Answer:
Grayslake Novelty
Effective Communication by a business executive:
a. Using last year's level of sales:
a1. Contribution Margin:
= Selling price minus variable cost
= $5.00 - $2.75 = $2.25
a2. Breakeven in units:
= Fixed Costs/Contribution margin
= $180,000/$2.25 = 80,000 units
a3. Breakeven in dollars:
= Fixed Cost/Contribution margin ratio
= $180,000/45% = $400,000
a4. Margin of Safety:
= Current Sales - Break-even Point (in dollars)
= $992,000 - $400,000
= $592,000
a5. Margin of Safety Ratio:
= (Current Sales - Break-even Point (in dollars))/Sales x 100
= ($992,000 - 400,000)/$992,000 x 100
= 59.68% or 60%
a6. Degree of operating leverage:
= (Sales minus Variable)/(Sales minus Variable and Fixed Costs)
= ($992,000 - $545,600)/($992,000 - $545,600 - $180,000)
= $446,400/266,400 = 1.68
OR
= Contribution /Net Operating Income
= $446,400/$266,400 = 1.68
b: Alternative 1: Reduction of the current price by 8%:
b1.Contribution Margin:
= Selling price minus variable cost
= $4.60 - $2.75 = $1.85
b2. Breakeven in units:
= Fixed Costs/Contribution margin
= $180,000/$1.85 = 97,297 units
b3. Breakeven in dollars:
= Fixed Cost/Contribution margin ratio
= $180,000/40%
= $450,000
b4. Margin of Safety:
= (Current Sales - Break-even Point (in dollars)
= $912,640 - $450,000 = $462,640
b5. Margin of Safety Ratio:
= (Current Sales - Break-even Point (in dollars))/Sales x 100
= $912,640 - $450,000)/$912,640 x 100
= 51%
b6. Degree of operating leverage:
= Contribution /Net Operating Income
= $367,040/187,040 = 1.96
c: Alternative 2: Reduction of current variable cost by $0.20 per unit:
c1.Contribution Margin:
Selling price - variable cost
= $5.00 - $2.55 = $2.45
c2. Breakeven in units:
=Fixed cost/Contribution margin per unit
= $180,000/$2.45 = 73,469 units
c3. Breakeven in dollars:
=Fixed cost/Contribution margin ratio
= $180,000/49% = $367,347
c4. Margin of Safety:
= (Current Sales - Break-even Point (in dollars)
= $992,000 - $367,347
= $624,653
c5. Margin of Safety Ratio:
= (Current Sales - Break-even Point (in dollars))/Sales x 100
= $624,653/$992,000 x 100
= 63%
c6. Degree of operating leverage:
= Contribution /Net Operating Income
= $486,080/$306,080
= 1.59
d: Alternative 3: Reduction of Current price by 8% and Variable Cost by $0.20 per unit:
d1.Contribution Margin:
= Selling price - variable cost
= $4.60 - $2.55 = $2.05
d2. Breakeven in units:
= Fixed cost/Contribution margin per unit
= $180,000/$2.05
= 87,805 units
d3. Breakeven in dollars:
= Fixed cost/Contribution margin ratio
= $180,000/45%
= $400,000
d4. Margin of Safety:
= (Current Sales - Break-even Point (in dollars)
= $912,640 - $400,000
= $512,640
d5. Margin of Safety Ratio:
= (Current Sales - Break-even Point (in dollars))/Sales x 100
= $512,640/$912,640 x 100 = 56.2%
d6. Degree of operating leverage:
= Contribution /Net Operating Income
= $406,720/$226,720
= 1.8
Explanation:
1) Data and Calculations:
Last Year Alt 1 Alt 2 Alt 3
Sales $992,000 $912,640 $992,000 $912,640
Less: Variable Expenses 545,600 545,600 505,920 505,920
Contribution Margin 446,400 367,040 486,080 406,720
Less: Fixed Costs 180,000 180,000 180,000 180,000
Net Operating Income $266,400 $187,040 $306,080 $226,720
Unit selling price = Sales/Quantity sold = $992,000/198,400 = $5.00
Alternative 1, selling price = $5.00 x 92% = $4.40
Sales = $4.60 x 198,400 = $912,640
Last year's
Contribution Margin ratio = Contribution Margin/Sales Value = 45%
Contribution per unit = Selling price x Contribution margin ratio
= $5 x 45% = $2.25
Variable cost per unit = Selling price - Contribution per unit
= $5 - $2.25 = $2.75 or 55% of selling price.
Alt 1:
Contribution margin ratio = Contribution margin/Sales = 40.22%
Contribution per unit = $4.60 x 40.22% = $1.85
Variable cost = Selling price - Contribution per unit = $4.60 - $1.85 = $2.75
Alt 2:
Variable cost = $2.75 - $0.20 = $2.55
Contribution per unit = $5 - $2.55 = $2.45
Contribution margin ratio = $2.45/$5 x 100 = 49%
Alt 3: Alternative 3: Reduction of Current price by 8% and Variable Cost by $0.20 per unit:
Sales = 198,400 x $4.60 = $912,640
Variable Cost per unit = $2.75 - $0.20 = $2.55
Total Variable cost = 198,400 x $2.55 = $505,920
Contribution margin per unit = $4.60 - $2.55 = $2.05
Contribution margin ratio = $2.05/$4.60 x 100 = 45%
The above ratios on the financial performances of Grayslake Novelty under different scenarios communicate some information to the president about the outcome of each alternative. From the analysis, it is easier for management to make a choice of the strategy to pursue in order to achieve its objectives.
Note that the operating leverage measures how the operating income responds to changes in sales for Grayslake Novelty given the alternatives.
Exercise 10-6 Direct Materials and Direct Labor Variances [LO10-1, LO10-2] Huron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labor standards for one unit of Zoom are given below: Standard Quantity or Hours Standard Price or Rate Standard Cost Direct materials 7.40 pounds $ 2.60 per pound $ 19.24 Direct labor 0.45 hours $ 8.00 per hour $ 3.60 During the most recent month, the following activity was recorded: 12,100.00 pounds of material were purchased at a cost of $2.50 per pound. All of the material purchased was used to produce 1,500 units of Zoom. 575 hours of direct labor time were recorded at a total labor cost of $5,750. Required: 1. Compute the materials price and quantity variances for the month. 2. Compute the labor rate and efficiency variances for the month.
Answer:
Instructions are below.
Explanation:
Giving the following information:
Direct material:
Standard= 7.40 pounds $ 2.60 per pound
Actual= 12,100 pounds of material were purchased for $2.50 per pound.
Direct labor:
Standard= 0.45 hours $ 8.00 per hour
Actual= 575 hours of direct labor time were recorded at a total labor cost of $5,750
Units produced= 1,500
To calculate the direct material price and quantity variance, we need to use the following formulas:
Direct material price variance= (standard price - actual price)*actual quantity
Direct material price variance= (2.6 - 2.5)*12,100
Direct material price variance= $1,210 favorable
Direct material quantity variance= (standard quantity - actual quantity)*standard price
standard quantity= 1,500*7.4= 11,100
Direct material quantity variance= (11,100 - 12,100)*2.6
Direct material quantity variance= $2,600 unfavorable
To calculate the direct labor efficiency and rate variance, we need to use the following formulas:
Direct labor time (efficiency) variance= (Standard Quantity - Actual Quantity)*standard rate
Standard quantity= 1,500*0.45= 675
Direct labor time (efficiency) variance= (675 - 575)*8
Direct labor time (efficiency) variance= $800 favorable
Direct labor rate variance= (Standard Rate - Actual Rate)*Actual Quantity
Actual rate= 5,750/575= $10
Direct labor rate variance= (8 - 10)*575
Direct labor rate variance= $1,150 unfavorable
An option is called a derivative security because: Select one: a. its value is derived from that of another asset b. to calculate its worth requires extensive derivations c. it is the basic building block security we use to value all other derivative securities d. its value is derived from the existence of a convex payoff around an exercise value e. none of the above
Answer:
The answer is A.
Explanation:
Firstly, what is a derivative? - A derivative is a financial instrument that derives its value from the value of the underlying asset(bonds, equity etc) or forward rate agreement in the case of interest rate swap. A derivative transforms the value of the underlying.
Examples of derivative are, forward contract, futures, options, swaps etc.
Therefore, option A is the correct option.
Brodrick Company expects to produce 21,400 units for the year ending December 31. A flexible budget for 21,400 units of production reflects sales of $470,800; variable costs of $64,200; and fixed costs of $141,000.
If the company instead expects to produce and sell 27,000 units for the year, calculate the expected level of income from operation
Answer is not complete.
---Flexible Budget--- ---Flexible Budget at---
Variable Amount Total Fixed 21,400 27,000
per Unit Cost units units
Sales $ 22.00 $ 470,800 $ 594 000
Variable cos! 3.00 64,200 81,000
Contribution margin $ 1900 $ 406,600 $ 513.000
Fixed costs 141,000
Income from operations $ 406,600 $ 513,000
Answer:
Income from operations for 21,400 units
$ 406,600
Income from operations for 27,000 units
$ 513,000
Explanation:
Calculation for the expected level of income from operation for Brodrick Company
Flexible budget Flexible budget at
Variable amount per unit Total fixed cost
21,400 units 27,000 units
Sales $ 22.00 $ 470,800 $ 594 000
Variable cost 3.00 64,200 81,000
Contribution margin $ 19.00 $ 406,600 $ 513.000
Fixed costs 141,000 141,000 141,000
Income from operations $ 406,600 $ 513,000
Note:
Sales (21,400 units)
$ 470,800/21,400 units
$ 22.00
Sales (27,000 units)
$22*27,000 units
$594,000
Variable cost (21,400 units)
$64,200/21,400 units
$ 3.00
Variable cost (27,000 units)
$3*27,000 units
$81,000
Contribution margin =Sales - Variable cost
Carmen Camry operates a consulting firm called Help Today, which began operations on August 1. On August 31, the company's records show the following accounts and amounts for the month of August. Use this information to prepare an August income statement for the business.
Cash $25,360 Dividends $6,000
Accounts receivable 22,360 Consulting fees earned 27,000
Office supplies 5,250 Rent expense 9,550
Land 44,000 Salaries expense 5,600
Office equipment 20,000 Telephone expense 860
Accounts payable 10,500 Miscellaneous expenses 520
Common stock 102,000
Answer:
Carmen Camry
Income Statement for August 31
$
Consulting fees earned 27,000
Less Expenses :
Rent expense (9,550)
Salaries expense (5,600)
Telephone expense (860)
Miscellaneous expenses (520)
Net Income / (Loss) 10,470
Explanation:
Income Statement shows the Incomes and expenses for the business for the specific period of operation.
Joe must pay liabilities of 1,000 due one year from now and another 2,000 due three years from now. There are two available investments: Bond I: A one-year zero-coupon bond that matures for 1,000. The yield rate is 6% per year Bond II: A two-year zero-coupon bond with face amount of 1,000. The yield rate is 7% per year. At the present time the one-year forward rate for an investment made two years from now is 6.5%. Joe plans to buy amounts of each bond. He plans to reinvest the proceeds from Bond II in a one-year zero-coupon bond. Assuming the reinvestment earns the forward rate, calculate the total purchase price of Bond I and Bond II where the amounts are selected to exactly match the liabilities.
1. 2,584
2. 2,697
3. 2,801
4. 2,907
5. 3,000
Answer:
1. 2,584
Explanation:
future payments: $1,000 in 1 year and $2,000 in 3 years
the present value of alternative I (one year bond):
$1,000 / 1.06 = $943.40
the present value of alternative II (first 2 years and then 1 year):
$2,000 / 1.065 = $1,877.93 ⇒ PV at year 2
PV at year 0 = $1,877.93 / 1.07² = $1,640.26
the total present value of both options = $943.40 + $1,640.26 = $2,583.66 ≈ $2,584
Liabilities are settled over time through the transfer of economic benefits including money, goods, and services.
LiabilitiesLiability are some things someone or company owes, that's usually a sum of cash.
Now we calculate the whole price of Bond I and also Bond II.
The longer term payments is : $1,000 in 1 year and $2,000 in 3 years.
The present value of different I (one year bond): $[tex]1,000 / 1.06[/tex] = $[tex]943.40[/tex]
The present value of other II (first 2 years then 1 year): $[tex]2,000 / 1.065[/tex] = $[tex]1,877.93[/tex]⇒ PV at year 2PV at year 0 = $1,877.93 / 1.07² = $1,640.26
The total present value of both options = $943.40 + $1,640.26 = $[tex]2,583.66 ≈[/tex]$2,584
Thus, the correction option is (1.) 2,584.
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The American Red Cross and the American Medical Association are nonprofit businesses. This is because they: A. plan to make a profit by selling services to other countries. B. exist to benefit a cause but not to make a profit. C. share profits with top management but not with workers. D. sell services directly to customers to make a higher profit.
Answer:B exist to benefit a cause but not to make a profit.
Explanation:
They are to provide services which are useful to the members of the society at large. They exist to promote the interest of members of the public which are social in nature. With a view to ensure the smooth running of the organisation some individuals are elected to run the organisation in the position of chairman, secretary, and treasurer. They do prepare receipt and payment account which is similar to cash account while some do prepare income and expenditure account which is similar to profit and loss account.
Brooke and Katie went shopping for cleaning supplies. Brooke chose products from well-known brands. However, Katie compared the price difference between well-known brands and the local store brands. Brooke explained that her mother always used well-known brands and taught her that local store brands just don’t clean as well. Apparently, _____ factors were a major influence on Brooke’s choices.
Answer:
Social
Explanation:
Social defines the status in a society or in a company and where we are living in the society interacts with the people to enhance our status, skills, etc.
Therefore according to the given situation Brooke and Katie went for purchasing to buy cleaning supplies. Here Katie is comparing the products price with local store while Brooke selects well known brands.
In this scenario Brook makes understand to Katie that local product is not good in comparison to well know brand. So, social factors affects on Brooke choice.
During the current month, Grey Company transferred 60,000 units of finished production out of the Mixing Department at a cost of $6 each. They were transferred to finished goods. The journal entry to record the transfer would be which of the following?
a. Finished Goods 360,000
Work in Process 360,000
b. Finished Goods 360,000
Cost of Goods Sold 360,000
c. Work in Process 600,000
Finished Goods 600,000
d. Work in Process 600,000
Cost of Goods Sold 600,000
Answer:
a. Finished Goods 360,000
Work in Process 360,000
Explanation:
During transfer, de-recognize the cost of finished and transferred production from the Work In Process Account of the Mixing Department (Credit) and accumulate the cost in the Finished Goods Account (Debit).
When the units are finally sold, Cost of Goods Sold is recognized (Debit) and the Finished Goods Account is De-recognized (Credit).
An individual sets aside a certain amount of his income per month to spend on his two hobbies, collecting wine and collecting books. Given the information below, illustrate both:
a. the price-consumption curve associated with changes curve for wine.
b. the price of wine and the demand
Price Wine 10.00 12.00 15.00 20.00
Price Book 10.00 10.00 10.00 10.00
Quantity Wine 7.00 5.00 4.00 2.00
Quantity Book 8.00 9.00 9.00 11.00
Budget 150.00 150.00 150.00 150.00
Answer and Explanation:
The price consumption curve abbreviated PCC indicates graphically the changes in consumption of goods given changes in prices of the goods
The graph picture attached(please find attached) illustrates the decrease in consumption for wine as the price increases( the higher the price, the lower the demand), hence the downward sloping PCC curve. The other diagram B for book shows increase in quantity demanded even while price is constant causing a straight line not downward or upward sloping curve. This can happen as a result of other factors such as increase in quality of product or other factors. Also notice that we are working with the assumption that consumer's budget is constant so that it does not contribute as a factor for increase in demand
Q3) At an output level of 45,000 units, you calculate that the degree of operating leverage is 2.79. If output rises to 48,000 units, what will the percentage change in operating cash flow be
Answer: 18.6%
Explanation:
Degree of operating leverage = % change in Operating cash flow / % change in output
% change in Output
= [tex]\frac{48,000 - 45,000}{45,000}[/tex]
= 6.7%
Degree of operating leverage = % change in Operating cash flow / % change in output
2.79 = % change in Operating cash flow/ 6.7%
% change in Operating cash flow = 2.79 * 6.7%
% change in Operating cash flow = 18.6%
Bloomfield Bakers accounts for its investment in Clor Confectionary under the equity method. Bloomfield carried the Clor investment at $150,650 and $165,300 at December 31, 2020, and December 31, 2021, respectively. During 2021 Clor recognized $75,600 of net income and paid dividends of $20,500. Assuming that Bloomfield owned the same percentage of Clor throughout 2021, its percentage ownership must have been: (Round your answer to the nearest whole percent):
Answer:
Suppose that in year 2021, Bloomfield had equal share of percentage of ownership in Clor as they had in previous year i.e 2020, it means that in 2021, the share of percentage that will be held by Bloomfield in Clor will be 26.59%
Explanation:
From the above, we will assume that Bloomfield stake in Clor using equity method and also investment in 2020 was $150,650 and $165,300 in 2021.
Inorder to calculate the percentage , we can make it Y hence we will add amount in 2020 with Y% of (Net income - Dividend declared) inorder to arrive at the total amount in 2021.
Solution.
$150,650 + Y% (75,600 - $20,500) = $165,300
$150,650 + $55,100Y = $165,300
$55,100Y = $165,300 - $150,650
$55,100Y = $14,650
Y% = $14,650/$55,100
Y% = 0.26588
Y = 0.26588 × 100
Y = 26.59
Categorize each transaction according to the U.S. account to which it belongs and the direction the money flows.
Account
Direction of flow
An Australian company buys steel from a U.S. firm.
The Federal Reserve buys $2$2 billion worth of euros.
Profits are earned by a U.S. based mining company operating
in Mexico.
An English company purchases a U.S.
confectionary manufacturer.
Financial account
Payment from foreigners
Factor income
Payment to foreigners
Payment from foreigners
Current account
Financial account
Current account
Answer:
1. An Australian company buys steel from a US Firm
Account: Current Account
Direction of Flow: Payment to foreigners
2. The federal reserve buys $252 billion worth euros
Account: Financial Account
Direction of Flow: Payment to foreigner
3. Profit earned by a US based mining company operating in Mexico
Account: Current account
Direction of Flow: Payment from foreigners
4. An English company buy a US confectionary manufacturer
Account: Financial Account
Direction of Flow: Payment from Foreigners
The country of Morson has decided to privatize the state-owned cable television company. How can the country help this newly privatized industry succeed
Answer:
Government Support
Explanation:
Privatization is better for a country. It minimizes the monopoly and encourages healthy competition. Increased competition in the business world is good. There can be variety of services available to the consumers. Government should support privatization by introducing schemes of interest free loan for investors. There will be large number of firms that might want to enter business world but the money is not available to them for startup.
Data for 2021 were as follows: PBO, January 1, $243,000 and December 31, $278,000; pension plan assets (fair value) January 1, $186,000, and December 31, $233,000. The projected benefit obligation was underfunded at the end of 2021 by:
Answer:
$45,000
Explanation:
Computation for the projected benefit obligation
December 31 PBO($278,000)
December 31 Plan assets 233,000
Funded status($45,000)
Therefore the projected benefit obligation was underfunded at the end of 2021 by: $45,000
What is a rule of solid database design regarding calculated values?
Calculates values should not be stored in the data base.
What are calculated value?This are value computed using electronic devices such as computer.
The values are advised not to be stored in data base of the computer because it update itself as the data is worked upon.
Hence, storing it will only give access to the values that was saved and not update it
Therefore,
Calculates values should not be stored in the data base.
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Answer:
B
Explanation:
Assume instead that the equipment was disposed of in 2022 and the original error was discovered in 2023 after the 2022 financial statements were issued. Prepare the correcting entry in 2023.
Answer:
No journal entry is required
Explanation:
As if we assume that the disposal of equipment is done in the year 2022 but the original error was discovered in the year 2023 after issuing the 2022 financial statements
Based on the above information, the correct entry for the year 2023 is that no journal entry is required for this transaction and the same is to be considered
The Boxwood Company sells blankets for $ 35.00 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
Date Blankets Units Cost
May 03 Purchase 10 $26
10 Sale 5
17 Purchase 16 $27
20 Sale 4
23 Sale 3
30 Sale 9 $28
Assuming that the company uses the perpetual inventory system, determine the cost of merchandise sold for the sale of May 20 using the LIFO Inventory cost method.
a. $108.
b. $81.
c. $252.
d. $130.
Answer:
The cost of merchandise sold for the sale of May 20 using the LIFO Inventory cost method is a. $108.
Explanation:
LIFO (Last in First Out) assumes that the last goods purchased are the first ones to be issued to the final customer or requisitioning department.
Calculation of the cost of merchandise sold for the sale of May 20 using the LIFO :
Cost of merchandise sold = 4 units × $27
= $108
Conclusion :
The cost of merchandise sold for the sale of May 20 using the LIFO Inventory cost method is a. $108.
The TARP program injected capital or equity in commercial banks, which alleviated some of their insolvency issues. Group of answer choices True False
Answer: True
Explanation:
During the 2008 financial crisis, The Troubled Asset Relief Program (TARP) was put in place by the United States Treasury.
This was done by the Department of the Treasury which pumped money into the banks that were failing and other businesses. They bought equity and assets.
Wang Co. manufactures and sells a single product that sells for $450 per unit; variable costs are $270 per unit. Annual fixed costs are $800,000. Current sales volume is $4,200,000. Compute the contribution margin ratio.
Answer:
contribution margin ratio= 0.4
Explanation:
Giving the following information:
Selling price per unit= $450
Unitary variable costs=$270
To calculate the contribution margin ratio, we need to use the following formula:
contribution margin ratio= contribution margin/selling price
contribution margin ratio= (450 - 270) / 450
contribution margin ratio= 0.4
Consider a service company that provides carpet cleaning and uses straight-line depreciation. Classify the cost of the depreciation on the carpet cleaning machines.
a. Fixed
b. Indirect
Answer:
Both :
a. Fixed and,
b. Indirect
Explanation:
The depreciation expense on production machinery form part of the product or service cost.
The cost however, can not be traced to the product or service that is why it is an Indirect cost as opposed to the direct costs which can be traced directly on the product or service.
Straight line method charges a fixed amount of depreciation thus the depreciation is a fixed charge.
Maurer, inc.,has an odd dividend policy. The company has just paid a dividend of $2 per share and has announced that it will increase the dividend by $6 per share for each of the next five years, and then never pay another dividend. If yoy require a return of 10 percent on the company's stock, how much will you pay for a share today?
Answer:
Price of stock = $44.05
Explanation:
The price of a share can be calculated using the dividend valuation model
According to this model the value of share is equal to the sum of the present values of its future cash dividends discounted at the required rate of return.
To determine the price of the stock to , we calculate the present value for each of the dividend payable for the next five years and then sum them.
The formula below would help
PV = G× (1+r)^(-n)
PV = Present Value, r required rate of return - 10%, n- the year, G- dividend payable in a particular year
Year PV of dividend
1 2+6 ×× 1.1^-1 = 7.27
2 10 × 1.1^-2 = 8.26
3 12× 1.1^-3 = 9.02
4 14 × 1.1^-4 =9.56
5 16 × 1.1^-5 = 9.93
Total Present Value of dividend = 7.27 + 8.26 +9.02 +9.56 +9.93 = 44.05
Price of stock = $44.05
Maurer, inc.,has an odd dividend policy. The company has just paid a dividend of $2 per share and has announced that it will increase the dividend by $6 per share for each of the next five years, and then never pay another dividend. If yoy require a return of 10 percent on the company's stock, how much will you pay for a share today?
Answer:
Price of stock = $44.05
Explanation:
The price of a share can be calculated using the dividend valuation model
According to this model the value of share is equal to the sum of the present values of its future cash dividends discounted at the required rate of return.
To determine the price of the stock to , we calculate the present value for each of the dividend payable for the next five years and then sum them.
The formula below would help
PV = G× (1+r)^(-n)
PV = Present Value, r required rate of return - 10%, n- the year, G- dividend payable in a particular year
Year PV of dividend
1 2+6 ×× 1.1^-1 = 7.27
2 10 × 1.1^-2 = 8.26
3 12× 1.1^-3 = 9.02
4 14 × 1.1^-4 =9.56
5 16 × 1.1^-5 = 9.93
Total Present Value of dividend = 7.27 + 8.26 +9.02 +9.56 +9.93 = 44.05
Price of stock = $44.05
Classify each of the following based on the macroeconomic definitions of saving and investment.
a. Saving Investment Kate purchases stock in Pherk, a pharmaceutical company.
b. Hubert purchases a new condominium in Houston.
c. Clancy purchases a certificate of deposit at his bank.
d. Eileen borrows money to build a new lab for her engineering firm.
Answer:
a. Savings
b. Investment
c. Savings
d. Investment
Explanation:
Remember,
In macroeconomics, we often see Investments as purchases made with the aim of producing more goods or more wealth in the future. The examples are;
- Kate purchases stock in Pherk, a pharmaceutical company.
-Hubert purchases a new condominium in Houston.
While, Savings refers to the extra money a households have left after paying all their other expenses. Examples here are:
- Clancy purchases a certificate of deposit at his bank.
- Eileen borrows money to build a new lab for her engineering firm.
Identify each of the following items as either a capital expenditure (C), an immediate expense (E), or neither (N):
1. Paid property taxes of $75,000 for the first year the new building is occupied.
2. Paid interest on construction note for new plant building, $550,000
3. Repaired plumbing in main plant, paying $270,000 cash.
4. Purchased equipment for new manufacturing plant, $6,000,000; financed with long-term nc
5. Paid dividends of $40,000.
6. Purchased a computer and peripheral equipment for $29,000 cash.
7. Paved a parking lot on leased property for $300,000.
8. Paid $90,000 in cash for installation of equipment in (4).
9. Paid $148,000 to tear down old building on new plant site.
10. Paid $31 ,000 maintenance on equipment in (4) during its first year of use.
Answer:
Options 2, 4, 6, 7, 8, and 9 are capital expenditure.
Options 1, 3, and 10 are the immediate expenses.
Option 5 is Neither.
Explanation:
Capital expenditure is those expenditures that are incurred to maintain the fixed assets. Thus Options 2, 4, 6, 7, 8, and 9 are capital expenditure. While the expenses that are compulsory and immediate in nature are called the immediate expenses. This means if the equipment requires repairing then it will fall in the category of immediate expense because without repairing it won't work. Therefore, a property tax of $75000, repair of the main plant, and maintenance for equipment are immediate expenses.
The Pioneer Petroleum Corporation has a bond outstanding with an $60 annual interest payment, a market price of $880, and a maturity date in eight years. Assume the par value of the bond is $1,000.
Find the following:________.
(Use the approximation formula to compute the approximate yield to maturity and use the calculator method to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)
A) Coupon rate %
B) Current yield %
C) Approximate yield to maturity %
D) Exact yield to maturity %
Answer:
A) Coupon rate %
coupon rate = coupon / par value = $60 / $1,000 = 0.06 = 6%
B) Current yield %
current yield = coupon / bond's market price = $60 / $880 = 0.06818 = 6.82%
C) Approximate yield to maturity %
Approximate YTM = {coupon + [(face value - market value)/n] / [(face value + market value)/2] = {60 + [(1,000 - 880)/8] / [(1,000 + 880)/2] = 75 / 940 = 0.07978 x 100 = 7.98%
D) Exact yield to maturity = 8.096%
I used a financial calculator to determine the exact YTM, but you can also do it by solving the following equation:
Price = [coupon / (1 + r)] + [coupon / (1 + r)²] + [coupon / (1 + r)³] + [coupon / (1 + r)⁴] + [coupon / (1 + r)⁵] + [coupon / (1 + r)⁶] + [coupon / (1 + r)⁷] + [(coupon + face value) / (1 + r)⁸]
880 = [60 / (1 + r)] + [60 / (1 + r)²] + [60 / (1 + r)³] + [60 / (1 + r)⁴] + [60 / (1 + r)⁵] + [60 / (1 + r)⁶] + [60 / (1 + r)⁷] + [1,060 / (1 + r)⁸]
An investor is in a 30% tax bracket. If corporate bonds offer 9% yields, what must municipals offer for the investor to prefer them to corporate bonds?
Answer:
6.30%
Explanation:
For offering for the investor to prefer them to the corporate bond we need to calculate the after tax return which is shown below
After tax return is
= Before tax return × (1 - tax rate)
= 0.09 × (1 - 0.30)
= 0.063 or 6.30%
As the after tax return is 6.30% the same is to be offered for the investor
Hence, the correct answer is 6.30%
Which of the following is NOT a goal of operations management? (A) Understanding the drivers of customer utility (B) Match supply with demand (C) Make a profit while providing customers what they want *D) Provide great products at low prices to customers
Answer:
The answer is A.
Explanation:
Operations management involves all activities which produce and deliver goods and services. Operation is a core function in any organization.
The primary objective of operations management is to make use of the organizational resources to generate or produce goods and services.
All options except option A(Understanding the drivers of customer utility) are goals of operation management
Garcia Company issues 10%, 15-year bonds with a par value of $230,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 8%, which implies a selling price of 117 1/4. The effective interest method is used to allocate interest expense.
1. Using the implied selling price of 117 1/4, what are the issuer's cash proceeds from issuance of these bonds.
2. What total amount of bond interest expense will be recognized over the life of these bonds?
3. What amount of bond interest expense is recorded on the first interest payment date?
Answer:
A.$269,675
B.$305,325
C.$10,787
Explanation:
Requirement A Cash proceeds
Cash proceeds can find out by multiplying par value with the selling price
Cash proceeds = Par Value x Selling price
Cash proceeds = $230,000 x 117.25%
Cash proceeds = $269,675
Requirement B Interest Expense
Bond interest expense =Total repayment -Amount borrowed(REQ.A)
Bond interest expense = $575,000(w) - $269,675
Bond interest expense = $305,325
Workings
Semi-annual interest expense = $230,000 x 10% x 6/12
Semi-annual interest expense = $11,500
Total payment would be 30 for 15 years
Total payment = $11,500 x 30
Total payment = $345,000
Total repayment = Par value + $345,000
Total repayment = $230,000 + $345,000
Total repayment = $575,000
Requirement C Bond interest expense on the first interest payment date
Bond interest Expense = $269,675(REQ.A) x 8% x 6/12
Bond interest Expense = $10,787
Gaines Corporation invested $126,000 to acquire 26 comma 000 shares of Owens Technologies, Inc. on March 1, 2018. On July 2, 2019, Owens pays a cash dividend of $ 3.25 per share. The investment is classified as equity securities with no significant influence. Which of the following is the correct journal entry to record the transaction on July 2, 2019?
a. Cash 78,000
Equity Investments 78,000
b. Cash 78,000
Retained Equipment 78,000
c. Equity Investments 78,000
Cash 78,000
d. Cash 78,000
Dividend Revune 78,000
Answer:
Cash Dr, $84,500
Dividend revenue $84,500
Explanation:
The Journal entry is shown below:-
Cash Dr, $84,500 (26,000 × $3.25)
To Dividend revenue $84,500
(Being dividend is recorded)
To record the dividend, we debited the cash as it increased the assets and we credited the dividend revenue as it also increased the revenue
Therefore the above entry is the right and the same is not given in the option.
Marko, Inc., is considering the purchase of ABC Co. Marko believes that ABC Co. can generate cash flows of $5,000, $10,000, and $16,200 over the next three years, respectively. After that time, they feel the business will be worthless. Marko has determined that a rate of return of 12 percent is applicable to this potential purchase. What is Marko willing to pay today to buy ABC Co.
Answer:
The maximum that Marco is willing to pay to buy ABC Co. today is $23967.0645
Explanation:
The maximum amount that Marco will be willing to pay today will be the present value of the expected cash flows discounted at the required rate of return. Using the discounted cash flows approach also known as DCF approach, we can calculate the present value of the cash flows,
Present Value = CF1 / (1+r) + CF2 / (1+r)^2 + ... + CFn / (1+r)^n
Where,
CF is the cash flowr is the required rate of returnPresent value = 5000 / (1+0.12) + 10000 / (1+0.12)^2 + 16200 / (1+0.12)^3
Present value = $23967.0645
The maximum that Marco is willing to pay to buy ABC Co. today is $23967.0645
Max Company uses 20,000 units of Part A in producing its products. A supplier offers to make Part A for $7. Max Company has relevant costs of $8 a unit to manufacture Part A. If there is excess capacity, the opportunity cost of not buying Part A from the supplier is:________
a) $20,000.
b) $0.
c) $160,000.
d) $140,000.
Answer:
$20,000
Explanation:
Max company makes use of 20,000 units of part A to manufacture its product
A supplier offers to produce part A for $7
Max company has relevant costs to $8 per unit to produce part A
Therefore, the opportunity cost of not buying part A from the supplier can be calculated as follows
Opportunity cost= 20,000 units of part A($8-$7)
= 20,000 units×$1
= 20,000×$1
= $20,000
Hence the opportunity cost of not buying part A from the supplier when there is excess capacity is $20,000