Pastner Brands is a calendar-year firm with operations in several countries. As part of its executive compensation plan, at January 1, 2021, the company issued 320,000 executive stock options permitting executives to buy 320,000 shares of Pastner stock for $28 per share. One-fourth of the options vest in each of the next four years beginning at December 31, 2021 (graded vesting). Pastner elects to separate the total award into four groups (or tranches) according to the year in which they vest and measures the compensation cost for each vesting date as a separate award. The fair value of each tranche is estimated at January 1, 2021, as follows:

Vesting Date Amount Vesting Fair Value per Option
Dec. 31, 2018 25% $4.00
Dec. 31, 2019 25% $4.40
Dec. 31, 2020 25% $4.80
Dec. 31, 2021 25% $5.60

Required:
a. Determine the compensation expense related to the options to be recorded each year 2018-2021, assuming Pastner allocates the compensation cost for each of the four groups (tranches) separately.
b. Determine the compensation expense related to the options to be recorded each year 2018-2021, assuming Pastner uses the straight-line method to allocate the total compensation cost.

Answer:

Pastner Brands

a. Compensation expense related to the options to be recorded each year, allocated with separate tranches:

Vesting Date   Amount Vesting   Fair Value     Compensation

                                                     per Option         Expense

Dec. 31, 2018       25% = 80,000       $4.00            $320,000

Dec. 31, 2019      25% = 80,000        $4.40              352,000

Dec. 31, 2020     25% = 80,000       $4.80               384,000

Dec. 31, 2021      25% = 80,000       $5.60               448,000

Total                 100%   320,000                           $1,504,000

b. Compensation expense related to the options, allocated using the straight-line method:

= $376,000

Explanation:

a) Data and Calculations:

Executive stock options issued = 320,000

Options exercise price = $28 per share

Number of tranches for the options = 4

Number of options exercisable in each tranche = 80,000

Vesting Date   Amount Vesting   Fair Value     Compensation

                                                     per Option         Expense

Dec. 31, 2018       25% = 80,000       $4.00       $320,000 (80,000 * $4.00)

Dec. 31, 2019      25% = 80,000        $4.40         352,000 (80,000 * $4.40)

Dec. 31, 2020     25% = 80,000       $4.80          384,000 (80,000 * $4.80)

Dec. 31, 2021      25% = 80,000       $5.60          448,000 (80,000 * $5.60)

Total                 100%   320,000                      $1,504,000

Compensation expense, using the straight-line method = $376,000 ($1,504,000/4)

Oscanda Accessories Corporation manufactured 21,400 travel bags during March. The following fixed overhead data pertain to March: Actual Static Budget Production 21,400 units 22,000 units Machine-hours 3,400 hours 4,400 hours Fixed overhead cost for March $176,300 $184,800 What is the amount of fixed overhead spending variance

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A factory worker makes $17.50 per hour. Next month, she will receive a 1.5% increase in her hourly rate. What will her new hourly rate be?
​

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Project Soup Project Nuts
Initial investment $400,000 $600,000
Annual net income 30,000 46,000
Net annual cash inflow 110,000 146,000
Estimated useful life 5 years 6 years
Salvage value -0- -0-
The company requires a 10% rate of return on all new investments.
Present Value of an Annuity of 1
Periods 9% 10% 11% 12%
5 3.890 3.791 3.696 3.605
6 4.486 4.355 4.231 4.111
The net present value for Project Nuts is
QUESTION 2:
Benet Division of United Refinery Company's operating results include: controllable margin, $200,000; sales $2,200,000; and operating assets, $800,000. The Benet Division's ROI is 25%. Management is considering a project with sales of $100,000, variable expenses of $60,000, fixed costs of $40,000; and an asset investment of $150,000. Should management accept this new project?
A) Yes, since ROI will increase.
B) No, since ROI will be lowered.
C) Yes, since additional sales always mean more customers.
D) No, since loss will be incurred.
QUESTION 3:
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QUESTION 4:
A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs:
Variable
Fixed
Indirect materials $120,000 Depreciation $50,000
Indirect labor 160,000 Taxes 10,000
Factory supplies 20,000 Supervision 40,000
A flexible budget prepared at the 90,000 machine hours level of activity would show total manufacturing overhead costs of:__________
QUESTION 5:
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Present Value of an Annuity of 1
Period 8% 9% 10% 11% 12% 15%
6 4.623 4.486 4.355 4.231 4.111 3.784
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Safari limited acquired 2 new 7-ton buses on 1 January 1990 for £129,150. The cash price of

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Required

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If we consider the effect of taxes, then the degree of operating leverage can be written as:

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Required:
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a. $6,000 21
b. $2,000
c. $1,500
d. $0

A.The loss on the cash sale of equipment was $22,125 (details in b).
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Prepare a complete statement of cash flows; report its operating activities using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

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What is an example of goods?
O a hotel room
O a good haircut
O a car wash
O a hard cover book

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New Line Cinema is considering producing a new movie. To evaluate the proposal, the company needs to calculate its cost of capital. The firm has collected the following information:

a. The company wants to maintain is current capital structure, which is 20% equity, 20% preferred stock and 60% debt.
b. The firm has marginal tax rate of 34%.
c. The firm's preferred stock pays an annual dividend of $4.3 forever, and each share is currently worth $135.26.
d. The firm has one bond outstanding with a coupon rate of 6%, paid semiannually, 10 years to maturity, a face value of $1,000, and a current price of $1,163.51.
e. The company's beta is 0.8, the yield on Treasury bonds is is 0.6% and the expected return on the market portfolio is 6%.
f. The current stock price is $39.17. The firm has just paid an annual dividend of $1.13, which is expected to grow by 4% per year.
g. The firm uses a risk premium of 3% for the bond-yield-plus-risk-premium approach.
h. New preferred stock and bonds would be issued by private placement, largely eliminating flotation costs. New equity would come from retained earnings, thus eliminating flotation costs.

Required:
a. What is the cost of equity using the bond yield plus risk premium?
b. What is the midpoint of the range for the cost of equity?
c. What is the company's weighted average cost of capital?