Answer:
Out of $15,000, the $13500 will be paid to preference stockholders and the remaining $1500 will be paid to equity stockholders
Explanation:
Given the information:
Rachel's Designs has 1,800 shares of 5%, $50 par value
The company plans to pay total dividends of $15,000 in 2021
For computing the preferred dividend, first we have to find out the yearly dividend which is shown below:
= Number of shares × par value per share × dividend rate
= 1,800*$50*5%
= $4,500
Since in 2019 and 2020 the dividend is not paid
The dividend arrears for 2019 and 2020 would be:
= $4,500 + $4,500
= $9000
=> The total dividend is:
= $4,500 + $9000
= $13,500
So, for the common stockholder, it is
= $15,000 - $13,500
= $1500
Hence, out of $15,000, the $13500 will be paid to preference stockholders and the remaining $1500 will be paid to equity stockholders
Jasper Company has sales on account and for cash. Specifically, 64% of its sales are on account and 36% are for cash. Credit sales are collected in full in the month following the sale. The company forecasts sales of $520,000 for April, $530,000 for May, and $555,000 for June. The beginning balance of Accounts Receivable is $304,500 on April 1. Prepare a schedule of budgeted cash receipts for April, May, and June.
Answer:
See the explanation below
Explanation:
Jasper Company
Schedule of Budgeted Cash Receipts for April, May, and June
Details April ($) May ($) June ($)
March Sales 304,500 0 0
April Sales 187,200 332,800 0
May Sales 0 190,800 339,200
June sales 0 0 199,800
Total receipts 491,700 523,600 539,000
A company is projected to have a free cash flow of $261 million next year, growing at a 7% rate until the end of year 3. After that, cash flows are expected to grow at a stable rate of 2.0% in perpetuity. The company's cost of capital is 11.7%. The company owes $64 million to lenders and has $33 million in cash. If it has 111 million shares outstanding, what is your estimate for its stock price
Answer:
Stock Price = 26.08 USD per Stock.
Explanation:
Free cash flow in next year = 261 million USD
Free cash flow in year 2 (including the growth rate) = 261 + 18.27 = 279.27 million USD (7% growth rate)
Free Cash flow in year 3 = 279.27 + 19.55 = 298.81 million USD (7% growth rate)
Free Cash flow in year 4 (2% in Perpetuity) = 298.81 + 5.97 = 304.78 million USD
Now, we have to calculate the terminal value in year 3:
Terminal value in year 3 = Free cash flow in year 4 / (Cost of Capital - Perpetual Growth)
Terminal value in year 3 = 304.78/ (0.117 - 0.02) = 3142.06 million USD.
In order to calculate the stock price of the company, we need to find the value of the firm first.
Value of Firm:
[tex]\frac{261}{1.117}[/tex] + [tex]\frac{279.27}{(1.117)^{2} }[/tex] + [tex]\frac{298.81}{(1.117)^{3} }[/tex] + [tex]\frac{3142.06}{(1.117)^{3} }[/tex]
233.66 + 223.82 + 214.40 + 2254.52
Value of the firm = 2926.4 million USD
Now, it is time to calculate the stock price of the company.
Stock price = (Value of the firm - Debt + Cash ) ÷ Number of Shares
Stock Price = (2926.4 - 64 + 33) ÷ 111
Stock Price = (2895.4) ÷ 111
Stock Price = 26.08 USD per Stock.
For the year ended December 31, 2021, Fidelity Engineering reported pretax accounting income of $984,000. Selected information for 2021 from Fidelity’s records follows: Interest income on municipal governmental bonds $ 40,000 Depreciation claimed on the 2021 tax return in excess of depreciation on the income statement 64,000 Carrying amount of depreciable assets in excess of their tax basis at year-end 104,000 Warranty expense reported on the income statement 30,000 Actual warranty expenditures in 2021 20,000 Fidelity's income tax rate is 25%. At January 1, 2021, Fidelity's records indicated balances of zero and $10,000 in its deferred tax asset and deferred tax liability accounts, respectively. Required: 1. Determine the amounts necessary to record income taxes for 2021, and prepare the appropriate journal entry. 2. What is Fidelity’s 2021 net income?
Answer and Explanation:
According to the scenario, computation of the given data are as follow:-
1).
Particular Amount ($) Tax rate Tax amount($)
Accounting income $984,000
Less-Interest income on municipal bond -$40,000
Income to taxation $944,000 $0.25 $236,000
Less-tax return in excess of depreciation -$64,000 0.25 $16,000
Warranty expenses($30,000-$20,000) $10,000 0.25 $2,500
Taxable income $890,000 0.25 $222,500
Now
Journal Entry
Income tax expense A/c Dr.$236,000
Deferred tax asset A/c Dr.$2500
To Deferred tax liability A/c $16,000
To Income tax payable A/c $222,500
(Being the income tax expense for 2021 is recorded )
2 .Net Income of Fidelity = Accounting Income - Income Tax Expense
= $984,000 - $236,000
= $784,000
Final answer:
The total income tax expense for Fidelity Engineering is $252,000, considering both permanent and temporary differences. The net income for the year ended December 31, 2021, is $732,000 when subtracting the tax expense from the pretax accounting income.
Explanation:
Calculating Income Taxes and Net Income for Fidelity Engineering:
To calculate the income taxes for 2021, we need to consider the temporary differences that will reverse in the future, such as the excess depreciation on the company's tax return and the difference in warranty expense reporting. Additionally, we need to consider the permanent difference from the interest income on municipal bonds, which is not taxable.
Here are the steps and journal entry for the income taxes:
Permanent difference adjustment: Subtract the interest income on municipal bonds from the pretax accounting income: $984,000 - $40,000 = $944,000.Temporary difference adjustment: Add the excess tax depreciation back to the adjusted pretax income: $944,000 + $64,000 = $1,008,000.Calculate the total tax expense at Fidelity's tax rate: $1,008,000 x 25% = $252,000.Record the tax expense: Debit Income Tax Expense $252,000, Credit Deferred Tax Liability $16,000 (difference between book and tax depreciation), Credit Taxes Payable $236,000.The net income for 2021 for Fidelity Engineering is then calculated as follows:
Pretax Accounting Income - Tax Expense = Net Income
$984,000 - $252,000 (calculated from step 3 above) = $732,000.
g "Slack, Inc. had an IPO on June 1, 2019 and sold 275m shares with par value of $0.03 for $37.50/share. What is the journal entry Slack records on June 1, 2019? Group of answer choices DR Common Stock $8.25m; DR PIC-Common Stock $10,304.25m; CR Cash $10,312.50m DR Cash $10,312.50m; CR Common Stock $8.25m; CR PIC-Common Stock $10,304.25m DR Cash $10,312.50m; CR Common Stock $10,312.50m DR Common Stock $10,312.50m; CR Cash $10,312.50"
Answer:
The correct option here is the second one,DR Cash $10,312.50m; CR Common Stock $8.25m; CR PIC-Common Stock $10,304.25m
Explanation:
The cash realized from the initial public offer(IPO)=275 m shares*$37.50=$10,312.5 million
The par value of the 275 million shares=275 million*$0.03=$8.25 million
The paid capital in excess of par value=($37.50-$0.03)*275 million=$10,304.25 million
The appropriate accounting entries would to debit cash with total proceeds of $10,312.5 million
Credit common stock with $8.25 million
As well as crediting paid-in capital in excess of par value with $10,304.25
Annapolis Company has two service departments (Computer Operations & Maintenance Services). Annapolis has two production departments (Mixing Department & Packaging Department.) Annapolis uses a step allocation method where the Computer Operations Department is allocated to all departments and Maintenance Services is allocated to the production departments. All allocations are based on total employees. Computer Operations has costs of $140,000 and Maintenance Services has costs of $115,000 before any allocations. What amount of Maintenance Services total cost is allocated to the Mixing Department? (round to closest whole dollar) Employees are: Computer Operations 4 Maintenance Services 4 Mixing Department 5 Packaging Department 8
Answer:
$56,900
Explanation:
Compt. Maint. Mixing Packaging
Dept Cost 140,000 115,000
Cost allocation 32941 41177 65882
(Computer)
Cost allocation
(Maintenance) 56900 91041
Total 98077 156923
Workings.
Computer department cost allocation
Maintenance department = 4/17*140000 =32941
Mixing department = 5/17*140000 =41177
Packaging department = 8/17*140000= 65882
Maintenance department cost allocation
Total cost allocated = 147941
Mixing department = 5/13*147941 = 56900
Packaging department = 8/13*147941 =91041
The Mixing Department of the Annapolis Company will be allocated approximately $44,231 of the total Maintenance Services cost, based on the proportion of its employees to the total number of employees in the production departments.
Explanation:The Maintenance Services costs will be divided equally between the Mixing Department and the Packaging Department as those are the two production departments. Given that there are 5 employees in the Mixing Department and 8 in the Packaging Department, this constitutes a total of 13 production employees.
Each department's allocation will be based on the proportion of its employees to the total number of employees. For the Mixing Department, this is 5/13 or about 38.4615% (rounded to the nearest tenth of a percent). Therefore, the Mixing Department will be allocated about 38.4615% of the total Maintenance Services cost of $115,000.
Applying this percentage to the total cost, the allocation for the Mixing Department is approximately $44,231 (rounded to the nearest whole dollar).
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What are the benefits of "inventory pooling"? Establishing pools of inventory at each supplier and customer locationsCentralizes inventory into fewer locations thus reducing safety stocks and the amount of inventory needed in the supply chain.Pulling back inventory when firms have too much at retail level.Providing a one-stop means for the customer to return goods
Answer:
The benefits of Inventory Pooling includes:
centralizing inventory into fewer locations thus reducing safety stocks and the amount of inventory needed in the supply chain.Pulling back inventory when firms have too much at retail level.Explanation:
inventory pooling is an operational strategy used to increase efficiency in stock management and analysis.
It is a supply chain tool that consolidates multiple inventory locations into a single one.
It is a centralized system that helps with stock keeping. It makes projections easier and helps manage shortfalls that may arise due to demand uncertainty.
It is cost effective by reducing cost of employing more staff and reduces the percentage error due to the centralized portal.
By reducing operational costs, profit is maximized.
Terapin Company engages in the following external transactions for November.
1. Purchase equipment in exchange for cash of $21,300.
2. Provide services to customers and receive cash of $6,100.
3. Pay the current month's rent of $900.
4. Purchase office supplies on account for $1,500.
5. Pay employees' salaries of $1,300 for the current month.
Required:
Record the transactions. Terapin uses the following accounts: Cash, Supplies, Equipment, Accounts Payable, Service Revenue, Rent Expense, and Salaries Expense. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)
Answer and Explanation:
The journal entries are shown below:
1. Equipment Dr $21,300
To cash $21,300
(Being the equipment is purchased for cash)
For recording this we debited the equipment as it increased the assets and credited the cash as it reduced the assets
2. Cash Dr $6,100
To Service revenue $6,100
(Being the cash received is recorded)
For recording this we debited the cash as it increased the assets and credited the service revenue as it increased the revenue
3. Rent expense $900
To Cash $900
(Being the rent is paid)
For recording this we debited the rent expense as it increased the expenses and credited the cash as it reduced the assets
4. Office supplies Dr
To Account payable
(Being the office supplies purchased on account)
For recording this we debited the office supplies as it increased the assets and credited the account payable as it increased the liabilities
5. Salaries expense
To cash
(Being the salaries paid is recorded)
For recording this we debited the salaries expense as it increased the expenses and credited the cash as it reduced the assets
Dapper Corporation had only one job in process on May 1. The job had been charged with $1,710 of direct materials, $3,500 of direct labor, and $6,280 of manufacturing overhead cost. The company assigns overhead cost to jobs using the predetermined overhead rate of $23.50 per direct labor-hour.During May, the following activity was recorded:Raw materials (all direct materials): Beginning balance $ 7,800Purchased during the month $26,800Used in production $30,300Labor: Direct labor-hours worked during the month 1,700Direct labor cost incurred $21,250Actual manufacturing overhead costs incurred $38,100Inventories: Raw materials, May 30 ? Work in process, May 30 $20,000Work in process inventory on May 30 contains $3,125 of direct labor cost. Raw materials consist solely of items that are classified as direct materials.The balance in the raw materials inventory account on May 30 was:____________a) $4,180b) $4,300c) $4,420d) $4,820
Answer:
b. $4,300
Explanation:
Data provided
Beginning balance = $7,800
Purchases = $26,800
Used in Production = $30,300
The computation of balance in the raw materials inventory is shown below:-
Balance in the raw materials inventory = Beginning balance + Purchases - Used in production
= $7,800 + $26,800 - $30,300
= $34,600 - $30,300
= $4,300
Therefore for computing the ending inventory we simply applied the above formula.
23. In an interest rate swap between AAA who wants to convert fixed rate loan to floating-rate loan and BBB who wants to convert floating-rate loan to fixed-rate loan: A) AAA Will pay floating rate and receive fix rate for the term of the swap contract B) AAA Will pays fix rate and receive floating rate for the term of the swap contract C) BBB Will pay floating rate and receive fix rate for the term of the swap contract D) BBB Will receive fix rate and pay floating rate for the term of the swap contract
Answer:
d
Explanation:
i just got it right
g On January 1, 2021, Tiny Tim Industries had outstanding $1,000,000 of 11% bonds with a book value of $966,500. The indenture specified a call price of $983,000. The bonds were issued previously at a price to yield 13% and interest payable semi-annually on July 1 and January 1. Tiny Tim called the bonds (retired them) on July 1, 2021. What is the amount of the loss on early extinguishment?
Answer:
The loss on early extinguishment is $8677.5
Explanation:
First of all,one needs to compute the carrying value of the bond as at the date of the call in order to determine the loss on early redemption.
carrying value =book value+interest expense-coupon payment
book value is $966,500
interest expense=$966,500*13%*6/12=$62,822.50
coupon payment=$1000,000*11%*6/12=$55,000
carrying value=$966,500+$62,822.50-$55,000=$ 974,322.50
Loss on redemption =call price -carrying value of the bond
call price is $983,000
loss on early redemption=$983,000-$974,322.50 =$8,677.5
Jamison Company developed the following reconciling information in preparing its June bank reconciliation: Cash balance per bank, 6/30 $13,000 Note receivable collected by bank 4,000 Outstanding checks 7,000 Deposits-in-transit 2,500 Bank service charge 35 NSF check 1,900 Using the above information, determine the cash balance per books (before adjustments) for the Jamison Company. a. $8,065 b. $10,565 c. $15,065 d. $6,435
Final answer:
The cash balance per books for Jamison Company before adjustments is $10,565. It is found by adjusting the cash balance per bank of $13,000 with deposits in transit, note receivable collected by the bank, outstanding checks, bank service charges, and an NSF check.
Explanation:
To determine the cash balance per books (before adjustments) for the Jamison Company, we need to use the reconciling information provided to adjust the cash balance per bank. We start with the cash balance per bank and make the necessary deductions and additions based on the reconciling items.
The cash balance per bank on 6/30 is $13,000. We need to add any deposits that are in transit since these have been recorded by the company but are not yet reflected in the bank balance. We also add any notes receivable collected by the bank as these increase the company's cash balance. On the other hand, we must subtract any outstanding checks, bank service charges, and NSF (non-sufficient funds) checks, as these will decrease the company's cash balance.
Thus, we calculate the cash balance per books as follows:
Cash balance per bank: $13,000
Add: Deposits-in-transit: $2,500
Add: Note receivable collected by bank: $4,000
Subtract: Outstanding checks: -$7,000
Subtract: Bank service charges: -$35
Subtract: NSF check: -$1,900
Therefore, the cash balance per books (before adjustments) is:
$13,000 + $2,500 + $4,000 - $7,000 - $35 - $1,900 = $10,565
Use the following scenario to answer the following questions: Babak owns a sports practice facility called Boston Batting Cages in Boston, Massachusetts. During the first year of operation, Boston Batting Cages incurred many costs. In that year, Babak spent $5,000 on labor, $2,000 on maintenance, and $1,000 on electricity. Babak took out a loan to open his business, in which he would have earned $1,500, and his previous job, which he could get back at any time, paid him $50,000. If Boston Batting Cages received $80,000 in revenues, what were the economics profits
Answer:
$20,500
Explanation:
Economic profit is the difference between the total revenue generated and the total explicit (direct) and implicit (Indirect cost ) incurred
Total revenue - (explicit cost + implicit cost )
Revenue 80,000
Explicit cost
Labor 5000
maintenance 2000
Electricity 1000
Total (8000)
Implicit cost
loan revenue forgone 1500
Previous earning 50000
Total (51,500)
Economic profit 20,500
Final answer:
The economic profits for Boston Batting Cages are calculated by subtracting both explicit and implicit costs from the revenues. The business earned an economic profit of $20,500 after accounting for all costs.
Explanation:
To calculate the economic profits for Babak's business, Boston Batting Cages, we need to consider both explicit and implicit costs against the revenues. Explicit costs are the direct, out-of-pocket expenses for the business operation, whereas implicit costs represent the opportunity costs of using resources that could be employed elsewhere.
Explicit Costs: Labor ($5,000) + Maintenance ($2,000) + Electricity ($1,000) = $8,000Implicit Costs: Foregone salary ($50,000) + Foregone interest on loan ($1,500) = $51,500Total Costs: $8,000 (explicit) + $51,500 (implicit) = $59,500Revenues: $80,000Economic Profit: Revenues - Total Costs = $80,000 - $59,500 = $20,500Economic profits consider both the tangible costs of running the business and the opportunity costs, providing a comprehensive picture of the business's true profitability.
During the current year, High Corporation had 4.8 million shares of common stock outstanding. $7,725,000 of 16% convertible bonds were issued at face amount at the beginning of the year. High reported income before tax of $5.8 million and net income of $4.8 million for the year. The bonds are convertible into 805,000 shares of common. What is diluted EPS (rounded)?
Answer:
$1.07 per share
Explanation:
As we know
Earning per share = Net Income / Outstanding numbers of shares
Tot calculate the diluted EPS we need to add diluted income in the net income and diluted numbers of shares in outstanding numbers of share.
Formula for Diluted EPS
Diluted EPS = Total Income / Diluted Numbers of share
Tax for the period = Income before tax - Income after tax = $5.8 million - $4.8 million = $1 million
Tax rate = ($1 million / 5.8 million) x 100 = 17.24%
Total Income = Net Income after tax + Diluted income = $4.8 million + ( 7,725,000 x 16% x ( 1 - 17.24%) = $4,800,000 + 1,022,914 = $5,822,914
Diluted Numbers of share = Common stock outstanding + Diluted shares = 4,800,000 + 625,000 = 5,425,000 shares
Placing value in the formula
Diluted EPS = $5,822,914 / 5,425,000
= $1.07 per share
Production records show that there were 440 units in the beginning inventory, 30% complete, 1,440 units started, and 1,600 units transferred out. The beginning work in process had materials cost of $2,220 and conversion costs of $1,720. The units in ending inventory were 40% complete. Materials are entered at the beginning of the painting process.a) How many units are in process at May 31?(b) What is the unit materials cost for May?(c) What is the unit conversion cost for May? (Round unit costs to 2 decimal places, e.g. 2.25.)
Work in Process�Painting
5/1 Balance 3,940 5/31 Transferred out ?
5/31 Materials 6,610
5/31 Labor 4,800
5/31 Overhead 1,300
5/31 Balance ?
Answer and Explanation:
The computation is shown below:
a. The number of units processed is
= Beginning work in process units + completed and started units - transferred out units
= 440 units + 1,440 units - 1,600 units
= 280 units
b. The material cost per unit is
= Total cost ÷ equivalent units
where,
Total cost is
= Opening work in process + material cost
= $2,220 + $6,610
= $8,830
And, the equivalent units is
= Units transferred out + ending work in process
= 1,600 + 280
= 1,880
So, the material cost per unit is
= $8,830 ÷ 1,880 units
= $4.70
c. The conversion cost per unit is
= Total cost ÷ equivalent units
where,
Total cost is
= Opening work in process + labor cost + overhead cost
= $1,720 + $4,800 + $1,300
= $7,820
And, the equivalent units is
= Units transferred out + ending work in process × completion percentage
= 1,600 + 280 × 40%
= 1,712
So, the material cost per unit is
= $7,820 ÷ 1,712 units
= $4.57
___________________ are for-profit organizations that contract out or lease a wide range of light manufacturing, warehousing, and distribution services to other companies. Group of answer choices Public warehouses Private warehouses Breakbulk warehouses Consolidation warehouses
Answer:
Consolidation warehouses
Explanation:
Consolidation warehouses are warehouses that, as the name implies, consolidate a number of smaller shipments from other companies into a larger shipment, in a specific area.
Consolidation warehouses can also offer light manufacturing services, but their main function is to consolidate shipment into a single place, and distribute those shipments in a more cost-efficient manner.
On January 1, the Elias Corporation issued 10% bonds with a face value of $56,000. The bonds are sold for $60,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, ten years from now. Elias records straight-line amortization of the bond discount. The actual interest expense reported in the income statement for the year ended December 31 of the first year is
Answer:
$6,000
Explanation:
According to the scenario, computation of the given data are as follow:-
We can calculate the Interest Expenses of Total Bond by using following formula:-
Interest Expenses = Face Value × Rate of Bonds
= $56,000 × 10%
= $5,600
Amortization Expenses = (Bond Issue Price - Bond Face Value) ÷ Bond Term
= ($60,000 - $56,000) ÷ 10
= $400
Interest Expenses of Total Bond = Interest Expenses + Amortization Expenses
= $5,600 + $400
= $6,000
Nielson Corp. sells its product for $6,600 per unit. Variable costs per unit are: manufacturing, $3,600, and selling and administrative, $75. Fixed costs are: $18,000 manufacturing overhead, and $24,000 selling and administrative. There was no beginning inventory at 1/1/15. Production was 20 units per year in 2015–2017. Sales were 20 units in 2015, 16 units in 2016, and 24 units in 2017. Income under absorption costing for 2017 is
A) $4,800.
B) $8,400.
C) $9,600.
D) $13,200.
Answer:
B) $8,400
Explanation:
Absorption costing consider all the cost incurred in production either variable or fixed as production cost.
As we know variable cost vary with the change in the sale but the fixed costs remains constant whatever the level of sale is.
As per given data
Selling price = $6,600
Variable manufacturing cost = $3,600
Manufacturing Fixed Cost = $18,000
Total cost per unit = $3,600 + $18,000/20 = $4,500
Sales = Selling price x Numbers of units sold = $6,600 x 16 = $105,600
Cost of goods sold = Units sold x Cost per unit = 16 units x $4,500 = $72,000
Gross income = Sales - Cost of Goods sold = $105,600 - $72,000 = $33,600
Selling and Admin Cost = Variable cost + Fixed = (16 x $75) + $24,000 = $25,200
Net Income = Gross Income - Selling and Admin cost = $33,600 - $25,200 = $8,400
The Income from operation under absorption costing for 2017 is $8,400.
Cost per unit = Variable Manufacturing per unit + Fixed Manufacturing per unit
Cost per unit = $3,600 + $18,000 / 20
Cost per unit = $3,600 + $900
Cost per unit = $4,500
Sales price = Selling Price per unit * Units Sold
Sales price = $6,600 * 16
Sales price = $105,600
Cost of Goods Sold = Cost per unit * Units Sold
Cost of Goods Sold = $4,500 * 16
Cost of Goods Sold = $72,000
Selling & Administrative Expense = Variable Selling and Administrative Expense * Units Sold + Fixed Selling and Administrative Expense
Selling & Administrative Expense = $75 * 16 + $24,000
Selling & Administrative Expense = $25,200
Income from Operation = Sales - Cost of Goods Sold - Selling and Administrative Expense
Income from Operation = $105,600 - $72,000 - $25,200
Income from Operation = $8,400
Hence, the Income from operation under absorption costing for 2017 is $8,400.
Therefore, the Option B is correct.
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Which of the following best represents deep-level similarity? employees who seek challenges in assignments and like to work collaboratively employees in their mid-thirties with 10 years' work experience in the publishing industry employees who speak Spanish and share similar religious values colleagues who both hail from the same neighborhood in Alabama employees who are college graduates with a degree in business management
Answer:
Employees who seek challenges in assignments and like to work collaboratively.
Explanation:
Deep-Level similarities can be defined as similarities in personal characteristics such as personality, values, and attitudes. These similarities differ from the surface-level similarities and are more powerful. Deep-level similarities are more psychological based than physical.
From the given options the one that exemplifies the deep-level similarity is the first option. The similarity is based on the psychological or personal characteristics of the employee. The quality of seeking challenges in assignments and working collaboratively reveals the personality of the employee, thus, it is the correct answer.
So, the correct answer is the first option.
An FI has a $100 million portfolio of six-year Eurodollar bonds that have an 8 percent coupon. The bonds are trading at par and have a duration of five years. The FI wishes to hedge the portfolio with T-bond options that have a delta of −0.625. The underlying long-term Treasury bonds for the option have a duration of 10.1 years and trade at a market value of $96,157 per $100,000 of par value. Each put option has a premium of $3.25 per $100 of face value. a. How many bond put options are necessary to hedge the bond portfolio? b. If interest rates increase\
Answer:
A. 823.74
B.$4,614,028.00 gain
C.-$4,629,629.63
D.$2,678,000
Explanation:
a.
Np= Bond Portfolio Value/δ*B*D
=$100,000,000/-0.625*-10.1*$96,157
=823.74
Approximately 824 Contract
b.
A $100,000 20-year, eight percent bond selling at $96,157 implies a yield of 8.4 percent.
∆P = ∆p * Np= 824 * -0.625 * -10.1/1.084 * $96,157 * 0.01 = $4,614,028.00 gain
c.
∆PVBond= -5 * .01/1.08 * $100,000,000 = -$4,629,629.63
d.
The price quote of $3.25 is per $100 of face value. Hence the cost of one put contract will be $3,250 while the cost of the hedge
= 824 contracts * $3,250 per contract
= $2,678,000.
Final answer:
The bond's present value is calculated using discounted cash flows and decreases if the market interest rates rise. If the discount rate rises from 8% to 11%, the bond's value decreases from its face value to less than that, meaning the purchaser would pay less than the bond's face value. Similarly, for a bond worth $1,000 in a market with 12% interest rate, the maximum price to be paid would be $964.29.
Explanation:
To determine the present value (PV) of a bond, we apply the present value formula to each cash flow (interest and principal repayment) and sum them up. For a bond paying an annual interest rate of 8% with face value $3,000, the yearly interest payment is $240 (8% of $3,000). The bond also repays the principal of $3,000 at the end of year two.
If the discount rate is the same as the bond's coupon rate (8%), the bond is worth its face value, which in this case is:
PV of first-year interest = $240 / (1 + 0.08) = $222.22
PV of second-year interest plus principal = ($240 + $3,000) / (1 + 0.08)^2 = $2,777.78
Total PV = $222.22 + $2,777.78 = $3,000
If interest rates rise to 11%, the bond's value decreases as future cash flows are discounted at a higher rate. The new calculation is:
PV of first-year interest = $240 / (1 + 0.11) = $216.22
PV of second-year interest plus principal = ($240 + $3,000) / (1 + 0.11)^2 = $2,630.63
Total PV = $216.22 + $2,630.63 = $2,846.85
Therefore, with an interest rate increase, the present value of the bond decreases from $3,000 to $2,846.85, which is less than the face value of the bond. This indicates that you would pay less than $3,000 to purchase the bond after the rate increase.
For a bond originally worth $1,000, with an expected payment of $1,080 a year from now and a market interest rate of 12%, the price you should be willing to pay would not exceed the sum that would grow to $1,080 in one year at that interest rate. So, the maximum price would be:
PV = $1,080 / (1 + 0.12) = $964.29 (rounded to two decimal places)
Therefore, the bond's price would be less than its face value when market interest rates are above the bond's coupon rate.
Hammerstein Corporation offers a variety of share-based compensation plans to employees. Under its restricted stock award plan, the company, on January 1, 2018, granted 2 million of its $1 par common shares to various division managers. The shares are subject to forfeiture if employment is terminated within four years. The common shares have a market price of $20.4 per share on the award date. Required: 1. Determine the total compensation cost from these restricted shares. 2. & 3. Prepare the appropriate journal entries. 4. Suppose a 10% forfeiture rate was expected prior to vesting. Determine the total compensation cost, assuming the company follows the fair value approach and chooses to anticipate forfeitures at the grant date.
Answer and Explanation:
As per the data given in the question,
1)
Fair value per share = $20.4
Number of Share = 2 million
Fair value of award = Fair value per share ×Number of Share
= $20.4 × 2 million
= $40.8 million
2) No Entry
3)
Compensation expense($40.8 million÷4 years) $10.2 million
To Paid in capital - restricted stock($20.4-$10.2) $10.2 million
(Being the compensation expense is recorded)
4)
Fair value per share = $20.4
Share granted = 2 million
(100%-10%) forfeiture rate = 90%
fair value of award = $20.4×2×90%
= $36.72 million
MC Qu. 112 A company is considering... A company is considering the purchase of new equipment for $105,000. The projected annual net cash flows are $41,000. The machine has a useful life of 3 years and no salvage value. Management of the company requires a 8% return on investment. The present value of an annuity of $1 for various periods follows: Period Present value of an annuity of $1 at 8% 1 0.9259 2 1.7833 3 2.5771 What is the net present value of this machine assuming all cash flows occur at year-end
Answer:
Net Present Value = $660.98
Explanation:
The Net present value (NPV) is the difference between the Present value (PV) of cash inflows and the PV of cash outflows. A positive NPV implies a good and profitable investment project and a negative figure implies the opposite.
NPV of an investment:
NPV = PV of Cash inflows - PV of cash outflow
PV of cash inflow = A× (1- (1+r)^(-n))/r
A- annul cash inflow, r- 8%, n- 3
PV of cash inflow= 41,000× (1- 1.08^(-3))/0.08
= 105,660.98
Initial cost = 105,000
NPV = 105,660.98 - 105,000
= $ 660.98
Suppose you know that a company’s stock currently sells for $66.50 per share and the required return on the stock is 9 percent. You also know that the total return on the stock is evenly divided between capital gains yield and dividend yield. If it’s the company’s policy to always maintain a constant growth rate in its dividends, what is the current dividend per share?
Answer:
$2.86
Explanation:
The computation of current dividend per share is shown below:-
Dividend yield = 9% × 2
= 4.5%
Current price = Company stock × Dividend yield
= $66.50 × 4.5%
= 2.9925
Current dividend per share = Current price ÷ (1 + Dividend yield percentage)
= 2.9925 ÷ (1 + 0.045)
= 2.9925 ÷ 1.045
= $2.86
So, for computing the current dividend per share we simply applied the above formula.
Final answer:
To calculate the current dividend per share, the company's constant growth rate in dividends implies that the dividend yield is equal to the growth rate (4.5% in this scenario). Multiplying the current stock price of $66.50 by the dividend yield gives us the current dividend per share, which is $2.9925.
Explanation:
The student is asking about calculating the current dividend per share based on the information given about a company's stock price, the total return, and the required return. Given that the total return is equally split between capital gains yield and dividend yield, and the required return on the stock is 9%, each yield would thus be 4.5% (half of the total required return).
Since the company maintains a constant growth rate in its dividends, we can use the Gordon Growth Model (also known as the Dividend Discount Model) which states that the current stock price (P0) equals the dividend next year (D1) divided by the required return (r) minus the dividend growth rate (g). In this case, we know that the current stock price (P0) is $66.50, the required return (r) is 9%, and we've identified the dividend yield (which is the same as the capital gains yield in this example) to be 4.5% which is also the growth rate (g). To find the current dividend (D0), we can rearrange the formula to D0 = P0 × dividend yield. So, the current dividend per share would be $66.50 × 4.5%, which equals $2.9925 per share.
Benny asked his marketing team to research and collect data regarding the demographics of people residing in the state of California. He wanted to use this business data to come up with a product design for his company to consider in the future. What should Benny use to analyze this business data?
A.
human resources distribution system
B.
information dispersal unit
C.
management information system
D.
management delegation system
E.
distribution and management system
Answer:
C, Management Information System
Explanation:
Benny should use a Management Information System (MIS), a computerized system for data analysis and decision-making, to analyze the demographic data collected by his marketing team.
Explanation:To analyze the demographic data obtained by his marketing team, Benny should use a Management Information System (MIS). Option C is the correct answer. An MIS is a computer system used for processing and organizing data in a manner that supports decision-making in an organization. Using MIS, Benny can organize, sort and study the collected demographic data effectively. It will facilitate better decision-making regarding product design geared towards the population of California. MIS not only helps with data collection and analysis but also in the planning, controlling and decision-making processes within a business.
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Kane Company’s employees earn vacation time at the rate of 1 hour per 40-hour work period. The vacation pay vests immediately (that is, an employee is entitled to the pay even if employment terminates). During 2021, total salaries paid to employees equaled $880,000, including $17,000 for vacations actually taken in 2021 but not including vacations related to 2021 that will be taken in 2022. All vacations earned before 2021 were taken before January 1, 2021. No accrual entries have been made for the vacations. No overtime premium and no bonuses were paid during the period. The adjusting entry for vacations earned but not taken in 2021 will:
Answer and Explanation:
The Journal entry is shown below:-
Vacation Benefits Expense Dr, $4,575
($21,575 - $17,000)
To Vacation Benefits Payable $4,575
(Being benefit earned but not taken is recorded)
Working Note
The total wages earned excluded benefit paid
= $880,000 - $17,000
= $863,000
Actual vacation benefit
= $863,000 × 1 ÷ 40
= $21,575
The most recent financial statements for Kerch, Inc., are shown here (assuming no income taxes): Income Statement Balance Sheet Sales $ 8,400 Assets $ 14,000 Debt $ 6,000 Costs 6,390 Equity 8,000 Net income $ 2,010 Total $ 14,000 Total $ 14,000 Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year’s sales are projected to be $9,996. What is the external financing needed? (Do not round intermed
Answer: $268.10
Explanation:
Assets and Costs are proportional to sales meaning they grow at the same rate.
Sales rate of growth is,
= (9,996-8,400)/8400
=19%
Assuming that costs grew by 19% then Costs next year will be ,
= 6,390 * (1 + 0.19)
= $7,604.1
Meaning that Net Income is,
= Sales - Costs.
= 9,996 - 7,604.1
= $2,391.9
Retained earnings or net income is added to Equity
Total Equity= 8,000 + 2391.9
Total Equity =$10,391.90
Total Assets also grew by 19% as per the question so,
= 14,000* (1 + 0.19)
=$16,660
Going by the Accounting Equation,
Total assets = Total equity + Total debt
Hence external financing needed
16,660 = 10391.9 + 6000 + Additional funding
Additional funding = 16,660 - 10391.9 - 6,000
Additional funding = $268.10
Final answer:
The external financing needed for Kerch, Inc. to meet the projected increase in sales for the next year, considering no changes in the debt level and all net income is retained, is $268.10.
Explanation:
Calculating External Financing Needed for Kerch, Inc.
To calculate the external financing needed for Kerch, Inc., we need to evaluate the changes in the company's balance sheet that will occur due to the projected increase in sales. Since assets and costs are proportional to sales, we can forecast these figures for the next year based on the new sales projection of $9,996.
First, we determine the percentage increase in sales:
$9,996 (Projected Sales) / $8,400 (Current Sales) = 1.19, which is a 19% increase in sales.
Next, we apply this percentage to the current assets to estimate the next year's assets:
$14,000 (Current Assets) * 1.19 (Percentage Increase) = $16,660 (Projected Assets).
Similarly, we calculate the projected costs:
$6,390 (Current Costs) * 1.19 (Percentage Increase) = $7,604.10 (Projected Costs).
Now we calculate the projected net income. Note that since there are no taxes or dividends, net income will equal sales minus costs:
$9,996 (Projected Sales) - $7,604.10 (Projected Costs) = $2,391.90 (Projected Net Income).
Given that there are no dividends and net income is added to equity, the new equity value will be:
$8,000 (Current Equity) + $2,391.90 (Projected Net Income) = $10,391.90 (Projected Equity).
Since debt is not proportional to sales, it remains at $6,000.
Total projected financing required (Projected Assets) = Projected Debt + Projected Equity,
$16,660 (Total Projected Financing) - $6,000 (Debt) - $10,391.90 (Equity) = $268.10 (External Financing Needed).
The external financing needed for Kerch, Inc. to support the projected increase in sales is $268.10.
Money, Inc., a calendar year S corporation in Denton, Texas, has two unrelated shareholders, each owning 50% of the stock. Both shareholder record a $400,000 stock basis as of January 1. At the beginning of the tax year, Money reports balances in AAA of $300,000 and AEP of $600,000. During the year, Money generates operating income of $100,000. At the end of the year, Money distributes securities worth $1,000,000, with an adjusted basis of $800,000. The two shareholders consent to an AAA bypass election. What is the Federal income tax effects of these transactions for the shareholders? If an amount is zero, enter "0". Each shareholder receives a $ taxable distribution and a $ tax-free distribution from AAA. The AAA is $ at the end of the year, and each shareholder's basis is $ . AEP is reduced to $ .
Answer:
Both shareholder has $200,000 of dividend income resulting from the distribution.
Explanation:
Solution
Given that:
Now,
When the securities are issued, there will be a gain recognized of $200,000 to Money Inc. thus, The $200,000 = $1 million - $800,000.
The AAA will increase by $200,000.
This gain known will flow through to the two shareholders of Money Inc. as 50% is owned by both shareholders and the stock amount for each shareholder will be $200,000/2 = $100,000.
so, the basis of stock for each shareholder will increase by $100,000.
Now,
The distribution before AAA of securities the result will be = 300,000+100,000+200,000 = $600,000.
Then,
A $1 million distribution will be acted on first as coming first from AAA to the extent of $600,000.the amount balanced will be $1 million - $600,000 = $400,000. This will be serve as coming from AEP.
so,
The AAA is = 600,000 – 600,000 = 0.
The basis for each shareholder before distribution will be = 400,000+100,000+50,000 = 550,000.
The portion of non taxable of the above distribution = 300,000 from AAA.
Hence,the basis = 550,000 – 300,000 =250,000
Therefore, each shareholder has $200,000 of dividend income resulting from the distribution.
Bridgeport Company is presently testing a number of new agricultural seeds that it has recently harvested. To stimulate interest, it has decided to grant to five of its largest customers the unconditional right of return to these products if not fully satisfied. The right of return extends for 4 months. Bridgeport estimates returns of 15%. Bridgeport sells these seeds on account for $1,390,000 (cost $764,500) on January 2, 2017. Customers are required to pay the full amount due by March 15, 2017.
Prepare the journal entry for Bridgeport at January 2, 2017.
Answer:
1/2/2017
Dr Accounts Receivable $1,390,000
Cr Sales Revenue $1,390,000
Dr Cost of Goods Sold $764,500
Cr Inventory $764,500
Explanation:
Bridgeport Company Journal entry
1/2/2017
Dr Accounts Receivable $1,390,000
Cr Sales Revenue $1,390,000
Dr Cost of Goods Sold $764,500
Cr Inventory $764,500
At the present time, Water and Power Company (WPC) has 5-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,050.76 per bond, carry a coupon rate of 10%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 25%. If WPC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.) 6.53% 7.51% 5.22% 7.84%
Answer:
6.53%
Explanation:
For computing the after cost of debt we need to use the RATE formula i.e to be shown in attached spreadsheet. Kindly find it below:
Given that,
Present value = $1,050.76
Future value or Face value = $1,000
PMT = 1,000 × 10% = $100
NPER = 5 years
The formula is shown below:
= Rate(NPER;PMT;-PV;FV;type)
The present value come in negative
So, after applying this above formula
1. The pretax cost of debt is 8.70
2. And, the after tax cost of debt would be
= Pretax cost of debt × ( 1 - tax rate)
= 8.70% × ( 1 - 0.25)
= 6.53%
Alpha Company began operations on January 1 with cash of $75,000. All of January's $150,000 sales were on account. During January no customer collections occurred. Cost of goods sold was $40,000, and there was no ending inventories or any accounts payables.
Required:
1. Use this information to determine the ending balance of cash on hand for January. (Round & enter final answers to: the nearest whole dollar for total dollar answers, nearest penny for unit costs or nearest whole number for units)
Answer:
$35,000
Explanation:
From then information given, all sales were on account and no customer collections occurred in January, yet goods at a cost of $40,000 were sold. This means that the profit made in January
= $150,000 - $40,000
= $110,000
Since inventory and accounts payable are nil balances, it means the goods sold were purchased with cash. Hence the ending balance of cash on hand is the difference between the beginning cash balance and the amount of cash spent in the purchase of goods sold.
ending balance of cash on hand
= $75,000 - $40,000
= $35,000
Journalize the following transactions for Shelton, Inc (a) Incurred direct labor costs of $23,200 for 3,410 hours. The standard labor cost was $24,041. (b) Assigned 3,410 direct labor hours costing $23,200 to production. Standard hours were 3,580. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 125.) No. Account Titles and Explanation Debit Credit (a) (b)
Final answer:
The transactions for Shelton, Inc involve journalizing the direct labor costs incurred and accounting for the labor variance between actual and standard costs. No additional entry is needed for assigning the labor hours to production.
Explanation:
The question pertains to journalizing direct labor costs for Shelton, Inc, as presented in two parts, (a) and (b). It involves analyzing the incurred direct labor costs and the standard labor costs for the number of hours worked to perform the task, and how these hours are assigned to production, considering both actual and standard hours.
Journal Entry for part (a):
Work in Process (Debit): $23,200
Labor Variance (Debit/Credit): Amount to reconcile with standard cost ($24,041 - $23,200)
Wages Payable (Credit): $23,200
If the actual cost is lower than the standard, the variance is credited; if higher, it is debited.
Journal Entry for part (b):
There is no additional journal entry needed for part (b) since the costs have already been assigned to production in part (a).