Answer:
$266,000
Explanation:
The formula to compute the free cash flow is shown below:
Free Cash flow = Operating cash flow - capital expenditure
= $670,000 - $404,000
= $266,000
The operating cash flow is come from cash provided by operations and capital expenditure is the cash spent for fixed assets
All other information which is given is not relevant. Hence, ignored it
A firm's optimal capital structure occurs where? Select one: a. Stock price is maximized, and EPS are maximized. b. Stock price is maximized, and WACC is maximized. c. EPS are maximized, and WACC is minimized. d. WACC is minimized, and stock price is maximized.
Answer:
A firm's optimal capital structure occurs where WACC is minimized and stock price is maximized.
The correct answer is D
Explanation:
Optimal capital structure exists where the market value of a firm is maximum and WACC is minimum. Optimal capital structure relates to net income approach to capital structure.
Suppose that a firm’s marginal production costs are given by MC = 10 + 4Q. The firm’s production process generates a toxic waste, which imposes an increasingly large cost on the residents of the town where it operates: the marginal external cost (i.e. marginal damage inflicted on the residents) associated with the Qth unit of production is given by 2Q. Hint: The social marginal cost takes into account the private cost of the firm as well the marginal damage to the society of the firm’s production activities.
(a) What is the marginal private cost associated with the 10th unit produced?
(b) What is the total marginal cost to society associated with producing the 10th unit (the marginal social cost of the 10th unit)?
Answer:
A) Marginal private cost= 50
B) Total Marginal social cost to society = 70
Explanation:
A) In order to find the marginal private cost we will use the firms production cost formula as it is the private cost that the firm is enduring and is only relevant to the firm's cost and not the society's cost.
In order to find the marginal unit cost of the 10th unit produced will will replace Q in the formula by 10 as it represents quantity.
MC= 10 + 4Q
MC= 10 + 4(10)
MC= 10 +40 = 50
B) In order to find the marginal cost to society we will add the marginal external cost of the 10th unit to its private cost. We already know the marginal private cost is 50 now we need to find the marginal external cost to it to find the total marginal cost.
Marginal external cost = 2Q
Q= 10
Marginal external cost = 2*10 =20
The total Marginal cost to society= 50 + 20= 70
The marginal private cost of producing the 10th unit is 50. The total marginal cost to society, which includes both private and external costs, for producing the 10th unit is 70.
(a) To calculate the marginal private cost (MC) for the 10th unit, we use the given function MC = 10 + 4Q, where Q is the quantity produced. Substituting Q = 10, we get:
MC = 10 + 4 × 10 = 10 + 40 = 50.Thus, the marginal private cost associated with producing the 10th unit is 50.
(b) The marginal social cost (MSC) is the sum of the marginal private cost (MC) and the marginal external cost (MEC). The marginal external cost for the 10th unit is given by the function MEC = 2Q.
Substituting Q = 10, we get:
MEC = 2 × 10 = 20.Thus, the marginal social cost (MSC) is:
MSC = MC + MEC = 50 + 20 = 70.Therefore, the total marginal cost to society associated with producing the 10th unit is 70.
From the graphs, it is evident that the United States imports about 50% more in – than it exports, but exports about 50% more in – than it imports. It is also evident, from a comparison of the vertical scales, that the United States imports almost – as much in goods as in services and that it exports a little over – as much in goods as in services.
The U.S. imports about 50% more textiles and apparel than it exports and exports more aircrafts than it imports. It mainly imports goods rather than services and records a service surplus. The U.S. experiences a trade deficit, influenced by both intra-industry trade and the theory of comparative advantage.
From the provided information, we can infer several aspects of United States trade. Firstly, it is evident that the U.S. imports about 50% more textiles and apparel than it exports. Contrarily, for goods like aircraft, the U.S. actually exports about 50% more than it imports. When considering trade in goods and services, it is apparent that the U.S. imports nearly twice as much in goods as in services and exports a little over twice as much in goods as in services.
The theory of comparative advantage explains why the U.S. engages in substantial intra-industry trade, where it produces and trades goods within the same industry, as is the case with the automotive industry. For example, in 2021, the U.S. exported $131 billion worth of autos and imported $317 billion worth of autos. Additionally, the U.S. recorded a service surplus, exporting more services than it imports from the rest of the world, with over $144 billion in 2008.
Sheridan Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that the following schedules have been correctly prepared for this asset using (1) the straight-line method, (2) the sum-of-the-years'-digits method, and (3) the double-declining-balance method.
Year Straight-Line Sum-of-the- Years'-Digits Double-Declining- Balance
1 $10,260 $17,100 $22,800
2 10,260 13,680 13,680
3 10,260 10,260 8,208
4 10,260 6,840 4,925
5 10,260 3,420 1,687
Total $51,300 $51,300 $51,300
Answer the following questions.Part A: What is the cost of the asset being depreciated? Part B: What amount, if any, was used in the depreciation calculations for the salvage value for this asset?
Answer:
A. The cost of asset being depreciated is $57,000
B.The amount of salvage value is $5,700
Explanation:
Among the above-mentioned methods of depreciation, the only method that never consider salvage value on its computation of depreciation expense is the double declining method. So let’s use this method to work back the exact amount depreciable amount of an asset.
Formula : 100% / life of an asset x 2
100% / 5 x 2 = 40%
Y1 = $22,800/40 = 57,000
so to check if the amount is correct, let’s do the computation of 5-year depreciation.
Y1 57,000 x 40% = 22,800 (same as the given data)
Y2 (57,000 - 22,800) x 40% =13,680
Y3 (57,000 - 22,800 - 13,680) x 40% = 8,208
Y4 (57,000-22,800 - 13,680 - 8,208) x 40% = 4,925
Y5 (57,000 -22,800 - 13,680 - 8,208 - 4,925) x 40% = 1,687* (adjusted based on the depreciable amount)
B. To compute the salvage value, we simply deduct the total depreciation from the cost of an asset.
57,000 - 51,300 = 5,700
To check:
(57,000 - 5,700) / 5 years = 10,260
The Frank Company has issued 10%, fully participating, cumulative preferred stock with a total par value of $300,000 and common stock with a total par value of $900,000. Dividends for one previous year are in arrears. How much cash will be paid to the preferred stockholders and the common stockholders, respectively, if cash dividends of $222,000 are distributed at the end of the current year?
Answer:
$78000 to Preferred stockholder and $144000 to common stockholder.
Explanation:
Given: Current common stock outstanding = $900000.
Current preferred stock outstanding=$300000.
Total Cash dividend to be distributed= $222000.
Dividend to be distributed at 10%.
As we know, preferred shareholder are given preference over common stockholder for dividend payment. Company has to pay dividend in arrear next year if they miss out paying dividend to preferrence shareholder in any particualr year.
First, lets compute the annual dividend of preferred stockholder.
As given, Dividends for one previous year are in arrears and dividend is issued at 10%.
∴ Preferrence stock dividend= [tex]\$ 300000\times 10\%[/tex]
Preferrence stock dividend= [tex]\$ 300000\times \frac{10}{100} = \$ 30000[/tex]
∴ Preferrence stckholder´s:
current year dividend to be paid is $30000
Arrear to be paid of previous year is $30000
Now, compute dividend to be paid to common stockholder.
Dividend to be paid to common stockholder= [tex]\$900000\times 10\%[/tex]
∴ Common stockholder´ dividend= [tex]\$ 900000\times \frac{10}{100} = \$ 90000[/tex]
As given, Total shareholder dividend to be paid is $222000 and it is fully participative and cumulative.
∴ Balance of total dividend= [tex]\$222000-(\$60000+\$90000)= \$2220000-\$150000[/tex]
Balance of total dividend=[tex]\$ 72000[/tex]
Next, distributing the balance of total dividend on pro rata basis.
Preferred stock= [tex]\frac{3}{12} \times \$72000= \$ 18000[/tex]
Common stock= [tex]\frac{9}{12} \times 72000=\$ 54000[/tex]
Finally, computing total dividend paid current year
Preferred stock= [tex]\$30000+\$30000+\$18000= \$78000[/tex]
Common stock= [tex]\$90000+\$54000= \$144000[/tex]
∴ $78000 to Preferred stockholder
$144000 to common stockholder
Kingston Company uses the dollar-value LIFO method of computing inventory. An external price index is used to convert ending inventory to base year. The company began operations on January 1, 2018, with an inventory of $150,000. Year-end inventories at year-end costs and cost indexes for its one inventory pool were as follows:Year Ended Ending Inventory Cost IndexDecember 31 at Year-End Costs (Relative to Base Year)2018 $ 200,000 1.082019 245,700 1.172020 235,980 1.142021 228,800 1.10Required:
Calculate inventory amounts at the end of each year. (Round intermediate calculations and final answers to the nearest whole dollars.)
Final answer:
To calculate the Kingston Company's inventory at the end of each year using the dollar-value LIFO method and an external price index, divided the year-end inventory costs by the respective cost index for that year.
Explanation:
The Kingston Company is using the dollar-value LIFO method to compute its inventory, whereby they adjust the ending inventory value according to an external price index. To determine the inventory value for each year, we divide the ending inventory at year-end costs by the year's cost index relative to the base year. This adjusts the ending inventory to the base year's cost level.
For 2018: $200,000 / 1.08 = $185,185.19 (rounded to the nearest dollar)
For 2019: $245,700 / 1.17 = $209,914.53 (rounded to the nearest dollar)
For 2020: $235,980 / 1.14 = $207,017.54 (rounded to the nearest dollar)
For 2021: $228,800 / 1.10 = $208,000 (rounded to the nearest dollar)
We use this approach, instead of comparing raw dollar amounts, to account for changes in relative prices over time, thus mitigating effects of inflation or deflation on the cost of the inventory.
If a single agent residential seller's broker wishes to provide limited representation to a buyer, what must the broker do?
Answer:
If a single agent residential seller's broker wishes to provide limited representation to a buyer, the broker should allow the seller to sign the consent to transition to transaction broker notice. Thereafter, the notice should be given to the buyer.
Explanation:
A single agent residential seller's broker that wishes to provide limited representation to a buyer is required to allow the seller to sign the consent to transition to transaction notice. A copy of the notice should be given to the buyer.
Suppose the S&P 500 Index has an average return of 11.2% with a standard deviation of 23.7%, and the average return on Wells Fargo stock is 16.3% with a standard deviation of 42.3%. What is the beta for Wells Fargo is the correlation coefficient between Wells Fargo stock return and the S&P 500 Index return is 0.82?
Answer:
Beta = 1.46
Explanation:
Firstly, we need to calculate covariance of S&P 500 return and Well Fargo stock return, using below formula:
Correlation coefficient between Wells Fargo stock return and the S&P 500 Index return = Covariance of S&P 500 return and Well Fargo stock return/(Standard deviation of S&P 500 return x Standard deviation of Well Fargo stock return), or
0.82 = Covariance of S&P 500 return and Well Fargo stock return/(0.237 x 0.423). Solve the equation we get Covariance of S&P 500 return and Well Fargo stock return = 0.082.
Secondly, we calculate beta of S&P 500 return and Well Fargo stock return, using below formula:
Beta = Covariance of S&P 500 return and Well Fargo stock return/Variance of S&P 500 return
= 0.082/(0.237)^2 = 1.46
Final answer:
Using the provided statistics, the beta for Wells Fargo, with a correlation coefficient to the S&P 500 of 0.82, is calculated to be 1.44, indicating it is more volatile than the market.
Explanation:
The beta for Wells Fargo, given the correlation coefficient between Wells Fargo stock return and the S&P 500 Index return is 0.82 can be calculated using the formula β = (ρ × σ_{stock}) / σ_{market}). In this case, β represents the stock's sensitivity to market risk, ρ is the correlation coefficient between the stock and the market returns, σ_{stock} is the standard deviation of the stock's returns, and σ_{market} is the standard deviation of the market returns. By plugging in the values for Wells Fargo (σ_{stock} = 42.3%) and the S&P 500 (σ_{market} = 23.7%, ρ = 0.82), we can calculate Wells Fargo's beta:
β = (0.82 × 42.3%) / 23.7% = 1.44
Therefore, the beta for Wells Fargo is 1.44, indicating that it is more volatile than the market.
A sporting goods store purchased $7,600 of ski boots in October. The store had $3,600 of ski boots in inventory at the beginning of October, and expects to have $2,600 of ski boots in inventory at the end of October to cover part of anticipated November sales. What is the budgeted cost of goods sold for October?
a. $7,600.
b. $8,600.
c. $11,200.
d. $10,200.
e. $6,200.
Answer:
The budgeted cost of goods sold for October is b. $8,600
Explanation:
The budgeted cost of goods sold for October = The amount of goods sold in October = Inventory at the beginning of October + The amount of goods purchased in October - Inventory at the end of October
The store had $3,600 of ski boots in inventory at the beginning of October, and expects to have $2,600 of ski boots in inventory at the end of October. The store purchased $7,600 of ski boots in October.
The budgeted cost of goods sold for October = $3,600 + $7,600 - $2,600 = $8,600
Heels, a shoe manufacturer, is evaluating the costs and benefits of new equipment that would custom fit each pair of athletic shoes. The customer would have his or her foot scanned by digital computer equipment; this information would be used to cut the raw materials to provide the customer a perfect fit. The new equipment costs $117,000 and is expected to generate an additional $45,000 in cash flows for five years. A bank will make a $117,000 loan to the company at a 12% interest rate for this equipment’s purchase. Compute the recovery time for both the payback period and break-even time. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
Answer:
* Payback period: 2.6 years;
* Break-even time: 3.3 years.
Explanation:
Please find the below for detailed explanation and calculation:
* Payback period calculation:
Payback period = Initial investment outlay/ annual additional cash flow = 117,000/45,000 = 2.6 yeas;
* Break-even time calculation:
We have the net present value of the project after 3 years is:
-117,000 + (45,000/12%) x ( 1 + 1.12^-3) = $(8,917.6)
Present value of year 4 additional cash flow = 45,000 / 1.12^4 = 28,598
=> Break even time ( years) = 3 + (8,917.6/28,598) = 3.3 years.
Final answer:
The payback period is approximately 2.6 years based on simple division of cost by annual cash flow, without accounting for the time value of money. The break-even time would require calculating the present value of the cash inflows at a 12% discount rate, which cannot be accurately done without the PVA table values.
Explanation:
To compute the recovery time for both the payback period and break-even time, we first need to understand the costs and additional cash flows associated with the new equipment by Heels shoe manufacturer. The equipment costs $117,000 and will generate an additional $45,000 in cash flows each year for five years. Given that the interest rate for the loan to purchase this equipment is 12%, this will impact the calculations related to the present value of future cash flows.
The payback period is the time required for the cash inflows from an investment to repay the initial capital outlay. In this case, without factoring in interest, the payback period would be the equipment cost divided by the annual cash flow (i.e., $117,000 / $45,000), which is approximately 2.6 years. However, the payback period does not consider the value of money over time.
On the other hand, the break-even time would be calculated using the present value of the cash inflows to find when the equipment generates enough cash to cover the $117,000 at a 12% discount rate. This would involve using the present value annuity (PVA) factor from the tables provided. Unfortunately, without the actual PVA table values, we cannot provide a precise figure for the break-even time in this answer.
ossdale Co. stock currently sells for $72.65 per share and has a beta of 1.21. The market risk premium is 7.20 percent and the risk-free rate is 2.94 percent annually. The company just paid a dividend of $4.25 per share, which it has pledged to increase at an annual rate of 3.55 percent indefinitely. What is your best estimate of the company's cost of equity?
Answer:
10.63%
Explanation:
(1) Current share price = $72.65
current dividend = $4.25
Growth rate = 3.55%
Cost of equity:
= {[Current dividend (1 + Growth rate)] ÷ Price} + Growth rate
= {[$4.25(1 + 3.55%)] ÷ $72.65} + 3.55%
= 9.607639%
(2) Risk free rate = 2.94%
Market risk premium = 7.20%
Beta = 1.21
Cost of equity:
= Risk free rate + (Beta × Market risk premium)
= 2.94% + (1.21 × 7.20%)
= 11.65200%
Average cost of equity = (9.607639% + 11.65200%) ÷ 2
= 10.62982%
Therefore, the best estimate of the company's cost of equity is 10.63%.
A(n) _______ is a limitation or deficiency in one or more of a firm's resources or capabilities relative to its competitors that creates a disadvantage in effectively meeting customer needs.
Answer:
Weakness
Explanation:
Some of these weaknesses can be outdated equipments, lack of internal controls, lack of clear strategic direction, poor marketing skills, excess debt, missing some key skills, lack of important assets, etc.
All these are is a limitations or deficiencies that create a disadvantage in effectively meeting customer needs.
At the beginning of 2019, Robotics Inc. acquired a manufacturing facility for $13.5 million. $10.5 million of the purchase price was allocated to the building. Depreciation for 2019 and 2020 was calculated using the straight-line method, a 25-year useful life, and a $2.5 million residual value. In 2021, the estimates of useful life and residual value were changed to 20 total years and $650,000, respectively. What is depreciation on the building for 2021
Answer:
$511,667
Explanation:
The computation of the depreciation expense for 2019 and 2020 is shown below:
= (Purchase price - residual value) ÷ (useful life)
= ($10,500,000 - $2,500,000) ÷ (25 years)
= ($8,000,000) ÷ (25 years)
= $320,000
The depreciation in this method is the same for the rest of the useful life
Now the book value for 2021 would be
= Purchase price - depreciation for 2 years
= $10,500,000 - $320,000 × 2
= $9,860,000
Now the depreciation for 2021 would be
= ($9,860,000 - $650,000) ÷ 18 years
= $511,667
The depreciation on the building for 2021, following the change in estimates of useful life and residual value, would be $513,333.33. This is calculated using the book value at the beginning of 2021, subtracting the new residual value, and dividing by the remaining useful life.
Explanation:To calculate the depreciation on the building for 2021 under the straight-line method, we need to consider the revised useful life and residual value. Initially, Robotics Inc. had a depreciation expense of ($10.5 million - $2.5 million) / 25 years = $320,000 per year. However, in 2021, the estimates for useful life and residual value were changed to 20 years and $650,000 respectively.
We need to determine how much of the building's cost has already been depreciated in 2019 and 2020, which is $320,000 * 2 years = $640,000. So, the book value at the beginning of 2021 is $10.5 million - $640,000 = $9.86 million.
Then to compute depreciation for 2021, we subtract the new residual value from the book value, and divide by the remaining useful life. Our new annual depreciation becomes: ($9.86 million - $650,000) / (20 years - 2 years) = $513,333.33.
So, the depreciation on the building for 2021 would be $513,333.33.
Learn more about Depreciation Calculation here:https://brainly.com/question/31180880
#SPJ11
An employee's net (or take-home) pay is determined by gross earnings minus amounts for income tax withholdings and the employee's:
a. portion of FICA taxes and unemployment taxes.
b. and employer's portion of FICA taxes, and unemployment taxes.
c. portion of FICA taxes, unemployment taxes, and any voluntary deductions.
d. portion of FICA taxes and any voluntary deductions.
Answer:
c. Portion of FICA taxes, Unemployment Taxes and any Voluntary Deductions
Explanation:
Payroll deductions are amounts that an employee deducts or withholds from an employee's gross earnings for different purposes. These deductions are categorised either mandatory or voluntary. Mandatory deductions are mainly taxes including FICA taxes, unemployment taxes and income tax, pension contributions among others. Voluntary deductions include dues such as union and uniform dues among others.
FICA represents Federal Insurance Contribuion Act and it is a federal payroll contribution statutorily paid by employees and employees specifically to help the fund federal programs such as social security and healh care for people with disabilities and retirees among other.
Unemployment Taxes
These are taxes that are contributed to a fund for paying unemployment benefits to employees that have been laid off from their jobs and not those who voluntarily left their jobs. The State Unemploymet Tax is to be paid only by employers while the Federal Unemployment Tax is also to be paid by employees.
Any Voluntary Deductions- these are union dues and other dues that the employee is aware of and agrees to its payment.
Metaline Corp. uses the weighted average method for inventory costs and had the following information available for the year. Equivalent units of production for the year are:
Beginning inventory of Work in Process (40% complete, $1,100) 200 units
Ending inventory of Work in Process (80% complete) 400 units
Total units started during the year 3,200 units
A. 3,200 units.
B. 3,320 units.
C. 3,240 units.
D. 3,520 units.
E. 3,800 units.
Answer:
Equivalent units of production for the year will be 3320
So option (b) will be correct answer
Explanation:
We have given beginning inventory = 200 units
Total unit started during the year = 3200 units
Ending inventory = 400 units
Calculation of units transferred during the year = Beginning inventory + Total units started during the year - Ending inventory
= 200 + 3200 - 400
= 3000 units
Calculation of Equivalent units of production for the year = Unit transferred + closing inventory × percentage of completion = 3000 + 0.8 ×400 = 3000 + 320 = 3320 units
So option (b) will be correct answer
Which one of the following is not a good type of rival for an offensive-minded company to target?
A. Market leaders that are vulnerable
B. Runner-up firms with weaknesses in areas where the offensive-minded challenger is strong
C. Small local and regional companies with limited capabilities
D. Struggling enterprises that are on the verge of going under
E. Other offensive-minded companies with a sizable war chest of cash and marketable securities
Answer:
The correct answer is E
Explanation:
Offensive strategy or minded is the kind or type of strategy, in which it comprise or involved of the actively trying to follow the changes in the industry.
Companies or business which follow the offensive minded or strategy, mostly invest in the R&D area (Research and Development) and the technology, so that could stay ahead in the competition.
So, the other offensive minded or strategy companies ,which have the war chest of the securities which are marketable and the cash is not the good kind of rival for targeting.
Final answer:
Struggling enterprises that are on the verge of going under are not good targets for offensive-minded companies.
Explanation:
The type of rival that is not a good target for an offensive-minded company is:
Market leaders that are vulnerableRunner-up firms with weaknesses in areas where the offensive-minded challenger is strongSmall local and regional companies with limited capabilitiesStruggling enterprises that are on the verge of going underOther offensive-minded companies with a sizable war chest of cash and marketable securitiesTargeting struggling enterprises on the verge of going under would not be beneficial for an offensive-minded company because they may not have the resources or stability to offer a significant challenge.
International Finance Problem Set on Working Capital Management1. Rossignol Co. manufactures and sells skis and snowboards in France, Switzerland and Italy, and also maintains a corporate account in Frankfurt, Germany. Rossignol has been setting separate operating cash balances in each country at a level equal to expected cash needs plus two standard deviations above those needs, based on a statistical analysis of cash flow volatility. Expected operating cash needs and one standard deviation of those needs are below.Rossignol’s Frankfurt bank suggests that the same level of safety could be maintained if all precautionary balances were combined in a central account at the Frankfurt headquarters.a. How much lower would Rossignol’s total cash balances be if all precautionary balances were combined? Assume cash needs in each country are normally distributed and are independent of each other.b. How much would the company save annually, if financing costs are 6% p.a., from centralizing its cash holdings?
Answer:
Consider the following explanation
Explanation:
Please note that if cash requirements are combined, mean requirement of combined entity can be simply summed up, but same is not true for standard deviation as it is not additive.
So first we need to calculate the variance by taking square of SD, then we sum it for all the location to get variance of combined entity and then we take square root again to get the SD of combined entity.
Keep in mind that we can take a simple summation of variance due to the fact that requirement in different locations are independent of each other and their correlation coefficient is = 0.
Solution is given through following image sheet -
You have entered into a long forward contract on a dividend-paying stock some time ago, and this will expire in six months. It has a delivery price of $40 and the current stock price is $35. The stock provides a fixed dividend yield of 8% with semi-annual compounding. If the risk-free rate is 12% per annum with continuous compounding, what is the value of this long forward contract?
A. $6.72
B. -$4.02
C. $4.02
D. -$6.72
Answer:
correct option is B. -$4.02
Explanation:
given data
delivery price = $40
current stock price = $35
fixed dividend yield = 8% = 0.08
risk free rate = 12% = 0.12
solution
as we know that forward contract is a agreement that is made between 2 parties ( seller or buyer ) asset in future at today fix price in specified time,
we get here long forward contract value that is express as
long forward contract = [tex]\frac{stock\ price}{(1+dividend\ rate)^t} -\frac{forward\ rate}{e^{r*t}}[/tex] ...................1
put here value we get
long forward contract = [tex]\frac{35}{(1+0.08)^{6/12}} -\frac{40}{e^{0.12*6/12}}[/tex]
solve it we get
long forward contract = -$4.02
so correct option is B. -$4.02
If short-run marginal cost and average variable cost curves for a competitive firm are given by SMC = 2 + 4Q, and AVC = 2 + 2Q, a)how many units of output will it produce at a market price of $10? (15 points)b)At what level of fixed cost will this firm earn zero economic profit?
Answer:
units of output = 2 units
fixed cost = 8
Explanation:
given data
SMC = 2 + 4Q
AVC = 2 + 2Q
to find out
how many units of output will it produce at a market price and what level of fixed cost will this firm earn zero economic profit
solution
we know here that under perfect competition
so at the equilibrium here Price (P) will be = MC
P = MC = 10
and
SMC = 2 + 4Q ,
P = 2 + 4Q
10 = 2 + 4Q
Q = 2 units
and
at zero economic profit we get
TR = TC
TR = P × Q
TR = 10 × 2
TR = 20
so
TC = TFC + TVC
20 = TFC + 12
TFC = 8
because here [ TVC = AVC × Q ]
[ TVC = (2 + 2 × 2) × 2 ]
[ TVC = 12 ]
The competitive firm will produce 2 units of output at a market price of $10. The level of fixed cost for the firm to earn zero economic profit is $8.
Explanation:To determine how many units of output the firm will produce at a market price of $10, we set the market price equal to the short-run marginal cost (SMC). Thus, we have 10 = 2 + 4Q. Solving for Q gives us Q = 2 units. This is the quantity at which marginal revenue (MR), which equals the market price for a competitive firm, is equal to marginal cost (MC).
For the second part of the question, to find the level of fixed cost at which the firm will earn zero economic profit, we must first calculate the total cost (TC) when producing the profit-maximizing quantity. Since TC = Total Fixed Cost (TFC) + Total Variable Cost (TVC) and TVC can be found by integrating the marginal cost curve, we can calculate TC. At Q = 2, TVC = ∫ (2 + 4Q)dQ = 2Q + 2Q^2 = 4 + 8 = 12. To earn zero economic profit, TC must equal total revenue (TR), which is price times quantity. At Q = 2 and P = $10, TR = 10×2 = 20. Therefore, TFC = TC - TVC = 20 - 12 = $8. This is the fixed cost level for zero economic profit.
Shunt Technology will spend $800,000 on a piece of equipment that will manufacture fine wire for the electronics industries. The shipping and installation charges will be $240,000 and net working capital will increase $48,000.The equipment will replace an existing machine that has a salvage value of $75,000 and a book value of $125,000. If Shunt has a current marginal tax rate of 34 percent, what is the net investment
Answer:
$1,180,000
Explanation:
The net initial investment will include the following components:
1. Fixed capital investment = Purchase cost of the equiment = $800,000 + $240,000 = $1,040,000
2. Increase in working capital of $48,000
3. Sales proceeds of existing machine of $75,000
4. Tax on gain/loss of sales on existing machine = (75,000 - 125,000) x 34% = $- 17,000
So, total net initial investment is $1,040,000 + $48,000 + $75,000 - (-$17,000) = $1,180,000
Final answer:
The net investment for Shunt Technology's new equipment is calculated by adding the initial cost of equipment, shipping and installation, and increase in net working capital, then subtracting the salvage value of the old machine and adding the tax savings due to the loss on disposal. The net investment comes to $1,030,000.
Explanation:
To calculate the net investment for Shunt Technology's new equipment, we consider the initial outlay plus any additional costs and adjustments for working capital, taxes from equipment disposal, and salvage value. Here is the breakdown:
Initial cost of equipment: $800,000Shipping and installation: $240,000Net working capital increase: $48,000Total initial outlay: $800,000 + $240,000 + $48,000 = $1,088,000Salvage value of old machine: $75,000Book value of old machine: $125,000Loss on disposal of old machine (book value - salvage value): $125,000 - $75,000 = $50,000Tax on disposal of old machine (loss on disposal × tax rate): $50,000 × 34% = $17,000Tax savings due to loss on disposal: $17,000The net investment is calculated as follows:
Net investment = Total initial outlay - Salvage value of old machine + Tax savings from disposal
Net investment = $1,088,000 - $75,000 + $17,000 = $1,030,000
IE 11-2 ... PPF Model – If this economy is presently positioned at Point S, then two of the immediate Costs of the Inflation are _______________________ . With the corresponding Business Cycle close to Area "y", there is a major Risk in this economy of moving into _______________ .
Answer:
Instability and Insecurity.
Stagflation (Accelerating Inflation)
Explanation:
Instability/Insecurity is an economic system whereby the rate of inflation and rate of economic growth are volatile. This usually occur when there is a considerably high unemployment in the system. Furthermore, stagflation (also known as accelerating inflation) is a condition where there is a constant increase in inflation rate and unemployment rate.
Suppose you think Wal-Mart stock is going to appreciate in the next year. Current price is $100, and the call option expiring in one year has an exercise price, X, of $100 and is selling at a price, C, of $10. With $10,000 to invest, you invest all in 1,000 options (10 contracts). Alternatively, you can invest all in the stock. What is the rate of return for each alternative if one year later the stock price is $120?
Answer:
the rate of return for each alternative if one year later the stock price is $120 is 100% and 20%
Explanation:
Price of buying call option = 10*1000 = 10000
After 1 year the person can reverse the trade and get profit without having to buy the stock.
Hence profit = 120-100 = 20
Minus call price = 10
Profit per each share = 10
On 1000 shares = 10,000
Hence profit = 10,000/10,000 = 100%
In case we buy stock:
Price of stock = 100*1000 = 100,000
Profit on one stock = 120-100 = 20
On 1000 stock = 20,000
Profit = 20,000/100,000 = 20%
Therefore,the rate of return for each alternative if one year later the stock price is $120 is 100% and 20%
Final answer:
The proposed investment scenario compares buying call options versus direct stock for Wal-Mart stock anticipated to rise. If the stock price increases from $100 to $120, investing in call options yields a 100% return due to leverage, whereas direct stock investment yields a 20% return.
Explanation:
The scenario provided asks about the rate of return using either call options or direct stock investment if Wal-Mart stock appreciates from $100 to $120 within one year. With $10,000, one could invest in either 1,000 call options (10 contracts) with an exercise price of $100 and a price of $10 each or buy 100 shares of the stock directly also at $100 each.
Calculating the Rate of Return for Call Options
If the stock price rises to $120, the value of the call option will also go up. Each call option is now worth $20 (stock price of $120 - exercise price of $100). This makes the total value of the options $20,000 (1,000 options x $20). Subtracted from this the initial investment of $10,000, we get a profit of $10,000. The rate of return on the call options would be the profit divided by the investment, which results in 100% (($10,000 / $10,000) x 100%).
Calculating the Rate of Return for Stock Investment
Investing in the stock itself at $100 per share, with $10,000 you could buy 100 shares. At the end of the year, if the stock price is $120, your investment is worth $12,000 (100 shares x $120). The profit is $2,000 ($12,000 - $10,000), and the rate of return is 20% (($2,000 / $10,000) x 100%).
Investing in call options in this case provides a much higher rate of return due to the leverage effect, which means that for the same amount of money, you control many more shares through options than you could if buying the stock outright. However, the risk is also higher with options, as they can expire worthless if the stock price does not rise above the exercise price by the expiration date.
On March 12, Medical Waste Services provides services on account to Grace Hospital for $9,700, terms 2/10, n/30. Grace pays for those services on March 20.
Required:
For Medical Waste Services, record the service on account on March 12 and the collection of cash on March 20.
Answer:
1. Accounts receivable A/c Dr $9,700
To Service revenue $9,700
(Being service provided is recorded)
2. Cash A/c Dr $9,506
Sales Discount A/c Dr $194 ($9,700 × 2%)
To Accounts receivable A/c $9,700
(Being cash received recorded and the remaining balance is reported to the cash account in the debit side)
Explanation:
The journal entries are shown below
On March 12
Accounts receivable A/c Dr $9,700
To Service revenue $9,700
(Being service provided is recorded)
On March 20
Cash A/c Dr $9,506
Sales Discount A/c Dr $194 ($9,700 × 2%)
To Accounts receivable A/c $9,700
(Being cash received recorded and the remaining balance is reported to the cash account in the debit side)
Martinez Corporation commenced operations in early 2020. The corporation incurred $48,500 of costs such as fees to underwriters, legal fees, state fees, and promotional expenditures during its formation. Prepare journal entries to record the $48,500 expenditure and 2020 amortization, if any.
The journal entry to record the $48,500 expenditure for Martinez Corporation's formation costs would be:
Formation Costs Expense $48,500
Cash/Bank $48,500
No amortization expense is recorded for formation costs in 2020 as they are typically expensed when incurred.
Explanation:In accounting, formation costs incurred during the initial setup of a corporation are expensed as incurred and are not usually amortized over time. Hence, the $48,500 expenditure for fees to underwriters, legal fees, state fees, and promotional expenditures incurred during Martinez Corporation's formation is expensed immediately upon occurrence. This is reflected in the journal entry by debiting the Formation Costs Expense account and crediting the Cash/Bank account for $48,500 each, representing the expenditure made and the corresponding reduction in the company's cash/bank balance.
Unlike certain other intangible assets or costs, such as goodwill or patents, formation costs are not typically amortized because they are considered to have no determinable useful life. Therefore, no amortization expense is recorded for the formation costs in 2020. Instead, they are expensed in the period they are incurred, aligning with the principle of matching expenses to the period they generate revenue. This treatment simplifies accounting for these costs by recognizing them immediately rather than spreading their expense over multiple periods through amortization.
Jiminy’s Cricket Farm issued a bond with 30 years to maturity and a semiannual coupon rate of 6 percent 4 years ago. The bond currently sells for 105 percent of its face value. The company’s tax rate is 23 percent. The book value of the debt issue is $60 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 8 years left to maturity; the book value of this issue is $35 million, and the bonds sell for 67 percent of par.
a.
What is the company’s total book value of debt? (Enter your answer in dollars, not millions of dollars, e.g. 1,234,567.)
b. What is the company’s total market value of debt? (Enter your answer in dollars, not millions of dollars, e.g. 1,234,567.)
c. What is your best estimate of the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Answer:
Explanation:
a.)
The total debt amount in Jiminy's Cricket Farm's balance sheet on the liabilities side is referred to as the book value of debt. It is calculated by be the summing up of the individual book values of the two bonds that this company has.
Total book value ;
Book value of 30 year bond = $60,000,000
Book value of the Zero-coupon bond = $35,000,000
Total book value of debt = $60 + $35 = $95,000,000
b.)
The sum of market values of the two bonds this company makes up the total market value of debt. It is calculated by multiplying the current price of the bond by the number of outstanding bonds.
Formula for market value = Price * number of bonds
30 year bond;
Number: 60,000,000/1000 = 60,000 bonds
Market value = 1.10 * 1000 *60,000 = $66,000,000
Zero-coupon bond;
Number: 35,000,000/1000 = 35,000 bonds
Market value = 0.67 * 1000 *35,000 = $23,450,000
Total market value of debt = $66,000,000 + $23,450,000 = $89,450,000
c.) Companies who have debt in their capital structure benefit from tax shield on their debt interest rates . Jiminy’s Cricket Farm has two bonds, find the average of the two rates to get after tax cost of debt.
Calculate the Pretax cost of debt first. Using a financial calculator, input the following;
30 year bond;
N = 30*2 = 60
PV = -$66,000,000
PMT = (6%/2)* $60,000,000 = $1,800,000
FV = $60,000,000
then compute semiannual rate; CPT I/Y = 2.664%
Convert to annual rate = 5.329% (this is the pretax cost of debt)
Zero-coupon bond;
N = 8
PV = -$23,450,000
PMT = 0
FV = $35,000,000
then CPT I/Y = 5.133% (this is the pretax cost of debt)
Next, find the average pretax cost of debt = (5.329% + 5.133%) /2 = 5.231%
After tax cost of debt = pretax cost of debt (1-tax)
After tax cost of debt = 5.231% (1-0.23) = 4.03%
Financial statement analysis involves all of the following except:
Multiple Choice
The application of analytical tools to general-purpose financial statements and related data for making business decisions.
Transforming accounting data into useful information for decision-making.
Helping users to make better decisions.
Helping to reduce uncertainty in decision-making.
Assuring that the company will be more profitable in the future.
Answer:
The correct answer is does not assure the company that it will be more profitable in the future.
Explanation:
Financial statements is the one of the most important statements for the company which is prepared or made by the management of the company, it represents the financial position and the performance for a particular period.
It involves the income statements, statement of cash flows, balance sheet and statement of owner's equity.
It analysis the profit, transform the data so that can be used in decision making. But does not assure the company that it will be more profitable in the future.
Financial statement analysis involves using analytical tools to transform accounting data into useful information for decision-making.
Explanation:Financial statement analysis is the process of evaluating a company's financial statements, such as the balance sheet, income statement, and cash flow statement, to assess its financial health, and performance, and make investment or business decisions. Financial statement analysis involves the application of analytical tools to general-purpose financial statements and related data for making business decisions.
It transforms accounting data into useful information to help users make better decisions and reduce uncertainty in decision-making. While financial statement analysis helps users gain insights into a company's financial performance, it does not assure that the company will be more profitable in the future as it depends on various factors.
Learn more about Financial Statement Analysis here:https://brainly.com/question/31663529
#SPJ6
A firm is considering changing their credit terms. It is estimated that this change would result in sales increasing by $1,600,000. This in turn would cause inventory to increase by $125,000 , accounts receivable to increase by $100,000 , and accounts payable to increase by $90,000 . What is the firm's expected change in net working capital?
A) $315,000
B) $135,000
C) $225,000
D) $1,735,000
Answer:
D) $1,735,000
Explanation:
Change in Net Working capital = Increase/(decrease) in sales + Increase/(decrease) in inventory + Increase/(decrease) in receivable - Increase/(decrease) in payable ; in which any value decrease is negative value or to be subtracted
Change in Net Working capital of this firm = sales increasing by $1,600,000 + inventory to increase by $125,000 + accounts receivable to increase by $100,000 - accounts payable to increase by $90,000
= $1,735,000
Final answer:
The firm's expected change in net working capital would be A) $315,000.
Explanation:
The change in net working capital is the difference between a company's current assets and current liabilities from one period to another. It reflects the variation in short-term financial resources needed to support day-to-day operations. A positive change indicates an increase in resources, while a negative change signifies a reduction, impacting liquidity and financial health.
The firm's expected change in net working capital can be calculated by summing up the changes in inventory, accounts receivable, and accounts payable. In this case, the inventory increases by $125,000, accounts receivable increases by $100,000, and accounts payable increases by $90,000. Adding these amounts together, the firm's expected change in net working capital would be $315,000 (A).
A lottery winner can take $6 million now or be paid $600,000 at the end of each of the next 16 years. The winner calculates the internal rate of return (IRR) of taking the money at the end of each year and, estimating that the discount rate across this period will be 4%, decides to take the money at the end of each year. Was her decision correct?A) Yes, because it agrees with the payback rule.B) Yes, because it agrees with the Net Present Value rule.C) Yes, because it disagrees with the Net Present Value rule.D) Yes, because it agrees with both the Net Present Value rule and the payback rule.
Answer:
B) Yes, because it agrees with the Net Present Value rule
Explanation:
The Net present value is the present value of after tax cash flows from an investment minus the amount invested.
If the amount is positive, the project is desirable and if it is negative, it is not desirable.
The net present value can be calculated using a financial calculator.
Cash flow for year 0 = $-6,000,000
Cash flow each year from year 1 to 16 =$600,000
I = 6%
NPV = $991,377.365
The present value of $600,000 for 16 years is greater than the value of $6,000,000 now. Therefore, it is more profitable to take $600,000 every year for 16 years.
The payback period isn't useful here because it is used to calculate the amount of time it takes to recoup the amount from an investment.
I hope my answer helps you.
Engineer Brown has been engaged in providing consulting engineering services for a number of years as a sole proprietor. Because his practice was growing, he recently hired another engineer and decided to commence offering professional services under the name of Brown and Associates. In order to comply with the rules he must:
O Obtain a new engineering seal.
O Notify the Board office of the name change.
O Obtain a Certificate of Authorization.
O No action by Engineer Brown is necessary.
Answer:
Engineer Brown has been engaged in providing consulting engineering services for a number of years as a sole proprietor. Because his practice was growing, he recently hired another engineer and decided to commence offering professional services under the name of Brown and Associates. In order to comply with the rules he must
Notify the Board office of the name change
Explanation:
Since it is the same company but just with change of name changes, notification to the company he render services for is only needed to avoid confusion about the authenticity of the company
Answer:
Obtain a Certificate of Authorization
Explanation:
Epley Industries stock has a beta of 1.30. The company just paid a dividend of $.30, and the dividends are expected to grow at 4 percent. The expected return on the market is 13 percent, and Treasury bills are yielding 6.3 percent. The most recent stock price for the company is $80. a. Calculate the cost of equity using the DCF method. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) DCF method % b. Calculate the cost of equity using the SML method. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) SML method
Answer:
The cost of equity using the DCF method: 4.39%.
The cost of equity using the SML method: 15.01%.
Explanation:
a. The cost of equity using the DCF method:
We have: Current stock price = Next year dividend payment / ( Cost of equity - Growth rate) <=> Cost of equity = Next year dividend payment/Current stock price + Growth rate = 0.3 x 1.04/80 + 4% = 4.39%.
b. The cost of equity using the SML method:
Cost of equity = Risk free rate + beta x ( Market return - risk free rate); in which Risk free rate is rate on T-bill.
=> Cost of equity = 6.3% + 1.3 x ( 13% -6.3%) = 15.01%.