January 1, 2020        December 31, 2020
Direct materials               31,000                   50,000
Work in process                38,000                   41,000
Finished goods                 22,000                   34,000

The following information was taken from DTD Company's accounting records
for 2020:

Sales revenue ...........................................   $630,000
Direct materials purchased ..............................       ?
Depreciation, factory equipment .........................     34,000
Prime costs .............................................    250,000
Utilities (60% for factory; 40% for office building) ....     20,000
Sales commissions .......................................     71,000
Indirect materials ......................................       ?
Depreciation, office equipment ..........................     30,000
Rent, factory building ..................................     56,000
Net income ..............................................     10,000
Direct labor ............................................       ?
Advertising .............................................     68,000
Production supervisor's salary ..........................     74,000

Additional information:

1.  Direct labor comprised 35% of the conversion costs for 2020.

2.  The actual overhead cost for 2020 was equal to the overhead applied
    to production. Thus there was no overhead variance for 2020.

Calculate DTD Company's indirect materials cost for 2020.

Under its executive stock option plan, M Corporation granted options on January 1, 2018, that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years, but not before December 31, 2020 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures were anticipated; however, unexpected turnover during 2019 caused the forfeiture of 5% of the stock options. Ignoring taxes, what is the effect on earnings in 2019?

Multiple Choice

$18.5 million.

$19 million.

$20 million.

$18 million

Contrasting the widespread foreclosures and bursting of the real estate bubble before the Great Recession ten or twelve years ago, conditions in 2020 suggest that:

Group of answer choices

the market is less exposed now, with lower housing inventories, tighter credit standards and families demanding more suburban homes in light of Covid.

an even worse collapse in suburban real estate values is possible now, than occurred in the Great Recession.

residential values across small towns and suburbs in the US are now moving lower, and a "new" real estate crisis may already be underway.

housing starts and inventories are at all-time highs, and a dramatic fall in single family home prices is expected.

​

​OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost

$ 500$500

​million, and will operate for

2020

years. OpenSeas expects annual cash flows from operating the ship to be

$ 70.0$70.0

million and its cost of capital is

12.0 %12.0%.

a. Prepare an NPV profile of the purchase.

b. Identify the IRR on the graph.

c. Should OpenSeas proceed with the​ purchase?

d. How far off could​ OpenSeas' cost of capital estimate be before your purchase decision would​ change?

a. Prepare an NPV profile of the purchase.

To plot the NPV profile we compute the NPV of the project for various discount rates and plot the curve.

The NPV for a discount rate of

2.0 %2.0%

is

​$nothing

million. ​

The management of HHH Corp. is attempting to evaluate financial performance of its divisions. For 2020, Division A reported a net operating profit before taxes of $50,000,000, a net income of $21,000,000, total assets of $180,000,000, and total liabilities of $100,000,000 including current liabilities of $25,000,000. HHH’s required rate of return is 12%, which is its weighted-average cost of capital. Assume an income tax rate of 40%.

1. Compute Division A’s return on investment, residual income, and economic value added. Show your work. (9 points)

2. Residual income is often preferred over return on investment as a performance evaluation measure. Explain the reason using a hypothetical scenario. (11 points)

SUPPLEMENTAL PROBLEM 19-2

Meyer reported the following pretax financial income (loss) for the years 2019-2022:

Pretax financial income (loss) and taxable income (loss) were the same for all years involved. The enacted tax rate is 21% for all years.

REQUIRED:

1. Prepare journal entries for 2021 and 2022 to record the current portion and the deferred portion of income taxes, assuming that based on the weight of available evidence, it is more likely than not that one-fifth of the benefits of the loss carryforward will not be realized.
2. Prepare the income tax section of the 2021 income statement beginning with the line “Income (loss before income taxes.”

Assume the Ricardian model where the marginal product of labor in the home country is 3 in the cheese industry and 2 in the wine industry. The home country has 10 workers. The relative price of wine (Pw/Pc) is 2 after trade. After trade the home country consumes 12 units of wine. Use this information to calculate

a. The relative price of wine before trade

b.The slope of the production possibilities frontier, where wine is on the horizontal axis and cheese on the vertical axis.

c.The good that the home country export and how much

d.  Bonus. Home country's cheese consumption after trade

1. You own a bond that matures in 5 years, has annual coupons of 8%, and
whose par value is $100.
a. Calculate the duration of the bond if the YTM of the bond is 5%.
b. If there has been no change in the YTM of the bond, what is the duration of the bond after the fi4st interest payment is made when 4 years remain till maturity?
c. Several days after the interest was paid, the YTM of the bond fell from 5%
to 3%. Calculate the price change in percentage by calculating the price
before and after the change, as well as using the duration calculated in
question b.

The Talley Corporation had a taxable income of $300,000 from operations after all operating costs but before (1) interest charges of $30,000, (2) dividends received of $15,000, (3) dividends paid of $24,000, and (4) income taxes.

What are the firm's income tax liability and its after-tax income? Round your answers to two decimal places.

What are the company's marginal and average tax rates on taxable income? Round your answers to two decimal places.