8) Acort Industries has 10 million shares outstanding and a current share price of $40 per share. It also has long-term debt outstanding. This debt is risk free, is four years away from maturity, has an annual coupon rate of 10%, and has a $100 million face value. The first of the remaining coupon payments will be due in exactly one year. The riskless interest rates for all maturities are constant at 6%. Acort has EBIT of $106 million, which is expected to remain constant each year. New capital expenditures are expected to equal depreciation and equal $13 million per year, while no changes to net working capital are expected in the future. The corporate tax rate is 40%, and Acort is expected to keep its debt-equity ratio constant in the future (by either issuing additional new debt or buying back some debt as time goes on).
a. Based on this information, estimate Acort's WACC.
b. What is Acort's equity cost of capital?
In: Finance
On January 1, 2017, Spring Fashions Inc. enters into a contract with a southeast retail company to provide 500 dresses for $62,500 ($125 per dress) over the next 10 months. On October 1, 2017, after 450 of the dresses had been delivered (50 dresses per month), the contract is modified.
Required:
| 1. | Fifty dresses were delivered each month for the first 9 months of 2017. Prepare Spring Fashions’s monthly journal entry to record revenue. |
| 2. | Assume that the contract is modified to sell, once the original 500 dresses are delivered, an additional 100 dresses at $110 per dress, which is the stand-alone selling price on October 1, 2017. Assume the dresses are delivered evenly in November and December 2017. Prepare the journal entries to record the contract modification. |
Prepare journal entries to record a monthly cash sale on January 31 under the original contract and a monthly cash sale on November 30 under the modified contract.
In: Accounting
A company sells a service with demand for service Q = 500 - P.
The cost of each service is $3000 + $100 per user of the service
1) What is the profit maximizing price the business will charge? How many people can use the service? What is the companys profit for each service?
2) The company decides to open up an upper market version of the service. Regular demand is shown as Q1 = 260 - 0.4P, and the upper market being Q2 = 240-0.6P.
The uppermarket version having a higher price, What price does the company charge the upper market service? What price does the company charge the regular service? Will the change reduce number of total custoemrs?
3) WIll the new price system provide profit for the company
4) What is the total change in consumer surplus with the price discrimination?
5) Will DWL be changed due to the price change?
In: Economics
The number of units of a product demanded each month is a linear function of the selling price of the item. At a selling price of $10, 400 units of the product are demanded each month, and 100 units of the product are demanded each month at a selling price of $25 per item. The company that produces the product has monthly fixed costs of $1000 and each unit costs the company $4 to produce.
no calculus please!
In: Accounting
The management of a jewelry store plans to buy gold in the future and seeks protection against an increase in the price of gold. The current price of gold is $352.40 per ounce. The futures price of gold is $397.80 per ounce. The number of ounces to be hedged is 1,000, and the number of ounces per futures contract is 100. Therefore, 10 contracts will be hedged.
Describe in detail the hedge created by the jewelry store. That is what actions would be taken and why?
Based on the information given in the question, describe the outcome in detail of this hedge if the price of gold is $304.20 per ounce and the price of the futures contract is $349.60 per ounce when the hedge is lifted.
Based on the information given in the question (not your answer above, but the original information), describe the outcome in detail of this hedge if the price of gold is $392.50 per ounce and the price of the futures contract is $437.90 per ounce when the hedge is lifted.
In: Finance
Assume that a monopolist faces a demand curve given by:
Q = 100 – P
Also assume that marginal costs are such that MC = 2Q.
Calculate and graph the following:
Find the profit maximizing price and output in this market under autarky.
Now assume that the world price under free trade is $20 per unit. If the monopolist is a single price monopolist then find the profit maximizing output for this firm. Also find the amount imported under free trade.
Now assume that the country (small country) imposes a tariff of $20 on this product. Find the equilibrium price and quantity supplied by the monopolist. Also find the amount imported under the tariff. (assume single price monopoly).
Find the equilibrium price, quantity supplied, quantity demanded and the amount imported under an equivalent quota (assume single price monopoly).
Find and compare the efficiency loss under the quota to efficiency loss under the tariff.
In: Economics
Suppose the Aggregate Demand and Supply schedules for a hypothetical economy are as shown below:
Amount of Real Domestic Price Level Amount of Real Domestic
Output Demanded (billions) (Price Index) Output Supplied (billions)
$200 300 $800
$400 250 $800
$600 200 $600
$800 150 $400
$1,000 100 $200
In: Economics
The inverse demand function a monopoly faces is P = 100 − Q. The firm’s cost curve isTC(Q) = 10 + 5Q.Suppose instead that the industry is perfectly competitive. The industry demand curve and firm cost function is same as given before.
(j) (4 points) What is the level of output produced? Compare it to the output of single price monopoly.
(k) (4 points) What is the equilibrium price for this industry? Compare it to the price charged of single price monopoly.
(l) (4 points) What is the consumer surplus for this industry? Compare it to the consumer surplus under single price monopoly.
(m) (4 points) What is the producer surplus for this industry? Compare it to the producer surplus under single price monopoly.
(n) (4 points) What is the deadweight loss created if the industry changes from perfectly competitive to a single-price, unregulated monopoly?
In: Economics
Inventory Costing Methods—Periodic Method Archer Company is a retailer that uses the periodic inventory system.
August 1 Beginning inventory 80 units of Product A @ $1,600 total cost
5 Purchased 100 units of Product A @ $2,116 total cost
8 Purchased 200 units of Product A @ $4,416 total cost
11 Sold 165 units of Product A @ $4,800 total sale
Calculate the August cost of goods sold and the ending inventory at August 31 using (a) first-in, first-out, (b) last-in, first-out, and (c) the weighted-average cost methods. Do not round until your final answers. Round your final answers to the nearest dollar.
In: Accounting
Assume that two months from today you plan to make the first of a series of quarterly deposits into an account that pays an APR of 6.5% with monthly compounding. Your first deposit will equal $100 and your final deposit will occur two years and five months from today. Each deposit will be 1.5% smaller than the previous one. Three years and seven months from today, you plan to make the first of a series of semiannual withdrawals from an account. You will continue to make withdrawals through five years and one month from today. Each withdrawal will be 2.5% larger than the previous one. How large can you make your final withdrawal?
In: Finance