Answer:
Hi how are you doing today Jasmine
The centralized computer technology department of Hardy Company has expenses of $320,000. The department has provided a total of 4,000 hours of service for the period. The Retail Division has used 2,750 hours of computer technology service during the period, and the Commercial Division has used 1,250 hours of computer technology service. How much should each division be charged for computer technology department services?
Answer:
Retail Division = $220,000
Commercial Division = $100,000
Explanation:
Step 1 : Determine the Overhead application rate
Overhead application rate = Overhead ÷ Total Activity
= $320,000 ÷ 4,000 hours
= $80 per hour
Step 2 : Apply the rate to the respective departments
Applied Overhead = Overhead application rate x Department Activity
therefore,
Retail Division = $80 x 2,750 hours = $220,000
and
Commercial Division = $80 x 1,250 hours = $100,000
Answer:
The centralized computer technology department of Hardy Company has expenses of $320,000. The department has provided a total of 4,000 hours of service for the period. The Retail Division has used 2,750 hours of computer technology service during the period, and the Commercial Division has used 1,250 hours of computer technology service. Additional data for the two divisions is following below: Retail Division Commercial Division $2,150,000 $1,200,000 800,000 175,000 Sales Cost of goods sold 1,300,000 Selling expenses Determine the divisional income from operations for the Retail Division and the Commercial Division. Do not round interim calculations. 150,000 Hardy Company Divisional Income from Operations Commercial Division Retail Division Income from operations
Explanation:
Jeremy and Alyssa Johnson have been married for five years and do not have any children. Jeremy was married previously and has one child from the prior marriage. He is self-employed and operates his own computer repair store. For the first two months of the year, Alyssa worked for Office Depot as an employee. In March, Alyssa accepted a new job with Super Toys Inc. (ST), where she worked for the remainder of the year. This year, the Johnsons received $274,000 of gross income.
Expenses associated with Jeremy’s store include $44,750 in salary (and employment taxes) to employees, $50,700 of supplies, and $19,900 in rent and other administrative expenses.
As a salesperson, Alyssa incurred $2,190 in travel expenses related to her employment that were not reimbursed by her employer.
The Johnsons own a piece of raw land held as an investment. They paid $690 of real property taxes on the property and they incurred $295 of expenses in travel costs to see the property and to evaluate other similar potential investment properties.
The Johnsons own a rental home. They incurred $8,690 of expenses associated with the property.
Jeremy paid $4,690 for health insurance coverage for himself (not through an exchange). Alyssa was covered by health plans provided by her employer, but Jeremy is not eligible for the plan until next year.
Jeremy paid $2,690 in self-employment taxes ($1,345 represents the employer portion of the self-employment taxes).
Jeremy paid $5,380 in alimony and $3,285 in child support from his prior marriage (divorced in 2010).
The Johnsons donated $2,190 to their favorite charity.
Determine the Johnson's AGI given the above information:
Answer: $138545
Explanation:
Given the above information, Johnson's AGI is calculated below:
Gross income = $274000
Less: Business expenses = $44750 + $50700 + $19900 = $115350
Less: Rental expenses = $8690
Less: Self employed health insurance = $4690
Less: Self employed taxes = $1345
Less: Alimony = $5380
AGI = $138545
Penny is paid a gross wage of $2,648.00 on a monthly basis. She is single and is entitled to 2 withholding allowances. How much income tax, social security, and Medicare will be withheld based on the combined wage bracket tables in Exhibits 9-3 and 9-4 from your text
Answer:
The combined wage bracket tables in Exhibits 9-3 and 9-4 is missing hence I will use 2014 tax year
answer :
a) Federal income tax withheld
= 75.6 + ( 1989.60 - 944 )*15% = $232.44
b) social security
6% * 1989.6 = $119.38
c) Medicare
1.45% * 1989.6 = $28.85
Explanation:
For a single individual
Two withholding allowance = $329.20 * 2 = $658.40
Gross Pay = $2648
withholding allowance = $658.40
Subject to withholding = $2648 - $658.40 = $1989.60
a) Federal income tax withheld
= 75.6 + ( 1989.60 - 944 )*15% = $232.44
b) social security
6% * 1989.6 = $119.38
c) Medicare
1.45% * 1989.6 = $28.85
You own a stock portfolio invested 35 percent in Stock Q, 25 percent in Stock R, 25 percent in Stock S, and 15 percent in Stock T. The betas for these four stocks are .83, 1.21, 1.22, and 1.39, respectively. What is the portfolio beta
Answer:
Beta= 1.1065
Explanation:
Giving the following formula:
Proportions:
35 percent in Stock Q, 25 percent in Stock R, 25 percent in Stock S, and 15 percent in Stock T.
Betas:
0.83, 1.21, 1.22, and 1.39,
To calculate the beta of the portfolio, we need to use the following formula:
Beta= (proportion of investment A*beta A) + (proportion of investment B*beta B)
Beta= (0.35*0.83) + (0.25*1.21) + (0.25*1.22) + (1.15*1.39)
Beta= 1.1065
Cullumber Company incurred the following costs while manufacturing its product.
Materials used in product $121,000 Advertising expense $46,000
Depreciation on plant 61,000 Property taxes on plant 15,000
Property taxes on store 7,600 Delivery expense 22,000
Labor costs of assembly-line workers 111,000 Sales commissions 36,000
Factory supplies used 24,000 Salaries paid to sales clerks 51,000
Work in process inventory was $13,000 at January 1 and $16,600 at December 31. Finished goods inventory was $61,000 at January 1 and $45,700 at December 31.
Required:
Compute cost of goods manufactured.
Answer:
$328,400
Explanation:
Cost of Goods Manufactured is calculated in Manufacturing Account as follows :
Cost of Goods Manufactured = Beginning Work In Process Inventory + Total Manufacturing Costs - Ending Work In Process Inventory
therefore,
Cost of Goods Manufactured = $13,000 + ($121,000 + $61,000 + $15,000 + $111,000 + $24,000) - $16,600
= $328,400
At the end of a fiscal period, expense accounts are closed through
Answer:
see the explanation
Explanation:
The temporary accounts get closed at the end of an accounting year. Temporary accounts include all of the income statement accounts (revenues, expenses, gains, losses), the sole proprietor's drawing account, the income summary account, and any other account that is used for keeping a tally of the current year amounts.
Which task do all finance careers have in common, and which task is designed mainly for insurance careers?
a) All finance careers review budgets, and insurance careers help customers complete transactions.
b) All finance careers calculate taxes owed, and insurance careers handle money and analyze credit reports.
c) All finance careers advise customers on finances, and insurance careers handle risk management.
d) All finance careers develop investment strategies, and insurance careers sell financial products.
Answer:
C.) All finance careers advise customers on finances, and insurance careers handle risk management.
Explanation:
they help with risk management and finances etc
Answer:
C
Explanation:
Which Finance career involves the stock market?
Financial and Investment Planning
Insurance Services
Business Financial Management
Banking and Related Services
Answer:
Financial and investment planning
The finance career that involves looking into the stock market is Financial and Investment Planning.
What does financial investment and planning entail?Those who are involved in financial planning and investment have the goal of analyzing investments such that they can make returns for their clients.
One way they do this is by analyzing the stock market as this provides a way to make returns based on the movement of stock prices.
Find out more on financial planning at https://brainly.com/question/12890843.
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Time, energy, and money are examples of:
-unlimited resources.
-limited resources.
-flexible resources
-fixed resources
Answer:
Flexible resources
Explanation:
Flexible resources are defined as those that can be utilised under different categories of resource groups.
They are able to serve multiple functions.
For example money can be used for different activities like production of goods, training of staff, purchase of raw materials, and so on.
Time can be allocated to different endeavours.
Same applies to energy. It can be focused on pursuing various objectives
"Bad news," thought Sloan Simpkins. "At our mid-year financial review meeting, I will be the only division president with year-to-date results that are disappointing. That means that the CEO and CFO will be concentrating their attention on me." If Sloan is correct in his thinking, the CEO and CFO will use _____________ to enhance control by concentrating on significant deviations from the expected results.
Answer:
The principle of exception
Explanation:
The principle of exception is a style of management or supervision that focuses on results that deviates from normal expectations.
One major advantage of this style is that it ensures efficiency in the workplace.
These deviations can either be positive or negative, and as they come to the attention of the supervisor he can give reward or sanctions as the case applies.
In the given instance where the CEO and CFO will be concentrating on Sloan because he is the only division president with year-to-date results that are disappointing.
Problem 2-15 (Algorithmic) Life Insurance (LO 2.8) Sharon transfers to Russ a life insurance policy with a cash surrender value of $24,800 and a face value of $74,400 in exchange for real estate. Russ continues to pay the premiums on the policy until Sharon dies 7 years later. At that time, Russ has paid $11,160 in premiums, and he collects the $74,400 face value. How much of the proceeds, if any, is taxable to Russ
Answer:
$38,440
Explanation:
Calculation to determine How much of the proceeds, if any, is taxable to Russ
Face value of policy $74,400
Less: Cash Surrender value ($24,800)
Less: Premium paid ($11,160)
Taxable Proceeds $38,440
Therefore the taxable Proceeds are $38,440.
Item6 0.5 points Time Remaining 1 hour 22 minutes 30 seconds01:22:30 Item 6 Time Remaining 1 hour 22 minutes 30 seconds01:22:30 Second National Bank (SNB) (million $) Funds borrowed $ 6,500 Maximum amount SNB can still borrow $ 8,500 Cash-type assets $ 3,700 Excess cash reserves $ 80 Federal Reserve borrowings $ 20 What are Second National Bank's total sources of liquidity? Multiple Choice $6,520 $13,500 $5,760 $14,200 $12,280
Answer:
$12,280
Explanation:
Calculation to determine the Second National Bank's total sources of liquidity
Maximum amount SNB can still borrow $ 8,500 Add Cash-type assets $ 3,700
Add Excess cash reserves $ 80
TOTAL SOURCES OF LIQUIDITY $12,280
($8,500+$3,700+$80)
Therefore the Second National Bank's total sources of liquidity will be $12,280
Warrants exercisable at $15 each to obtain 81000 shares of common stock were outstanding during a period when the average market price of the common stock was $20. Application of the treasury stock method for the assumed exercise of these warrants in computing diluted earnings per share will increase the weighted average number of outstanding shares by:_________
a. 20250.
b. 81000.
c. 27000.
d. 60750.
Answer:
a. 20250
Explanation:
Calculation to determine diluted earnings per share will increase the weighted average number of outstanding shares
Diluted earnings per share=[$81,000- (81,000 × $15) ÷ $20 ]
Diluted earnings per share=[$81,000-($1,215,000÷$20)]
Diluted earnings per share=$81,000-$60,750
Diluted earnings per share=$20,250.
Therefore in computing diluted earnings per share will increase the weighted average number of outstanding shares by:$20,250
Taylor has owned and occupied her personal residence (adjusted basis of $190,000) for four years. In April 2015, she sells the residence for $300,000 (selling expenses are $20,000). On the same day as the sale, Taylor purchases another house for $350,000. Because of noisy neighbors, she sells the new house after just 10 months. The selling price is $483,000 (selling expenses are $18,000).
What is Taylor’s recognized gain on the sale of the first residence?
What is Taylor’s basis for her second residence?
What is Taylor’s recognized gain on the sale of the second residence?
Assume instead that the sale of the second residence was due to Taylor’s job transfer to another state. What is her recognized gain on the sale of the second residence?
Answer:
a) $90,000
b) $260,000
c) $115000
Explanation:
a) First House
Cost price = $190,000 + selling expense = $20,000 = $210,000
Selling price = $300,000
Gain on selling of first house
$300,000 - $210,000 = $90,000
b) Cost price of second house = $350,000
Base price spent on second house = $350,000 - $90,000 = $260,000
c) Gain on sale of second house = $483,000 -($350,000 + $18,000) = $115000
On January 1, 2020, Jet Air Inc. contracted with Systems Plus Inc. to manufacture heavy equipment. Jet Air Inc. issued a $135,000 note to Systems Plus Inc. in exchange for the equipment that required 5% interest payments annually over 3 years on December 31 of each year. Although the fair value of the customized heavy equipment was not reasonably determinable, it was determined that 10% was a reasonable rate of interest for such a transaction. Provide journal entries to be made by Jet Air Inc. at each of the following dates. a. January 1, 2020 ---Date of note issuance. b. December 31, 2020 ---Date of interest payment. c. December 31, 2021 ---Date of interest payment. d. December 31, 2022 ---Date of interest payment. e. December 31, 2022 ---Date of note payment at maturity. Note: List multiple debits or credits (when applicable) in alphabetical order. Note: Round your answer to the nearest whole dollar. Note: Adjust interest expense in 2022 for any net rounding differences.
Answer:
Jet Air Inc.
Journal Entries:
a. January 1, 2020 ---Date of note issuance:
Debit Equipment $135,000
Credit Note Payable $135,000
To record the cost of the heavy equipment exchanged with a note.
b. December 31, 2020 ---Date of interest payment:
Debit Interest Expense $6,750
Credit Cash $6,750
To record the interest expense for the first year.
c. December 31, 2021 ---Date of interest payment.
Debit Interest Expense $6,750
Credit Cash $6,750
To record the interest expense for the second year.
d. December 31, 2022 ---Date of interest payment.
Debit Interest Expense $6,750
Credit Cash $6,750
To record the interest expense for the third year.
e. December 31, 2022 ---Date of note payment at maturity.
Debit Note Payable $135,000
Credit Cash $135,000
To record the payment of the note at maturity.
Explanation:
Note Payable for the heavy equipment = $135,000
Reasonable rate of interest for the heavy equipment = 10%
Fair value of the heavy equipment = $148,500 ($135,00 * 1.10)
Discount obtained = $13,500 ($148,500 - $135,000)
Required interest = 5% annually = $6,750 ($135,000 * 5%)
Theo owns 51% and Lucy owns 49% of Candy Corporation’s stock. Theo and Lucy are unrelated. One year before the complete liquidation of Candy Corporation, Theo transfers land (basis of $210,000, fair market value of $140,000) to Candy Corporation as a §351 contribution. Assume that Theo also contributed other property in the same transaction having a basis of $20,000 and fair market value of $120,000. In liquidation, Candy Corporation distributes the land to Lucy. At the time of the liquidation, the land is worth $130,000. How much loss, if any, will Candy Corporation recognize with respect to the distribution of the land?
Answer:
e
Explanation:
ethe pressure of a mass of saturated steam is 14.5 bar .if the dryness fraction of the steam is 0.75 then determine
International businesses with markets and production facilities in other countries, or that use materials from different countries need to understand the ways and rates at which currency is converted.
a. True
b. False
Answer: True
Explanation:
International businesses that has its markets and its production facilities in other countries, or a business that uses resources from other countries should understand the exchange rate system and how it works.
Different policies are pursued by the government and there's no universal exchange rate system, therefore it's vital for businesses to look at the foreign markets and their currency conversion.
Recently, the management of Carrefour reviewed its situation under conditions of stagnant growth and increasing competition from international rivals like Wal-Mart, Tesco, etc. A team of consultants has been hired to evaluate the retail giant’s performance. As one of case team members, what metrics would you use to evaluate Carrefour’s performance?
Answer:
Market Dominance.
Explanation:
I believe that the best metric to evaluate in such a situation would be Market Dominance. In other words, the percentage of dominance that Carrefour has in its own market, in comparison to the rest of the competition such as Wal-Mart and Tesco. This would allow management to see if they have lost, maintained, or gained market dominance in this period of time which will in term give them an idea of their performance within the market and whether or not they should be worried about the competition.
Identify which of the following are primary activities and which are support activities in a value chain. Review Later A Inbound movement of materials Sales and promotion of products/services Management of cash inflows and outflows Movement of final products to customers Acquisition of materials from external source Quality assurance, control systems and work culture Maintenance of products Research and development Primary activities Support activities
Answer:
According to Michael Porter's value chain, Primary Activities are meant to create more value than they cost so that the company makes a profit while the support activities are meant to support the primary activities.
Primary Activities include:
Inbound movement of materials Sales and promotion of products/services Movement of final products to customers Maintenance of productsSupport Activities
Management of cash inflows and outflowsAcquisition of materials from external sourceQuality assurance, control systems and work culture Research and developmentAhnberg Corporation had 580,000 shares of common stock issued and outstanding at January 1. No common shares were issued during the year, but on January 1, Ahnberg issued 200,000 shares of convertible preferred stock. The preferred shares are convertible into 400,000 shares of common stock. During the year Ahnberg paid $120,000 cash dividends on the preferred stock. Net income was $1,222,000.
Required:
What were Ahnberg's basic and diluted earnings per share for the year?
Answer:
basic earnings per share = $1.90
diluted earnings per share = $1.25
Explanation:
Basic Earnings per share = Earnings attributable to holders of Common Stock ÷ Weighted Average Number of Common Stocks Outstanding.
where,
Earnings attributable to holders of Common Stock = $1,222,000 - $120,000 = $1,102,000
and
Weighted Average Number of Common Stocks Outstanding = 580,000 shares
therefore,
Basic Earnings per share = $1.90
Diluted Earnings per share = Adjusted Earnings attributable to holders of Common Stock ÷ Adjusted Weighted Average Number of Common Stocks Outstanding.
where,
Adjusted Earnings attributable to holders of Common Stock = $1,222,000
and
Weighted Average Number of Common Stocks Outstanding = 580,000 + 400,000 = 980,000 shares
therefore,
Diluted Earnings per share = $1.25
Each visor requires a total of $4.00 in direct materials that includes an adjustable closure that the company purchases from a supplier at a cost of $2.00 each. Shadee wants to have 27 closures on hand on May 1, 20 closures on May 31, and 28 closures on June 30 and variable manufacturing overhead is $1.25 per unit produced. Suppose that each visor takes 0.30 direct labor hours to produce and Shadee pays its workers $12 per hour.
Budgeted Production in Units:
May 585
June 410
Required:
a. Determine Shadee's budgeted manufacturing cost per visor. (Note: Assume that fixed overhead per unit is $1.90.) (Round your answer to 2 decimal places.)
b. Compute the Shadee's budgeted cost of goods sold for May and June.
Answer:
A. $10.75
B. May $6,288.75
June $4,407.5
Explanation:
A . Calculation to Determine Shadee's budgeted manufacturing cost per visor.
Budgeted direct Material $4.00
Direct labor $3.6
(0.30*$12)
ariable manufacturing overhead is $1.25
Fixed overhead per unit is $1.90
Budgeted manufacturing cost per visor $10.75
Therefore Shadee's budgeted manufacturing cost per visor is $10.75
B. Computation for Shadee's budgeted cost of goods sold for May and June.
May June
Expected sales units 585 410
Minimum cost per unit $10.75 $10.75
Budgeted cost of goods sold for May and June
$6,288.75 $4,407.5
May (585*$10.75=$6,288.75)
June(410*$10.75=$4,407.5)
Therefore the budgeted cost of goods sold for May is $6,288.75 and June is $4,407.5.
Misterio Company uses a standard costing system. During the past quarter, the following variances were computed:
Variable overhead efficiency variance $ 24,000 U
Direct labor efficiency variance 120,000 U
Direct labor rate variance 10,400 U
Misterio applies variable overhead using a standard rate of $2 per direct labor hour allowed. Two direct labor hours are allowed per unit produced. (Only one type of product is manufactured.) During the quarter, Misterio used 30 percent more direct labor hours than should have been used.
Required:
1. What were the actual direct labor hours worked? The total hours allowed?
2. What is the standard hourly rate for direct labor? The actual hourly rate?
3. How many actual units were produced?
Answer:
1. Total hours allowed = 40,000
Actual direct labour hours worked = 52,000.
2. Standard hourly rate = $10
Actual rate = $10.2
3. Actual output= 20,000 units
Explanation:
The variable overhead efficiency variance in hours= variable overhead efficiency variance in Dollar/Variable overhead standard rate
= $24,000/$2= 12,000 hours unfavorable
Let the actual hours be V
Let the standard hours for the actual output achieved be = V
The actual hours worked = 130% of the standard hours allowed
Actual hours =130% × V = 1.3V
1.3V - V= 12,000
V=12000/0.3=40,000
Total hours allowed = 40,000
Actual labour hours= 130%× 40,000=52,000
Total hours allowed = 40,000
Actual direct labour hours worked = 52,000.
Standard labour rate =
Labour effciency variance in Dollar /Labour efficiency variance in hours
= 120,000/12,000=$10
Standard hourly rate = $10
Rate variance = (Actual rate - standard rate)× Actual hours
Let the actual rate be = Y
10,400 = ( Y - 10) × 52,000
10,400= 52000Y- 520,000
Y= (520,000 + 10,400)/52,000=10.2
Actual rate = $10.2
Standard labour hours for actual output = Actual output × standard hours
Let the actual output be = m
40,000 = m × 2
m= 40,000/2= 20,000 units
Actual output= 20,000 units
Variance analysis reports can be prepared to examine the difference between budgeted and actual figures for:
Production in terms of cost, quantity and quality
Sales
Profit
Income per sales dollar
Growth rate
Required:
Complete the following variance analysis report.
Variance Analysis Report Actual Budget Variances
REVENUE 320,000 318,750
Direct Expense (variable) 101,000 100,000
Allocated general expenses (fixed) 78,000 80,000
Allocated service expenses:
Department 1 20,500 20,000
Department 2 65,000 62,500
Department 3 101,500 100,000
TOTAL EXPENSES
NET INCOME
Answer:
Following are the responses to the given question:
Explanation:
Report on varying analyses Current Fiscal Variations
Income 320000 318750 -1250
Direct expenditure (variable) 101000 100000 -1000
General expenditure allocated (fixed) 78000 80000 2000
Operation costs allocated:
Section 1 20500 20000 -500
Section 2 65000 62500 -2500
Section 3 101500 100000 -1500
Total expenses 366000 362500 -3500
Total Income - 46000 -43750 -2250
Two companies, A and B, both have $1 million in assets, earnings before interest and taxes (EBIT) of $160,000, and the same tax rate. Company A is all equity financed, and Company B is 50% debt financed and 50% equity financed. If Company B's pretax cost of debt is 8%, then Company A will have a ROA that is _____ and a ROE that is _____ than Company B's. a. Option D b. Option B c. Option A d. Option C
Question Completion with Options:
A) lower, higher
B) higher, higher
C) lower, lower
D) higher, lower
Answer:
Companies A and B
If Company B's pretax cost of debt is 8%, then Company A will have a ROA that is __higher___ and a ROE that is __lower___ than Company B's.
a. Option D
Explanation:
a) Data and Calculations:
Company A Company B
Assets $1,000,000 $1,000,000
EBIT 160,000 160,000
Tax rate = same
Equity 100% 50%
Debts 0% 50%
Equity $1,000,000 $500,000
Debts $0 $500,000
Pretax cost of debt 0% 8%
Interest expense $0 $40,000
Pretax income $160,000 $120,000
ROA (Return on assets) = Pretax income/Assets * 100
= 16% 12%
ROE (Return on equity) = Pretax income/Equity * 100
= 16% 24%
Observation #2
Observation #1
Date
Information about the business:
1. What is the name of the
business?
2. What type of business is it?
3. What products or services
does the business offer?
Answer:
1. A business name is your business's legal name. It is the official name of the person or entity that owns a company. And, it's the name you use on your government forms and business paperwork.
2. Review common business structures
Sole proprietorship. A sole proprietorship is easy to form and gives you complete control of your business. ...
Partnership. Partnerships are the simplest structure for two or more people to own a business together. ...
Limited liability company (LLC) ...
Corporation. ...
Cooperative.
3. A product is a tangible item that is put on the market for acquisition, attention, or consumption, while a service is an intangible item, which arises from the output of one or more individuals.
Marigold Corp. issued at a premium of $10500 a $192000 bond issue convertible into 4700 shares of common stock (par value $20). At the time of the conversion, the unamortized premium is $4000, the market value of the bonds is $212000, and the stock is quoted on the market at $60 per share. If the bonds are converted into common, what is the amount of paid-in capital in excess of par to be recorded on the conversion of the bonds
Answer: $102000
Explanation:
The following can be deduced fkem the question:
Face value of bonds = $192000
Unamortized Premium = $4000
Conversion of Equity Shares = 4700 x $20 = $94000
Paid in Capital in Excess of Par = $192000 + $4000 - $94000
= $102000
A firm is considering moving from the United States to Mexico. The firm pays its U.S. workers $30.00 per hour. Currently, U.S. workers have a marginal product of 45 units, whereas Mexican workers have a marginal product of 9 units. In order for the firm to reduce its wage cost per unit of output by moving to Mexico, the wages in Mexico must be below_________per hour.
Answer: $6.00
Explanation:
From the question, we can see that the productivity in the United States is (45/9) = 5 times higher than that of Mexico.
Therefore, the wages in Mexico should be 5 times lower than the wages paid to the workers in the United States. This will be:
= $30.00 / 5
= $6.00
Therefore, in order for the firm to reduce its wage cost per unit of output by moving to Mexico, the wages in Mexico must be below $6.00 per hour.
Quantitative Problem: Barton Industries expects that its target capital structure for raising funds in the future for its capital budget will consist of 40% debt, 5% preferred stock, and 55% common equity. Note that the firm's marginal tax rate is 25%. Assume that the firm's cost of debt, rd, is 9.0%, the firm's cost of preferred stock, rp, is 8.2% and the firm's cost of equity is 11.6% for old equity, rs, and 11.9% for new equity, re. What is the firm's weighted average cost of capital (WACC1) if it uses retained earnings as its source of common equity
Answer: 9.49%
Explanation:
Formula for WACC:
WACC = (Cost of Equity * Weight of equity) + [(Cost of debt * weight of debt) * (1 - tax rate)] + (Cost of Preference share * weight of preference share).
As we are using retained earnings, this is not a new stock issue so the relevant cost of equity to use is the old one.
WACC = (11.6% * 55%) + [(9% * 40%) * (1 - 25%)] + (8.2% * 5%)
= 9.49%
Florida Seaside Oil Exploration Company is deciding whether to drill for oil off the northeast coast of Florida. The company estimates that the project would cost $4.24 million today. The firm estimates that once drilled, the oil will generate positive cash flows of $2.12 million a year at the end of each of the next four years. While the company is fairly confident about its cash flow forecast, it recognizes that if it waits two years, it would have more information about the local geology as well as the price of oil. Florida Seaside estimates that if it waits two years, the project would cost $4.59 million. Moreover, if it waits two years, there is a 85% chance that the cash flows would be $2.306 million a year for four years, and there is a 15% chance that the cash flows will be $0.705 million a year for four years. Assume that all cash flows are discounted at a 8% WACC. Will the company delay the project and wait until they have more information
Answer:
The company will invest now and not delay
Explanation:
In order to determine the better option, we have to determine the Net present value of each of the option.
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
The option with the higher NPV would be chosen
First option
Cash flow in year 0 = $-4.24 million
Cash flow in year 1 = $2.12 million
Cash flow in year 2 = $2.12 million
Cash flow in year 3 = $2.12 million
Cash flow in year 4 = $2.12 million
I = 8%
NPV = 2.78 million
Second option
NPV of the cash flow with $2.306 million a year for four years
Cash flow in year 0 = 0
Cash flow in year 1 = 0
Cash flow in year 2 = $-4.59 million.
Cash flow in year 3 = $2.306
Cash flow in year 4 = $2.306 million
Cash flow in year 5 = $2.306 million
Cash flow in year 6 = $2.306 million
I = 8
NPV = $2.61 million
NPV when cash flows would be $0.705 million
Cash flow in year 0 = 0
Cash flow in year 1 = 0
Cash flow in year 2 = $-4.59 million.
Cash flow in year 3 = $0.705 million
Cash flow in year 4 = $0.705 million
Cash flow in year 5 = $0.705 million
Cash flow in year 6 = $0.705 million
I = 8 %
NPV = -1.93 million
NPV of the second option = (0.85 x $2.61 million) + (0.15 x 0) = $2.22 million
The NPV when cash flows would be $0.705 million is zero because the NPV is negative and thus would not be undertaken.
The company will invest now and not delay because the NPV of not waiting is greater than the NPV of delaying
To find the NPV using a financial calculator:
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
Sarah Sandoval is a coffee farmer trying to decide how many tons of coffee to produce. She can sell each ton of coffee for $2000. The cost of producing the first ton of coffee is $500, for the second ton, it's $1000. For each additional ton of coffee produced, the marginal cost increases by $500. How many tons of coffee should Sarah produce, and what is the total cost of her coffee production
Answer:
She will produce four tons at a total cost of $5,000
Explanation:
For each additional ton of coffee produced the marginal cost is increase by $500. This means that when Sarah reaches the fourth ton of coffee the cost of producing the ton of coffee would be $2,000.
At this point she is neither making any profit nor any loss. So, this would be her maximum limit of producing the ton of coffee.
The total cost of producing the four tons of coffee would be $5,000 ($500 for first + $1,000 for second + $1,500 for third + $2,000 for fourth).