Globex Corp. currently has a capital structure consisting of 30% debt and 70% equity. However, Globex Corp.’s CFO has suggested that the firm increase its debt ratio to 50%. The current risk-free rate is 3.5%, the market risk premium is 7%, and Globex Corp.’s beta is 1.25.
If the firm’s tax rate is 45%, what will be the beta of an all-equity firm if its operations were exactly the same? (.96,1.11,.86,1.01)
Now consider the case of another company:
U.S. Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before-tax cost of debt is 10%, and its tax rate is 45%. It currently has a levered beta of 1.25. The risk-free rate is 3.5%, and the risk premium on the market is 7%.U.S. Robotics Inc. is considering changing its capital structure to 60% debt and 40% equity. Increasing the firm’s level of debt will cause its before-tax cost of debt to increase to 12%.
First, solve for U.S. Robotics Inc.’s unlevered beta. (1.11,1.01,.91,1.21)
Relever U.S. Robotics Inc.’s beta using the firm’s new capital structure. (1.66,2.02,1.75,1.84)
Use U.S. Robotics Inc.’s levered beta under the new capital structure, to solve for its cost of equity under the new capital structure. (13.1,14.8,18.9,16.4)
What will the firm’s weighted average cost of capital (WACC) be if it makes this change in its capital structure?
6.8%
8.9%
7.9%
10.5%
In: Finance
Jay Company, as lessee, enters into a lease agreement on January
1, 2020, to lease equipment. The following data are relevant to the
lease agreement.
- The term of the noncancellable lease is three years, with no
renewal option. Payments of $12,000 are due on January 1, of each
year.
- The fair value of the equipment on January 1, 2020 is $35,000.
The equipment has an estimated economic life of five years, and an
unguarenteed residual value of $4,000.
- The equipment reverts back to the lessor at the termination of
the lease and is expected to have use to the lessor.
- The lessee is aware that the lessor used an implicit rate of
6%.
(Present Value & Future Value Tables are provided on pages 3
and 4)
Instructions:
1. Indicate the type of lease Jay has entered into and why (include
a list of the Capital Lease Criteria)
(Present Value & Future Value Tables are provided on pages 3
and 4)
2. Prepare the journal entries on Jay’s books related to the lease
agreement for the following dates: (round all amounts to the
nearest dollar. Include a partial amortization schedule)
a. January 1, 2020
b. December 31, 2020
c. January 1, 2021
In: Accounting
Vaughn Company began operations late in 2019 and adopted the
conventional retail inventory method. Because there was no
beginning inventory for 2019 and no markdowns during 2019, the
ending inventory for 2019 was $13,869 under both the conventional
retail method and the LIFO retail method. At the end of 2020,
management wants to compare the results of applying the
conventional and LIFO retail methods. There was no change in the
price level during 2020. The following data are available for
computations.
|
Cost |
Retail |
|||
| Inventory, January 1, 2020 | $13,869 | $19,500 | ||
| Sales revenue | 87,000 | |||
| Net markups | 8,600 | |||
| Net markdowns | 1,500 | |||
| Purchases | 63,300 | 83,600 | ||
| Freight-in | 11,074 | |||
| Estimated theft | 1,800 |
Compute the cost of the 2020 ending inventory under both:
(a) The conventional retail method.
(Round ratios for computational purposes to 0 decimal
places, e.g. 78% and final answer to 0 decimal places, e.g.
28,987.)
| Ending inventory using the conventional retail method |
$ |
(b) The LIFO retail method. (Round
ratios for computational purposes to 0 decimal places, e.g. 78% and
final answers to 0 decimal places, e.g.
28,987.)
| Ending inventory at cost |
$ |
|
| Ending inventory at retail |
$ |
In: Accounting
Skysong Company began operations late in 2019 and adopted the conventional retail inventory method. Because there was no beginning inventory for 2019 and no markdowns during 2019, the ending inventory for 2019 was $13,708 under both the conventional retail method and the LIFO retail method. At the end of 2020, management wants to compare the results of applying the conventional and LIFO retail methods. There was no change in the price level during 2020. The following data are available for computations.
|
Cost |
Retail |
|||
| Inventory, January 1, 2020 | $13,708 | $20,200 | ||
| Sales revenue | 77,000 | |||
| Net markups | 9,900 | |||
| Net markdowns | 1,800 | |||
| Purchases | 63,900 | 87,500 | ||
| Freight-in | 5,888 | |||
| Estimated theft | 2,200 |
Compute the cost of the 2020 ending inventory under both:
(a) The conventional retail method.
(Round ratios for computational purposes to 0 decimal
places, e.g. 78% and final answer to 0 decimal places, e.g.
28,987.)
| Ending inventory using the conventional retail method |
$ |
(b) The LIFO retail method. (Round
ratios for computational purposes to 0 decimal places, e.g. 78% and
final answers to 0 decimal places, e.g.
28,987.)
| Ending inventory at cost |
$ |
|
| Ending inventory at retail |
$ |
In: Accounting
Wingfoot Co. began operations on July 1, 2019. By the end of its first fiscal year, ended June 30, 2020, Wingfoot had sold 10,000 wingers. Selected data on operations for the year ended June 30, 2020, follow. (Any balance sheet figures are as at June 30, 2020.)
|
Selling price |
$100 |
|
|
Wingers produced |
18,000 |
|
|
Ending work in process |
0 |
|
|
Total manufacturing overhead |
$15,000 |
|
|
Wage rate |
$8 |
per hour |
|
Machine hours used |
9,000 |
|
|
Wages payable |
$20,000 |
|
|
Direct materials costs |
$10 |
per kilogram |
|
Selling and administrative expenses |
$40,000 |
Additional information:
• 1.Each winger requires 2 kg of direct materials, 0.5 machine hours, and one direct labour hour.
• 2.Except for machinery depreciation of $5,000 and a $1,000 miscellaneous fixed cost, all manufacturing overhead is variable.
• 3.Except for $4,000 in advertising expenses, all selling and administrative expenses are variable.
• 4.The tax rate is 40%.
Instructions
Assume that the company uses variable costing and prepare a contribution-method income statement in good form for the year ended June 30, 2020.
In: Accounting
Given below are the Statements of Financial Position and the Statement of Profit or Loss for BA107 Trading Bhd:
2020
(RM)
Sales 505,000
Cost of sales (105,000)
Gross profit 400,000
Expenses (252,000)
Profit before tax 148,000
Taxation (40,000)
Profit after tax 108,000
2020 2019
(RM) (RM)
Property, plant and equipment 355,000 300,000
Trade receivables 80,000 75,000
Inventory 145,000 120,000
Bank balance 24,500 15,000
604,500 510,000
Ordinary share capital 250,000 250,000
Retained profits 222,500 140,000
472,500 390,000
Other payables 87,000 90,000
Trade payable 45,000 30,000
604,500 510,000
Additional information:
(a) Dividend paid by the Company was RM25,500.
(b) The dividend declared have all been paid. Included in other
payables of 2020 is an amount of current tax payable of
RM20,000.
(c) Depreciation was RM32,000 and a non-current asset with carrying
amount of RM12,500 was disposed of for a cash consideration of
RM40,500 during the year. The depreciation and gain on disposal of
property, plant and equipment are included in “Expenses”.
Required:
Prepare the Statement of Cash Flows for the year ended 31 December 2020 by using the direct and indirect methods.
In: Accounting
|
Income Statement |
|||
|
$ in thousands |
|||
|
Sales |
$ |
2,900 |
(40% of average assets) |
|
Costs |
2,175 |
(75% of sales) |
|
|
Interest |
120 |
(5% of debt at start of year) |
|
|
Pretax profit |
605 |
||
|
Tax |
242 |
(40% of pretax profit) |
|
|
Net income |
$ |
363 |
|
|
Balance Sheet |
||||||||
|
$ in thousands |
||||||||
|
Net assets |
$ |
7,540 |
Debt |
$ |
2,400 |
|||
|
Equity |
5,140 |
|||||||
|
Total |
$ |
7,540 |
Total |
$ |
7,540 |
|||
a. What is the expected level of assets at the end of 2020?
b. If the company pays out 50% of net income as dividends, how much cash will Drake need to raise in the capital markets in 2020? Assumes debt remains constant.
c. If Drake is unwilling to make an equity issue, what will be the debt ratio at the end of 2020?
(show all work)
In: Finance
REQUIREMENT-1:
|
CF from operating activities - indirect method |
REQUIREMENT-2:
|
CF from Investing Activities - indirect method |
| CF from Financing Activities - indirect method |
| 12/31/2020 | 12/31/2019 | |||
| Cash | $30,000 | $80,000 | ||
| Accounts Receivable, net | 160,000 | 100,000 | ||
| Inventory | 100,000 | 70,000 | ||
| Prepaid Rent | 20,000 | 10,000 | ||
| Total Current Assets | $310,000 | $260,000 | ||
| Equipment | $400,000 | $200,000 | ||
| Accumulated Depreciation | -60,000 | -50,000 | ||
| Total Assets | $650,000 | $410,000 | ||
| Accounts Payable | $50,000 | $40,000 | ||
| Salaries Payable | 40,000 | 40,000 | ||
| Bonds Payable | 0 | 50,000 | ||
| Common Stock, $10 par | 350,000 | 100,000 | ||
| Retained Earnings | 210,000 | 180,000 | ||
| Total Liabilities & Stockholders' Equity | $650,000 | $410,000 | ||
| Additional information: | ||||
| 1. The company reports net income of $100,000 and depreciation expense of $20,000 for the year ending December 31, 2020. | ||||
| 2. Dividends declared and paid in 2020, $70,000. | ||||
| 3. Equipment with a cost of $20,000 and accumulated depreciation of $10,000 was sold for $3,000. | ||||
| 4. New equipment was purchased for cash. | ||||
| 5. No common stock was retired during 2020. | ||||
In: Finance
Larkspur Company began operations on January 1, 2019, adopting
the conventional retail inventory system. None of the company’s
merchandise was marked down in 2019 and, because there was no
beginning inventory, its ending inventory for 2019 of $38,000 would
have been the same under either the conventional retail system or
the LIFO retail system.
On December 31, 2020, the store management considers adopting the
LIFO retail system and desires to know how the December 31, 2020,
inventory would appear under both systems. All pertinent data
regarding purchases, sales, markups, and markdowns are shown below.
There has been no change in the price level.
Cost
Retail
Inventory, Jan. 1, 2020
$38,000$59,600
Markdowns (net)
12,800
Markups (net)
22,000
Purchases (net)
129,900175,400
Sales (net)
166,400
Determine the cost of the 2020 ending inventory under both (a) the
conventional retail method and (b) the LIFO retail method.
(Round ratios for computational purposes to 2 decimal
place, e.g. 78.72% and final answers to 0 decimal places, e.g.
28,987.)
|
enter a dollar amount rounded to 0 decimal places |
||||
In: Accounting
LCI Cable Company grants 1.5 million performance stock options to key executives at January 1, 2018. The options entitle executives to receive 1.5 million of LCI $1 par common shares, subject to the achievement of specific financial goals over the next four years. Attainment of these goals is considered probable initially and throughout the service period. The options have a current fair value of $20 per option.
Required:
1. & 2. Record the necessary journal
entries.
3. Suppose at the beginning of 2020, LCI decided
it is not probable that the performance objectives will be met.
Prepare the appropriate entries on December 31 of 2020 and
2021.
1. Record the grant of 1.5 million performance stock options when the options have a fair value of $20 per option as on January 01, 2018.
2. Record the entry that would be made on December 31 of 2018, 2019, 2020 and 2021.
3a. Prepare any necessary entry on December 31, 2020 assuming that it is not probable that the performance objectives will be met.
3b. Prepare any necessary entry on December 31, 2021 assuming that it is not probable that the performance objectives will be met
In: Accounting