Sky Fly, Inc is a fast growing drone manufacturer. The annual rate of return of Sky Fly's stock has been 20% over the past few years. Company managers believe 20% is a good estimate for the firms' cost of capital. Sky Fly's CEO, Dane Cooper, believes the company needs to continue to invest in projects that offer the highest possible returns. Currently, the company is reviewing two separate projects. Project E involves expanding production capacity. Project I involves introducing one of the firms' drones into a new market. The following table shows the projected cash flows for each project.
| Year | E | I |
|---|---|---|
| 0 | -3,500,000 | -500,000 |
| 1 | 1,500,000 | 250,000 |
| 2 | 2,000,000 | 350,000 |
| 3 | 2,500,000 | 375,000 |
| 4 | 2,750,000 | 425,000 |
Discuss
-Calculate the NPV, IRR, and PI for both projects.
-Rank the projects based on their NPV, IRR, and PI.
-The firm can only afford to take on one investment.
-Which project will the CEO likely favor?
-What do you think the company should do?
Explain your answers.
In: Finance
Sky Fly, Inc is a fast growing drone manufacturer. The annual rate of return of Sky Fly's stock has been 20% over the past few years. Company managers believe 20% is a good estimate for the firms' cost of capital. Sky Fly's CEO, Dane Cooper, believes the company needs to continue to invest in projects that offer the highest possible returns. Currently, the company is reviewing two separate projects. Project E involves expanding production capacity. Project I involves introducing one of the firms' drones into a new market. The following table shows the projected cash flows for each project.
| Year | E | I |
|---|---|---|
| 0 | -3,500,000 | -500,000 |
| 1 | 1,500,000 | 250,000 |
| 2 | 2,000,000 | 350,000 |
| 3 | 2,500,000 | 375,000 |
| 4 | 2,750,000 | 425,000 |
Discuss
Calculate the NPV, IRR, and PI for both projects.
Rank the projects based on their NPV, IRR, and PI.
The firm can only afford to take on one investment.
Which project will the CEO likely favor?
What do you think the company should do?
Explain your answers.
In: Finance
Consider
Sky Fly, Inc is a fast growing drone manufacturer. The annual rate of return of Sky Fly's stock has been 20% over the past few years. Company managers believe 20% is a good estimate for the firms' cost of capital. Sky Fly's CEO, Dane Cooper, believes the company needs to continue to invest in projects that offer the highest possible returns. Currently, the company is reviewing two separate projects. Project E involves expanding production capacity. Project I involves introducing one of the firms' drones into a new market. The following table shows the projected cash flows for each project.
| Year | E | I |
|---|---|---|
| 0 | -3,500,000 | -500,000 |
| 1 | 1,500,000 | 250,000 |
| 2 | 2,000,000 | 350,000 |
| 3 | 2,500,000 | 375,000 |
| 4 | 2,750,000 | 425,000 |
Discuss
Explain your answers.
In: Finance
Morris Company has the following capital structure: Common stock, $2 par, 100,000 shares issued and outstanding
On October 1, 2020, the company declared a 5% common stock dividend when the market price of the common stock was $10 per share. The stock dividend will be distributed on October 15, 2020, to stockholders on record on October 10, 2020.
Upon declaration of the stock dividend, Norris Company would record:
| A. |
A debit to Retained Earnings for $200,000 |
|
| B. |
A credit to Dividends Payable for $100,000 |
|
| C. |
A credit to Paid-in Capital in Excess of Par—Common Stock for $10,000 |
|
| D. |
A debit to Retained Earnings for $50,000 |
In: Accounting
Culver Company issues 8,900 shares of restricted stock to its
CFO, Mary Tokar, on January 1, 2020. The stock has a fair value of
$445,000 on this date. The service period related to this
restricted stock is 5 years. Vesting occurs if Tokar stays with the
company until December 31, 2024. The par value of the stock is $10.
At December 31, 2020, the fair value of the stock is
$363,000.
(a) Prepare the journal entries to record the
restricted stock on January 1, 2020 (the date of grant), and
December 31, 2021.
(b) On July 25, 2024, Tokar leaves the company. Prepare the journal entry to account for this forfeiture.
In: Accounting
In: Finance
Instruction for students:
Assume that you are the plant manager for Brice Company. The company is plan to implement a bonus system for purchasing and production managers that provides an annual 10 percent bonus for favorable direct materials variances (MPV and MQV).
Required:
Write a report for the CEO in which you explain the primary assumptions and considerations used in making your recommendation.
In: Operations Management
21. Finlandia Frankfurters (FF), incorporated in Finland, uses variable costing for external reporting. On 1st January, it is purchased by Belgian Bagels, which uses absorption costing, and FF is obliged to adopt the parent company's accounting method for the purposes of filing consolidated accounts. At the time of the merger, FF had 4,000 units in inventory and production costs remained stable over the following year. Which is true about FF's income in the first post-merger year? A. If sales are 10,000 units and production 12,000 units, variable costing income (VCI) exceeds full costing income (FCI) B. If sales are 10,000 units and production 10,000 units, FCI exceeds VCI C. If sales are 10,000 units and production 8,000 units, VCI exceeds FCI D. If sales are 12,000 units and production 10,000 units, FCI exceeds VCI E. Unable to determine.
In: Accounting
The P Ltd acquires all issued capital of the S Ltd for a consideration of $1,000,000 cash and 800,000 shares each valued at $1.50. The summary statement of the financial position of the subsidiary company immediately following the acquisition is: Fair value of assets acquired $2,640,000 Fair value of liabilities acquired $720,000 Total shareholders’ equity of the subsidiary company $800,000 Retained earnings of the subsidiary company $1,120,000 Required:
(a) Pass the necessary journal entry to record the acquisition
(b) Determine the amount of goodwill (or bargain purchase) arising out of the acquisition
(c) Pass the necessary consolidation entry to eliminate the subsidiary by the parent company .
(d) Determine the amount of goodwill (or bargain purchase) arising out of the acquisition if the purchase consideration paid was $1,000,000 cash and 400,000 shares each valued at $1.50
In: Accounting
The P Ltd acquires all issued capital of the S Ltd for a consideration of $1,000,000 cash and 800,000 shares each valued at $1.50. The summary statement of the financial position of the subsidiary company immediately following the acquisition is: Fair value of assets acquired $2,640,000 Fair value of liabilities acquired $720,000 Total shareholders’ equity of the subsidiary company $800,000 Retained earnings of the subsidiary company $1,120,000
Required: (a) Pass the necessary journal entry to record the acquisition (b) Determine the amount of goodwill (or bargain purchase) arising out of the acquisition (c) Pass the necessary consolidation entry to eliminate the subsidiary by the parent company (d) Determine the amount of goodwill (or bargain purchase) arising out of the acquisition if the purchase consideration paid was $1,000,000 cash and 400,000 shares each valued at $1.50
In: Accounting