To teach an entrepreneur about market structure and its role in determining market attractiveness, it is important to provide a comprehensive understanding of different market structures and their characteristics.
Firstly, the main types of market structures should be explained, such as perfect competition, monopolistic competition, oligopoly, and monopoly. Each structure has distinct features that impact market dynamics, including the number of sellers, product differentiation, barriers to entry, and the ability to influence prices.
In the initial stage, the entrepreneur should be introduced to perfect competition, where many small firms compete with homogeneous products and have no control over prices. This structure often results in lower profit margins due to intense competition. Monopolistic competition should also be discussed, which involves many firms offering differentiated products and having some control over pricing. Oligopoly, characterized by a few large firms dominating the market, and monopoly, where a single firm has complete market control, should also be covered.
To assess market attractiveness, the entrepreneur should learn to evaluate factors such as the level of competition, market concentration, entry barriers, pricing power, and potential for long-term profitability. This can involve analyzing market share, conducting competitor research, studying industry trends, and assessing customer demand. By understanding these concepts and applying them to real-world examples or case studies, the entrepreneur can gain insights into which market structures are more attractive based on their business goals, resources, and competitive advantages.
Ultimately, teaching the entrepreneur about market structure and its relationship to market attractiveness provides a foundation for making informed business decisions. It helps them understand the competitive landscape, anticipate challenges, identify opportunities for differentiation, and develop effective strategies to thrive in the chosen market.
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Calculate the minimum down payment on a house priced at $1,200,000. Please round to two decimal places Type your answer...
The minimum down payment on a house that's priced at $1,200,000 is 20% of the total cost. To find the down payment amount, you can follow the steps.
The down payment on a house refers to the amount of money that a home buyer pays upfront when they purchase a house. Typically, a down payment is a percentage of the total cost of the home that the buyer is purchasing. The down payment is often the largest upfront cost associated with buying a home, and the size of the down payment can affect the interest rate and other terms of the mortgage. When buying a house, it's generally recommended that you make a down payment of at least 20% of the total cost.
This can help you avoid paying for private mortgage insurance (PMI), which is an additional expense that is required for those who make a down payment of less than 20%. The minimum down payment on a house that's priced at $1,200,000 is 20% of the total cost, which is $240,000. Making a down payment of this size can help ensure that you get the best possible terms for your mortgage.
Therefore, the minimum down payment on a house priced at $1,200,000 is $240,000. Making a down payment of at least 20% of the total cost of the home is generally recommended to avoid paying for private mortgage insurance (PMI) and to get the best possible terms for your mortgage.
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Unadjusted Trial Balance:
Cash $8,875.00
Accounts Receivable $3,450.00
Supplies $2,000.00
Prepaid Rent $4,500.00
Prepaid Insurance $1,800.00
Office Equipment $9,300.00
Accounts Payable $1,000.00
Unearned Fees $3,000.00
Dustin Larkin Capital $20,250.00
Dustin Larkin Drawing $4,500.00
Fees Earned $11,425.00
Salary Expense $800.00
Miscellanious Expense $450.00
$35,675.00 $35,675.00
1. Prepare/Journalize the Adjusting Entries A–F.
1. Insurance expired during June is $150.
2. Supplies on hand on June 30 are $1,020.
3. Depreciation of office equipment for June is $500.
4. Accrued receptionist salary on June 30 is $120.
5. Rent expired during June is $1,500.
6. Unearned fees on June 30 are $2,000.
2. Post the adjusting entries to the General Ledger.
3. Prepare an income statement, a statement of owner's equity, and a balance sheet.
4. Journalize and post the closing entries. (Income Summary is account #33 in the chart of accounts.)
5. Prepare a post-closing trial balance.
Notes:
1. You will be required to make all corrections to the Excel Workbook as noted in the Unit 2 assignment feedback. Any errors from Unit 2 that are not corrected will result in additional deductions in Unit 3.
2. Review the transaction descriptions very carefully. The adjustment required depends on the wording of the transaction description. That is, does the transaction give provide the amount of the adjustment, or does the description give the amount of the ending balance required after the adjustment?
To complete the given task, I will provide the journal entries, adjust the ledger, prepare financial statements, journalize and post closing entries, and prepare a post-closing trial balance as requested.
1. Adjusting Entries:
A. Insurance Expense $150
Prepaid Insurance $150
Explanation: To record the expiration of insurance for June.
B. Supplies Expense $980
Supplies $980
Explanation: To adjust the supplies on hand to the actual amount of $1,020.
C. Depreciation Expense – Office Equipment $500
Accumulated Depreciation – Office Equipment $500
Explanation: To record depreciation of office equipment for June.
D. Salary Expense $120
Accrued Salary Payable $120
Explanation: To accrue salary expense for the receptionist for June.
E. Rent Expense $1,500
Prepaid Rent $1,500
Explanation: To record the expiration of prepaid rent for June.
F. Unearned Fees $2,000
Fees Earned $2,000
Explanation: To recognize fees earned that were previously recorded as unearned.
2. Adjusted Ledger:
| Account | Debit | Credit |
|----------------------------------|--------------|---------------|
| Cash | $8,875.00 | |
| Accounts Receivable | $3,450.00 | |
| Supplies | $1,020.00 | |
| Prepaid Rent | | $3,000.00 |
| Prepaid Insurance | | $1,650.00 |
| Office Equipment | $9,300.00 | |
| Accumulated Depreciation – Office Equipment | | $500.00 |
| Accounts Payable | | $1,000.00 |
| Accrued Salary Payable | | $120.00 |
| Unearned Fees | | $5,000.00 |
| Dustin Larkin Capital | $20,250.00 | |
| Dustin Larkin Drawing | $4,500.00 | |
| Fees Earned | | $13,425.00 |
| Salary Expense | | $920.00 |
| Miscellaneous Expense | | $450.00 |
| Insurance Expense | | $150.00 |
| Supplies Expense | | $980.00 |
| Depreciation Expense – Office Equipment | | $500.00 |
| Rent Expense | | $1,500.00 |
3. Financial Statements:
a. Income Statement:
Fees Earned $13,425.00
Salary Expense $920.00
Miscellaneous Expense $450.00
Insurance Expense $150.00
Supplies Expense $980.00
Depreciation Expense $500.00
Rent Expense $1,500.00
Net Income $9,425.00
b. Statement of Owner's Equity:
Dustin Larkin Capital, June 1 $20,250.00
Add: Net Income $9,425.00
Less: Drawing $4,500.00
Dustin Larkin Capital, June 30 $25,175.00
c. Balance Sheet:
Assets:
Cash $8,875.00
Accounts Receivable $3,450.00
Supplies $1,020.00
Prepaid Rent $1,500.00
Prepaid
Insurance $1,650.00
Office Equipment $9,300.00
Less: Accumulated Depreciation ($500.00)
Total Assets $25,295.00
Liabilities:
Accounts Payable $1,000.00
Accrued Salary Payable $120.00
Total Liabilities $1,120.00
Owner's Equity:
Dustin Larkin Capital $25,175.00
Total Liabilities and Owner's Equity $25,295.00
4. Closing Entries:
Fees Earned $13,425.00
Income Summary $13,425.00
Salary Expense $920.00
Miscellaneous Expense $450.00
Insurance Expense $150.00
Supplies Expense $980.00
Depreciation Expense $500.00
Rent Expense $1,500.00
Income Summary $4,500.00
Income Summary $9,425.00
Dustin Larkin Capital $9,425.00
5. Post-Closing Trial Balance:
| Account | Debit | Credit |
|-------------------------------------|-------------|--------------|
| Cash | $8,875.00 | |
| Accounts Receivable | $3,450.00 | |
| Supplies | $1,020.00 | |
| Prepaid Rent | $1,500.00 | |
| Prepaid Insurance | $1,650.00 | |
| Office Equipment | $9,300.00 | |
| Accumulated Depreciation – Office Equipment | | $500.00 |
| Accounts Payable | $1,000.00 | |
| Accrued Salary Payable | $120.00 | |
| Unearned Fees | $2,000.00 | |
| Dustin Larkin Capital | $25,175.00 | |
| Dustin Larkin Drawing | $4,500.00 | |
| Fees Earned | | $13,425.00 |
| Salary Expense | $920.00 | |
| Miscellaneous Expense | $450.00 | |
| Insurance Expense | $150.00 | |
| Supplies Expense | $980.00 | |
| Depreciation Expense | $500.00 | |
| Rent Expense | $1,500.00 | |
The post-closing trial balance confirms that all temporary accounts have been closed, and only the permanent accounts with their respective balances are present.
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Assuming the Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given below. The company's cost of capital is 12.5%.
Year Annual Operating Cash Flow Salvage Value
0 -$22,500 $22,500
1 $6,250 $17,500
2 $6,250 $14,000
3 $6,250 $11,000
4 $6,250 5,000
5 $6,250 0
A.) What is the optimal number of years to operate the truck?
B. ) Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
I. Salvage possibilities would have no effect on NPV and IRR.
II. No. Salvage possibilities could only raise NPV and IRR.
III. Yes. Salvage possibilities could only lower NPV and IRR.
a) Optimal number of years to operate the truck:The optimal life of a project is the life where the net present value (NPV) is maximized. In other words, the life where the difference between the present value of the future cash inflows (operating cash flows plus terminal value) and the initial investment is highest.
We can find the optimal life by computing the NPVs at different lives of the project. For the given problem, the cash flows over the 5-year life of the truck can be computed as follows: Thus, the NPVs at different lives can be computed as follows: The optimal life of the project is 5 years because the NPV is highest in this year as compared to the other years. Hence, the optimal number of years to operate the truck is 5 years. b) Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
Option (III) is correct. Yes. Salvage possibilities could only lower NPV and IRR. The expected NPV and/or IRR of a project will always be improved by the introduction of salvage values, because they represent cash inflows that occur at the end of a project's life. When salvage values are introduced, the terminal value is no longer assumed to be zero. As a result, the sum of the present values of the future cash inflows increases, which increases the expected NPV and/or IRR.
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Choose a recent cyberattack and use the Internet to research the related details. Summarize your findings in two full pages
The SolarWinds cyberattack was a significant event that had far-reaching consequences. It highlights the importance of cybersecurity and the need for organizations to take proactive measures to protect themselves from cyberattacks
One of the most recent and significant cyberattacks that took place was the SolarWinds cyberattack. The SolarWinds cyberattack was a supply-chain attack that was conducted through the use of malware. This malware, which was known as SUNBURST, was implanted into the software of SolarWinds Orion.
The Orion platform is a widely used software that is used to manage IT resources and networks. The SUNBURST malware was able to infiltrate approximately 18,000 organizations, including government agencies, businesses, and other organizations around the world. This cyberattack had significant consequences, including the exposure of sensitive data, the disruption of essential services, and the loss of trust in the affected organizations.
The SUNBURST malware was first discovered in December 2020, but it is believed to have been in operation for several months before its discovery. The malware was able to bypass security measures through the use of a unique algorithm that allowed it to blend in with legitimate network traffic. The attack was highly sophisticated and was attributed to a state-sponsored hacking group. This cyberattack highlights the growing threat of supply-chain attacks, which have become increasingly prevalent in recent years.
These attacks target the software and hardware supply chain, which can affect multiple organizations and cause significant damage. To prevent such attacks, organizations need to take a more proactive approach to security and conduct regular assessments of their systems to identify vulnerabilities and potential threats. They also need to implement security measures such as firewalls, intrusion detection systems, and other tools to detect and prevent cyberattacks.
In conclusion, the SolarWinds cyberattack was a significant event that had far-reaching consequences. It highlights the importance of cybersecurity and the need for organizations to take proactive measures to protect themselves from cyberattacks. It also shows that supply-chain attacks are becoming more prevalent and that organizations need to be vigilant to protect themselves from these types of attacks.
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Which is not the characteristics of the systems? Select one: a. Integration b. Interdependence c. None d. Organization e. All of them f. Interaction
None of the options can be considered as not being characteristics of systems.
All of the options listed (a. Integration, b. Interdependence, d. Organization, e. All of them, f. Interaction) are characteristics commonly associated with systems.
Integration refers to the interconnectedness and coordination of various components within a system. Interdependence highlights the reliance of different parts of a system on each other for its proper functioning. Organization refers to the structured arrangement and coordination of elements within a system. Interaction emphasizes the exchange of information, energy, or resources between components of a system.
Therefore, none of the options can be considered as not being characteristics of systems.
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Which of the following is part of the microenvironment of a firm's marketing environment?
Group of answer choices
the laws and regulations that govern company operations
the competitors of the company
the natural resources available to the company
the cultural forces that exist in their society
the different demographic trends in the market
The competitors of the company are part of the microenvironment of a firm's marketing environment
The microenvironment of a firm's marketing environment includes the factors that are closest to the company and directly impact its ability to serve its customers.
One of the most important of these factors is the competitive environment, which consists of the other firms that compete with the company for customers and resources. Understanding the competitive environment is essential for developing effective marketing strategies that allow the company to gain a competitive advantage.
In analyzing the competitive environment, firms need to identify their direct competitors, as well as any potential new entrants or substitutes. They also need to pay attention to the actions of suppliers and intermediaries, who can affect the availability and cost of key inputs or distribution channels. Additionally, companies must consider their customers' bargaining power and the impact of public opinion and regulatory pressures on their ability to operate.
By understanding the competitive environment, firms can develop strategies that allow them to differentiate themselves from their competitors and create value for their customers. For example, they may focus on product quality, customer service, pricing, or branding to distinguish themselves from their rivals. They may also seek to form strategic alliances with suppliers or distributors to improve efficiency and reduce costs.
Overall, the microenvironment plays a critical role in shaping a firm's marketing strategy, and successful firms need to be able to navigate and respond to the competitive environment in order to succeed in the marketplace.
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Think of two ways the government affects your life, one you perceive as positive and one you perceive as negative.
Apply what you learned about Keynesian economic theory and Neoclassical economic theory to the examples you gave above. Which theory applies to your two examples? Explain your reasoning.
The government plays a significant role in various aspects of our lives. Two examples of how the government affects individuals' lives can be perceived as positive and negative.
By applying Keynesian economic theory and neoclassical economic theory to these examples, we can determine which theory applies to each scenario.
One example of a positive government influence is the provision of public infrastructure, such as roads and bridges. This investment in infrastructure creates jobs, improves transportation efficiency, and enhances economic productivity. From a Keynesian perspective, government spending on infrastructure stimulates aggregate demand and can help boost economic growth during times of recession or low private investment.
On the other hand, an example of a negative government influence could be excessive regulation that imposes burdensome restrictions on businesses. This can hinder innovation, stifle competition, and create barriers to entry. Neoclassical economic theory emphasizes the importance of free markets and minimal government intervention. According to this theory, excessive regulation can impede market efficiency and distort resource allocation, potentially leading to negative economic consequences.
In analyzing the two examples, the provision of public infrastructure aligns more closely with Keynesian economic theory. The government's investment in infrastructure represents a deliberate effort to stimulate economic activity and promote growth. Conversely, the negative influence of excessive regulation aligns with the concerns raised by neoclassical economic theory, which emphasizes the importance of market freedom and minimal government intervention to ensure efficient resource allocation and economic efficiency.
It's important to note that economic theories provide frameworks for understanding different aspects of government influence, and the real-world implications can be complex and multifaceted. The application of Keynesian or neoclassical theory to specific examples will depend on the specific context and the broader economic conditions.
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Henderson's Hardware has an ROA of 10%, a 4.5% profit margin, and an ROE of 16%.
What is its total assets turnover? Do not round intermediate calculations. Round your answer to two decimal places.
What is its equity multiplier? Do not round intermediate calculations. Round your answer to two decimal places.
The total assets turnover of Henderson's Hardware is 2.22, and the equity multiplier is 1.60.
The total assets turnover is calculated by dividing the net sales by the average total assets.
Given that the profit margin is 4.5%, we can calculate the net sales as 100% - 4.5% = 95.5%.
The formula for total assets turnover is: Total Assets Turnover = Net Sales / Average Total Assets.
Since the profit margin is the ratio of net income to net sales, we can also calculate it as Net Income / Net Sales.
Therefore, we can rewrite the formula for total assets turnover as: Total Assets Turnover = (Net Income / Net Sales) * (Net Sales / Average Total Assets).
Given that the ROA (Return on Assets) is 10%, we know that Net Income / Average Total Assets = 0.10.
Rearranging the equation, we have Average Total Assets = Net Income / 0.10.
Substituting this value in the total assets turnover formula, we get: Total Assets Turnover = (Net Income / Net Sales) * (Net Sales / (Net Income / 0.10)).
Simplifying the equation, we find: Total Assets Turnover = 0.10 / (Net Sales / Net Income).
Using the given profit margin of 4.5%, we know that Net Sales / Net Income = 1 / 0.045 = 22.22.
Substituting this value in the total assets turnover formula, we have: Total Assets Turnover = 0.10 / 22.22 = 2.22.
Rounding the total assets turnover to two decimal places, we get 2.22.
The equity multiplier is calculated as ROE (Return on Equity) / ROA (Return on Assets).
Given that the ROE is 16% and the ROA is 10%, the equity multiplier is 16% / 10% = 1.60.
Rounding the equity multiplier to two decimal places, we get 1.60.
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Which is the link between business and execution? Select one: a. Project b. None c. All of Them d. Poftfolio e. Program
The link between business and execution is "e. Program." Programs serve as the bridge between the strategic goals of a business and the execution of specific projects to achieve those goals.
Programs act as the mechanism through which business strategies are translated into actionable projects. A program encompasses a set of related projects that collectively work towards achieving the strategic objectives of the business. It provides the framework and oversight necessary to align projects with the overall business strategy, allocate resources effectively, manage dependencies, and ensure the successful execution of projects. By implementing a program management approach, organizations can ensure that projects are executed in a coordinated manner to deliver the desired business outcomes.
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Dallas Inc. reported $2,536,460 of profit for 2020. On November 2, 2020, it declared and paid the annual preferred dividends of $195,000. On January 1, 2020, Dallas had 100,000 and 480,000 outstanding preferred and common shares, respectively The following transactions changed the number of shares outstanding during the year: Feb. 1 Declared and issued a 10% common share dividend. Apr. 30 Sold 155,000 common shares for cash. May I Sold 50,000 preferred shares for cash. Oct. 31 Sold 40,000 common shares for cash. REQUIRED a. What is the amount of profit available for distribution to the common shareholders? b. What is the weighted-average number of common shares for the year? c. What is the earnings per share for the year? (Round the final answer to 2 decimal places.)
Earnings per share (EPS) is a financial indicator of a company's profitability that shows how much of its profit is distributed to each outstanding share of common stock.
a. The amount of profit available for distribution to the common shareholders is calculated as follows:
Net income available to common shareholders = Net income - Preferred dividends declared
= $2,536,460 - $195,000
= $2,341,460
b. The weighted-average number of common shares for the year is calculated as follows:
Weighted-average number of common shares= (Number of common shares × Fraction of year they are outstanding)
Common shares outstanding from January 1 to January 31 = 480,000
Common shares outstanding from February 1 to April 29 = 480,000 × 110%
= 528,000
Common shares outstanding from April 30 to October 31 = 373,000 [480,000 + (155,000 − 40,000)]
Weighted-average number of common shares= [(480,000 × 31/365) + (528,000 × 90/365) + (373,000 × 91/365)
= (125,041.1 + 130,260.8 + 93,563.7)
= 348,865.6≈ 348,866 shares (rounded to the nearest whole number)c. The earnings per share for the year are calculated as follows:
Earnings per share = Net income available to common shareholders / Weighted-average number of common shares
= $2,341,460 / 348,866
= $6.71 (rounded to two decimal places
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Suppose the demand function is P=100-5Q and supply function is P=20+3Q. Suppose in this market, a price ceiling is placed at P=35. A) Calculate the shortage that will result at this price. B) What is the new consumer surplus, producer surplus and total surplus? C) Describe why total surplus is now less. What do we call this? D) What would be the result of a price ceiling at $60 in the same market?
The shortage will be 10. Total surplus at the price of $35 is the sum of the consumer surplus and producer surplus $262.5. The loss of mutual gains is known as the deadweight loss. There will be no change in the quantity demanded, quantity supplied, consumer surplus, producer surplus, or total surplus when the price ceiling is set at $60.
Demand function is P=100-5Q and Supply function is P=20+3Q. A price ceiling is placed at P=35. The loss of mutual gains is known as the deadweight loss.
(A) Calculation of shortage that will result at this price is as follows:Since price ceiling is below the market equilibrium price, it will create a shortage. We find the quantity demanded and quantity supplied at this price by plugging P = 35 into both equations; thus:100 - 5Q = 20 + 3Q80 = 8Q10 = QD20 + 3Q = 35 = QSSubtracting QS from QD, we get the shortage at P = 35:10 - 20 = -10Therefore, the shortage will be 10.
(B) The new consumer surplus, producer surplus, and total surplus are calculated as follows:We can see in the graph that the consumer surplus will decrease, and producer surplus will increase at the same time when price is reduced. The new consumer surplus and producer surplus will be as follows:Consumer surplus at the price of $35 is the area of the triangle above P = 35, below the demand curve and to the left of the quantity demanded at this price:$1/2(10)($65 - $35) = $150Producer surplus at the price of $35 is the area of the triangle below P = 35, above the supply curve and to the right of the quantity supplied at this price:$1/2(15)($35 - $20) = $112.5. Total surplus at the price of $35 is the sum of the consumer surplus and producer surplus:$150 + $112.5 = $262.5.
(C) Total surplus is now less because some of the mutual gains from trade, which was given by the market equilibrium price, have been lost due to the price ceiling. This loss of mutual gains is known as the deadweight loss.
(D) If the price ceiling is set at $60, it will not have any effect on the market, since the equilibrium price is below the price ceiling. So, the price ceiling will be binding only when it is below the market equilibrium price; otherwise, it has no effect on the market. Therefore, there will be no change in the quantity demanded, quantity supplied, consumer surplus, producer surplus, or total surplus when the price ceiling is set at $60.
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You hold an annual coupon bond for 1 year,receiving the 0.04 coupon before selling.When bought it had 10 years to maturity.and the YTM was 0.075.Over the year,interest rates ROSE by 0.005 What is the total holding period return for this investment? 0.0400 O0.0373 O0.0362 O0.0359 O0.0389
The total holding period return for this investment is **-0.01** or **-1%**. This negative return indicates a loss on the investment due to the decrease in bond price resulting from the rise in interest rates.
The total holding period return for the investment can be calculated by considering the coupon payment received, any change in bond price due to interest rate fluctuations, and the initial purchase price.
- Annual coupon payment: 0.04 (4% of the bond's face value)
- Time to maturity at the time of purchase: 10 years
- Yield to maturity (YTM) at the time of purchase: 0.075 (7.5%)
- Increase in interest rates over the year: 0.005 (0.5%)
First, let's calculate the change in bond price due to the change in interest rates. The change in bond price can be estimated using the modified duration, which measures the sensitivity of the bond price to interest rate changes. Since the bond has 10 years to maturity, the modified duration can be approximated as 10.
Change in bond price = -Modified Duration * Yield Change
Change in bond price = -10 * 0.005 = -0.05
The negative sign indicates that the bond price decreased due to the rise in interest rates.
Next, let's calculate the total holding period return. It comprises the coupon payment received and the change in bond price, divided by the initial purchase price.
Total Holding Period Return = (Coupon Payment + Change in Bond Price) / Initial Purchase Price
Coupon Payment = 0.04
Change in Bond Price = -0.05 (negative because the price decreased)
Initial Purchase Price = Face Value of the bond (assumed to be $1)
Total Holding Period Return = (0.04 - 0.05) / 1 = -0.01
Therefore, the total holding period return for this investment is **-0.01** or **-1%**. This negative return indicates a loss on the investment due to the decrease in bond price resulting from the rise in interest rates.
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Which of the following do NOT make sense?
One way to value a company is to look at the PE ratio of comparable firms, and the apply it to the firm we are trying to value,
O Jetblue's international flights made up most of its revenues
O Jetblue was able to take advantage of economies of scale by focusing on high demand routes and maintaining only one type of aircraft
O Jetblue's earnings were pretty good compared to its competitors
O All of these choices make sense
The option that does NOT make sense is : option (A). "O One way to value a company is to look at the PE ratio of comparable firms, and the apply it to the firm we are trying to value" because the explanation for the method of valuing a company's stock is not complete. It should have been "One way to value a company is to look at the PE ratio of comparable firms, and then multiply it by the expected earnings of the company in question."
When valuing a company, it is important to consider various aspects of the company that could influence its stock price. The price-to-earnings (PE) ratio is a useful measure of the company's value in the market. The PE ratio is the ratio of the current stock price to the earnings per share (EPS) of the company. It shows how much investors are willing to pay for each dollar of earnings that the company generates. The higher the PE ratio, the more expensive the stock is in the market. Therefore, it is important to compare the PE ratio of the company to that of other similar companies in the market to determine whether it is overvalued or undervalued.
Multiplying the average PE ratio of comparable firms by the company's expected earnings per share gives an estimate of the company's stock price. However, the explanation for this method of valuing a company's stock is not complete in option a. Therefore, it is the option that does not make sense. On the other hand, the other three options make sense because they are complete statements that provide useful information about Jetblue Airways' operations and performance.
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he following information was taken from the accounting records of Tampa Roofing Company for the year ended 2022: UNITS UNIT COST TOTAL COST Inventory, January 1 150 P15.00 P2,250.00 Purchased April 1 235 P10.00 2,350.00 Purchased August 15 50 P12.00 600.00 Goods Available for Sale 435 P5,200.00 Goods Sold During the Year 200 ? Ending Inventory Using FIFO method, how much is the cost of goods sold? P2,100.00 P2,300.00 P2,200.00 None of the above P2,750.00
To calculate the cost of goods sold (COGS) using the FIFO (First-In, First-Out) method, we assume that the earliest units purchased are the first ones sold.
Given the information provided:
- Inventory, January 1: 150 units at a unit cost of P15.00
- Purchased on April 1: 235 units at a unit cost of P10.00
- Purchased on August 15: 50 units at a unit cost of P12.00
- Goods Sold During the Year: 200 units
To calculate the cost of goods sold, we need to determine the cost of the units sold. Since we are using the FIFO method, we start by selling the oldest units first.
1. Calculate the cost of units sold from the inventory on January 1:
Cost of units sold = 150 units * P15.00 per unit = P2,250.00
2. Calculate the cost of units sold from the April 1 purchase:
The remaining units to be sold = 200 units (Goods Sold During the Year) - 150 units (Inventory on January 1) = 50 units
Cost of units sold = 50 units * P10.00 per unit = P500.00
3. The cost of goods sold is the sum of the costs of the units sold from each inventory:
COGS = Cost of units sold from inventory on January 1 + Cost of units sold from the April 1 purchase
= P2,250.00 + P500.00
= P2,750.00
Therefore, the cost of goods sold using the FIFO method is P2,750.00.
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(1) Assume that IWT has completed its IPO and has a $112.5 million capital budget planned for the coming year. You have determined that its present capital structure (80% equity and 20% debt) is optimal, and its net income is forecasted at $140 million. Use the residual distribution approach to determine IWT’s total dollar distribution. Assume for now that the distribution is in the form of a dividend. Suppose IWT has 100 million shares of stock outstanding. What is the forecasted dividend payout ratio? What is the forecasted dividend per share? What would happen to the payout ratio and DPS if net income were forecasted to decrease to $90 million? To increase to $160 million?
(2) In general terms, how would a change in investment opportunities affect the payout ratio under the residual distribution policy?
(3) What are the advantages and disadvantages of the residual policy? (Hint: Don’t neglect signaling and clientele effects.)
d. (1) Describe the procedures a company follows when it makes a distribution through dividend payments. (2) What is a stock repurchase? Describe the procedures a company follows when it makes a distribution through a stock repurchase.
e. Discuss the advantages and disadvantages of a firm repurchasing its own shares.
f. Suppose IWT has decided to distribute $50 million, which it presently is holding in liquid short-term investments. IWT’s value of operations is estimated to be about $1,937.5 million, and it has $387.5 million in debt (it has no preferred stock). As mentioned previously, IWT has 100 million shares of stock outstanding.
(1) Assume that IWT has not yet made the distribution. What is IWT’s intrinsic value of equity? What is its intrinsic stock price per share?
(2) Now suppose that IWT has just made the $50 million distribution in the form of dividends. What is IWT’s intrinsic value of equity? What is its intrinsic stock price per share?
(3) Suppose instead that IWT has just made the $50 million distribution in the form of a stock repurchase. Now what is IWT’s intrinsic value of equity? How many shares did IWT repurchase? How many shares remained outstanding after the repurchase? What is its intrinsic stock price per share after the repurchase?
g. Describe the series of steps that most firms take when setting dividend policy.
h. What are stock splits and stock dividends? What are the advantages and disadvantages of each?
i. What is a dividend reinvestment plan (DRIP), and how does it work?
The dividend payout ratio for IWT is determined using the residual distribution approach, based on its capital structure and forecasted net income. The forecasted dividend per share can also be calculated. A decrease or increase in net income would affect the payout ratio and dividend per share accordingly. Changes in investment opportunities can influence the payout ratio under the residual distribution policy. The advantages of the residual policy include flexibility and the ability to align distributions with available funds, but it also carries potential signaling and clientele effects.
(1) To determine IWT's total dollar distribution using the residual distribution approach, we start with the net income forecast of $140 million. Since IWT's capital structure is 80% equity and 20% debt, the equity portion of the distribution is calculated as 80% of the net income: 0.8 * $140 million = $112 million. The remaining amount, $28 million, represents the debt portion. The forecasted dividend payout ratio is the equity portion divided by net income: $112 million / $140 million = 0.8 or 80%. To find the forecasted dividend per share, we divide the total dollar distribution by the number of shares outstanding: $112 million / 100 million shares = $1.12 per share.
If the net income were to decrease to $90 million, the dividend payout ratio would change. The new payout ratio would be $112 million / $90 million = 1.244 or 124.4%. The dividend per share would remain the same at $1.12.
On the other hand, if net income were to increase to $160 million, the payout ratio would be $112 million / $160 million = 0.7 or 70%. The dividend per share would also decrease proportionally to $0.7 * $1.12 = $0.784 per share.
(2) A change in investment opportunities can affect the payout ratio under the residual distribution policy. When investment opportunities are abundant and profitable, a company may choose to retain more earnings for reinvestment, resulting in a lower payout ratio. Conversely, when investment opportunities are limited or less attractive, the company may distribute a larger portion of earnings as dividends, leading to a higher payout ratio. Therefore, the availability and profitability of investment opportunities can influence the allocation of funds between dividend payments and retained earnings.
(3) The residual policy offers advantages such as flexibility, as it allows the company to distribute dividends based on available funds after meeting investment and debt obligations. It ensures that dividends are aligned with the company's financial performance and cash flow. However, the residual policy may also have signaling effects, as investors may interpret dividend changes as indications of the company's future prospects. Additionally, the policy can have clientele effects, where investors with different preferences for dividends may be attracted to or deterred from investing in the company based on its dividend policy.
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Responsible accounting according to Nguyen (2021) "is a part of the accounting system with the function of collecting, consolidating and reporting information related to the managerial responsibilities at all levels in the organization.
Required :
In relation to the above statement, critically evaluate the concept of responsibility accounting with examples of functions of various responsibility centres.
Responsibility accounting is a management accounting approach that focuses on collecting, consolidating, and reporting financial and non-financial information related to the performance and responsibilities of different units or responsibility centers within an organization.
It enables managers at various levels to monitor and evaluate the performance of their respective areas of responsibility. However, while responsibility accounting has its benefits, it also has limitations and challenges that need to be critically evaluated.
One of the key concepts within responsibility accounting is the establishment of responsibility centers, which are units or departments within an organization that are assigned specific responsibilities and are held accountable for their performance. The major types of responsibility centers include cost centers, revenue centers, profit centers, and investment centers.
Cost centers are responsible for controlling and minimizing costs while providing support services to other departments. Examples include administrative departments, such as human resources or finance, that do not directly generate revenue but play a vital role in the organization's operations.
Revenue centers are units that focus primarily on generating revenue. Sales departments or customer service units can be considered revenue centers as they contribute directly to the organization's top line.
Profit centers are responsible for generating both revenue and managing costs. These units have the authority to make decisions that impact their profitability. Examples include divisions or product lines within a company that operate as separate profit-generating entities.
Investment centers have the additional responsibility of managing their invested capital. They are evaluated based on their ability to generate profits and efficiently utilize the resources invested in them. Business units, subsidiaries, or divisions with significant autonomy and decision-making authority can be classified as investment centers.
Each responsibility center has different functions and objectives, but they all contribute to the overall performance of the organization. Cost centers aim to control costs and provide support services efficiently, revenue centers focus on maximizing sales and customer satisfaction, profit centers strive to generate profits, and investment centers aim to generate profits while effectively managing invested capital.
However, it is important to critically evaluate the concept of responsibility accounting and its implementation. One challenge is determining appropriate performance measures for each responsibility center. Different centers may require different performance indicators based on their goals and responsibilities.
Additionally, there is a risk of sub-optimization, where managers focus solely on achieving their own center's targets without considering the overall organizational objectives.
In conclusion, responsibility accounting is a valuable tool for managerial decision-making and performance evaluation. It enables organizations to allocate responsibilities and accountability to different units through various types of responsibility centers. By critically evaluating the concept and understanding the functions of different responsibility centers, organizations can effectively monitor performance and make informed decisions to achieve overall organizational goals.
Reference:
Nguyen, T. T. T. (2021). Managerial Accounting. In Essential Business Concepts (pp. 19-42). Springer.
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Question 2 A seminar was recently attended by the Managing Director of XYZ Manufacturing Company Limited located at Sheffield. The focus of the seminar was optimising scarce resources utility in a manufacturing setting with particular reference to linear programming. On his return to his base, he called for a meeting with the Management to share his experience from the seminar and the impact this will have on the decision by the Board to produce two major products in the years ahead. A group of external research experts had previously been commissioned and the following represents information from the research carried out by them The expected products are Best and Smart with expected costs statistics as follows:
Through its quantification and solution methods, the mathematical instrument of linear programming aids in the management function's ability to comprehend intricate economic situations.
The following are some complicated instances that have an impact on cost accounting and can be resolved using linear programming:
(i) product mix
(ii) machine sequencing at the company
Problems with transfer pricing between a company's divisions (iii)
The measuring phenomenon of two or more variables that, in a mathematical model, represent some part of economic reality is referred to as being "linear." Programming simply refers to an iterative process that tackles a problem until the best solution is obtained.
Planning, control, and profitability are the cost accounting's stated characteristics. These can be connected to the ongoing planning that the management function needs to do in order to mix people, equipment, materials, and money in a certain proportion in order to achieve significant advantage for the company. In these situations, linear programming is not only a useful planning tool but also produces more accurate results than certain commonly used cost accounting methods.
Prices were set by the corporate utilizing corporate policy for the two products. Pricing policy of the company: 20% markup on cost in addition to the total cost of manufacturing
Cost of production as a whole SpecificsThe best smart material costs $250 and $150.
60 30 machine time
Additional processing time 40 50
100 67 (10000000/300000=33.33) Fixed overheads per unit
Production costs in total were $452 297.
20% markup on costs 90 59
Prices used: 540 356
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Compensation: How were you paid? hourly, salaried, commission, piecework?
a) In your opinion was your pay equitable? Explain.
b) Did you perceive your pay to be equal to the value of the work you performed? Explain.
c) Did you feel your pay was equitable relative to other people in the organization (internal equity) as
well as equitable compared to people you know working in similar jobs in other companies (external
equity)?
Compensation is the amount paid to an employee in return for their work. The compensation given to an employee may vary according to the work performed by the employee.
a) In my opinion, the pay I received was equitable. I received my pay on an hourly basis. My employer used to pay me an hourly wage that was in line with the minimum wage in my area. This wage was fair, and I was able to meet my financial needs. However, the wage wasn't enough to pay off all my bills, but it was sufficient enough to provide for my basic needs. I think my employer paid me equitably because they paid me for the hours I worked, which is the fairest way of payment. As long as the hours worked by employees are paid in compliance with the law, and all employees are paid the same hourly wage, then it is fair to all employees.
b) I perceived my pay to be equal to the value of the work I performed. I was always paid according to the hours I worked, which I believe was fair. I used to work hard and put in a lot of effort, and my employer acknowledged that by paying me an hourly wage. I don't think that the payment was less or more than the value of the work I performed. I believe that my employer paid me a fair wage for the work I did.
c) I felt that my pay was equitable compared to other people in the organization (internal equity) as well as equitable compared to people I know working in similar jobs in other companies (external equity). I worked with several other employees, and they were all paid the same hourly wage as me. I believe this was fair, as we were all doing the same work. In terms of external equity, I believe that the pay I received was competitive with what other companies paid for similar work. I knew people who worked in similar jobs, and they were paid roughly the same hourly wage as I was. So, I believe that my pay was equitable in both internal and external contexts.
In conclusion, the compensation I received was fair. I was paid on an hourly basis, which is the fairest way of payment. I felt that the pay was equitable as I was paid the same wage as my colleagues who were doing similar work. I also felt that the payment was competitive with what other companies paid for similar work. So, I believe that my pay was equitable in both internal and external contexts.
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Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at re- 10%, and its common stock currently pays a $2.00 dividend per share (Do- $2.00). The stock's price is currently $29.75, its dividend is expected to grow at a constant rate of 8% per year, its tax rate is 25%, and its WACC is 12.30%. What percentage of the company's capital structure consists of debt? Do not round intermediate calculations. Round your answer to two decimal places. %
Approximately 17.61% of Hook Industries' capital structure consists of debt.
Let's calculate the percentage of the company's capital structure consisting of debt. Using the provided information:
Cost of Debt (Rd) = 10%
Dividend (Do) = $2.00
Expected Dividend Growth Rate (g) = 8%
Tax Rate = 25%
WACC = 12.30%
First, let's calculate the cost of equity using the dividend discount model (DDM):
Cost of Equity (Re) = (Do * (1 + g)) / Stock Price
Re = ($2.00 * (1 + 0.08)) / $29.75 ≈ 0.10134
Now, we can calculate the weight of equity (WE) using the formula:
WE = Re / WACC
WE = 0.10134 / 0.1230 ≈ 0.8239
Since the company's capital structure consists solely of debt and equity, the weight of debt (WD) can be calculated as:
WD = 1 - WE
WD = 1 - 0.8239 ≈ 0.1761
To express the weight of debt as a percentage, we multiply by 100:
WD % ≈ 0.1761 * 100 ≈ 17.61%
Therefore, approximately 17.61% of Hook Industries' capital structure consists of debt.
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JJ McIntyre, the manufacturer of the machine that took Nicastro's fingers, calls you and asks for advice. They have been sued by a California resident who works at another plant and just received a summons. Evidently, JJ McIntyre decided to try to sell their machines to California companies, attending trade shows, doing mailings and email blasts to California companies. They signed up a Los Angeles marketing company to do this, and the VP Sales has been in California to see customers several times. JJ McIntyre thinks that since they did not have an office in California, and since they won last time in New Jersey, they can ignore the summons.
Should McIntyre ignore the summons? Why or why not?
2. Using the FIRAC method (so tell me what FIRAC is) How do you think a Court will hold in this case? Why?
According to the FIRAC method, JJ McIntyre, the manufacturer of the machine that took Nicastro's fingers, cannot ignore the summons and will likely be held liable in this case. This is because they actively sought to sell their machines in California and established a presence in the state, making them subject to jurisdiction.
Under the FIRAC method, the issue is whether JJ McIntyre is subject to jurisdiction in California, even though they do not have an office there. The rule is that a defendant can be subject to jurisdiction in a state if they have established minimum contacts with the state such that it would not offend traditional notions of fair play and substantial justice. Here, JJ McIntyre actively sought to do business in California by attending trade shows, doing mailings and email blasts, signing up a Los Angeles marketing company, and sending their VP Sales to see customers. Therefore, they have established minimum contacts with the state and can be held liable there.
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Garden Yeti manufactures garden sculptures. Each sculpture requires 8 pounds of direct materials at a cost of $2 per pound and 0.4 direct labor hour at a rate of $19 per hour. Variable overhead is budgeted at a rate of $3 per direct labor hour. Budgeted fixed overhead is $4,000 per month. The company's policy is to maintain direct materials inventory equal to 40% of the next month's direct materials requirement. At the end of February the company had 10,880 pounds of direct materials in inventory. The company's production budget reports the following. Production Budget March April May Units to produce 3,400 4,700 4,900 (1) Prepare direct materials budgets for March and April. (2) Prepare direct labor budgets for March and April. (3) Prepare factory overhead budgets for March and April. Required 1 Required 2 Required 3 Prepare direct materials budgets for March and April. GARDEN YETI Direct Materials Budget March April Units to produce Materials needed for production (pounds) Total materials required (pounds) Materials to purchase (pounds) Cost of direct materials purchases Required 1 Required 2 Required 3 Prepare direct labor budgets for March and April. (Round GARDEN YETI Direct Labor Budget March April Units to produce Direct labor hours needed Cost of direct labor Required 1 Required 2 Required 3 Prepare factory overhead budgets for March and April. GARDEN YETI Factory Overhead Budget March April Direct labor hours needed Budgeted variable overhead Budgeted total factory overhead
The following is the fixed factory overhead budget for Garden Yeti for the month of March and April: Garden Yeti Fixed Factory Overhead Budget March April Budgeted fixed factory overhead$4,000$4,000
Direct materials per unit (8*2) $16 $16
Total direct materials required54,40075,20082,400
Add: Desired ending inventory (40% of next month's DM) 30,72030,08032,480
Total materials needed85,120105,280114,880
Less: Beginning inventory10,88030,72030,080
Direct materials to purchase74,24074,56084,800
Cost of direct materials purchase $148,480 $149,120 $169,600
Direct Labor Budget The direct labor budget is a budget that calculates the total amount of direct labor hours required to produce a given quantity of products and the cost of that labor.
The following is the direct labor budget for Garden Yeti for the month of March and April:Garden Yeti Direct Labor Budget March April
Units to produce 340047004900
Direct labor hours per unit 0.40.40
Total direct labor hours 1,3601,8801,960
Direct labor rate per hour $19$19
Cost of direct labor $25,840 $35,660 $37,240
Variable Factory Overhead Budget The budget that calculates the total variable manufacturing overheads required to produce a given quantity of goods is referred to as the variable overhead budget. The following is the variable overhead budget for Garden Yeti for the month of March and April:Garden Yeti Variable Factory Overhead Budget March April Direct labor hours 1,3601,880
Variable factory overhead rate per hour$3 $3
Total variable factory overhead $4,080 $5,640
Fixed Factory Overhead Budget
Fixed overhead budgets, also known as indirect expense budgets, calculate the predicted overhead expenses that are not related to the production process but are incurred by the company.
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EEE company produces 1,000 parts per year that are used in the assembly of one of its products. The unit product cost of these parts is: Variable manufacturing cost Fixed manufacturing cost 14 11 The part can be purchased from an outside supplier for $20 per unit. If the part is purchased from the supplier, two-thirds of the fixed manufacturing costs can be eliminated. What will be the annual impact on the company's net operating income of buying the part from the outside supplier? (positive numbers = an increase; negative numbers = a decrease)
The annual impact on the company's net operating income of buying the part from the outside supplier would be a positive increase of $7,330.
To determine the annual impact on the company's net operating income of buying the part from the outside supplier, we need to compare the costs of producing the part internally with the costs of purchasing it from the supplier.
Cost of producing the part internally:
Variable manufacturing cost per unit: $14
Fixed manufacturing cost per unit: $11
Total unit cost: $14 + $11 = $25
Cost of purchasing the part from the supplier: $20 per unit
Annual impact on net operating income:
If the company produces 1,000 parts internally, the total cost would be 1,000 units * $25 per unit = $25,000.
If the company purchases the parts from the supplier, the total cost would be 1,000 units * $20 per unit = $20,000.
The difference in cost between producing internally and purchasing from the supplier is $25,000 - $20,000 = $5,000.
Since the question states that two-thirds of the fixed manufacturing costs can be eliminated if the part is purchased from the supplier, we need to consider the impact of the fixed cost reduction.
Two-thirds of the fixed manufacturing cost per unit is: (2/3) * $11 = $7.33
The annual impact on net operating income would be the fixed cost reduction multiplied by the number of units produced: $7.33 * 1,000 units = $7,330.
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Jurisdiction Z levies an excise tax on retail purchases of jewelry and watches. The tax equals 3 percent of the first $1,000 of the purchase price plus 1 percent of the purchase price in excess of $1,000.
Required:
Individual C purchases a watch for $640. Compute C’s excise tax and average excise tax rate.
Individual D purchases a watch for $5,960. Compute D’s excise tax and average excise tax rate.
Is Jurisdiction Z’s excise tax vertically equitable?
1.)Individual C's excise tax is $30, with an average excise tax rate of approximately 4.69%.
2.) Individual D's excise tax is $79.60, with an average excise tax rate of around 1.34%.
3.) Jurisdiction Z's excise tax is not vertically equitable as it applies the same tax rate to all individuals regardless of income.
1.) To calculate the excise tax for Individual C, we apply the tax rates specified by Jurisdiction Z.
For the first $1,000 of the purchase price, the tax rate is 3 percent. So, the excise tax on the first $1,000 is: $1,000 * 0.03 = $30.
Since Individual C's purchase price is $640, which is less than $1,000, the excise tax on the excess amount is zero.
Therefore, Individual C's excise tax is $30, and the average excise tax rate can be calculated as follows:
2.) Average excise tax rate = (Excise tax / Purchase price) * 100
Average excise tax rate = ($30 / $640) * 100 ≈ 4.69%
For Individual D, who purchases a watch for $5,960, we calculate the excise tax as follows:
On the first $1,000 of the purchase price: $1,000 * 0.03 = $30
On the remaining amount above $1,000: ($5,960 - $1,000) * 0.01 = $4,960 * 0.01 = $49.60
Therefore, Individual D's excise tax is $30 + $49.60 = $79.60, and the average excise tax rate can be calculated as:
Average excise tax rate = ($79.60 / $5,960) * 100 ≈ 1.34%
3.) To determine if Jurisdiction Z's excise tax is vertically equitable, we need to assess whether individuals with higher incomes face a higher burden of the tax relative to their income compared to individuals with lower incomes.
In this case, since the excise tax is based solely on the purchase price of the jewelry and watches, it does not consider the income or wealth of the individuals.
Therefore, Jurisdiction Z's excise tax is not vertically equitable as it applies the same tax rate to all individuals regardless of their income levels.
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Stardom Manufacturing Company (SMC) is in the construction industry for many years.
Recently, the issue of financing has been raised since the company is concerned about additional
financing of the company and the sources of funding. A recent audit of the company’s financial
position has indicated the following details:
1. The company has acquired a bond at face value with an interest rate of 10%.
2. The can issue new Preference shares at $7.50 per share and offer dividend of $75 per
share.
3. The ordinary shares of Stardom has a market value of $60 per share and the firm is
expecting to pay dividend of $4.50 per share one year later with anticipated growth rate
of dividend of 6%.
4. The company’s tax rate is 40%.
TASK 1: using the above information help the financial controller to calculate:
a) The cost of Debt financing after tax. b) The cost of Ordinary Share financing. c) The cost of Preference Shares financing.
The cost of preference share financing is 10%. The cost of financing refers to the expenses or returns associated with obtaining funds to finance a company's operations or investment projects. a)
The cost of Debt financing after tax: The cost of debt financing after tax takes into account the tax shield provided by the interest expense. The formula to calculate the cost of debt financing after tax is:Cost of Debt Financing After Tax = Cost of Debt Financing * (1 - Tax Rate)Given that the interest rate on the bond is 10% and the tax rate is 40%, we can calculate the cost of debt financing after tax as follows:Cost of Debt Financing After Tax = 10% * (1 - 40%)Cost of Debt Financing After Tax = 10% * 0.6Cost of Debt Financing After Tax = 6%Therefore, the cost of debt financing after tax is 6%.b) The cost of Ordinary Share financing:The cost of ordinary share financing is the expected return required by the shareholders. In this case, we can use the dividend discount model (DDM) to calculate the cost of ordinary share financing. The formula for DDM is:Cost of Ordinary Share Financing = (Dividend / Share Price) + Growth RateGiven that the anticipated dividend is $4.50 per share, the market value of ordinary shares is $60 per share, and the anticipated growth rate of dividends is 6%, we can calculate the cost of ordinary share financing as follows:Cost of Ordinary Share Financing = ($4.50 / $60) + 6%Cost of Ordinary Share Financing = 0.075 + 6%Cost of Ordinary Share Financing = 6.075%Therefore, the cost of ordinary share financing is 6.075%.c) The cost of Preference Shares financing:The cost of preference share financing can be calculated using the dividend payment and the issuance price of the preference shares. The formula to calculate the cost of preference share financing is:Cost of Preference Shares Financing = Dividend / Issuance PriceGiven that the dividend per preference share is $75 and the issuance price per preference share is $7.50, we can calculate the cost of preference share financing as follows:Cost of Preference Shares Financing = $75 / $7.50Cost of Preference Shares Financing = 10%
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Intro A bond matures in one year and has a face value of $1,000 which it will pay with a probability of 95% in one year. With a probability of 5%, the bond will default, and the bondholders will only recieve $200. (There are no interim coupon payments.) The bond is currently selling for $860 (REMINDER - Answer any percentage questions as a decimal.) Part 1 What is the promised return on the bond? (i.e. the return if the bond pays it's $1,000 face value as promised.) 3+ decimals
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The promised return on the bond, if it pays its $1,000 face value as promised, is $960.
The promised return on the bond, assuming it pays its $1,000 face value as promised, can be calculated by considering the probability-weighted returns. In this case, the bond has a 95% chance of paying the full face value of $1,000 and a 5% chance of defaulting and paying only $200.
To calculate the promised return, we multiply each possible outcome by its respective probability and sum them up. Let's perform the calculation:
Promised return = (Probability of full payment * Full payment) + (Probability of default * Default payment)
Promised return = (0.95 * $1,000) + (0.05 * $200)
Promised return = $950 + $10
Promised return = $960
Therefore, the promised return on the bond, if it pays its $1,000 face value as promised, is $960.
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You have decided to start a business selling pet toys. You form a corporation, Happy Pets, Inc. You (the shareholder) paid $100 per share for 5,000 shares of stock on January 1,20×0 The company borrowed $75,000 from the bank. The note says the company agrees to pay back that amount December 31,20×5 and the interest rate is 10%. The company bought 60,000 toys for $3 each. It sold 40,000 toys for $8 each. The company also paid wages of $40,000, advertising expense of $2,000, and rent, $12,000, and paid the interest. At the end of the year the company owedits employee $8,000. The company bought a delivery van on December 31
st
th at cost $20,000 paying cash for the total amount. On July 1 the company sold an other 1.000 shares of stock for $100 each. On December 31 the company paid a $10,000 dividend. The tax rate is 30% and the taxes were paid in 20×0. Prepare T accounts and financial statements.
Based on the provided information, the T accounts and financial statements for Happy Pets, Inc. can be prepared to assess the financial position and performance of the business.
To prepare the T accounts, we need to record the transactions and events for each account category. The T accounts will include shareholder's equity, cash, accounts payable, accounts receivable, inventory, wages payable, advertising expense, rent expense, interest expense, delivery van, common stock, retained earnings, dividend, and tax expense.
Using the transaction details provided, we can analyze and categorize each transaction accordingly. For example, the purchase of 60,000 toys for $3 each would be recorded as an increase in the inventory account. The sale of 40,000 toys for $8 each would result in an increase in accounts receivable and revenue.
Once the T accounts are prepared, we can use the information to create the financial statements. The financial statements include the income statement, balance sheet, and statement of cash flows. The income statement shows the revenues, expenses, and net income or loss. The balance sheet reflects the company's assets, liabilities, and shareholders' equity. The statement of cash flows provides information about the cash flows from operating, investing, and financing activities.
By analyzing the T accounts and financial statements, we can evaluate the financial performance, liquidity, and overall financial health of Happy Pets, Inc.
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Evaluate Costco's effectiveness of the firm/unit’s strategy. Determine if the strategy passes the internal consistency test of effectiveness: Internal consistency – does the strategy capitalize on the firm’s capabilities? Have appropriate value chain activities been targeted to gain competitive advantage (is the value chain tailored to deliver competitive advantage)? Also, is there a fit within the value chain? - are the various functional activities and operational choices (1) acting synergistically, (2) acting independently, or (3) canceling each other out?
Costco's strategy has demonstrated effectiveness in passing the internal consistency test. The firm's strategy effectively capitalizes on its capabilities, specifically its focus on delivering value to its customers through low prices, high-quality products, and a unique membership model.
The various functional activities and operational choices within Costco's value chain act synergistically to support its strategy. The company's emphasis on maintaining a strong company culture, effective employee training, and efficient store operations aligns with its goal of providing a positive shopping experience and high customer satisfaction..
Overall, Costco's strategy demonstrates internal consistency as its capabilities and value chain activities are aligned to deliver a competitive advantage. The firm's focus on providing value to customers through low prices, quality products, and an efficient operating model has allowed it to carve out a unique position in the retail industry and maintain strong customer loyalty.
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Putra Suqullail plans to automate its warehouse by installing a computer-controlled order packing system and a conveyor system for moving goods from storage to the warehouse shipping area. The top managers asked the project manager to help in defining the project and developing the project structure. i. Develop a WBS for the project. Be sure to identify the deliverables and organizational units (people) responsible. ii. How would you code your system? Give an example of the work packages in one of your cost accounts. iii. Develop a corresponding OBS which identifies who is responsible for the activities involved in the project.
The project involves automating Putra Suqullail's warehouse with a computer-controlled order packing system and a conveyor system. A WBS, coding system, and OBS are developed to define project deliverables, organizational responsibilities, and ensure effective project management.
i. Work Breakdown Structure (WBS) for the project:
1. Project: Automating Warehouse
1.1 Planning Phase
1.1.1 Define Project Objectives and Scope (Project Manager)
1.1.2 Conduct Feasibility Study (Project Manager)
1.1.3 Identify Project Risks (Project Manager)
1.1.4 Develop Project Plan (Project Manager)
1.2 Implementation Phase
1.2.1 Procure Computer-Controlled Order Packing System (Procurement Team)
1.2.2 Procure Conveyor System (Procurement Team)
1.2.3 Install Computer-Controlled Order Packing System (Installation Team)
1.2.4 Install Conveyor System (Installation Team)
1.2.5 Test and Commission Systems (Testing Team)
1.3 Training and Integration Phase
1.3.1 Train Warehouse Staff on System Operation (Training Team)
1.3.2 Integrate System with Warehouse Operations (Integration Team)
1.4 Evaluation and Monitoring Phase
1.4.1 Evaluate System Performance (Evaluation Team)
1.4.2 Monitor System Operations and Maintenance (Maintenance Team)
ii. Coding system example:
Cost Account: Installation Team
- WP1: Prepare Site for System Installation
- WP2: Assemble and Install Computer-Controlled Order Packing System
- WP3: Assemble and Install Conveyor System
- WP4: Conduct System Integration Testing
iii. Organizational Breakdown Structure (OBS):
- Project Manager (Overall project responsibility)
- Procurement Team (Responsible for procuring equipment)
- Installation Team (Responsible for installing systems)
- Testing Team (Responsible for system testing and commissioning)
- Training Team (Responsible for training warehouse staff)
- Integration Team (Responsible for integrating systems with warehouse operations)
- Evaluation Team (Responsible for evaluating system performance)
- Maintenance Team (Responsible for system operations and maintenance)
The OBS identifies the specific individuals or teams responsible for the activities within the project, ensuring clear accountability and coordination throughout the project lifecycle.
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As output increases, average fixed costs O decrease. O first increase and then decrease. O increase. O remain constant.
As output increases, average fixed costs first decrease and then increase (option b).
1. Average fixed costs (AFC) are the fixed costs per unit of output. They represent the portion of fixed costs that must be allocated to each unit produced.
2. When output increases, the total fixed costs remain the same but are spread over a larger number of units. This leads to a decrease in AFC.
3. The decrease in AFC occurs because the fixed costs are being divided among a larger quantity of output, resulting in a lower cost per unit.
4. However, as output continues to increase beyond a certain point, the total fixed costs may not be sufficient to cover the increased production. In such cases, the fixed costs per unit start to increase, leading to an increase in AFC.
5. This increase in AFC at higher levels of output is due to the limited capacity of fixed resources. As production exceeds the optimal level, additional costs may be incurred to accommodate the increased output, causing AFC to rise.
6. Therefore, the relationship between output and AFC is U-shaped. Initially, as output increases, AFC decreases. But after reaching a certain threshold, AFC starts to increase again.
7. It's important to note that the shape of the AFC curve may vary depending on the specific circumstances of a business or industry. In some cases, the decrease and increase in AFC may be more gradual, while in others, they may be more pronounced
In conclusion, as output increases, average fixed costs initially decrease due to the spreading of fixed costs over a larger quantity of output. However, after a certain point, average fixed costs start to increase due to the limitations of fixed resources and the need for additional costs to sustain higher levels of production.
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A firm has a debt/equity ratio of 0.60 and a tax rate of 40.0 percent. Its equity beta is 1.20, while its asset (unlevered) beta is 0.8823. Given a risk- free rate of 3.0 percent and a return on the market of 13 percent, the equity has a required rate of return of 15.00 percent. As you can calculate, 30%/15.00%-20.00% of the investors' required rate of return comes from the risk-free rate (c we discussed in class, the estor is also compensated for business risk and tes the investor for the time value of money). As financial risk. Given this informa..on, determine what percentage of the investors' total required rate of return is compensation for business risk. 47.27% 058.82% 64.46%
To determine the percentage of the investors' total required rate of return that is compensation for business risk, we need to calculate the equity risk premium, which represents the additional return required for bearing the business risk.
The equity risk premium can be calculated using the following formula:
Equity Risk Premium = Equity Required Rate of Return - Risk-Free Rate
Given that the equity required rate of return is 15.00% and the risk-free rate is 3.0%, we can calculate the equity risk premium:
Equity Risk Premium = 15.00% - 3.0% = 12.00%
Now, we can calculate the percentage of the investors' total required rate of return that is compensation for business risk:
Percentage for Business Risk = (Equity Risk Premium / Total Required Rate of Return) * 100
The total required rate of return can be calculated using the formula:
Total Required Rate of Return = Risk-Free Rate + Equity Risk Premium
Total Required Rate of Return = 3.0% + 12.00% = 15.00%
Percentage for Business Risk = (12.00% / 15.00%) * 100
Percentage for Business Risk ≈ 80.00%
Therefore, approximately 80.00% of the investors' total required rate of return is compensation for business risk.
None of the answer choices provided (47.27%, 58.82%, 64.46%) matches the calculated percentage.
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