LUVE produces bracelets. Each band generates $460 in revenue and
requires one
ounce of gold as an input. LUVE plans to produce and sell one
widget in exactly
one year. The c.c. risk-free rate is zero percent.
LUVE is considering hedging their gold exposure with a long
forward contract.
The one-year forward price of gold is $420 per ounce. If the spot
price of gold is $450
per ounce in one year, what is LUVE's hedged profit?
The answer I got was 30
2. LUVE is considering hedging their gold exposure with a call
option. The premium on a one-year call option on gold with a strike
of $420 per ounce is $8.77. If the
price of gold is $450 per ounce in one year, what is LUVE’s hedged
profit?
I got 21.23
3. The call option hedge outperforms the long forward hedge (in terms of profits) whenever the gold price is below S*. What value of S* makes this statement true?
I got -38.77
In: Finance
1.
Vertical Analysis of Income Statement
Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:
| Current Year | Previous Year | |||
| Sales | $517,000 | $460,000 | ||
| Cost of goods sold | 284,350 | 230,000 | ||
| Selling expenses | 93,060 | 92,000 | ||
| Administrative expenses | 98,230 | 82,800 | ||
| Income tax expense | 15,510 | 23,000 | ||
a. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. If required, round percentages to one decimal place. Enter all amounts as positive numbers.
| Innovation Quarter Inc. | ||||
| Comparative Income Statement | ||||
| For the Years Ended December 31 | ||||
| Current year Amount | Current year Percent | Previous year Amount | Previous year Percent | |
| Sales | $517,000 | % | $460,000 | % |
| Cost of goods sold | 284,350 | % | 230,000 | % |
| ________ | $ | % | $ | % |
| Selling expenses | 93,060 | % | 92,000 | % |
| Administrative expenses | 98,230 | % | 82,800 | % |
| ___________ | $ | % | $ | % |
| ___________ | % | % | ||
| Income tax expense | 15,510 | % | 23,000 | % |
| ___________ | $ | % | $ | % |
b. The vertical analysis indicates that the cost of goods sold as a percent of sales __________ by 5 percentage points, while selling expenses ____________ by 2 percentage points, and administrative expenses ___________ by 1 percentage points. Thus, net income as a percent of sales ________ by 2 percentage points.
2.
Vertical Analysis of Balance Sheet
Balance sheet data for Alvarez Company on December 31, the end of two recent fiscal years, follows:
| Current Year | Previous Year | |||
| Current assets | $295,500 | $169,970 | ||
| Property, plant, and equipment | 591,000 | 546,860 | ||
| Intangible assets | 98,500 | 22,170 | ||
| Current liabilities | 187,150 | 110,850 | ||
| Long-term liabilities | 413,700 | 302,990 | ||
| Common stock | 108,350 | 110,850 | ||
| Retained earnings | 275,800 | 214,310 | ||
Prepare a comparative balance sheet for both years, stating each asset as a percent of total assets and each liability and stockholders' equity item as a percent of the total liabilities and stockholders' equity. If required, round percentages to one decimal place.
| Alvaraz Company | ||||
| Comparative Balance Sheet | ||||
| For the Years Ended December 31 | ||||
| Current year Amount |
Current year Percent |
Previous year Amount |
Previous year Percent |
|
| Current assets | $295,500 | __% | $169,970 | __% |
| Property, plant, and equipment | 591,000 | __% | 546,860 | __% |
| Intangible assets | 98,500 | __% | 22,170 | __% |
| Total assets | $985,000 | __% | $739,000 | __% |
| Current liabilities | $187,150 | __% | $110,850 | __% |
| Long-term liabilities | 413,700 | __% | 302,990 | __% |
| Common stock | 108,350 | __% | 110,850 | __% |
| Retained earnings | 275,800 | __% | 214,310 | __% |
| Total liabilities and stockholders' equity | $985,000 | __% | $739,000 | __% |
2.
Horizontal Analysis of the Income Statement
Income statement data for Winthrop Company for two recent years ended December 31, are as follows:
| Current Year | Previous Year | ||||
| Sales | $702,000 | $540,000 | |||
| Cost of goods sold | 588,800 | 460,000 | |||
| Gross profit | $113,200 | $80,000 | |||
| Selling expenses | $33,600 | $28,000 | |||
| Administrative expenses | 30,720 | 24,000 | |||
| Total operating expenses | $64,320 | $52,000 | |||
| Income before income tax | $48,880 | $28,000 | |||
| Income tax expenses | 19,600 | 11,200 | |||
| Net income | $29,280 | $16,800 | |||
a. Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. If required, round to one decimal place.
| Winthrop Company | ||||
| Comparative Income Statement | ||||
| For the Years Ended December 31 | ||||
| Current year Amount |
Previous year Amount |
Increase (Decrease) Amount |
Increase (Decrease) Percent |
|
| Sales | $702,000 | $540,000 | $ | % |
| Cost of goods sold | 588,800 | 460,000 | % | |
| Gross profit | $113,200 | $80,000 | $ | % |
| Selling expenses | $33,600 | $28,000 | $ | % |
| Administrative expenses | 30,720 | 24,000 | % | |
| Total operating expenses | $64,320 | $52,000 | $ | % |
| Income before income tax | $48,880 | $28,000 | $ | % |
| Income tax expense | 19,600 | 11,200 | % | |
| Net income | $29,280 | $16,800 | $ | % |
b. The net income for Winthrop Company increased between years. This increase was the combined result of an ______ in sales and _____ percentage _____ in cost of goods sold. The cost of goods sold increased at a ______ rate than the increase in sales, thus causing the percentage increase in gross profit to be ______ than the percentage increase in sales.
In: Accounting
Vertical Analysis of Income Statement
Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:
| Current Year | Previous Year | |||
| Sales | $479,000 | $402,000 | ||
| Cost of goods sold | 273,030 | 205,020 | ||
| Selling expenses | 81,430 | 80,400 | ||
| Administrative expenses | 91,010 | 68,340 | ||
| Income tax expense | 14,370 | 20,100 | ||
a. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. If required, round percentages to one decimal place. Enter all amounts as positive numbers.
| Innovation Quarter Inc. | ||||
| Comparative Income Statement | ||||
| For the Years Ended December 31 | ||||
| Current year Amount | Current year Percent | Previous year Amount | Previous year Percent | |
| Sales | $479,000 | % | $402,000 | % |
| Cost of goods sold | 273,030 | % | 205,020 | % |
| $ | % | $ | % | |
| Selling expenses | 81,430 | % | 80,400 | % |
| Administrative expenses | 91,010 | % | 68,340 | % |
| $ | % | $ | % | |
| % | % | |||
| Income tax expense | 14,370 | % | 20,100 | % |
| $ | % | $ | % | |
b. The vertical analysis indicates that the cost of goods sold as a percent of sales by 6 percentage points, while selling expenses by 3 percentage points, and administrative expenses by 2 percentage points. Thus, net income as a percent of sales by 3 percentage points.
In: Accounting
In: Operations Management
For each of the problems below solve for monopoly quantity, monopoly price, total revenue, total cost, profit, and dead weight loss.
Qd = 100 – 0.5p TC = 2Q2
Qd = 500 – 0.2p TC = Q2 + 100Q
Qd = 30 – 0.6p TC = Q2 + 10Q +100
QD = 1000 – 0.25p TC = 2Q2 + 25Q + 100
In: Economics
Indicate the type of Deferred Tax account created by Prepaid Expenses and Unearned Revenue, respectively.
Select one:
a. Asset, Liability
b. Liability, Asset
c. Asset, Asset
d. Liability, Liability
In: Accounting
Cash Receipts
The sales budget for Perrier Inc. is forecasted as follows:
| Month | Sales Revenue |
|---|---|
| May | $130,000 |
| June | 150,000 |
| July | 200,000 |
| August | 130,000 |
To prepare a cash budget, the company must determine the budgeted cash collections from sales. Historically, the following trend has been established regarding cash collection of sales:
The company gives a 2 percent cash discount for payments made by customers during the month of sale. The accounts receivable balance on April 30 is $22,000, of which $7,000 represents uncollected March sales and $15,000 represents uncollected April sales. Prepare a schedule of budgeted cash collections from sales for May, June, and July. Include a three-month summary of estimated cash collections.
| Perrier, Inc. Schedule of Budgeted Cash Collections Quarterly by Months |
||||
|---|---|---|---|---|
| May | June | July | Total | |
| Total Cash receipts: | $Answer | $Answer | $Answer | $Answer |
In: Accounting
Given the following information for a monopolistic competitor:
Demand: P = 78 – 5(Q)
Marginal revenue: MR = 78 – 10(Q)
Marginal cost: MC = 2(Q) + 10
Average total cost at equilibrium is 14
1. At what output (Q) will this firm maximize profit? _____
2. At what price (P) will this firm maximize profit? _______
3. What is the total revenue (TR) earned at this output level? _____
4. What is the total cost (TC) accrued at this output? _____
5. What profit or loss is experienced by this firm? ______
6. Could this firm be in a longrun situation? (answer 1 = yes, 2 = no) _____
In: Economics
Dana Company projects a sales revenue of $150,000 during the calendar year 2014. Using the income statement provided below, prepare a pro-forma income statement using the percent-of-sales method.
Income Statement
Dana Dairy Products
For the Year Ended December 31, 2013
| Sales Revenue | 100,000 |
| Less: Cost of Good Sold | 87,000 |
| Gross Profits | 13,000 |
| Less: Operating Expenses | 11,000 |
| Operating Profits | 2,000 |
| Less: Interest Expense | 500 |
| Net Profits before taxes | 1500 |
| Less: Taxes (40%) | 600 |
| Net Profits after taxes | 900 |
In: Finance
Common-Sized Income Statement
Revenue and expense data for the current calendar year for Tannenhill Company and for the electronics industry are as follows. Tannenhill’s data are expressed in dollars. The electronics industry averages are expressed in percentages.
| Tannenhill Company |
Electronics Industry Average |
||||
| Sales | $1,430,000 | 100 | % | ||
| Cost of goods sold | 815,100 | 60 | |||
| Gross profit | $614,900 | 40 | % | ||
| Selling expenses | $386,100 | 24 | % | ||
| Administrative expenses | 143,000 | 10 | |||
| Total operating expenses | $529,100 | 34 | % | ||
| Operating income | $85,800 | 6 | % | ||
| Other income | 28,600 | 2 | |||
| $114,400 | 8 | % | |||
| Other expense | 14,300 | 1 | |||
| Income before income tax | $100,100 | 7 | % | ||
| Income tax expense | 42,900 | 3 | |||
| Net income | $57,200 | 4 | % | ||
a. Prepare a common-sized income statement comparing the results of operations for Tannenhill Company with the industry average. If required, round percentages to one decimal place. Enter all amounts as positive numbers.
| Tannenhill Company | |||
| Common-Sized Income Statement | |||
| For the Year Ended December 31 | |||
| Tannenhill Company Amount | Tannenhill Company Percent | Electronics Industry Average | |
| Sales | $1,430,000 | % | 100.0% |
| Cost of goods sold | 815,100 | % | 60% |
| Gross profit | $614,900 | % | 40% |
| Selling expenses | $386,100 | % | 24% |
| Administrative expenses | 143,000 | % | 10% |
| Total operating expenses | $529,100 | % | 34% |
| Operating income | $85,800 | % | 6% |
| Other income | 28,600 | % | 2% |
| $114,400 | % | 8% | |
| Other expense | 14,300 | % | 1% |
| Income before income tax | $100,100 | % | 7% |
| Income tax expense | 42,900 | % | 3% |
| Net income | $57,200 | % | 4% |
b. The company is managing the cost of manufacturing product than the industry, and has slightly selling and administrative expenses relative to the industry. The combined impact causes net income as a percent of sales to be than the industry average.
In: Accounting