuity, the equivalent annual cost (EAC) of the machine will be:
Equivalent annual cost of the machine = $44,994
Explanation:
a) Data and Calculations:
Initial investment cost of machine = $143,000
Expected useful life = 6 years
Discount rate = 11%
Annual operating cost = $10,200
Before-tax salvage value = $10,500
Applicable tax rate = 25%
After-tax salvage value = $7,875
Annuity factor for 6 years at 11% = 4.231
Present value of costs:
Initial investment = $143,000 ($143,000 * 1)
Annual operating cost = 43,156 ($10,200 * 4.231)
Salvage value = (4,213) ($7,875 * 0.535)
Total costs = $190,369
Equivalent annual cost of the machine = $44,994 ($190,369/4.231)