Answer:
A. 2-Jan
Dr Machinery $240,000
Cr Cash $240,000
3-Jan
Dr Machinery $10,000
Cr Cash $10,000
3-Jan
Dr Machinery $2,000
Cr Cash $2,000
B. Dec 31
Dr Depreciation expense- machinery $37,200
Cr Accumulated Depreciation- machinery $37,200
Dec 31
Dr Depreciation expense- machinery $37,200
Cr Accumulated Depreciation- machinery $37,200
Explanation:
A. Preparation of the journal entries to record the machine's purchase and the costs to ready and install it
2-Jan
Dr Machinery $240,000
Cr Cash $240,000
(Being machinery purchased)
3-Jan
Dr Machinery $10,000
Cr Cash $10,000
(Being expenses paid for machinery readies)
3-Jan
Dr Machinery $2,000
Cr Cash $2,000
(Being installation charges paid)
B. Preparation of journal entries to record depreciation of the machine at December 31.
Dec 31
Dr Depreciation expense- machinery $37,200
Cr Accumulated Depreciation- machinery $37,200
[($252,000 - $28,800) / 6]
($240,000+$10,000+$2,000=$252,000)
Dec 31
Dr Depreciation expense- machinery $37,200
Cr Accumulated Depreciation- machinery $37,200
[($252,000 - $28,800) / 6]
Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock.The following amounts were distributed as dividends: Year 1: $10,000 Year 2: 45,000 Year 3: 90,000 Determine the dividends in arrears for preferred stock for the second year. a.$10,000 b.$25,000 c.$30,000 d.$0
Answer:
Option b is correct
Arrears preference dividends = $25,000
Explanation:
Preference shareholders are entitled to a fixed amount of dividends.
Cumulative preference shares: Cumulative simply implies that should the company misses the payment of dividend in a particular year such unpaid dividend would be carried carried forward and paid in arrears in the following year.
$
Preferred dividend in year = 2%× 100× 20,000= 40,000
Preferred dividend in year 2 = 2%× 100× 20,000= 40,000
Total dividend accrued to preference shares 80,000
Less total dividend paid in year 1 and 2 55,000
Arrears preference dividends 25,000
Arrears preference dividends = $25,000
Michael works as a sales representative for an oilfield supply business in West Texas. He sells highly technical safety equipment to his customers. Michael visits his customers on a regular basis to provide information about new products and to solve technical problems that may arise as his clients use the equipment. For Michael, personal selling works better than other forms of promotion because of _______.
Answer:
This question is incomplete, the options are missing. The options are the following:
a) The value of the product
b) The role of social media
c) The complexity of the product
d) The number of potential customers
And the correct answer is the option C: The complexity of the product.
Explanation:
To begin with, in the area of marketing when it comes to designing and developing a strategy for the company's campaign the for "Ps" are the essentials matter to have in mind. One of them, the "P" for promotion focus on the "how" to sell the product to the target audience and that matter the expertise find varies ways to do it. The personal selling is one of them and in this case actually the most appropiate one due to the complexity of the product that is being sold. Michael is right because this strategy allows the representative, who is an expertise in the product itself, to explain every little detail of the good and how it will adjust to every situation and more. So in order to accomplish the comfort of the client, the presence of the sale's agent is necessary and helpful in this case.
Safari limited acquired 2 new 7-ton buses on 1 January 1990 for £129,150. The cash price of
these units was £90,000. The deal was financed by TPS (financing) ltd and the terms of the
hire purchase contract required a deposit of £30,000 on delivery followed by 3 instalments on
31st December 1990, 1991, and 1992 of £33,000, £33,000 and £33,150 respectively. The true
rate of interest was 30% per annum.
Required
Prepare the appropriate accounts in the books of safari ltd to record the above transactions.
Depreciation is to be charged on vehicles at 20% per annum, using straight line method.
Answer:
U little baka
Explanation:
Urnmy littttle bakaaaaa
What is an example of goods?
O a hotel room
O a good haircut
O a car wash
O a hard cover book
Answer:
Hotel Room
Explanation:
a
An example of goods in the case is a hard cover book.
What is a goods?Most time, this are often tangible product that are felt and seen, unlike the service which are rendered and often intangible product
An example of service includes a hotel room, a good haircut and a car wash.
Therefore, the Option D is correct.
Read more about goods
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A company currently sells products in the United States and is considering expanding to China or Vietnam. Expanding won't impact the company's sales, revenue or profit in the United States. If the company expands to China there is a 20% chance profit over the next 5 years will be $2,000,000, a 30% chance profit will be $1,000,000 and a 50% chance the company will lose $2,000,000. If the company expands to Vietnam, there is a 70% chance profit over the next 5 years will be $1,000,000 and a 30% chance the company will lose $2,500,000. Using a decision tree, what decision should the company make
Answer: Company should not expand to either.
Explanation:
Find the expected values of expanding to either country and pick the country with the highest expected value:
China:
= ∑(Probability of outcome * Outcome)
= (20% * 2,000,000) + (30% * 1,000,000) + (50% * -2,000,000)
= -$300,000
Vietnam:
= (70% * 1,000,000) + (30% * -2,500,000)
= -$50,000
Both countries result in an expected loss so company should not expand to either of them.
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O///O
Answer:
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New Line Cinema is considering producing a new movie. To evaluate the proposal, the company needs to calculate its cost of capital. The firm has collected the following information:
a. The company wants to maintain is current capital structure, which is 20% equity, 20% preferred stock and 60% debt.
b. The firm has marginal tax rate of 34%.
c. The firm's preferred stock pays an annual dividend of $4.3 forever, and each share is currently worth $135.26.
d. The firm has one bond outstanding with a coupon rate of 6%, paid semiannually, 10 years to maturity, a face value of $1,000, and a current price of $1,163.51.
e. The company's beta is 0.8, the yield on Treasury bonds is is 0.6% and the expected return on the market portfolio is 6%.
f. The current stock price is $39.17. The firm has just paid an annual dividend of $1.13, which is expected to grow by 4% per year.
g. The firm uses a risk premium of 3% for the bond-yield-plus-risk-premium approach.
h. New preferred stock and bonds would be issued by private placement, largely eliminating flotation costs. New equity would come from retained earnings, thus eliminating flotation costs.
Required:
a. What is the cost of equity using the bond yield plus risk premium?
b. What is the midpoint of the range for the cost of equity?
c. What is the company's weighted average cost of capital?
Answer:
a.
7.00%
b.
5.96%
c.
1.20%
Explanation:
a.
First and foremost, we need to determine the yield to maturity on the bond, using a financial calculator as shown thus:
The financial calculator should be set to its default end mode before making the following inputs:
N=20(number of semiannual coupons in 10 years=10*2=20)
PMT=30(semiannual coupon=face value*coupon rate*/2=$1000*6%/2=$30)
PV=-1163.51(current price=$1,163.51)
FV=1000(face value of the bond=$1000)
CPT
I/Y=2.00%(semiannual yield=2%, annnual yield=2.00%*2=4.00%)
bond yield plus risk premium=bond yield(4.00%)+ risk premium(3%)
bond yield plus risk premium=7.00%
b.
In determining the midpoint range is the maximum plus minimum cost of equity divided by 2
Let us determine cost of equity using the Capital Asset Pricing Model and Constant Dividend Growth Model
cost of equity=risk-free rate+beta*(expected return on the market portfolio-risk-free rate)
risk-free rate=yield on Treasury bonds= 0.6%
beta=0.8
expected return on the market portfolio= 6%
cost of equity=0.6%+0.8*(6%-0.6%)
cost of equity=4.92%
cost of equity=expected dividend/share price+growth rate
expected dividend=last dividend*(1+growth rate)
expected dividend=$1.13*(1+4%)=$1.1752
share price= $39.17
growth rate=4%
cost of equity=($1.1752/$39.17)+4%
cost of equity=7.00%
midpoint range=(maximum cost of equity+minimum cost of equity)/2
midpoint rate=(7.00%+4.92%)/2
midpoint range=5.96%
c.
WACC=(weight of equity*cost of equity)+(weight of preferred stock*cost of preferred stock)+(weight of debt*after-tax cost of debt)
weight of equity= 20%
cost of equity=5.96%
weight of preferred stock=20%
cost of preferred stock=annual dividend/price
cost of preferred stock=$4.3/$135.26=3.18%
weight of debt=60%
aftertax cost of debt=4.00%*(1-34%)=2.64%
WACC=(20%*5.96%)+(20%*3.18%)*(60%*2.64%)
WACC=1.20%
Holden is a people person. He is very good at working with customers and keeping a positive attitude. He has taken a couple classes on supervising money matters and typically works on a computer tracking customer information. Which career does Holden most likely have?
Logistics Planning and Management Services
Sales and Services
Transportation Operations
Facility and Mobile Equipment Maintenance
Answer:b
Explanation:
Trust
Answer:
B, Sales and Services
Explanation:
Sales and services workers usually have to talk to customers and help them track their packages/orders/customer info. That is what it says Holden is doing, so it should be B. Have a good day (;
Oscanda Accessories Corporation manufactured 21,400 travel bags during March. The following fixed overhead data pertain to March: Actual Static Budget Production 21,400 units 22,000 units Machine-hours 3,400 hours 4,400 hours Fixed overhead cost for March $176,300 $184,800 What is the amount of fixed overhead spending variance
Answer:
$8,500 favorable
Explanation:
The computation of the fixed overhead spending variance is shown below
= Budgeted fixed overhead - actual fixed overhead
= $184,800 - $176,300
= $8,500 favorable
We simply deduct the actual fixed overhead from the budgeted one so that the fixed overhead spending variance could come
Identify the principle of internal control to each of the following cases. 1. Cash is locked in a safe overnight. select principle of internal control 2. Employees who receive shipments of goods do not have access to the accounting records for merchandise. select principle of internal control 3. Shipping documents are pre-numbered. select principle of internal control 4. The bookkeeper does not have physical custody of assets. select principle of internal control 5. Only the treasurer of the company can sign checks.
Answer:
1. Physical control
2. Segregation of duties
3. Pre-numbered documents
4. Segregation of duties
5. Establishment of responsibility
Explanation:
1. As this shows that someone locked cash in safe, so this will be physical control.
2. As this shows the division of duties among employees, so this will be segregation of duties.
3. As this shows documents are pre numbered so it comes under pre-numbered documents.
4. As this shows the division of duties for bookkeeper, so it comes under segregation of duties.
5. This shows the responsibility of any work on a person, so this will be establishment of responsibility.
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Answer:
fax bro?
Explanation:
Corporation M has $40,000 of current earnings and profits and $10,000 of accumulated earnings and profit. During the year Corporation M distributes $60,000 to is only shareholder – N. Before the distribution, N has basis in their stock of $100,000. What amount of capital gain income will N recognize related to this distribution?
Answer:
$40,000
Explanation:
Calculation to determine What amount of capital gain income will N recognize related to this distribution
Using this formula
N Capital gain income=N stock basis- M distribution
Let plug in the formula
N Capital gain income=$100,000-$60,000
N Capital gain income=$40,000
Therefore The amount of capital gain income that N will recognize related to this distribution is $40,000
Robert Parish Corporation purchased a new assembly process on August 1, 2017. The cost of this machine was $117,900. The company have a salvage value of $12,900 at the end of its service life. Its life is estimated 21,000 hours. Year-end is December 31. estimated that the machine would at 5 years, and its working hours are estimated at Instructions Compute the depreciation expense under the following methods. Each of the following should be considered unrelated.
(a) Straight-line depreciation for 201:7.
(b) Activity method for 2017, assuming that machine usage was 800 hours.
(c) Sum-of-the-years-digits for 2018.
(d) Double-declining-balance for 2018.
Answer:
8750
4000
$74,060
39,300
Explanation:
Straight line depreciation expense = (Cost of asset - Salvage value) / useful life
(117,900 - 12,900) / 5 = $21,000
the machine was used for 5 months in 2017. the depreciation expense in 2017 = 5/12 x $21,000 = $8750
b. Activity method based on hours worked = (hours worked that year / total hours of the machine) x (Cost of asset - Salvage value)
(800 / 21,000) x (117,900 - 12,900) = $4000
c. Sum-of-the-year digits = (remaining useful life / sum of the years ) x (Cost of asset - Salvage value)
remaining useful life in 2018 = (4 + 7/12) + 3 + 2 + 1 = 10.58
10.58 / 15 x (117,900 - 12,900) = $74,060
Refer to the HR Report section of the Inquirer. Digby will continue to keep their current hourly levels of training in order to help reduce turnover and improve productivity next year. How much must be spent per employee on an hourly basis to maintain the current training commitment
Explanation:
The amount that must be spent per employee per hour to maintain a high level of training must be consistent with the organizational planning and the estimated budget, since this activity will have as main objectives the retention of employees and the improvement of productivity, therefore this budget it must be calculated based on HR activities and considered as essential by management.
Adequate training helps employees to be more satisfied with their work, develop new skills and be more productive, helping the organization to achieve its objectives and goals.
Golden Arch Company uses the periodic inventory system. It has compiled the following information in order to prepare the financial statements at December 31, 2019: Gross sales during 2019 $2,000,000 Sales returns and allowances during 2019 50,000 Beginning inventory, January 1, 2019 100,000 Ending inventory, December 31, 2019 120,000 Purchases during 2019 750,000 Required: Calculate the Cost of goods sold and Gross profit for the company during 2019.
Answer:
See below
Explanation:
Given the information above, cost of goods sold and the gross profit is calculated as;
Cost of goods sold for the company during 2019
= Beginning inventory + Net purchases - Ending inventory
= Beginning inventory + (Purchases - Purchase return) - Ending inventory
= $100,000 + ($750,000 - $0) - $120,000
= $100,000 + $750,000 - $120,000
= $730,000
Gross profit for the company during 2019
= Net Sales - Cost of goods sold
= (Gross sales - Sales return and allowances) - Cost of goods sold
= ($2,000,000 - $50,000) - $730,000
= $1,950,000 - $730,000
= $1,220,000
During January 2020, the first month of operations, a consulting firm had following transactions: Issued common stock to owners in exchange for $46,000 cash. Purchased $11,500 of equipment, paying $3,450 cash and signing a promissory note for $8,050. Received $20,700 in cash for consulting services performed in January. Purchased $3,450 of supplies on account; all of the supplies were used in January. Provided consulting services on account in the amount of $36,800. Paid $1,725 on account. Paid $6,900 to employees for work performed during January. Received a bill for utilities for January of $7,800; the bill remains unpaid. What is the total expenses that will be reported on the income statement for the month ended January 31
Answer:
The total expenses that will be reported on the income statement for the month ended January 31 are:
= $18,150.
Explanation:
a) Data and Analysis:
Cash $46,000 Common Stock $46,000
Equipment $11,500 Cash $3,450 Note Payable $8,050
Cash $20,700 Service Revenue $20,700
Supplies Expense $3,450 Cash $3,450
Accounts receivable $36,800 Service Revenue $36,800
Accounts Payable $1,725 Cash $1,725
Salaries Expenses $6,900 Cash $6,900
Utilities Expense $7,800 Utilities Payable $7,800
Expenses for January:
Supplies Expense $3,450
Salaries Expenses $6,900
Utilities Expense $7,800
Total Expenses $18,150
A.The loss on the cash sale of equipment was $22,125 (details in b).
B. Sold equipment costing $97,875, with accumulated depreciation of $47,125, for $28,625 cash.
C. Purchased equipment costing $113,375 by paying $64,000 cash and signing a long-term note payable for the balance.
D. Borrowed $5,700 cash by signing a short-term note payable.
E. Paid $58,625 cash to reduce the long-term notes payable.
F. Issued 4,200 shares of common stock for $20 cash per share.
G. Declared and paid cash dividends of $53,500.
Prepare a complete statement of cash flows; report its operating activities using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)
Answer:
Statement of cash flows for the year
Cash flow from Operating Activities
Loss on sale of equipment $22,125
Net Cash Provided by Operating Activities $22,125
Cash flow from Investing Activities
Proceeds from sale of equipment $28,625
Purchase of equipment ($64,000)
Net Cash used by investing activities ($35,375)
Cash flow from Financing Activities
Note Payable Issued $5,700
Repayment of Note Payable ($58,625)
Issue of Common Stock $84,000
Cash Dividends Paid ($53,500)
Net Cash used by Financing activities ($22,425)
Explanation:
Statement of cash flows for the year shows results of cash resulting from the following activities :
Cash flow from Operating ActivitiesCash flow from Investing ActivitiesCash flow from Financing ActivitiesAn early frost destroys 20% of the coffee bean crop. If the supply and demand for coffee beans are both relatively inelastic, and the frost does not impact the quality of the coffee beans that make it to market.
Required:
What will most likely occur to the equilibrium price and quantity of coffee beans?
Answer:
Option C, Price will increase, quantity will decrease
Explanation:
The options for the given question are
(A) Price and quantity will both increase
(B) Price and quantity will both decrease
(C) Price will increase, quantity will decrease
(D) Price will decrease, quantity will increase
(E) Price will not change, quantity will decrease
Solution
Inelastic demand of a product means that the price (high or low) of the product does not affect the demand.
Since the frost destroys the crop, then there are probabilities of variation in the price of coffee (price will rise). Price will be increased to fetch the loss because of frost.
Price will increase and quantity will decrease.
Hence, option C is correct
18) 20 points Steve's Hardware Store uses the perpetual inventory system. The business incurred the following transactions: A. On November 1, 10 snow blowers were purchased on account at $1,000 each. Credit terms were 2/10, net 30. B. On November 10, the business sold three of the snow blowers on account at $1,500 each. The credit terms were 2/10, net 30. C. OnNovember12,thebusinesspaidforthesnowblowerspurchasedonNovember1. D. On November 20 Steve's received payment for the November 10 sale. E. On November 30, the business paid rent of $1,500 and wages of $2,000.
Assume that Thomas can afford to buy as many candy bars and ice cream cones as he wants. He would continue to consume both candy bars and ice cream until the
Answer:
Marginal utility of each becomes negative
Explanation:
Utility is defined as the level of satisfaction that a person gets from consuming a product.
The person keeps on consuming the item until the level of marginal utility for the product becomes less than zero.
That is there is no satisfaction anymore in consuming the product.
In the given instance Thomas will continue to consume both candy bars and ice cream until the level of satisfaction (marginal utility) is now less than zero or negative
Production and sales estimates for April for Ibis Co. are as follows: Estimated inventory (units), April 1 9,000 Desired inventory (units), April 30 8,000 Expected sales volume (units): Territory A 3,500 Territory B 4,750 Territory C 4,250 Unit sales price $20 The budgeted total sales for April is a.$230,000 b.$250,000 c.$270,000 d.$200,000
Answer:
b.$250,000
Explanation:
The computation of the budgeted total sales is shown below:
= (Expected sales volume in territory A + Expected sales volume in territory B + Expected sales volume in territory C)
= (3,500 + 4,750 + 4,250) × $20
= $250,000
hence, the budgeted total sales for April month is $250,000
Therefore, the option b is correct
Question: According to a Honda press release on October 23, 2006, sales of the fuel-efficient four-cylinder Honda Civic rose by 7.1% from 2005 to 2006. Over the same period, according to data from the U.S. Energy Information Administration, the average price of regular gasoline rose from $2.27 per gallon to $2.57 per gallon. Using the midpoint method, calculate the cross-price elasticity of demand between Honda Civics and regular gasoline. According to your estimate of the cross-price elasticity, are the two goods gross complements or gross substitutes
Explanation:
because im a grade 3Bryant Company has a factory machine with a book value of $93,700 and a remaining useful life of 7 years. It can be sold for $34,700. A new machine is available at a cost of $378,500. This machine will have a 7-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $605,900 to $457,900. Prepare an analysis showing whether the old machine should be retained or replaced
Answer:
Retain Replace Net income
Increase/Decrease
Variable manufacturing costs 4241300 3205300 1036000
New machine cost 0 378500 -378500
Sell old machine 0 -34700 34700
Total 4241300 3549100 692,200
Conclusion: The old factory machine should be replaced as its net income is lesser
Workings
Variable manufacturing costs
a. Retain Equipment = 605900*7 = 4241300
b. Replace Equipment =457900*7 = 3205300
During May, Salinger Company accumulated 560 hours of direct labor costs on Job 200 and 670 hours on Job 305. The total direct labor was incurred at a rate of $11 per direct labor hour for Job 200 and $15 per direct labor hour for Job 305. Journalize the entry to record the flow of labor costs into production during May. If an amount box does not require an entry, leave it blank.
Answer:
See below
Explanation:
The preparation of the journal entry to record the flow of labor costs into production during May
Work in process Dr $16,210
-------------- To wages payable Cr $16,210
Workings:
We do know that labor costs are a function of the total hours and hourly rate.
= (560 hours × $11 per direct labor) + (670 hours × $15 per direct labor hour)
= $6,160 + $10,050
= $16,210
Scott was a member of the seven-person board of directors of Buffalo Corporation. Officers of that corporation were considering a large purchase of new equipment to begin production of a completely new product line. The board of directors had not been consulted about the new venture, but Scott found out about the plan and objected to it being implemented. He sought to inspect the corporate books and records to gain factual information supportive of his position. The officers refused his inspection request, asserting that Scott had no management function or power. Under these circumstances, Scott: _________
a. has the right to inspect corporate books only if he is also a majority shareholder.
b. is barred from examination of the books and records of the corporation under the doctrine of respondeat superior.
c. has the right to inspect corporate books and records, as information regarding the corporation and its affairs is essential to perform his duties.
d. is barred from examination of the books and records of the corporation under the business judgment rule.
Answer: has the right to inspect corporate books and records, as information regarding the corporation and its affairs is essential to perform his duties.
Explanation:
Based on the information given, it is vital for Scott to inspect corporate books and records, as information regarding the corporation and its affairs is essential to perform his duties.
Since Scott is part of the people who are considering a large purchase of new equipment to begin production of a completely new product line, he therefore needs to check out the corporate books and records in order to gain factual information which will support his stance on the matter.
Therefore, the correct option is C.
On January 1, 2021, Ellison Company granted Sam Wine, an employee, an option to buy 1,000 shares of Ellison Co. stock for $30 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $6,000. Wine exercised his option on October 1, 2021 and sold his 1,000 shares on December 1, 2021. Quoted market prices of Ellison Co. stock in 2021 were:
July 1 $30 per share
October 1 $36 per share
December 1 $40 per share
The service period is for three years beginning January 1, 2021. As a result of the option granted to Wine, using the fair value method, Ellison should recognize compensation expense for 2021 on its books in the amount of:________
a. $6,000 21
b. $2,000
c. $1,500
d. $0
Answer:
b. $2,000
Explanation:
Using a fair value option pricing model, total compensation expense is determined to be $6,000.
The service period is for three years beginning January 1, 2021.
So, Ellison should recognize compensation expense for 2021 on its books in the amount of:
= $6,000 / 3 years
= $2,000.
As a result of the option granted to Wine, using the fair value method, Ellison should recognize $2,000 as compensation expense.
Holtzman Clothiers's stock currently sells for $19.00 a share. It just paid a dividend of $4.00 a share (i.e., D0 = $4.00). The dividend is expected to grow at a constant rate of 3% a year. What stock price is expected 1 year from now? Round your answer to the nearest cent. $ What is the required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. %
Answer and Explanation:
The computation is shown below:
a. The stock price expected one year from now is
= Stock sells per share × (1 + growth rate)
= $19 × (1 + 0.03)
= $19.57
= $20
b. The required rate of return is
= Dividend ÷ current price + growth rate
= ($4 × 1.03) ÷ $19 + 0.03
= 24.68%
The above formulas should be applied to determine each part
And, the same would be relevant
Your coin collection contains fifty 1952 silver dollars. If your grandparents purchased them for their face value when they were new, how much will your collection be worth when you retire in 2060, assuming they appreciate at a 5.7% annual rate
Answer:
$19,909.88
Explanation:
Calculation to determine how much will your collection be worth when you retire in 2060,
Future value = Present value x (1 + r )n
Present value = 50
r = 5.7% or 0.057
n = 2060- 1952= 108
Plugging these values in the above mentioned formula, we shall get:
Future value= $ 50 x ( 1 + 0.057 )^108
Future value= $ 50 x ( 1 +.057 )^108
Future value= $19,909.88 Approximately
Therefore how much will your collection be worth when you retire in 2060 is $19,909.88
What are some recommendations for ways that Redbox can maintain its high market
share?
Answer:
Do online streaming
Explanation:
1: create commercials to spread the business
2: emphasize the good points for example, a movie ticket cost about $15 to $20 while a Redbox movie only cost about $2 and multiple people can watch the movie they bought.
3: place Redbox stations in high populated building for example, a mall, Publix, Walmart, Wawa, and Target.
If we consider the effect of taxes, then the degree of operating leverage can be written as:
DOL = 1 + [FC × (1 – TC) – TC × D]/OCF
Consider a project to supply Detroit with 28,000 tons of machine screws annually for automobile production. You will need an initial $4,800,000 investment in threading equipment to get the project started; the project will last for 5 years. The accounting department estimates that annual fixed costs will be $1,150,000 and that variable costs should be $215 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 5-year project life. It also estimates a salvage value of $525,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $320 per ton. The engineering department estimates you will need an initial net working capital investment of $460,000. You require a return of 14 percent and face a tax rate of 25.
Required:
a. What is the percentage change in OCF if the units sold changes to 28,000?
b. What is the DOL at the base-case level of output?
Answer:
a) 0% change
b) 0.393
Explanation:
Degree of operating leverage: DOL = 1 + [FC × (1 – TC) – TC × D]/OCF
Machine screws to be supplied = 28,000 tons
Initial investment in threading equipment = $4,800,000
project period = 5 years
annual fixed cost = $1,150,000
variable cost = $215 per ton = 215 * 28,000 = $6,020,000
salvage value of project after dismantling costs = $525,000
selling price of project = $320 per ton = $8,960,000
initial networking capital investment = $460,000
Return = 14%
tax rate = 25% = 0.25
a) Determine the percentage change in OCF if the units sold changes to 28,000
Given : DOL = 1 + [FC × (1 – TC) – TC × D]/OCF
OCF = [(contribution * number of units sold) - fixed costs] * ( 1-tax) + depreciation*tax ----------- ( 1 )
contribution = sales price - variable cost = 320 - 215 = $105
number of units sold = 28,000
depreciation = 4,800,000 / 5 = $960,000
back to equation 1
OCF = [[ ( 105 *28,000) - 1,150,000 ] * ( 1 - 0.25 ) + 960,000 * 0.25 ]
= $1,582,500
Hence the percentage change = 0% ( Initial units to be sold as given in the question = 28,000 as well )
b) Determine the DOL at the base-case level of output
DOL = 1 + [FC × (1 – TC) – TC × D] / OCF
= 1 + [ 1,150,000 * ( 1 - 0.25 ) - 0.25 * 960,000 ] / 1,582,500
= 622501 / 1,582,500 = 0.393