The main reason for closing merchandising accounts is to prepare the accounts for the next accounting period and to calculate the company's net income or net loss.
Merchandising accounts are closed at the end of an accounting period to transfer the balances and summarize the activity related to the buying and selling of merchandise.
The main reason for closing merchandising accounts is to prepare the accounts for the next accounting period and to calculate the company's net income or net loss.
Here are the reasons why merchandising accounts are closed:
Revenue Accounts: Revenue accounts, such as Sales Revenue and Sales Returns and Allowances, are closed to transfer their balances to the Income Summary account. This step helps determine the company's net sales for the period.
Cost of Goods Sold Account: The Cost of Goods Sold (COGS) account represents the cost of the merchandise that was sold during the accounting period. It is an expense account and is closed to the Income Summary account. This allows for the calculation of the gross profit (sales minus the cost of goods sold) and ultimately the net income.
Income Summary Account: The Income Summary account is used to summarize the revenue and expense accounts. The balances from the revenue and expense accounts are transferred to the Income Summary account to calculate the net income or net loss for the period. If the revenue exceeds the expenses, it results in a net income. Conversely, if the expenses exceed the revenue, it results in a net loss.
Expense Accounts: All expense accounts, such as Rent Expense, Salaries Expense, Advertising Expense, etc., are closed by transferring their balances to the Income Summary account. This allows for the determination of the total expenses incurred during the period.
Drawing Account: If the business has a separate drawing account for the owner's withdrawals, it is also closed by transferring its balance to the owner's equity account. This step separates the owner's personal withdrawals from the business's financial records.
By closing these accounts, the company prepares a clean slate for the next accounting period, where the revenue and expense accounts start with zero balances. It allows for the accurate calculation of the company's financial performance for each period and facilitates the preparation of financial statements such as the income statement and statement of retained earnings.
Hence, Merchandising accounts are closed at the end of an accounting period to transfer the balances and summarize the activity related to the buying and selling of merchandise.The main reason for closing merchandising accounts is to prepare the accounts for the next accounting period and to calculate the company's net income or net loss.
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Suppose we have the following information for good X:
An Individual Demand function: PX = 70 - 2.5*DX.
An Individual Bid function: PX = -2 + 0.5*OX.
a) Suppose there are 350 consumers and 110 suppliers in that market. calculate
algebraically the Market Supply and Demand curves, assuming that both
consumers and producers behave the same as individual supply curves and
demand displayed. You must present the equations of said market curves. b) Calculate algebraically the equilibrium price and quantity in this market and show in
a graph said balance. Explain why equilibrium is considered in this market for
good X. (10 pts.)
c) Suppose that the fiscal policy applies a Value Added Tax (VAT) on the price
of this good, 24%, explain what would happen in this market in the face of this new tax?
Show it in a graph using also the result of the previous point. What would be the
new equilibrium in these new market conditions for good X? d) Calculate the price elasticity of supply and demand for both calculated prices, the
balance and the one with VAT? Explain the results. (5 pts.).
a)Market Demand Curve:Individual demand function: PX = 70 - 2.5*D X Market demand function = Sum of individual demand function of each consumer in the market .
Market supply function:Q s = 55 PX + 110Equating Q s x = Q d x, we get,PX = 28 + 0.035 D X )At equilibrium,Q d x = Qsx24500 - 875 D = 55 PX + 110Putting PX = 28 + 0.035 D X in the above equation24500 - 875 D X = 55(28 + 0.035 D X)875 D X + 1.925 D X = 1513DX = 17.93Price = 28 + 0.035 D X Price = 28 + 0.035*17.93Price = 28.63Thus.
The equilibrium price = $28.63 and equilibrium quantity = 633.96 units.The equilibrium point is considered in this market for good X because at this point, the quantity supplied is equal to the quantity demanded.c)When VAT is levied on this good, the new demand function becomes: P ’X = 1.24 PX New demand equation:
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Hoth, Inc. will pay a dividend of $5 next year. Dividends are expected to grow at 1% after next year's dividend. The required rate of return for similar stocks is 9%. What is the current value of Hoth, Inc, stock? 4 Question 6 (1 point) Alphabet Inc. will not pay it's first dividend until ten years from now. The first dividend received in 10 years is expected to be $100. Dividends are expected to grow at 3% forever after this first dividend payment. The required rate of return for similar stocks is 15%. What is the current value of Alphabet, Inc. stock? Snoke Inc's current price is $100 and the price is expected to rise to $110 in one year. The dividends are paid annually and the next dividend will be $6.00 per share. What is the expected stock return? Question 8 ( 1 point) Rey Inc. just paid a dividend of $5. Dividends are expected to grow at 2% for the next two years after which they will grow at 1% indefinitely. The required rate of return for similar stocks is 9%. What is the current value of Rey Inc, stock? I A Question 9 (1 point) Snoke Inc's will pay a dividend of $10 next year. The required rate of return is 10% and dividends are expected to grow 5% after next year. What is Snoke's estimated value of the stock at the end of Year 99? (Hint use Year 100 dividend)
Inc. current value is $55.56.Alphabet Inc. current value is $22.05.Snoke Inc.'s expected stock return is 16%.Rey Inc.'s current value is $120.21.Snoke's estimated value of the stock at the end of Year 99 is $1044.53.
Inc. will pay a dividend of $5 next year and dividends are expected to grow at 1% after next year's dividend. For comparable equities, 9% return on investment is necessary. Using the formula for the constant growth model, the current stock price for Hoth, Inc. is calculated as follows:P0 = D1/(k-g)Where,P0 = Current stock priceD1 = Dividend at the end of the first yeark = Required rate of returng = Growth rateP0 = $5/(9%-1%) = $5/8% = $62.5Therefore, the current value of Hoth, Inc, stock is $62.5.In ten years, Alphabet Inc. will finally distribute its first dividend. It's anticipated that the first payout in ten years would be $100. Dividends are expected to grow at 3% forever after this first dividend payment. The required rate of return for similar stocks is 15%. Using the formula for the present value of a growing perpetuity, the current stock price for Alphabet Inc. is calculated as follows:P0 = D1/(k-g)Where,P0 = Current stock priceD1 = Dividend at the end of the first yeark = Required rate of returng = Growth rateP0 = $100/(15%-3%) = $100/12% = $833.33Therefore, the current value of Alphabet, Inc. stock is $833.33.Snoke Inc.'s current price is $100 and the price is expected to rise to $110 in one year. The dividends are paid annually and the next dividend will be $6.00 per share. Using the formula for the expected stock return, the expected return for Snoke Inc.'s stock is calculated as follows:Expected return = Dividend yield + Capital gain yieldDividend yield = D1/P0 = $6/$100 = 6%Capital gain yield = (P1 - P0)/P0 = ($110 - $100)/$100 = 10%Expected return = 6% + 10% = 16%Therefore, the expected stock return for Snoke Inc. is 16%.Rey Inc. just paid a dividend of $5. Dividends are expected to grow at 2% for the next two years after which they will grow at 1% indefinitely. The required rate of return for similar stocks is 9%. Using the formula for the constant growth model, the current stock price for Rey Inc. is calculated as follows:P0 = D1/(k-g) + D2/(k-g)² + D3/(k-g)² (1+g)Where,P0 = Current stock priceD1 = Dividend at the end of the first yeark = Required rate of returng = Growth rateD2 = Dividend at the end of the second yearD3 = Dividend at the end of the third yearP0 = $5/(9%-2%) + $5(1+2%)/(9%-2%)² + $5(1+2%)²/(9%-2%)² (1+1%)= $5/7% + $5*1.02/7%² + $5*1.02²/7%²*1.01= $71.43Therefore, the current value of Rey Inc, stock is $71.43.Snoke Inc.'s will pay a dividend of $10 next year. The required rate of return is 10%, and dividends are expected to grow 5% after next year. The formula for the estimated value of a stock at the end of the nth year is calculated as follows:Pn = Dn(1+g)² / (k-g)²Where,Pn = Estimated value of the stock at the end of the nth yearDn = Dividend at the end of the nth yeark = Required rate of returng = Growth rateP99 = $10*(1+5%)² / (10%-5%)²= $1044.53Therefore, Snoke's estimated value of the stock at the end of Year 99 is $1044.53.
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Duopoly Models: Two firms operate in a market characterized by a market demand function: Q = 40 — 2p. Their have identical cost functions c(q) = ¼q² + 3q +8. Find each firm's output, price, and profits in the:
a. Cournet Duopoly Model
b. Stackelberg Duopoly Model
In a duopoly model two firms operate in a market characterized by a market demand function Q = 40 — 2p and have identical cost functions c(q)
= ¼q² + 3q +8.
The outputs, prices, and profits of the two firms in a Cournot and Stackelberg duopoly models are required to be calculated. Cournot duopoly model In the Cournot duopoly model, each firm assumes that its rival will not react to the output decision.
As a result, they treat their rival's output as fixed. As a result, they are attempting to determine how much to produce, taking into account their own production and the quantity they believe their rival will produce. As a result, the amount produced by each firm is calculated by solving the following equation.
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Consider the same run-way landing problem above, assuming that the landing time is a constant 1.5 minutes. (a) Calculate the average waiting times and average numbers of airplanes waiting for landing for various values of arrival rates (from relatively small values to close to the service rate) and plot them as functions of the arrival rate. What arrival rate(s) would you recommend for based on plots? [Feel free to use MS Excel, MATLAB, or other computer tools to answer this part.] (b) Show that the arrival rate must be no greater than 0.5333 per minute so that the average waiting time in the sky is not to exceed 3 minutes. (c) Under the arrival rate specified in (b), show that the average number airplanes waiting in the sky for landing is 1.6 aircrafts? (d) Explain the difference of the results in the two problems.
The difference between the two problems lies in the consideration of a constant landing time in this case, which affects the optimal arrival rate and subsequently the waiting times and number of airplanes waiting.
In this runway landing problem, the landing time is fixed at 1.5 minutes. The average waiting times and the average number of airplanes waiting for landing are calculated for various arrival rates, ranging from small values to close to the service rates. These values are then plotted as functions of the arrival rate. The plots help identify the recommended arrival rate that minimizes waiting times and the number of airplanes waiting. In part (b), it is shown that the arrival rate must not exceed 0.5333 per minute to ensure that the average waiting time in the sky does not exceed 3 minutes. Furthermore, part (c) demonstrates that under this specified arrival rate, the average number of airplanes waiting in the sky for landing is 1.6 aircraft.
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The following accounts appear in the records of Paisan Inc. at December 31, 2022. Common Stock (no-par, $1 stated value. 400.000 shares authorized, 250,000 shares issued) Paid-in Capital in Excess of Stated Value-Common Stock Preferred Stock ($50 par value, 8%, 40,000 shares authorized, 14,000 shares issued) Retained Earnings Treasury Stock (9.000 common shares) Paid-in Capital in Excess of Par Value-Preferred Stock Accumulated Other Comprehensive Loss -12 E PAISAN INC. Partial Balance Sheet $250,000 1.200.000 700,000 920,000 64,000 24,000 31.000 Prepare the stockholders' equity section at December 31.
Common Stock $250,000
Paid-in Capital in Excess of Stated Value-Common Stock $1,200,000
Preferred Stock $700,000
Paid-in Capital in Excess of Par Value-Preferred Stock $920,000
Retained Earnings $64,000
Treasury Stock (9,000 common shares)
Accumulated Other Comprehensive Loss -$12,000
To prepare the stockholders' equity section at December 31, we need to list the accounts and their respective balances. Based on the information provided, the stockholders' equity section will be as follows:
Common Stock:
Authorized shares: 400,000
Issued shares: 250,000
Stated value: $1
Common Stock balance: $250,000
Paid-in Capital in Excess of Stated Value-Common Stock balance: $1,200,000
Preferred Stock:
Authorized shares: 40,000
Issued shares: 14,000
Par value: $50
Dividend rate: 8%
Preferred Stock balance: $700,000
Paid-in Capital in Excess of Par Value-Preferred Stock balance: $920,000
Retained Earnings balance: $64,000
Treasury Stock balance: 9,000 common shares
Accumulated Other Comprehensive Loss balance: -$12,000
Therefore, the stockholders' equity section at December 31, 2022, would be as follows:
Stockholders' Equity
Common Stock $250,000
Paid-in Capital in Excess of Stated Value-Common Stock $1,200,000
Preferred Stock $700,000
Paid-in Capital in Excess of Par Value-Preferred Stock $920,000
Retained Earnings $64,000
Treasury Stock (9,000 common shares)
Accumulated Other Comprehensive Loss -$12,000
Please note that the balances provided in the question are assumed to be correct. It's important to verify the accuracy of the balances before finalizing the stockholders' equity section.
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DIRECTIONS: SOLVE THE FOLLOWING PROBLEMS SHOWING FULL ANSWER
1. Consider the following data on
a car: Cost basis of the asset, CO BD 10,000 Useful life,
N = 5 years
Estimated Salvage value, CL = BD 2,000 Compute the annual depreciation allowances and the resulting book values. Using sum of years method.
Consider the
2. following data on a car: Cost basis of the asset,
CO= BD 10,000
Useful life, N=5
years
Estimated Salvage
value, CL = BD 778
Compute the annual depreciation allowances and the resulting book values. Using Double Declining Balance method.
3. Calculate the annual depreciation and book value of the construction equipment using declining balance method. The interest rate is 8% per year. Co= BD 3,500,000 - Sv
1. Annual depreciation allowances using the sum of years' method:
Year 1: BD 3,600
Year 2: BD 2,800
Year 3: BD 2,000
Year 4: BD 1,200
Year 5: BD 400
Resulting book values:
Year 1: BD 6,400
Year 2: BD 3,600
Year 3: BD 1,600
Year 4: BD 400
Year 5: BD 0
1: BD 4,000
Year 2: BD 2,400
Year 3: BD 1,440
Year 4: BD 864
Year 5: BD 518.40
Resulting book values:
Year 1: BD 6,000
Year 2: BD 3,600
Year 3: BD 2,160
Year 4: BD 1,295.60
Year 5: BD 777.60
3. Annual depreciation and book value using the declining balance method:
Year 1: Depreciation = BD 280,000, Book Value = BD 3,220,000
Year 2: Depreciation = BD 256,800, Book Value = BD 2,963,200
Year 3: Depreciation = BD 235,600, Book Value = BD 2,727,600
Year 4: Depreciation = BD 216,832, Book Value = BD 2,510,768
Year 5: Depreciation = BD 199,264, Book Value = BD 2,311,504
1. The sum of years' method assigns a greater portion of depreciation in the early years. The formula used is: Depreciation = (N - Year + 1) / (N * (N + 1) / 2) * (Cost basis - Salvage value). The resulting book value is obtained by subtracting the depreciation from the previous book value.
2. The double declining balance method applies a fixed depreciation rate multiplied by the book value. The formula used is: Depreciation = (2 / N) * (Cost basis - Accumulated depreciation). The resulting book value is obtained by subtracting the depreciation from the previous book value.
3. The declining balance method considers a fixed depreciation rate applied to the book value. The formula used is: Depreciation = Depreciation rate * Book value. The depreciation rate is calculated as (1 - (Salvage value / Cost basis))⁽¹N⁾. The resulting book value is obtained by subtracting the depreciation from the previous book value, and the interest rate is not directly related to depreciation.
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The car dealership is offering to sell you the 2014 Corvette with only minor axle damage for $359 monthly payment for the next 7 years. Your first payment would be at the end of the month. You qualify for a loan at 4.9% interest rate. Calculate the present value of these payments to determine how much they are charging you for the car. Post your answer in whole numbers. For example $10,000
We must discount each payment to its present value using the provided interest rate in order to determine the present worth of the car payments. The conventional annuity's present value formula is:
PV is equal to PMT * [1 - (1 + r)(-n)] / r PV = Present Value in this case Payment per period (PMT) r = Periodic Interest Rate n = The number of cycles The payment per period (PMT) in this instance is $359, the annual interest rate (r) is 4.9%, and the period length (n) is 7 years. To determine the interest rate per month, we must first convert the interest rate to a decimal and divide it by 12. r = 4.9% / 12 is therefore 0.049 / 12 or 0.004083.Using the following formula, we can now get the present value: PV = $359
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Jack and Jill, Inc. is an oilfield-drilling contractor. Jack and Jill have been dead for years and Hansel and Gretel, two of their grandchildren, now operate the business as a general partnership. They contract with companies such as ExxonMobil and BP-Amoco. Last year's contracts exceeded $1 million in revenues, an all-time high. The partnership currently employs 50 people on oil-rig crews and 10 in administrative positions. Hansel and Gretel each own 25% of the business (they acquired their interests from their deceased fathers, Humpty Dumpty and the Prince). Two aunts, Cinderella and Snow White, own the remaining 50%. Cinderella and Snow White, each in their early 80 s, have no children. The business was originally a sole proprietorship. Jack brought Humpty Dumpty and the Prince into the business, yet there was no formal partnership agreement. Cinderella and Snow White have never been actively involved in the business. They acquired their interests after Jack's wife, Jill, passed away and left it to them, her beloved sisters. Hansel and Gretel want to continue to expand the business and, eventually, sell the business to a "consolidator" (a company that buys local businesses, usually in exchange for a combination of stock, cash, and debt). Identify legal and regulatory issues to be considered in creating/modifying this business What legal entity choice would you make for this business and why?
The legal and regulatory issues to be considered in creating/modifying this business include partnership agreements, ownership structure, succession planning, and potential sale to a consolidator. Given the circumstances, forming a limited liability company (LLC) would be a suitable legal entity choice for this business due to its flexibility, liability protection, and ease of ownership transfer.
In order to address the legal and regulatory issues, Hansel and Gretel should establish a formal partnership agreement that outlines the rights, responsibilities, and profit-sharing arrangements among the partners. This agreement would provide clarity on ownership percentages, decision-making authority, and the process for transferring ownership.
Since the business has grown and has potential plans for expansion and eventual sale to a consolidator, it is advisable to consider transitioning from a general partnership to a limited liability company (LLC). An LLC offers limited liability protection to the owners, separating their personal assets from the business's liabilities. This would safeguard the personal assets of Hansel, Gretel, Cinderella, and Snow White in case of any legal claims or debts.
Additionally, an LLC provides flexibility in management and ownership, allowing for easy transfer of ownership interests to potential buyers or successors. This would facilitate the eventual sale of the business to a consolidator, as it offers a clear and organized ownership structure.
Overall, forming an LLC would address the legal and regulatory issues, provide liability protection, and offer flexibility for future growth and ownership changes in the business.
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Choose a product or service that you would like to sell (College Services, Life Insurance, Health Insurance, Financial Services. Investments, Used Cars. etc).
Base your Dialogue on the example of the Questioning Process.
please explain one product fully.
One product that can be sold is health insurance. Here is an example dialogue based on the questioning process sales Representative.
Customer: No, I don't have one.Sales Representative: Do you have any existing medical conditions or do you take any medications regularly?Customer: Yes, I have high blood pressure and I'm taking medications for it.Sales Representative: Okay, we have a health insurance plan that covers pre-existing conditions like high blood pressure. Would you be interested in learning more about it?Customer: Sure, I'd like to know more about it.Sales Representative: Great! Our health insurance plan covers hospitalization, doctor visits, diagnostic tests, and prescription medicines. It also includes coverage for chronic conditions like high blood pressure. The premiums for this plan start at $XXX per month. Would you like me to provide you with more details?
Customer: Yes, please.Sales Representative: Here are the details of the plan and the coverage it provides. We also have additional riders that you can add to customize your plan to suit your needs. If you have any further questions, please feel free to ask. Do you have any concerns or questions at this point?Customer: No, I think I have a good understanding of the plan. How do I sign up for it?Sales Representative: I can help you with the sign-up process right now. We just need to fill out a few forms and provide some basic information. Would that be okay with you?Customer: Yes, that sounds good. Let's get started.The dialogue above is an example of the questioning process for selling health insurance. The sales representative begins by asking if the customer has health insurance, then asks about any existing medical conditions or medications. Based on the customer's responses, the representative offers a plan that covers pre-existing conditions and provides details about the coverage and premiums. The representative also offers additional riders that can be added to the plan. Finally, the representative asks if the customer has any concerns or questions and offers to help with the sign-up process.
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companies that _____ will most likely be found in violation of procompetitive legislation.
Companies that engage in anti-competitive practices will most likely be found in violation of procompetitive legislation.
Anti-competitive practices are the business strategies employed by companies to thwart competition in a particular market. Companies using these practices try to gain an unfair competitive advantage over their rivals and can do a lot of damage to consumers in the process.
Anti-competitive practices can include things such as price fixing, bid rigging, tying, and exclusive dealing. These practices violate procompetitive legislation that seeks to protect consumers, ensure that markets remain competitive, and create an even playing field for businesses.
Companies that engage in anti-competitive practices can face legal penalties such as fines or forced divestiture of assets. In some cases, anti-competitive practices can result in criminal prosecution for those involved in the scheme.
To avoid legal trouble, companies should operate within the bounds of procompetitive legislation by avoiding anti-competitive practices and promoting a competitive market that benefits consumers. A competitive market encourages innovation and can lead to lower prices for consumers.
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Lee Company offers its top executives the opportunity to purchase its $1 par value common stock at 2% discount to the market price. The employees have 3 weeks to elect to participate in the plan. The current market price of the stock is $81 per share. Employees purchased a total of 2000 shares. What journal entry will the company make on the date the employees purchase the shares?
The journal entry that the company will make on the date the employees purchase the shares is as follows: Debit: Employee Stock Purchase Plan Expense (2000 shares * $81 * 2% discount), Credit: Common Stock (2000 shares * $1 par value).
The company will debit the "Employee Stock Purchase Plan Expense" account to record the cost associated with offering the discounted stock to employees. The expense is calculated based on the number of shares purchased (2000 shares), the market price of the stock ($81 per share), and the discount rate (2%).
The credit entry is made to the "Common Stock" account to record the issuance of shares to the employees. The credit amount is calculated by multiplying the number of shares purchased (2000 shares) by the par value of the stock ($1 per share).
This journal entry reflects the impact of the employee stock purchase plan on the company's financial records. It recognizes the cost of providing the discounted shares to employees and records the corresponding increase in the company's equity through the issuance of common stock.
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Suppose you take a $ 10,000 loan from a bank at 12 % annual interest rate . The bank has determined that payments would be fixed annual payments equal to $ 2,400 each . How long does it take to repay the bank ? 1.-6.12 years 2-4.17 years 3. 4.67 years 4-0.16 years
The correct answer is 4.67 years to repay the bank.
To determine the repayment period, we can use the formula for the present value of an ordinary annuity. In this case, the loan amount is $10,000, the annual interest rate is 12%, and the annual payment is $2,400.
Using the formula:
[tex]\[ PV = \frac{P \times (1 - (1+r)^{-n})}{r} \][/tex]
where PV is the present value (loan amount), P is the annual payment, r is the interest rate per period, and n is the number of periods.
Rearranging the formula to solve for n:
[tex]\[ n = -\frac{\log(1 - \frac{PV \times r}{P})}{\log(1+r)} \][/tex]
Plugging in the values:
[tex]\[ n = -\frac{\log(1 - \frac{10,000 \times 0.12}{2,400})}{\log(1+0.12)} \][/tex]
Simplifying the equation:
[tex]\[ n = -\frac{\log(0.9583)}{\log(1.12)} \][/tex]
Using a calculator, we find:
[tex]\[ n \approx 4.67 \][/tex]
Therefore, it takes approximately 4.67 years to repay the bank.
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just now sure my my calculations are right.
a. I get 13%
b. 11.6
c. 12.65
Calculate the after-tax cost of debt under each of the following conditions: a. r a. r of 13%, tax rate of 0% b. r b. r of 13%, tax rate of 20% c. r c. r of 13%, tax rate of 35% Calculate the after-tax cost of debt under each of the following conditions: a. r a. r of 13%, tax rate of 0% b. r b. r of 13%, tax rate of 20% c. r c. r of 13%, tax rate of 35%
The after-tax cost of debt under each of the following conditions are: a) Under the condition of 13% r and 0% tax rate the after-tax cost of debt is 13%. b) Under the condition of 13% r and 20% tax rate the after-tax cost of debt is 10.4%. c) Under the condition of 13% r and 35% tax rate the after-tax cost of debt is 8.45%.
Given, r = 13%Tax rate of 0%, 20%, 35%.We need to calculate the after-tax cost of debt under each condition. a) Calculation for tax rate of 0%r_after tax = r(1 - Tax rate) = 13% × (1 - 0%) = 13%After-tax cost of debt = r_after tax = 13%.b) Calculation for tax rate of 20%r_after tax = r(1 - Tax rate) = 13% × (1 - 20%) = 10.4%After-tax cost of debt = r_after tax = 10.4%.c) Calculation for tax rate of 35%r_after tax = r(1 - Tax rate) = 13% × (1 - 35%) = 8.45%After-tax cost of debt = r_after tax = 8.45%.Hence, the after-tax cost of debt under the mentioned conditions is: a) Under the condition of 13% r and 0% tax rate the after-tax cost of debt is 13%.b) Under the condition of 13% r and 20% tax rate the after-tax cost of debt is 10.4%.c) Under the condition of 13% r and 35% tax rate the after-tax cost of debt is 8.45%.
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In 2021, Bratten-Fitness Company made the following cash purchases: 1. The exclusive right to manufacture and sell the X-Core workout equipment from Symmetry Corporation for $204,000. Symmetry created the unique design for the equipment. Bratten also paid an additional $12,000 in fegal and filing fees to attorneys to complete the transaction. 2. An initial fee of $265,000 for a three-year agreement with Silver's Gym to use its name for a new facility in the local area. Silver's Gym has locations throughout the country. Bratten is required to pay an additional fee of $5,400 for each month it operates under the Silver's Gym name, with payments beginning in March 2021: Bratten also purchased $404,000 of exercise equipment to be placed in the new facility. 3. The exclusive right to sell Healthy Choice, a book authored by Kent Patterson, for $23,000. The book includes healthy recipes, recommendations for dietary supplements, and natural remedies. Bratten plans to display the book at the check-in counter at its new facility, as well as make it available online. Required: Prepare a summary journal entry to record expenditures related to initial acquisitions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Journal entry worksheet Record the expenditures related to initial acquisitions. Note: Enter debits before credits.
The journal entry above records the expenditures related to Bratten-Fitness Company's initial acquisitions in 2021.
These acquisitions include the exclusive right to manufacture and sell the X-Core workout equipment, an agreement with Silver's Gym to use its name for a new facility, and the exclusive right to sell Healthy Choice, a book authored by Kent Patterson.
For the purchase of the X-Core equipment, Bratten-Fitness paid $204,000 to Symmetry Corporation and an additional $12,000 in legal fees. The total cost of this acquisition is recorded as a debit to Equipment for $204,000 and a credit to Cash for $216,000.
For the agreement with Silver's Gym, Bratten-Fitness paid an initial fee of $265,000 and purchased exercise equipment for $404,000. The total cost of these acquisitions is recorded as a debit to Prepaid Expense - Silver's Gym for $265,000, a debit to Equipment for $404,000, and a credit to Cash for $669,000. Bratten-Fitness is also required to pay an additional fee of $5,400 per month to operate under the Silver's Gym name, which will be recorded as an expense each month as payments are made.
For the purchase of the exclusive right to sell Healthy Choice, Bratten-Fitness paid $23,000, which is recorded as a debit to Intangible Asset - Healthy Choice and a credit to Cash for $23,000.
Overall, these initial acquisitions represent significant investments for Bratten-Fitness as it expands its operations and offerings. Properly recording these transactions in the company's accounting system is crucial for accurate financial reporting and decision-making going forward.
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1. Contingency plans ____________ A. tell a manager how to plan for routine situations.
B. address the what-ifs of the manager's job. C. can be prepared for all possibilities.
D. are most needed in static environments. E. are also called strategic plans. 2. Greeting coworkers with a "good morning" elucidates the importance of ____________ .
A. formal communication. B. emotional contact.
C. protocol
D. oral communication
E. the grapevine
1. Contingency plans option B. address the what-ifs of the manager's job.
2. Greeting coworkers with a "good morning" elucidates the importance of option B. emotional contact.
1. Contingency plans address the what-ifs of the manager's job. Contingency plans involve having backup measures in place in case something goes wrong or a particular outcome is not achieved. In particular, they provide direction on how to proceed in case of unexpected events that may have a negative impact on a project, an organization, or the people involved.
2. Greeting coworkers with a "good morning" elucidates the importance of emotional contact. Greeting coworkers with a "good morning" is a simple act of kindness that can help to foster healthy relationships between colleagues. It makes people feel valued, respected, and appreciated. In the workplace, emotional contact or emotional intelligence is critical for success since it allows people to build strong interpersonal relationships, work collaboratively, and lead others effectively.
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Answer the following questions based on the financial statements of Merck
Ratios, Profit, and Sales Analysis
1a: What was ROE and ROA in fiscal 2021? Go back 3 years and breakdown ROE and ROA into their components
1b: Perform a full common size income statement analysis.
1c: Compare the 2021 common size statement of Merck and Pfizer. What are the differences and similarities?
1d: What was the profit margin for the first 6 months of 2022? Comment on this performance? Explain
1e: For the first 6 months of 2022 which of the two main segments performed best? Answer with empirical evidence from the 10q.
Accruals and Cash Flows
2a. What were total accruals in 2021, 2020 and 2019? Is this a problem in either year?
2b. What was CFO in 2021, 2020 and 2019? What did Merck do with this cash in each of these years? Do you believe they used the cash wisely? Explain
Discontinued Operations
3a. What was the percentage change in sales from 2020 to 2021 and from 2019 to 2020 for?
Sales as reported on the income statement
Total company sales, including discontinued operations
3b. What were total revenues, total expenses, and net income of the discontinued operations in 2021, 2020, and 2019? Did they get rid of profitable divisions?
Restructuring costs (note 6, page 101)
4a: Make all 2021 journal entries associated with the restructuring. What was the effect of this entry on total assets, liabilities, equity, revenues, expenses, and net income? Give both direction and amount
4b. Was either the 2021 or 2020 restructuring significant in size?
Stock prices
5a: For both Merck and Pfizer, what was the stock market return, net of the S&P 500 for calendar 2020, 2021, and 2022 through 9/20/2022, net of the S&P? Do these returns match the accounting numbers?
5b: What is the market-to-sales ratio for each firm as of 12/31/2021? As of 9/20/2022?
Pensions (US plans only, note 14, page 124)
6a: What was the balance sheet liability for defined benefit pensions in 2021, 2020 and 2019?
6b: What was the expense or revenue for US defined benefit pensions in 2021, 2020, and 2019?
6c: What was FMV as a percent of the PBO for defined pensions at the end of 2021? What was FMV as a percent of the APBO for postretirement benefits at the end of 2021? Why is the APBO percentage so much higher than we saw for Clorox?
Bonus: Was either Merck or Pfizer in an "Amazon" situation in either 2021, 2020, or 2019? How do you know?
The main answer to the given set of questions is to analyze and provide the required information based on the financial statements of Merck. This includes calculating and discussing ratios such as ROE and ROA, performing a common size income statement analysis, comparing the common size statements of Merck and Pfizer, evaluating the profit margin for the first 6 months of 2022, determining the performance of the two main segments, examining total accruals and CFO, assessing the changes in sales and discontinued operations, analyzing restructuring costs, investigating stock market returns and market-to-sales ratios, and reviewing the pension liabilities and expenses. Finally, we need to determine if either Merck or Pfizer was in an "Amazon" situation and provide evidence to support the answer.
To address the given questions, a comprehensive analysis of Merck's financial statements is required. This involves calculating ratios such as ROE and ROA to evaluate the company's profitability and efficiency. Additionally, performing a full common size income statement analysis allows us to assess the composition and trends of the company's revenues and expenses.
Comparing the common size statements of Merck and Pfizer for the year 2021 provides insights into their financial structures and highlights the differences and similarities between the two companies. Analyzing the profit margin for the first 6 months of 2022 helps us understand Merck's performance during that period.
Assessing the performance of the two main segments based on empirical evidence from the 10Q allows us to determine which segment performed better in the first 6 months of 2022.
Analyzing total accruals and CFO provides information on the company's cash flows and financial stability. Assessing the utilization of cash by Merck in each of the specified years helps evaluate the company's financial management.
Examining the changes in sales, total revenues, expenses, and net income of discontinued operations helps assess the impact of these operations on Merck's financials. Analyzing restructuring costs and associated journal entries allows us to understand the effects on various financial statement items.
Evaluating the stock market returns of Merck and Pfizer and calculating the market-to-sales ratios provides insights into the market's perception of their performance and valuation.
Analyzing pension liabilities, expenses, and funded status helps understand the financial obligations and performance of Merck's US defined benefit pensions.
Lastly, determining if either Merck or Pfizer was in an "Amazon" situation requires evaluating the company's growth, market dominance, and disruptive impact during the specified years.
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the creation of a television plot line around a particular brand is called
The creation of a television plot line around a particular brand is called Product placement or brand integration.
Product placement or brand integration is the practice of incorporating a specific brand or product into the storyline of a television show or other media content. It is a form of advertising where the brand is seamlessly integrated into the narrative, often through visual or verbal cues. The purpose is to create brand awareness, increase visibility, and generate positive associations with the brand among the viewers. By featuring the brand prominently within the plot, it allows for subtle or overt promotion, influencing consumer perceptions and potentially driving sales or brand loyalty.
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An entity's ______________________ is represented by its control over economic resources, financial structure, capacity for adaptation and solvency.
a. accounting equation
b. financial position
c. equity
d. financial performance
An entity's financial position is represented by its control over economic resources, financial structure, capacity for adaptation, and solvency (option b).
The financial position is a summary of a company's or individual's financial situation at a certain time, including their assets, liabilities, and equity. Financial position is one of the most critical aspects of a company's overall financial health. It is a way to assess the company's capacity to meet its present obligations and finance its future expansion. The solvency of an entity is the ability to pay its debts as they come due.
It is an important aspect of financial position. Solvency is determined by the relationship between assets and liabilities, and it is critical to assess an entity's capacity to pay its debts.
Therefore, it is essential to note that an entity's financial position is represented by its control over economic resources, financial structure, capacity for adaptation, and solvency. The correct option is b.
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MLK Bank has an asset portfolio that consists of $170 million of 15 -year, 9.5 percent annual coupon, $1,000 bonds that sell at par. a-1. What will be the bonds' new prices if market yields change immediately by ±0.10 percent? a-2. What will be the new prices if market yields change immediately by ±2.00 percent? b-1. The duration of these bonds is 8.5719 years. What are the predicted bond prices in each of the four cases using the duration rule? b-2. What is the amount of error between the duration prediction and the actual market values? Complete this question by entering your answers in the tabs below. What will be the bonds' new prices if market yields change immediately by ±0.10 percent? (Do not round intermediate calculations. Enter all answers as positive numbers. Round your answers to 2 decimal places
If market yields change by -0.10% the Bonds' new price will increase by $5.14, and its new price will decrease by $5.07.
To compute the bonds' new prices when market yields change immediately by ±0.10 percent, the following is the calculation steps:
Calculate the bond's price if market yields change by +0.10%.
PV = 90[1 – 1 / 1.095^15] / 0.095 + 1,000 / 1.095^15
PV = $1,132.27
Calculate the bond's price if market yields change by -0.10%.
PV = 90[1 – 1 / 1.095^15] / 0.095 + 1,000 / 1.095^15
PV = $1,127.85
The bond's new price will increase by $5.14, and its new price will decrease by $5.07.
To compute the bonds' new prices when market yields change immediately by ±2.00 percent, the following are the calculation steps:
Calculate the bond's price if market yields change by +2.00%.
PV = 90[1 – 1 / 1.095^15] / 0.095 + 1,000 / 1.095^15
PV = $657.54
Calculate the bond's price if market yields change by -2.00%.
PV = 90[1 – 1 / 1.095^15] / 0.095 + 1,000 / 1.095^15
PV = $1,484.78
The bond's new price will decrease by $342.74, and its new price will increase by $314.93.
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a) The residents of Ndola have complained that there is a lack of investment in the water sector by the Ndola city council. Consequently, the council is forced to ration water supplies to households during the dry season, When the council imposes water rationing, it affects the consumer's opportunity sets for each household because the household cannot necessarily buy as much as they want at market prices. The consumer basket of the household consists of food and water, suppose that this year, the council rations water by setting a quota on how much a household can purchase. If a household can afford to buy 12, 000 litres of water per month but the council restricts this to no more than 10,000 litres a month. How does this affect the household's opportunity set? Graphically demonstrate this situation.
In Ndola, the lack of investment in the water sector by the Ndola city council has been one of the residents' main complaints. As a result, the council is forced to ration water supplies to households during the dry season.
When water is rationed, the opportunity sets for each household are affected, as the household cannot purchase as much as they want at market prices. The household's consumer basket is composed of food and water.
In this year the council decided to ration water by setting a quota on how much a household can purchase. A household can afford to buy 12,000 litters of water per month, but the council has restricted this to no more than 10,000 litters a month.
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The cost of the machine is $14,506. The CCA rate is 21%. After
11 years, the machine is sold for $518. If it is the only asset in
the asset class and the tax rate is 36%, what is the TRTL? (Assume
150
The Taxable Recapture of Tax Loss (TRTL) for the machine can be calculated by determining the Capital Cost Allowance (CCA) claimed over 11 years and subtracting it from the proceeds of the machine's sale, adjusted for the tax rate.
The CCA rate of 21% means that each year, the investor can claim 21% of the machine's cost as a tax deduction. Over 11 years, the total CCA claimed would be 11 * 21% * $14,506 = $33,757.66.
However, the TRTL calculation is subject to the 150%-rule, which states that the recapture amount cannot exceed 1.5 times the original CCA claimed. In this case, 1.5 * $33,757.66 = $50,636.49.
To calculate the TRTL, we subtract the lower of the recaptured amount or the original CCA claimed from the proceeds of the machine's sale, adjusted for the tax rate. The proceeds from the sale are $518. However, since the tax rate is 36%, the taxable portion of the proceeds is 64% (100% - 36%). Thus, the taxable proceeds are $518 * 64% = $331.52.
Comparing the taxable proceeds ($331.52) with the maximum recapture amount allowed ($50,636.49), we find that the taxable proceeds are lower. Therefore, the TRTL is equal to the taxable proceeds: $331.52.
The TRTL value of $331.52 represents the amount by which the investor's taxable income can be reduced for tax purposes. This reduction can help offset the tax liability associated with the sale of the machine.
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Buses that are scheduled to arrive in Adelaide between 8:00am and 8:30am often run late. Adelaide Metro claims that, in t 2021, the mean lateness of buses arriving in the city between 8:00am and 8:30am was 1.34 minutes. To test this claim, a person with nothing much better to do chose 100 buses at random that were scheduled to arrive in the city between 8:00am and 8:30am, and measured the amount of time that they were late. The person found that their sample had a mean lateness of x 1.43 minutes, and a standard deviation of s= 0.23 minutes. Find a 90% confidence interval for the mean lateness of the buses.
To calculate the 90% confidence interval for the mean lateness of the buses, we can use the following formula:
Confidence Interval = x ± (Z * (s / √n))
Where:
x is the sample mean lateness
Z is the critical value for the desired confidence level (90% corresponds to Z = 1.645 for a large sample size)
s is the sample standard deviation
n is the sample size
Given the information provided:
x = 1.43 minutes
s = 0.23 minutes
n = 100 buses
Plugging in the values, we have:
Confidence Interval = 1.43 ± (1.645 * (0.23 / √100))
Calculating the expression inside the parentheses:
(1.645 * (0.23 / √100)) ≈ 0.037
Therefore, the 90% confidence interval for the mean lateness of the buses is:
1.43 ± 0.037
This can be simplified to:
Lower bound = 1.43 - 0.037 ≈ 1.393
Upper bound = 1.43 + 0.037 ≈ 1.467
So, the 90% confidence interval for the mean lateness of the buses is approximately 1.393 to 1.467 minutes.
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What are the components used to complete a job analysis (give three)?
What is the difference between a job analysis and a job description?
(Rubric: .4 for each element of the job analysis; .8 for the successful description of difference between job analysis and job description (be sure to define both in your answer).)
Please give a detailed answer.
The three components used to complete a job analysis are task identification, job evaluation, and skills assessment. Job analysis also involves collecting information about the job's work environment.
1. Task Identification: This component of job analysis involves identifying and documenting the specific tasks and activities that are required to perform a job successfully. It includes determining the sequence of tasks, their frequency, and the knowledge and skills needed to complete them.
2. Job Evaluation: Job evaluation assesses the relative worth or value of a job within an organization. It involves determining factors such as job complexity, level of responsibility, required qualifications, and the impact of the job on organizational goals.
3. Skills Assessment: This component involves identifying the knowledge, abilities, and competencies required to perform the job effectively. It includes analyzing the required technical skills, soft skills, educational qualifications, and experience necessary for job performance.
The difference between job analysis and job description is that job analysis is a comprehensive process of gathering and analyzing information about a job, while a job description is a concise summary or document that outlines the key aspects of the job. Job analysis provides the foundation for creating accurate job descriptions by providing the necessary data and insights into the tasks, responsibilities, and requirements of a job.
A job description, on the other hand, is a practical tool that communicates the essential details of a job to potential candidates or employees, including the job title, duties, responsibilities, qualifications, and reporting relationships. While job analysis focuses on understanding and documenting the job itself, a job description serves as a communication tool for conveying important job-related information.
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Since the Enron debacle, energy companies have been viewed cautiously by investors. Research sources show that Duke Energy's stock prices have been more stable than most, with a beta of 0.32, but their post-Enron bond rating of BBB has become much lower than the pre-Enron value. Their effective income tax rate is 0.35. As of 2003 , Duke's balance sheet shows $20 in debt and a book value of $15 billion in equity. But there are 900 million shares outstanding, and the billion price per share is approximately $20, resulting in a market value of the equity of $18 billion. Long-term bonds rated BBB (at par) currently earn 6% per year and the market portfolio is returning 15%. What is the WACC for Duke energy? Use the CAPM for equity financing and note that, when calculating the WACC value, the market value of the equity is taken into consideration rather than its book value. This is because the market value reflects the relevance of the current market information vis-à-vis the historical book value of equity. Market values of debt do not fluctuate as dramatically as equity values.
Duke Energy Corporation's weighted average cost of capital (WACC) is 8.79%. This indicates the average rate of return that the company needs to generate in order to satisfy its investors and meet the cost of capital for both debt and equity financing.
Duke Energy Corporation is a US energy corporation that provides power services to various nations. Since the Enron debacle, the energy sector has been looked upon with skepticism by investors.
Duke Energy Corporation's stock prices, on the other hand, have been more stable than most, with a beta of 0.32. Still, their post-Enron bond rating of BBB has dropped significantly compared to their pre-Enron bond rating. The successful income tax rate of Duke Energy is 0.35.
Duke's balance sheet, as of 2003, showed $20 billion in debt and a book equity value of $15 billion. However, the market value of equity is $18 billion when you multiply the shares outstanding, which is 900 million, by the price per share, which is $20.
To calculate Duke Energy's weighted average cost of capital (WACC), the following formula can be used: WACC = (E/V x Re) + ((D/V x Rd) x (1-T)).
Here, E represents the market value of equity, D represents the market value of debt, V represents the total capital, Re represents the cost of equity, Rd represents the cost of debt, and T represents the marginal tax rate. The CAPM (Capital Asset Pricing Model) can be used to compute the cost of equity financing.
After performing the calculations, the WACC of Duke Energy is determined to be 8.79%.
In conclusion, The weighted average cost of capital (WACC) for Duke Energy Corporation is 8.79%. This shows the typical rate of return that the business must produce to appease its stockholders and cover its cost of capital for both debt and equity financing.
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Selb Company currently manufactures 43.500 units per year of a key component for its manufacturing process. Variable costs re $2.95 per unit, fixed costs related to making this component are $75.000 per year, and allocated fixed costs are $76.500 er yoar. The allocated fixed costs are unavoidable whether the company makes or buys this component. The company is onsidering buying this component from a supplier for $3.50 per unit. Calculate the total incremental cost of making 43,500 units and buying 43,500 units. Should it continue to menufacture the omponent, or should it buy this component from the outside supplier?
To calculate the total incremental cost of making 43,500 units, we need to consider both the variable costs and the fixed costs related to making the component.
Variable costs per unit: $2.95
Fixed costs related to making the component: $75,000 per year
Allocated fixed costs: $76,500 per year
Total incremental cost of making 43,500 units:
Variable costs = Variable cost per unit * Number of units
Fixed costs = Fixed costs related to making the component + Allocated fixed costs
Total incremental cost = Variable costs + Fixed costs
Total incremental cost of making 43,500 units = ($2.95 * 43,500) + ($75,000 + $76,500)
Now let's calculate the total incremental cost of buying 43,500 units from the outside supplier.
Cost per unit from the supplier: $3.50
Total incremental cost of buying 43,500 units = Cost per unit from supplier * Number of units
Total incremental cost of buying 43,500 units = $3.50 * 43,500
Now we can compare the total incremental costs of making and buying the component to determine the more cost-effective option.
Compare the total incremental cost of making with the total incremental cost of buying. If the total incremental cost of making is lower than the cost of buying, the company should continue to manufacture the component. Otherwise, it should buy the component from the outside supplier.
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Keller Cosmetics maintains an operating profit margin of 5% and asset turnover ratio of 6. a. What is its ROA? Note: Round your answer to 2 decimal places. b. If its debt-equity ratio is 1 , its interest payments and taxes are each $9,600, and EBIT is $28,000, what is its ROE? Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
a. The ROA for Keller Cosmetics is 0.30 or 30%.
b. The ROE for Keller Cosmetics is 0.60 or 60%.
a. To calculate the return on assets (ROA), we can use the formula:
ROA = Operating Profit Margin * Asset Turnover Ratio
Given that the operating profit margin is 5% and the asset turnover ratio is 6, we can substitute these values into the formula:
ROA = 0.05 * 6 = 0.30
Therefore, the ROA for Keller Cosmetics is 0.30 or 30%.
b. To calculate the return on equity (ROE), we can use the formula:
ROE = ROA * Equity Multiplier
The equity multiplier is calculated as:
Equity Multiplier = 1 + Debt-to-Equity Ratio
Given that the debt-to-equity ratio is 1, we can substitute this value into the formula:
Equity Multiplier = 1 + 1 = 2
Now we can calculate the ROE:
ROE = ROA * Equity Multiplier = 0.30 * 2 = 0.60
Therefore, the ROE for Keller Cosmetics is 0.60 or 60%.
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What is the default setting for the way QuickBooks Online applies credits to customers? A. Credits result in a cash refund. B. Credits void the original transaction. C. Credits are applied to new invoices. D. Credits result in a refund applied to the customer's original form of payment. 48. What is a benefit that is unique to the Project function in QBO Plus? A. You can evaluate a project's profitability. B. You can track expenses by jobs via the sub-customer. C. You can convert an expense into a billable item with a markup. D. You can create estimates and progress invoices. 49. Carlos has many customers in his company file. To improve navigation, he wants to clean up his Customers list by removing those he's pretty sure won't be coming in again. What's the most efficient way for Carlos to do this? A. Delete the unwanted customers. B. Put an asterisk (∗) before the unwanted customer names. C. Edit the unwanted customer names to the names of new customers. D. Mark the unwanted customers as inactive. 50. Why is it important to process a return/credit using the same product or service the customer was originally charged for? A. The credit memo will not apply the credit to the open invoice. B. The cash refunded will not be recorded against the bank account. C. The Customers list will be inaccurate. D. The ledger accounts will be inaccurate.
48 D. Credits result in a refund applied to the customer's original form of payment.
49 D. Mark the unwanted customers as inactive.
50 D. The ledger accounts will be inaccurate.
48 The default setting for the way QuickBooks Online applies credits to customers is that credits result in a refund applied to the customer's original form of payment. This means that when a credit is issued to a customer, it will be refunded to the customer using the same method of payment they used for the original transaction.
49 To clean up the Customers list and remove customers that are not expected to return, the most efficient way is to mark the unwanted customers as inactive. This keeps their information in the system for reference purposes but removes them from active customer lists and transactions.
50 It is important to process a return/credit using the same product or service the customer was originally charged for because the ledger accounts will be inaccurate if a different product or service is used. By using the same product or service, the corresponding revenue and expense accounts will be properly adjusted, ensuring accurate financial reporting.
In QuickBooks Online, the default setting for applying credits to customers is to issue a refund applied to the customer's original form of payment. To clean up the Customers list efficiently, unwanted customers should be marked as inactive. Processing returns/credits using the same product or service ensures accuracy in the ledger accounts. It is essential to follow these practices to maintain accurate financial records and provide efficient customer management.
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in a production cost report, units to be accounted for are calculated as
The units to be accounted for would be 1,500 units (500 + 1,000).
What is a production cost report?
A production cost report is a record that documents the production process's costs in a given accounting period, including direct materials, direct labor, and overhead.
The primary purpose of the report is to assist managers in determining the production costs of goods and determining how efficiently the manufacturing process is operating.
There are three essential parts of the production cost report:
Costs assigned to units completed during the reporting period.
Costs that have yet to be assigned to units in process at the end of the reporting period.
Costs for the units that must be accounted for.
How are units to be accounted for calculated?
The calculation for units to be accounted for is as follows:
Units to be accounted for = Beginning inventory + Units started during the period
For example, suppose the beginning inventory was 500 units, and 1,000 units were started during the period.
In that case, the units to be accounted for would be 1,500 units (500 + 1,000).
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On October 1, 2021, Tonge sold and issued an additional 16,000 shares of common stock at $33. At December 31, 2021, there were 20,000 incentive stock options outstanding, issued in 2020, and exercisable after one year for 20,000 shares of common stock at an exercise price of $30. The market price of the common stock at year-end was $48. During the year, the price of the common shares had averaged $40.
Net income was $650,000. The tax rate for the year was 25%.
Required:
Compute basic and diluted EPS for the year ended December 31, 2021.
The basic EPS for the year ended December 31, 2021, is $1.80, and the diluted EPS is $1.68.To calculate the basic and diluted earnings per share (EPS), we need to consider the weighted-average number of common shares outstanding during the year.
Basic EPS: Basic EPS is calculated by dividing the net income available to common shareholders by the weighted-average number of common shares outstanding. Net income: $650,000 Weighted-average number of common shares outstanding: Shares at the beginning of the year: 100,000 Shares issued on October 1, 2021: 16,000 Weighted-average shares = (100,000 * 9/12) + (16,000 * 3/12) = 75,000 + 4,000 = 79,000 Basic EPS = Net income / Weighted-average shares Basic EPS = $650,000 / 79,000 Basic EPS ≈ $8.23 / share Diluted EPS:Diluted EPS considers the potential dilution effect of stock options. We need to calculate the dilutive effect of the stock options and adjust the weighted-average number of shares outstanding. To determine the dilutive effect, we use the treasury stock method. The average market price during the year was $40, which is lower than the exercise price of $30. Dilutive shares = Minimum of (1) shares issuable upon exercise of options and (2) shares issuable upon assumed conversion of options using the treasury stock method.
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An investor has $800,000 in her account. She borrows $200,000 of funds at the risk-free rate and invests in AAPL. The expected return of AAPL is 16% with return volatility of 32\% and the risk-free rate is 2%. What is the standard deviation of the portfolio? 0.40 0.55 0.45 0.50
The standard deviation of the portfolio is 0.40.
Explanation:
To calculate the standard deviation of the portfolio, we need to consider the weighted contribution of each asset's standard deviation. In this case, there are two assets: AAPL and the risk-free rate.
Let's denote the weight of AAPL as w_AAPL and the weight of the risk-free rate as w_risk-free. Since the investor borrowed $200,000, she has $600,000 left in her account to invest in AAPL. Thus, the weights can be calculated as follows:
w_AAPL = $600,000 / ($600,000 + $200,000) = 0.75
w_risk-free = $200,000 / ($600,000 + $200,000) = 0.25
Now, we can calculate the portfolio's standard deviation using the weights and the individual asset's standard deviations:
Portfolio standard deviation = sqrt((w_AAPL^2 * SD_AAPL^2) + (w_risk-free^2 * SD_risk-free^2) + (2 * w_AAPL * w_risk-free * Cov_AAPL_risk-free))
Given that the expected return of AAPL is 16%, the return volatility (standard deviation) of AAPL is 32%, and the risk-free rate is 2%, we can substitute the values into the formula:
Portfolio standard deviation = sqrt((0.75^2 * 0.32^2) + (0.25^2 * 0.02^2) + (2 * 0.75 * 0.25 * Cov_AAPL_risk-free))
Since the question does not provide the covariance between AAPL and the risk-free rate, we assume it to be zero. Hence, the formula simplifies to:
Portfolio standard deviation = sqrt((0.75^2 * 0.32^2) + (0.25^2 * 0.02^2))
Evaluating the above expression, we find that the portfolio standard deviation is approximately 0.40.
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