Answer:
$8,500 favorable
Explanation:
The computation of the fixed overhead spending variance is shown below
= Budgeted fixed overhead - actual fixed overhead
= $184,800 - $176,300
= $8,500 favorable
We simply deduct the actual fixed overhead from the budgeted one so that the fixed overhead spending variance could come
A company has a minimum required rate of return of 8%. It is considering investing in a project that costs $379,650 and is expected to generate cash inflows of $150,000 each year for three years. The approximate internal rate of return on this project is
Answer:
9%
Explanation:
- $379,650 CF 0
$150,000 CF 1
$150,000 CF 1
$150,000 CF 1
The approximate internal rate of return on this project is 9%
Dazzle, Inc. produces beads for jewelry making use. The following information summarizes production operations and sales activities for June. The journal entry to record June sales is:
Direct materials used $ 88,000
Direct labor used $ 161,800
Predetermined overhead rate (based on direct labor) 140 %
Goods transferred to finished goods $ 445,000
Cost of goods sold $ 457,000
Credit sales $ 833,400
A. Debit Accounts Receivable $833,400; credit Cost of Goods Sold $833,400.
B. Debit Accounts Receivable $833,400; credit Sales $376,400; credit Finished Goods Inventory $457,000.
C. Debit Cost of Goods Sold $457,000; credit Sales $457,000.
D. Debit Finished Goods Inventory $457,000; debit Sales $833,400; credit Accounts Receivable $833,400; credit Cost of Goods Sold $457,000.
E. Debit Accounts Receivable $833,400; credit Sales $833,400; debit Cost of Goods Sold $457,000; credit Finished Goods Inventory $457,000.
Answer:
E. Debit Accounts Receivable $833,400; credit Sales $833,400; debit Cost of Goods Sold $457,000; credit Finished Goods Inventory $457,000.
Explanation:
Based on the information given we were told that the Cost of goods sold was the amount of $ 457,000 while the Credit sales was the amount of $ 833,400 which means that the appropiate journal entry to record June sales is:
Debit Accounts Receivable $833,400
Credit Sales $833,400
(To record sales)
Debit Cost of Goods Sold $457,000
Credit Finished Goods Inventory $457,000
(To record sales)
DS Unlimited has the following transactions during August.
August 6 Purchases 54 handheld game devices on account from GameGirl, Inc., for $120 each, terms 1/10, n/60.
August 7 Pays $320 to Sure Shipping for freight charges associated with the August 6 purchase.
August 10 Returns to GamerGirl four game devices that were defective.
August 14 Pays the full amount due to GameGirl.
August 23 Sells 34 game devices purchased on August 6 for $140 each to customers on account. The total cost of the 34 game devices sold is $4,257.00. 2.
Required:
Record the period-end adjustment to cost of goods sold on August 31, assuming the company has no beginning inventory and ending inventory has a cost of $2,003.
Answer:
August 6
Debit: Inventory: (54 * $120) = $6480.00
Credit: Accounts Payable: $6,480.00
August 7 - shipping
Debit: Inventory $320.00
Credit: Cash $320.00
August 10
Debit: Accounts Payable :(4 * $120) = $480.00
Credit: Inventory $480.00
August 14
Debit: Accounts Payable : $(6480 - 480) = $6000.00
Credit: Inventory $60.00
Cash : $(6000 - 60) = $5940.00
(August 14th Inventory: $6000 × 1% = $60)
August 23
Debit: Accounts Receivable ($140*34) = $4760
Credit: sales Revenue $4760
August 23
Debit: Cost of Goods Sold $4,257.00
Credit: Inventory $4,257.00
Explanation:
INVENTORY:
Many employees of a local restaurant suddenly quit and seek other opportunities. What is the most likely explanation for the large number of employees quitting?
A. a developing price war
B. a protest action by the union
C. decrease in positive incentives to work
D. decrease of negative incentives to being unemployed
Answer:
A. a developing price war
Hardaway Fixtures' balance sheet at December 31, 2020, included the following:
Shares issued and outstanding:
Common stock, $1 par $1,080,000
Nonconvertible preferred stock, $50 par 25,000
On July 21, 2021, Hardaway issued a 25% stock dividend on its common stock. On December 12, it paid $75,000 cash dividends on the preferred stock. Net income for the year ended December 31, 2021, was $4,800,000.
Required:
Compute Hardaway's earnings per share for the year ended December 31, 2021.
Answer:
$3.50
Explanation:
Earnings for EPS = $4,800,000 - $75,000
Earnings for EPS = $4,725,000
Weighted Average Outstanding share:
Date Number of shares Weight Weighted Average
01-01-2021 Opening 1,080,000 12/12 1,080,000
21-07-2021 Stock Dividend 270,000 12/12 270,000
(1,080,000*25%)
Total 1,350,000
Earnings per share = Earnings for EPS/Weighted Average Outstanding share
Earnings per share = $4,725,000/1,350,000
Earnings per share = $3.50
Peterson Packaging Corp. has a basic earning power of (BEP) of 9% on $9 billion of total assets, and its times interest earned (TIE) ratio is 3.0. Peterson's depreciation and amortization expense totals $1 billion. It has $0.6 billion in lease payments and $0.3 billion must go towards principal payments on outstanding loans and long-term debt. What is Peterson's EBITDA coverage ratio
Answer: A basic earning power of (BEP) of 9% on $9 billion of total assets.
ratio is 3.0. Peterson's depreciation and amortization expense totals $1 billion.
amortization expense totals $1 billion. It has $0.6 billion in lease payments and $0.3 billion must go towards principal payments.
the wacc approach to valuation is not as useful as the apv approach in leveraged buyouts because: the capital structure is changing. there is no tax shield with the wacc. the value of the levered and unlevered firms are equal. the unlevered and levered cash flows are separated which cannot be used with the wacc approach. there is greater risk with a lbo.
Answer:
the capital structure is changing
Explanation:
As we know that wacc approach used to determined the cost of capital by taking the cost and weightage of the capital structure i.e. debt, equity and the preferred stock The same would not be useful for the valuation purpose as the apv approach in the leveraged buyouts because the capital structure i.e. debt, equity and the preferred stock keeps changing
It does not remian constant
Therefore the same would be considered
A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of return of 36%, while stock B has a standard deviation of return of 16%. The correlation coefficient between the returns on A and B is 0.30. Stock A comprises 30% of the portfolio, while stock B comprises the rest of the portfolio. What is the standard deviation of the return on this portfolio?
Answer: 17.7%
Explanation:
Standard deviation of portfolio = √(Weight of A² * Standard deviation of A² + Weight of B² * Standard deviation of B² + 2 * Weight of A * Weight of B * Correlation coefficient of A and B * Standard deviation of A * Standard deviation of B)
= √(30%² * 36%² + 70%² * 16%² + 2 * 30% * 70% * 0.30 * 36% * 16%)
= √0.0314656
= 17.7%
Lena is a sole proprietor. In April of this year, she sold equipment purchased four years ago for $53,200 with an adjusted basis of $31,920 for $35,112. Later in the year, Lena sold another piece of equipment purchased two years ago with an adjusted basis of $15,960 for $10,374. What is the amount and character of Lena's gain or loss?
Answer:
Ordinary gain $3,192; Loss $5,586
Explanation:
Calculation to determine the amount and character of Lena's gain or loss
Based on the information given she has an ORDINARY GAIN § 1245 DEPRECIATION RECAPTURE of the amount of $3,192 calculated as ($35,112 − $31,920) from the sale of the first equipment as well as § 1231 LOSS of the amount of $5,586 ($10,374 − $15,960) from the sale of the second equipment.
Therefore the amount and character of Lena's gain or loss will be Ordinary gain of $3,192 and Loss of $5,586.
5. Joseph transfers $1000 from his money market fund to his checking account. This
transaction will:
a) decrease M2 and increase M1.
b) increase M1, but leave M2 unchanged.
c) decrease M1 and increase M2.
d) decrease both M1 and M2.
Answer:
A. decrease M2 and increase M1
The management of Lanzilotta Corporation is considering a project that would require an investment of $191,000 and would last for 6 years. The annual net operating income from the project would be $108,000, which includes depreciation of $21,000. The scrap value of the project's assets at the end of the project would be $26,200. The cash inflows occur evenly throughout the year. The payback period of the project is closest to :___________
Answer:
1 year 5 month
Explanation:
The Project Cash flow Summary is as follows :
Year 0 = -$191,000
Year 1 = $108,000 + $21,000 = $129,000
Year 2 = $108,000 + $21,000 = $129,000
Year 3 = $108,000 + $21,000 = $129,000
Year 4 = $108,000 + $21,000 = $129,000
Year 5 = $108,000 + $21,000 = $129,000
Year 6 = $108,000 + $21,000 + $26,200 = $155,200
Payback Period is the term used to determine how long the future cash flows would equal the amount invested.
$191,000 = $129,000 + 62,000/ $129,000 x 12
The future cash flows will equal $191,000 in 1 year 5 months.
At December 31, 2021, Sunland Company had a credit balance of $15,300 in Allowance for Doubtful Accounts. During 2022, Sunland wrote off accounts totaling $12,800. One of those accounts of $1,700 was later collected. At December 31, 2022, an aging schedule indicated that the balance in Allowance for Doubtful Accounts should be $26,800. Prepare journal entries to record the 2022 transactions of Sunland Company.
Answer:
See below
Explanation:
During 2022, Sunland Company wrote off accounts totalling $12,800
Entry
Allowance for doubtful account Dr $12,800
---------- To Accounts receivable Cr $12,800
(Being entries to write off accounts initially provided for)
Only one of those accounts ($1,700) was later collected
Entry
Cash account Dr $1,700
----------- To Bad debt expense Cr $1,700
(Being entries to record receipt of cash from account previously written off)
At December 31, 2022 an aging schedule indicated that the balance in Allowance for Doubtful accounts should be $26,800
Entry
Bad debt expense Dr $24,300
---------------- To Allowance for doubtful debt Cr $24,300
(Being entries to recognize bad debt expense at year end based on aging schedule)
Workings
Adjustment required for doubtful accounts
= $26,800 - ($15,300 - $12,800)
= $24,300
Concord Company sells merchandise on account for $5700 to Ivanhoe Company with credit terms of 2/10, n/30. Ivanhoe Company returns $1000 of merchandise that was damaged, along with a
check to settle the account within the discount period. What is the amount of the check?
$4700
$4606
$5586
$5606
Answer:
The right solution is Option b ($4606 ).
Explanation:
The given values are:
Company sells merchandise,
= $5700
Company returns,
= $1000
Now,
The amount of the check will be:
= [tex](5700-1000)\times 98 \ percent[/tex]
= [tex](5700-1000)\times 0.98[/tex]
= [tex]4700\times 0.98[/tex]
= [tex]4606[/tex] ($)
On October 1, 2020, Adams Company paid $4,800 for a one-year insurance policy with the insurance coverage beginning on that date. On December 31, 2020, Adams needs to make adjusting entries to reflect the part of insurance that it has consumed. How will this adjusting entry affect the company's current ratio on December 31 2020
Answer:
Decrease the Current ratio
Explanation:
Current Ratio = Current Assets ÷ Current Liabilities
When the insurance is consumed, the assets in prepaid insurance decreases. So (three) 3 months insurance of $1,200 was consumed. Resulting in an expense of $1,200 and a decrease in assets of $1,200. Overall effect is a decrease in current ratio
The following information is available for Windsor, Inc. for the year ended December 31, 2020.
Beginning cash balance $45,720
Accounts payable decrease 3,759
Depreciation expense 164,592
Accounts receivable increase 8,331
Inventory increase 11,176
Net income 288,646
Cash received for sale of land at book value 35,560
Cash dividends paid 12,192
Income taxes payable increase 4,775
Cash used to purchase building 293,624
Cash used to purchase treasury stock 26,416
Cash received from issuing bonds 203,200
Required:
Prepare a statement of cash flows using the indirect method.
Answer:
See below
Explanation:
Operating activities:
Net income
$288,646
Depreciation
$164,592
Adjusted
$453,238
Change in working capital:
Accounts payable decrease
$3,759
Tax payable
$4,775
Accounts receivable increase
($8,331)
Inventory increase
($11,176)
Total change
($10,973)
* Cash generated from operating activities $442,265
Investing activities;
Proceed from sale of land
$35,560
Purchase of building
($293,624)
Cash used from investing activities
$258,064
Financing activities
Issuance of shares
$203,200
Treasury shares purchase
$26,416
Dividends paid
($12,192)
Cash generated from financing activities
$164,592
Cash generated for the year
$348,793
Beginning cash
$45,720
Ending cash
$394,513
A newly formed company purchases investments classified as available-for-sale securities at a cost of $13,000. At the end of the year, the market value of the securities was $11,000. The financial statements at the end of the year would show which of the following?
A. No loss on the income statement Available-for-sale investments of $11,000 and an unrealized loss of $2,000 in stockholders' equity on the balance sheet
B. No loss on the income statement Available-for-sale investments of $13,000 on the balance sheet
C. Income Statement loss of $2,000 Available-for-sale investments of $13,000 on the balance sheet
D. Loss of $2,000 on the income statement Temporary investments of $11,000 on the balance sheet
Answer: A. No loss on the income statement Available-for-sale investments of $11,000 and an unrealized loss of $2,000 in stockholders' equity on the balance sheet.
Explanation:
Available-For-Sale (AFS) securities are not to have their gains or losses reflected in the income statement. They are to be reflected in the Other Comprehensive Income (OCI) section of the Stockholders Equity.
If there is a loss, the AFS security is written down by the loss amount which is then transferred to the OCI section of equity as an unrealized loss. It will reduce the OCI which would reduce the stockholders equity.
In this case therefore, AFS would go to $11,000 and OCI would record an unrealized loss of $2,000.
Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico. This subsequently drove up natural gas, gasoline, and heating oil prices. As a result, this should B) shift the short-run aggregate supply curve to the right. D) move the economy down along a stationary short-run aggregate supply curve. C) move the economy up along a stationary short-run aggregate supply curve. A) shift the short-run aggregate supply curve to the left.
Answer: A) shift the short-run aggregate supply curve to the left.
Explanation:
The oil and natural gas refining capacity in the Gulf of Mexico was destroyed which means that facilities in the Gulf will be unable to supply natural gas, gasoline and heating oil.
These are all very important commodities in the market and drive a lot of production. With the supply of these commodities decreasing and the subsequent slow down of production in multiple industries as a result, the aggregate supply curve will shift to the left in the short run to reflect the reduction in supply of goods in the economy.
Allen Corporation has provided the following information: Cash sales totaled $120,000. Credit sales totaled $209,000. Cash collections from customers for services yet to be provided totaled $38,000. Interest income totaled $7,700. Interest expense totaled $14,000 Required: How much of these items should be included in calculating operating income
Answer and Explanation:
The Interest Income and Interest Expense would not be considered while determining the operating income
The cash collections from customers would be treated to be an unearned revenue so the same would be deduted from the sales
The Cash Sales would be
= $120,000 - $38,000
= $82,000.
And, the Credit Sales would be $209,000.
SO, the Total Sales is
= $82,000 + $209,000
= $291,000.
The Unearned Revenue of $38,000 would be shown in the Current Liabilities section of the Balance Sheet.
Although the Fed has very strong influence over the money supply, it does not have complete control a.Because the Fed has no idea how much reserves will change when it buys or sells securities. b.Because of unpredictable changes in the public's desire to hold cash or borrow and banks' desires to hold reserves or lend. c.Because of unpredictable changes in reserve requirements. d.Because the FOMC meets only twice a year.
Answer: b. Because of unpredictable changes in the public's desire to hold cash or borrow and banks' desires to hold reserves or lend.
Explanation:
The Fed is able to embark on monetary policy that influences the entire country - and the world to some extent - because they have very strong influence over the money supply of the US$.
This influence is not absolute however because as the old adage goes, "you can lead a horse to water but you can't make him drink". In other words, the Fed can relax(impose) restrictions to make money more(less) available but they cannot force people to borrow(hold) that money.
They can't force banks either to either hold reserves or lend money out because banks are free to impose their own reserve limits on top of those of the Fed.
A dwelling with a replacement cost of $150,000 was insured under a Homeowners 3 policy for $105,000 at the time the roof was destroyed by a windstorm. The actual cash value of the loss was $10,000, but it will cost $15,000 to replace the roof. Ignoring any deductible, what will the insurer pay to settle this loss
Answer: $13125
Explanation:
The amount that the insurer will pay to settle this loss will be calculated thus:
= Insured claim × Insurance value / 80% of replacement value
= 15000 × 105,000 /80% × 150000.
= 15000 × 105,000 / 120000
= 13125
Therefore, the insurer will pay $13125
The following selected account balances are taken from the records of Cooper Corporation for the past two years.
December 31
2018 2017
Equipment $750 $400
Accumulated depreciation 160 225
Land 92 50
Bonds payable 30 50
Common stock 120 100
Additional paid in capital 400 320
Retained earnings 825 675
Other information available for 2018:
Net income for the year was $200.
Depreciation expense on plant and equipment was $70.
Equipment with an original cost of $200 and Accum. Dep. of $135 was sold at a gain of $5.
No land was sold during the year.
Both new equipment and land were purchased during the year.
Bonds payable were retired
Common stock was issued for cash.
Cash dividends were declared and paid.
1. How much cash did Cooper Corp. receive from the sale of equipment?
a. 60
b. 135
c. 195
d. 70
e. None of the above
2. What is Cooper Corp's net increase (decrease) in cash from investing activities?
a. 18
b. (522)
c. (397)
d. (480)
e. None of the above
3. What is Cooper Corp's net increase (decrease) in cash from financing activities?
a. 50
b. (80)
c. 30
d. (50)
e. None of the above
Answer:
Cooper Corporation
1. Cash received from the sale of equipment:
= d. 70
2. Decrease in cash from investing activities:
= b. (522)
3. Increase in cash from financing activities:
= c. 30
Explanation:
a) Data and Calculations:
December 31
2018 2017 Change
Equipment $750 $400 +$350
Accumulated depreciation (160) (225) +65
Land 92 50 +42
Bonds payable 30 50 -20
Common stock 120 100 +20
Additional paid in capital 400 320 +80
Retained earnings 825 675 +150
Net income for the year = $200
Depreciation expense = $70
Less Gain from sale of equipment $5
Equipment
Account Titles Debt Credit
Beginning balance $400
Cash purchase 550
Sale of equipment $200
Ending balance 750
Sale of equipment
Equipment $200
Accumulated depreciation $135
Cash 70
Gain from sale 5
Retained earnings:
Beginning balance $675
Net income 200
Dividends 50
Ending balance 825
Statement of Cash Flows (partial):
Investing activities:
Sale of equipment $70
Purchase of equipment -550
Purchase of land -42
Decrease in cash $522
Financing activities:
Bonds payable -20
Common stock +20
Additional paid in capital +80
Dividends paid -50
Increase in cash $30
Turrubiates Corporation makes a product that uses a material with the following standards: Standard quantity 7.5 liters per unit Standard price $ 2.00 per liter Standard cost $ 15.00 per unit The company budgeted for production of 3,300 units in April, but actual production was 3,400 units. The company used 26,200 liters of direct material to produce this output. The company purchased 19,600 liters of the direct material at $2.1 per liter. The direct materials purchases variance is computed when the materials are purchased. The materials quantity variance for April is:
Answer:
Direct material quantity variance= $1,400 unfavorable
Explanation:
Giving the following information:
Standard quantity 7.5 liters per unit Standard price $ 2.00 per liter
Actual production was 3,400 units.
The company used 26,200 liters of direct material.
To calculate the direct material quantity variance, we need to use the following formula:
Direct material quantity variance= (standard quantity - actual quantity)*standard price
Direct material quantity variance= (7.5*3,400 - 26,200)*2
Direct material quantity variance= (25,500 - 26,200)*2
Direct material quantity variance= $1,400 unfavorable
The company has 7 million shares of common stock outstanding. The current share price is $68, and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value of $70 million, a coupon rate of 6%, and sells for 97% of par. The second issue has a face value of $40 million, a coupon rate of 6.5%, and sells for 108% of par. The first issue matures in 21 years, the second in 6 years. Suppose the most recent dividend was $3.25 and the dividend growth rate is 5%. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 21%. What is the company’s WACC?
the total surface area of hemisphere is 4158sq then what is the circumference of the base
Answer:
C = 132 units
Explanation:
Given the following data;
TSA of hemisphere = 4158 sq units
To find the circumference of the base;
Mathematically, the total surface area of a hemisphere is given by the formula;
TSA of hemisphere = 3πr²
First of all, we would determine the radius of the hemisphere.
4158 = 3 * 22/7 * r²
Cross-multiplying, we have;
4158 * 7 = 3 * 22 * r²
29106 = 66r²
r² = 29106/66
r² = 441
Taking the square root of both sides, we have;
r = √441
r = 21 units
Next, we determine the circumference of the base using the same radius;
Circumference of circle, C = 2πr
C = 2 * 22/7 * 21
C = 924/7
C = 132 units
Rock Adventures has 15 employees each working 40 hours per week and earning $30 an hour. Federal income taxes are withheld at 15% and state income taxes at 6%. FICA taxes are 7.65% and unemployment taxes are 3.8% of the first $7,000 earned per employee. What is the actual direct deposit of payroll for the first week of January
Answer:
the actual direct deposit payroll is $12,843
Explanation:
The computation of the actual direct deposit payroll is shown below;
= Total salary - withholdings
= (15 × 40 × $30) - Federal income tax - state income tax - FICA tax
= $18,000 - ($18,000 × 0.15) - ($18,000 × 0.06) - ($18,000 × 7.65%)
= $12,843
Hence, the actual direct deposit payroll is $12,843
Basically we applied the above formula
HELP!
You should always emphasize a word in the middle of a sentence.
A.True
B.False
Answer:
false
Explanation:
bbbbbbbbbbbbbbbbb
Fosters Manufacturing Co. warrants its products for one year. The estimated product warranty is 4% of sales. Assume that sales were $280,000 for January. On February 7, a customer received warranty repairs requiring $180 of parts and $105 of labor.a. Journalize the adjusting entry required at January 31, the end of the first month of the current fiscal year, to record the accrued product warranty. b. Journalize the entry to record the warranty work provided in February.
Answer:
Explanation:
a. Journalize the adjusting entry required at January 31, the end of the first month of the current fiscal year, to record the accrued product warranty.
Debit: Product Warranty expense Account = $280,000 × 4% = $11200
Credit Product Warranty payable = $11200
b. Journalize the entry to record the warranty work provided in February.
Debit Product warranty payable Account $285
Credit Supplies account $180
Credit Wages payable account $105
Cal Poly Corporation would like to start a new project: building a high-tech rose float for the next regional contest. This rose float project will require $35,000 in the initial cost. The company is planning to raise this amount of money by selling new corporate bonds and new stocks. It has a target capital structure of 60 percent common stock, and 40 percent debt. Flotation costs for issuing new common stock is 7%, and for new debt it is 4%.
(a) The true required initial investment that Cal Poly Corporation should use in its valuation of the rose is:_____.
1. $36,920.
2. $36,820.
3. $35,000.
4. $33,180.
(b) The lower the flotation costs, the lower the initial investment that needs to be used in project valuation, and so the lower the project's Net Present Value. This statement is____.
1. True
2. False
Answer and Explanation:
The computation is shown below;
a.
Given that
Weight of Equity = 0.4
Weight of Debt = 0.6
The Flotation cost of Capital = Weight of Equity × Flotation cost of Equity + Weight of Debt × Flotation cost of Debt
= 7 × 0.4 + 4 × 0.6
= 5.2
Now
True cost is
= initial investment ÷ (1 - flotation cost %)
= $35,000 ÷ (1 - 0.052)
= $36,920
b
In the case when there is a less flotation cost so it would decreased the initial investment due to this there would be an increase in net present value
hence, the given statement is false
Riverboat Adventures pays $170,000 plus $14,000 in closing costs to buy out a competitor. The real estate consists of land appraised at $22,000, a building appraised at $79,200, and paddleboats appraised at $118,800. Compute the cost that should be allocated to the building. Multiple Choice $66,240. $61,200. $79,200.
Answer:
Total cost allocated to building = $66,240
Explanation:
Given:
Total amount pay = $170,000 + $14,000 = $184,000
Land appraised amount = $22,000
Building appraised amount = $79,200
Paddleboats appraised price = $118,800
Find:
Total cost allocated to building
Computation:
Total appraisal price = Land appraised amount + Building appraised amount + Paddleboats appraised price
Total appraisal price = $22,000 + $79,200 + 118,800
Total appraisal price = $220,000
Total cost allocated to building = [Total amount pay / Total appraisal price]Building appraised amount
Total cost allocated to building = [184,000/220,000]79,200
Total cost allocated to building = $66,240
A firm has three different investment options. Option A will give the firm $10 million at the end of one year, $10 million at the end of two years, and $10 million at the end of three years. Option B will give the firm $15 million at the end of one year, $10 million at the end of two years, and $5 million at the end of three years. Option C will give the firm $30 million at the end of one year, and nothing thereafter. Which of these options has the highest present value?
a. Option A
b. Option B
c. Option C
c. The depends on the rate of interest, which is not specified here
Net Present Value depends on the rate of interest, which is not specified here so we can not take any decision regarding the other options. The correct option is d.
The interest rate applied, which takes into account both the investment's risk and the time value of money, determines the present value of future cash flows. We cannot appropriately calculate the present value or compare the options without knowing the discount rate.
The future cash flows must be discounted to their present value using the proper discount rate in order to determine which option has the highest present value.
Thus, the ideal selection is option d.
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