Answer:
a. Describe how the average accounting return is usually calculated and describe the information this measure provides about a sequence of cash flows. What is the AAR criterion decision rule?
Average accounting return = average net income / average investment
The problem with AAR is that net cash flows are not equal to net income since depreciation expense and changes in net working capital are not accounted for by AAR.
The criterion decision rule is that projects with an AAR above a certain measure.
b. What are the problems associated with using the AAR as a means of evaluating a project’s cash flows? What underlying feature of AAR is most troubling to you from a financial perspective? Does the AAR have any redeeming qualities?
it doesn't consider net cash flows, nor time value of money. Personally, accounting is an extremely important tool but it only reflects a partial perspective of a business. E.g. a business might have a huge net income but if it doesn't have enough cash to function, it will go bankrupt. In finance, cash is king.
Personally, my biggest problem with AAR is that it doesn't consider net cash flows. I've been on situations where the company I worked for was apparently doing great, but our accounts receivables were huge and we couldn't collect money fast enough. My job was basically go to different banks and convince them of loaning us cash. The worst part was that even without being able to collect cash, we still had to pay taxes and that was another huge problem.
I believe that AAR is still used because of its simplicity. Also, taxes are paid based on accounting profits and many firms base they compensation plans on them.
The risk free rate is 4%, and the required return on the market is 12%. 1. What is the required return on an asset A with a beta of 1.5?2. What is the reward/risk ratio?3. What is the required return on a portfolio consisting of 40% of the asset above and the rest in an asset with an average amount of systematic risk?
Answer:
required return 16%
risk/reward 8%
portfolio return 13.60%
Explanation:
Required return=risk-free rate+beta*(market return-risk free rate)
risk-free rate=4%
beta=1.5
market return=12%
required return=4%+1.5*(12%-4%)=16.00%
Reward/risk ratio=market return-risk free rate
reward/risk ratio=12%-4%=8%
Portfolio return=weight of the asset* required return on asset+weight of the rest of the portfolio*market return
weight of the asset=40%
required return=16%
weight of the rest of the portfolio=1-40%=60%
market return=12%
portfolio return=(40%*16%)+(60%*12%)=13.60%
The risk-free rate is termed as the return that is associated with the investment with zero or no risk. It represents the number of investors that would expect a higher return from no-risk investment over a specified period of time.
The answers are:
required return 16%
risk/reward 8%
portfolio return 13.60%
[tex]\begin{aligned}\text{Required return}=\text{risk-free rate}+\text{beta}\times(\text{market return-risk free rate})\end{aligned}[/tex]
risk-free rate=4%
beta=1.5
market return=12%
[tex]\begin{aligned}\text{required return}=4\%+1.5\times(12\%-4\%)=16.00\%\end{aligned}[/tex]
[tex]\begin{aligned}\frac{Reward}{risk}\end{aligned}[/tex] ratio=market return-risk free rate
[tex]\begin{aligned}\frac{\text{reward}}{\text{risk ratio}}=12\%-4\%=8\%\end{aligned}[/tex]
Hence the [tex]\begin{aligned}\frac{Reward}{risk}\end{aligned}[/tex] ratio is 8%
Portfolio return=[tex]\text{weight of the asset}\times\text{ required return on asset}+\text{weight of the rest of the portfolio}\times{\text{market return}}[/tex]
weight of the asset=40%
required return=16%
weight of the rest of the portfolio=1-40%=60%
market return=12%
portfolio return=[tex](40\%*16\%)+(60\%\times12\%)=13.60\%[/tex]
Therefore the required return on a portfolio is 13.60%.
To know more about the risk-free rate, refer to the link below:
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PackMan Corporation has semiannual bonds outstanding with nine years to maturity and the bonds are currently priced at $754.08. If the bonds have a coupon rate of 7.25 percent, then what is the after-tax cost of d
Answer:
The after-tax cost of debt is 8.22%
Explanation:
The cost of debt is the actual cost of a business to raise debt finance. Yield to maturity is the cost of debt of a bond.
calculate the YTM as follow
Coupon = $1000 x 7.25% x 6/12 = $36.25
Number of periods = 9 yeas x 12/6 = 18 periods
Use the financial calculator as below
2nd I/Y 2, FV 1000, PMT 36.25, PV -754.08, N 18, CPT I/Y
Yield to maturity = 11.7499%
Now calculate the after tax YTM
YTM ( after tax ) = 11.7499% x ( 1 - 30% )
YTM ( after tax ) = 8.22%
Mary's Baskets Company expects to manufacture and sell 30,000 baskets in 2019 for $5 each. There are 4,000 baskets in beginning finished goods inventory with target ending inventory of 9.000 baskets. The company keeps no work-in- process inventory. What amount of sales revenue will be reported on the 2019 budgeted income statement? A) $175,000 B) $150,000 C) $125,000 D) $55,000
Answer:
C $125,000
Explanation:
With regards to the above information, we know that the beginning and ending target inventory is the same, hence the units sold by Mary's baskets will remain at 30,000.
Sales in unit = Opening inventory in units + Production - Closing inventory
Sales in unit = 4,000 + 30,000 - 9,000
Sales in unit = 25,000
We do know that revenue is a function of sales multiplied by the selling price, which is given as $5 each.
Sales revenue = Sales in unit × Selling price
Sales revenue = 25,000 × $5
Sales revenue = $125,000
Therefore, the amount of sale revenue that would be reported on the 2019 budget income statement is $125,000
A few years ago the British government was considering retiring, or buying back from investors, some outstanding consols that had annual coupons of . A consol is:______
a. a coupon bond that pays a variable coupon rate and does not mature.
b. a coupon bond that pays a fixed coupon rate and has a fixed maturity date.
c. a coupon bond that pays a variable coupon and has a fixed maturity date.
d. a coupon bond that pays a fixed coupon rate and does not mature.
If the yield to maturity on other long-term British government bonds was 2.0%, the price the British government is likely to offer investors is £ _________
Answer: d. coupon bond that pays a fixed coupon rate and does not mature.
$3250
Explanation:
A consol is a coupon bond that pays a fixed coupon rate and does not mature. Consols are consolidated annuities that are perpetual. A steady amount of interest is paid for a consol even though they're not redeemable
Price of a consol will be gotten as fixed coupon amount divided by the rate of return. Let's assume that the fixed coupon amount is $65, then the price will be:
= 65/2%
= $3250
Calculate the after-tax cost of debt using following bond information. A four year bond has a 7 percent coupon rate and a $1000 face value. If the market value of the bond is $788, assuming that the bond makes annual coupon payments and the tax rate is 35%.
a. 7.16 %
b. 14.32 %
c. 12.12 %
d. 9.31 %
e. 5.01 %
Answer:
d. 9.31 %
Explanation:
in order to solve this question you cannot use the approximate yield to maturity since it will yield an approximation, but not an exact answer:
approximate YTM = {70 + [(1,000 - 788)/4]} / [(1,000 - 788)/2] = 13.76%
after tax cost of debt = 13.76% x 0.65 = 8.94%, but that is not an option
we must determine the exact yield to maturity which is determined by the following formula:
$788 = $70/(1 + i) + $70/(1 + i)² + $70/(1 + i)³ + $1,070/(1 + i)⁴
the simplest way to solve this is by using a financial calculator since the math is complicated. The exact yield to maturity = 14.324%
after tax cost of debt = 14.324% x (1 - tax rate) = 14.324% x 0.65 = 9.31%
Using emails to communicate asynchronously is not a good idea for all of the reasons below except ________.
a) email threads are organized.
b) too much freedom.
c) difficult to find particular emails.
d) it is easy to hide from email.
e) difficulty in finding attachments.
Answer:
The correct answer is A. Using emails to communicate asynchronously is not a good idea for all of the reasons below except email threads are organized.
Explanation:
Communication via email is very efficient for exchanging non-instantaneous messages, that is, in those in which information is transmitted that does not require constant exchange, such as a chat or a phone call. Therefore, in the case of asynchronous communication, the exchange of emails can cause some part of the communication to be lost, or the messages may be misinterpreted because they are out of order. This provided that the thread of the messages is not ordered, otherwise this misunderstanding could be avoided.
In a local NFP elementary school’s statement of cash flows, a contribution restricted for use on a new building project would be reported as:_________.A. A capital and related financing activity. B. A financing activity. C. An investing activity. D. An operating activity.
Answer: B. A financing activity.
Explanation:
A Financing activity is one that involves the provision of capital to the company or project being built which is why long term liabilities and equity will fall under this category.
This contribution that has been earmarked for use on the construction of a new building will therefore be treated as a financing activity because it represents capital being provided for the elementary school.
Had it been the Elementary school providing the funds itself then this would have been an Investing activity.
A seller (or provider) of goods or services to a business organization is known as a:
A Vendor.
B Payee.
C Vendee.
D Creditor.
E Debtor.
Answer:
A. Vendor.
Explanation:
This individual or company would be known as a vendor. These individual/company offer others a specific good or service for their own personal or commercial use. These individuals/companies make money by manufacturing the product and selling them to others and making a profit in the process. Usually they also sell these products in bulk which still nets them good profit and provides a cheaper price to the buyer.
Which type of supply chain collaboration includes collaborative processes across the supply chain using a set of processes and technology models including a joint business plan, sales forecasting, order planning and forecasting, order generation, and order fulfillment?
Answer:
Collaborative Planning, Forecasting and Replenishment (CPFR)
Explanation:
Supply chain management can be defined as the effective and efficient management of the flow of goods and services as well as all of the production processes involved in the transformation of raw materials into finished products that meet the insatiable want and need of the consumers. Generally, the supply chain management involves all the activities associated with planning, execution and supply of finished goods and services to the consumers.
The fundamental principle of supply chain management is basically a collaboration between multiple firms. These multiple firms include a company that is saddled with the responsibility of manufacturing, a wholesaler, and a retailer who typically sells the products to the customers or consumers.
Basically, these three (3) firms or individuals are required to collaborate with each other so as to meet the needs of the customers in a timely manner or fashion and at a fair price too.
Collaborative Planning, Forecasting and Replenishment (CPFR) is a type of supply chain collaboration which includes collaborative processes across the supply chain using a set of processes and technology models including a joint business plan, sales forecasting, order planning and forecasting, order generation, and order fulfillment.
Carnes Electronics sells consumer electronics that carry a 90-day manufacturer’s warranty. At the time of purchase, customers are offered the opportunity to also buy a two-year extended warranty for an additional charge. During the year, Carnes received $412,000 for these extended warranties (approximately evenly throughout the year). Required: 1-a. Does this situation represent a loss contingency? 1-b. How should it be accounted for? 2. Prepare journal entries that summarize sales of the extended warranties and any aspects of the warranty that should be recorded during the year.
Answer: See explanation
Explanation:
a. This is not a loss contingency. A loss contingency occurs when the value of an asset is reduced because of an occurence on the future. This isn't the case here as a separate sales transaction occured.
b. To account for it, we have to defer the revenue as a liability and then we will use the straight line basis to calculate the warranty expense.
2. Dr Cash $412,000
Cr Unearned revenue - extended warranties $ 412,000
(To record the sale of extended warranty)
Dr Unearned revenue - extended warranties. $57937.50
Cr. Revenue - Extended Warranties $57937.50
(To record revenue earned on extended warranty)
The balance in the Bonds Payable is a credit of $79,000. The balance in the Premium on Bonds Payable is a credit of $1,600. What is the bond carrying amount?
a. $1,600
b. $80,600
c. $79,000
d. $77,400
Answer:
b. $80,600
Explanation:
The computation of the bond carrying amount is shown below:
= Balance in the bond payable + premium on bond payable
= $79,000 + $1,600
= $80,600
Hence, the bond carrying amount is $80,600
We simply applied the above formula so that the correct value could come
And, the same is to be considered
Therefore the correct option is b.
What is the equity beta for a firm with asset beta equal to 0.9, and D/E ratio of 0.4, and tax rate equal to 35%?
Answer:
the equity beta of the firm is 1.134
Explanation:
The computation of the equity beta is shown below:
Equity beta is
= Asset beta × [1 + (1 - tax rate) × Debt-equity ratio]
= 0.9 × [1 + (1 - 0.35) × 0.4]
= 0 9 × 1.26
= 1.134
Hence, the equity beta of the firm is 1.134
We simply applied the above formula so that the correct value could come
And, the same is to be considered
More needs to be done to capitalise on the power of the peer-to-peer networks that many music downloaders still use. A recent study found that regular downloaders of unlicensed music spent an average of £5.52 a month on legal digital music. This compares to just £1.27 spent by other music fans. The research clearly shows that music fans who break
piracy laws are highly valuable customers. It also suggests that they are eager to adopt legitimate music services in the future. One researcher pointed out that "There's a myth that all illegal downloaders are mercenaries hell-bent on breaking
the law in pursuit of free music. In reality hardcore fans "are extremely enthusiastic about paid-for services, as long as they are suitably compelling, he said.
People who download unlicensed music tend not buy legal digital music.
A True
B False
C Cannot Say
The answer to the prompt that "People who download unlicensed music tend not buy legal digital music" is False.
Judging from the passage above, the answer to this prompt is false.
The passage makes it clear that those who regularly downloaded unlicensed music also "spent an average of £5.52 a month on legal digital music."
This shows that this crop of individuals are willing to purchase legal digital music.
Learn more about unlicensed music here:
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Walters Corporation sells radios for $50 per unit. The fixed costs are $525,000 and the variable costs are 60% of the selling price. As a result of new automated equipment, it is anticipated that fixed costs will increase by $125,000 and variable costs will be 50% of the selling price. The new break-even point in units is:_____. a. 26,250.b. 26,000.c. 25,750.d. 21,000.
Answer:
b. 26,000 units
Explanation:
We will calculate break even point as;
Break even point = Fixed expenses ÷ Contribution margin per unit
Where,
Fixed costs = $525,000 + $125,000 = $650,000
Also, Contribution margin per unit = Selling price per unit - Variable expense per unit
Selling price per unit = $50
Variable expense per unit
= 50% × $50
= $25
Contribution margin per unit
= $50 - $25
= $25
Therefore, the break even point in units
= $650,000 ÷ $25
= 26,000 units
Bagrov Corporation had a net decrease in cash of $10,500 for the current year. Net cash used in investing activities was $52,500 and net cash used in financing activities was $38,500. What amount of cash was provided (used) in operating activities?
A. $(101,500) used.
B. $(10,500) used.
C. $101,500 provided.
D. $80,500 provided.
E. $(80,500) used.
Answer:
I believe the answer to that would be B.
Explanation:
Plz mark as Brainliest!
) A corporation acquires new funds only when its securities are sold in the
Answer:
(a) in the primary market by an investment bank.
Multiple -choice options
(a) in the primary market by an investment bank.
(b) in the primary market by a stock exchange broker.
(c) in the secondary market by a securities dealer.
(d) in the secondary market by a commercial bank.
Explanation:
The securities exchange has both primary markets and secondary markets. The primary market deals with new shares or securities that corporations offer to investors. Once the securities have been issued, they become available for trading at the secondary market.
If a corporation wishes to raise additional funds, it issues new shares to investors. It contracts an investment banker who assists in planning, organizing, and facilitating the entire process. Since the corporation is offering new shares, they are issued in the primary market.
When offering financial products to clients, you may:
a. Omit collecting client identification documents if they are a prior client.
b. Choose which clients are offered products based on your observations and experience.
c. Refuse to accept product applications from clients who request them.
d. All of the above.
e. None of the above.
Answer:
d. All of the above.
Explanation:
All the three actions are appropriate actions for when offering financial products to clients.
a) is appropriate because prior clients are likely to have most of the information in the company's records.
b) is appropriate because as you gain experience, you become more knowledgeabe and intuitive about which clients should be offered a determined product.
c) is appropriate because as a financial worker, it is your duty to decline requests for financial products from clients who do not meet the given criteria.
Avery Co. has $1.1 million of debt, $1 million of preferred stock, and $2.2 million of common equity. What would be its weight on debt
Answer:
0.26
Explanation:
Given that :
Value of debt = $1.1 million
Value of preferred stock = $1 million
Value of common equity = $2.2 million
Total value of company's funds :
(value of debt + value of Preffered stock + value of common equity)
(1.1 + 1 + 2.2) million
= $4.3 million
Hence, weight of debt :
Value of debt / total value of company's funds
$1.1 million / $4.3 million
= 0.2558
= 0.26
Mary Alice just won the lottery and is trying to decide between the options of receiving the annual cash flow payment option of $420,000 per year for 25 years beginning today, or receiving one lump-sum amount today. Mary Alice can earn 6% investing this money. At what lump-sum payment amount would she be indifferent between the two alternatives? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided and round final answer to nearest whole dollar amount.)A. $5,369,011B. $6,111,151C. $5,691,151D. $10,500,000
Answer:
C. $5,691,151
Explanation:
At what lump-sum payment amount would she be indifferent between the two alternatives?
Mary Alice just won the lottery and is trying to decide between the options of receiving the annual cash flow payment option of $420,000
$420,000 x 13.55036* = $5,691,151
*PVAD of $1: n = 25; i = 6%
Paunch Burger has a beta of 1.2 and just paid a dividend of $2.30 that is expected to grow at 3.2%. If the risk-free rate is 3% and the market risk premium is 6%, what should be the price of the stock
Answer:
P0 = $33.9085 rounded off to $33.91
Explanation:
Using the constant growth model of dividend discount model, we can calculate the price of the stock today. The DDM values a stock based on the present value of the expected future dividends from the stock. The formula for price today under this model is,
P0 = D0 * (1+g) / (r - g)
Where,
D0 is the dividend paid recently
D0 * (1+g) is dividend expected for the next period /year
g is the growth rate
r is the required rate of return or cost of equity
First we need to calculate the required rate of return or r using the CAPM.
Using the CAPM, we can calculate the required/expected rate of return on a stock. This is the minimum return required by the investors to invest in a stock based on its systematic risk, the market's risk premium and the risk free rate.
The formula for required rate of return under CAPM is,
r = rRF + Beta * rpM
Where,
rRF is the risk free rate
rpM is the market risk premium
r = 0.03 + 1.2 * 0.06
r = 0.102 or 10.2%
Now using the formula for P0 under the constant dividend growth model,
P0 = 2.3 * (1+0.032) / (0.102 - 0.032)
P0 = $33.9085 rounded off to $33.91
The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 60,000 shares were originally issued and 10,000 were subsequently reacquired. What is the amount of cash dividends to be paid if a $2-per-share dividend is declared?a) $60,000.b) $5,000.c) $100,000.d) $55,000.
Answer:
c) $100,000
Explanation:
Number of shares originally issued 60,000
Less: Number of shares reacquired (10,000)
Outstanding number of shares 50,000
Dividends per share declared $2
Total dividends declares $100,000 (50,000 shares * $2)
Sheffield Corp. manufactures a product with a standard direct labor cost of two hours at $18 per hour. During July, 1800 units were produced using 3800 hours at $18.30 per hour. The labor price variance was
Answer:
$1,140(A)
Explanation:
The labor price variance is computed as;
= (SP - AP) × AH
Where:
SP = Standard price hour = $18 per hour
AP = Actual price per hour = $18.30 per hour
AH = Actual hours used = 3,800
Labor price variance = ($18 - $18.30) × 3,800 hours
Labor price variance = $1,140 (A)
Therefore, the labor price variance was $1,140(A)
Colors of cars in a mall parking lot is?
Categorical
Numerical; discrete
Numerical; continuous
Answer: Categorical
Explanation:
Categorical data refers to data that enables variables to be grouped into categories but in such a way that there is no ordering to the categories.
In this scenario, the cars will be grouped by their colors but these colors cannot be ordered by saying that red is higher than blue or yellow is higher than white. It is therefore Categorical data.
A company had total sales of $610,000, net sales of $566,400, and an average accounts receivable of $96,000. Its accounts receivable turnover equals:
Answer:
5.9
Explanation:
Calculation for It's accounts receivable turnover using this formula
Accounts Receivable Turnover = Net Sales amount /Average Accounts Receivable amount
Let plug in the formula
Accounts Receivable Turnover =$566,400/$96,000
Accounts Receivable Turnover = 5.9
Therefore Its accounts receivable turnover equals: 5.9
What is the APR (interest rate) on this card for Purchases made during the first six months that a cardholder has this card?
a. 0%
b. 15.24%
c. 23.24%
d. 25.24%
Answer:
a. 0%
Explanation:
The first line of the schumer box had it on
At December 31 year-end Connor Company has a $9,500 note from a customer. Interest of 12% has accrued for 8 months on the note. What will Connor's income statement for the year ended December 31, report for this situation? a. Nothing because the company has not received the cash yet. b. Interest Revenue of $760 c. Note Receivable of $9,500 d. Both B and C
Answer:
b. Interest Revenue of $760
Explanation:
The computation is shown below:
= Note amount × rate of interest × number of months ÷ total number of months
= $9,500 × 12% × 8 months ÷ 12 months
= $760
This amount would be represented as an interest revenue.
We simply applied the above formula so that the correct value could come
And, the same is to be considered
Therefore the correct option is b.
Buxton Corp. has outstanding borrowings. One of these borrowings is nonconvertible preferred stock (cumulative) with a par value of $85 and an annual dividend rate of 6.20%. This preferred stock is currently selling for $56.50 per share. What is the yield or return (r) on this preferred stock?
a. 9.89%
b. 9.56%
c. 9.32%
d. 9.22%
Answer:
c. 9.32%
Explanation:
The computation of the yield or return on the preferred stock is shown below:
= (Annual dividend rate × par value ) ÷ current stock price
= (6.20% × $ 85 ) ÷ $56.50
= 9.32%
Hence, the yield or return on the preferred stock is %
Therefore the correct option is c.
We simply applied the above formula so that the correct value could come
And, the same is to be considered
An increase in income:________. A. changes relative prices of goods the consumer buys. B. shifts the budget constraint outward. C. shifts the budget constraint inward. D. leads to the substitution effect.
Answer: B. shifts the budget constraint outward
Explanation:
An increase in the income of a consumer will bring about an outward shift of the budget constraint. This is because when the income of a consumer rises, such consumer can buy more goods and services.
Also, a decrease in income will result into an inward shift of the budget constraint. This is because lesser goods are purchased.
The assets for BIZZ0 in 2018 were $187,300; the liabilities for that year were $275,600; and the net income was $17,700. What was the return on income for the year?
Answer: 9.45%
Explanation:
From the question, we are informed that the assets for BIZZ0 in 2018 were $187,300, the liabilities for that year were $275,600; and the net income was $17,700.
The return on income for the year will be:
= ( Net Income / Total Assets ) × 100
= ($17,700 / $187,300) × 100
= 0.0945
= 9.45%
You can receive 400,000 five years from today or 1,000,000 thirty years from today. what interest rate makes them equivalent?
Answer:
3.73%
Explanation:
The computation of the rate of interest that makes the equivalent is shown below:
As we know that
Present value=Cash flow × Present value discounting factor ( interest rate% , time period)
Let us assume the interest rate be x
where,
Present value of $400,000 is
= $400,000 ÷ 1.0x ^5
And,
Present value of $1,000,000 be
= $1,000,000 ÷ 1.0x^30
Now eqaute these two equations
$400,000 ÷ 1.0x^5 = $1,000,000 ÷ 1.0x^30
(1.0x^30) ÷ (1.0x^5) = $1,000,000 ÷ $400,000
1.0x^(30 - 5)=2.5
1.0x^25=2.5
1.0x = (2.5)^(1 ÷ 25)
x =1.03733158 - 1
= 3.73%