Grouper Corporation was organized on January 1, 2020. It is
authorized to issue 9,900 shares of 8%, $100 par value preferred
stock, and 533,900 shares of no-par common stock with a stated
value of $1 per share. The following stock transactions were
completed during the first year.
| Jan. 10 | Issued 80,970 shares of common stock for cash at $6 per share. | |
| Mar. 1 | Issued 5,600 shares of preferred stock for cash at $111 per share. | |
| Apr. 1 | Issued 24,810 shares of common stock for land. The asking price of the land was $92,000; the fair value of the land was $80,970. | |
| May 1 | Issued 80,970 shares of common stock for cash at $8 per share. | |
| Aug. 1 | Issued 9,900 shares of common stock to attorneys in payment of their bill of $47,000 for services rendered in helping the company organize. | |
| Sept. 1 | Issued 9,900 shares of common stock for cash at $10 per share. | |
| Nov. 1 | Issued 1,010 shares of preferred stock for cash at $123 per share. |
Prepare the journal entries to record the above transactions.
(Credit account titles are automatically indented when
amount is entered. Do not indent manually. If no entry is required,
select "No Entry" for the account titles and enter 0 for the
amounts.)
In: Accounting
Nike has developed a prototype for a Nike-branded baseball that the firm plans to market to Major League baseball, college baseball, and high school baseball. They hope that the baseball is accepted as the new standard for most leagues, but the ball’s rate of market adoption is uncertain. In order to have the ball ready in 1 year, Nike would have to invest $50 million to set up contractual relationships with third-party contract manufacturers in China. The ball’s average total cost would be $0.50 and the selling price would be $1.50. Based on market surveys, Nike believes that there is a 25% chance of a high rate of adoption, in which 100 million balls will be sold annually forever, and a 75% chance of a low rate of adoption, in which 10 million balls will be sold annually forever. The adoption rate will be determined in one year when the first orders for the balls come in. The annual fixed costs associated with the project would be $30 million per year. Ignore tax effects and assume that Nike’s cost of capital is at 10% and the risk-free rate is 5%.
a) What is the NPV of the project based on the project’s
expected future cash flows? Based on this measure, should Nike
accept the project?
b) What is the embedded option in this project? Is the project
worthwhile when considering the option?
In: Finance
Use the Excel Solver to answer the following questions.
The owners of the appliance store want to spend up to $250,000 on buying new stock. They need to buy at least 100 of each appliance. The prices of buying appliances and the profits derived from selling them are shown in the following table, along with the floor area the devices require when stacked in the warehouse.
|
Appliance |
Price |
Profit |
Area (m2) |
|
Clothes dryer |
$200 |
$21 |
1.2 |
|
Coffee machine |
$300 |
$28 |
0.2 |
|
Refrigerator |
$600 |
$46 |
0.9 |
|
Stereo |
$800 |
$86 |
0.5 |
|
Washing machine |
$300 |
$40 |
1.5 |
Use the Excel Solver to answer the following questions.
How many of each appliance should the store buy if they want to get the maximum profit when the appliances are sold?
|
Appliance |
Number |
|
Clothes dryer |
|
|
Coffee machine |
|
|
Refrigerator |
|
|
Stereo |
|
|
Washing machine |
|
Maximum profit |
Floor area (m2) |
Hint: Similar to the lecture examples (e.g., Product Mix), first you need to determine what are:
Then you need to find the relationship (sort of mathematical formulation) between your decision variables and objective function. Accordingly, you can use Solver.
In: Accounting
Kingbird Corporation was organized on January 1, 2017. It is
authorized to issue 9,600 shares of 8%, $100 par value preferred
stock, and 501,500 shares of no-par common stock with a stated
value of $1 per share. The following stock transactions were
completed during the first year.
| Jan. 10 | Issued 80,050 shares of common stock for cash at $6 per share. | |
| Mar. 1 | Issued 5,930 shares of preferred stock for cash at $113 per share. | |
| Apr. 1 | Issued 24,680 shares of common stock for land. The asking price of the land was $90,820; the fair value of the land was $80,050. | |
| May 1 | Issued 80,050 shares of common stock for cash at $8 per share. | |
| Aug. 1 | Issued 9,600 shares of common stock to attorneys in payment of their bill of $50,400 for services rendered in helping the company organize. | |
| Sept. 1 | Issued 9,600 shares of common stock for cash at $10 per share. | |
| Nov. 1 | Issued 1,100 shares of preferred stock for cash at $115 per share. |
Prepare the journal entries to record the above transactions.
(Credit account titles are automatically indented when
amount is entered. Do not indent manually. If no entry is required,
select "No Entry" for the account titles and enter 0 for the
amounts.)
In: Accounting
Metlock Corporation was organized on January 1, 2017. It is
authorized to issue 10,400 shares of 8%, $100 par value preferred
stock, and 534,200 shares of no-par common stock with a stated
value of $1 per share. The following stock transactions were
completed during the first year.
| Jan. 10 | Issued 80,700 shares of common stock for cash at $7 per share. | |
| Mar. 1 | Issued 5,960 shares of preferred stock for cash at $112 per share. | |
| Apr. 1 | Issued 24,550 shares of common stock for land. The asking price of the land was $91,460; the fair value of the land was $80,700. | |
| May 1 | Issued 80,700 shares of common stock for cash at $9 per share. | |
| Aug. 1 | Issued 10,400 shares of common stock to attorneys in payment of their bill of $53,000 for services rendered in helping the company organize. | |
| Sept. 1 | Issued 10,400 shares of common stock for cash at $11 per share. | |
| Nov. 1 |
Issued 990 shares of preferred stock for cash at $114 per share. |
Prepare the journal entries to record the above transactions. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
In: Accounting
Pina Corporation was organized on January 1, 2020. It is
authorized to issue 10,600 shares of 8%, $100 par value preferred
stock, and 500,200 shares of no-par common stock with a stated
value of $1 per share. The following stock transactions were
completed during the first year.
| Jan. 10 | Issued 80,640 shares of common stock for cash at $6 per share. | |
| Mar. 1 | Issued 5,850 shares of preferred stock for cash at $111 per share. | |
| Apr. 1 | Issued 24,940 shares of common stock for land. The asking price of the land was $90,270; the fair value of the land was $80,640. | |
| May 1 | Issued 80,640 shares of common stock for cash at $9 per share. | |
| Aug. 1 | Issued 10,600 shares of common stock to attorneys in payment of their bill of $50,500 for services rendered in helping the company organize. | |
| Sept. 1 | Issued 10,600 shares of common stock for cash at $11 per share. | |
| Nov. 1 | Issued 1,050 shares of preferred stock for cash at $106 per share. |
Prepare the journal entries to record the above transactions.
(Credit account titles are automatically indented when
amount is entered. Do not indent manually. If no entry is required,
select "No Entry" for the account titles and enter 0 for the
amounts.)
In: Accounting
| Mini Case 1 | |||||||||
| Situation | |||||||||
| Your employer, a mid-sized human resources management company, is considering expansion into related fields, including the acquisition of Temp Force Company, an employment agency that supplies word processor operators and computer programmers to businesses with temporary heavy workloads. Your employer is also considering the purchase of a Biggerstaff & McDonald (B&M), a privately held company owned by two friends, each with 5 million shares of stock. B&M currently has free cash flow of $24 million, which is expected to grow at a constant rate of 5%. B&M’s financial statements report marketable securities of $100 million, debt of $200 million, and preferred stock of $50 million. B&M’s weighted average cost of capital (WACC) is 11%. Answer the following questions. | |||||||||
| Use B&M’s data and the free cash flow valuation model to answer the following question(Fill out the cell in YELLOW). | |||||||||
| INPUT DATA SECTION: Data used for valuation (in millions) | |||||||||
| Free cash flow | $24.0 | ||||||||
| WACC | 11% | ||||||||
| Growth | 5% | ||||||||
| Short-term investments | $100.0 | ||||||||
| Debt | $200.0 | ||||||||
| Preferred stock | $50.0 | ||||||||
| Number of shares of stock | 10.0 | ||||||||
| (1) What is its estimated value of operations? | |||||||||
| Vop = | FCF1 | = | FCF0 (1+gL) | ||||||
| (WACC-gL) | (WACC-gL) | ||||||||
| Vop = | |||||||||
| Vop = | |||||||||
| (2) What is its estimated total corporate value? | |||||||||
| Value of Operation | |||||||||
| Plus Value of Non-operating Assets | |||||||||
| Total Corporate Value | |||||||||
| (3) What is its estimated intrinsic value of equity? | |||||||||
| Debt holders have the first claim on corporate value. Preferred stockholders have the next claim and the remaining is left to common stockholders. | |||||||||
| Total Corporate Value | |||||||||
| Minus Value of Debt | |||||||||
| Minus Value of Preferred Stock | |||||||||
| Intrinsic Value of Equity | |||||||||
| (4) What is its estimated intrinsic stock price per share? | |||||||||
| Intrinsic Value of Equity | |||||||||
| Divided by number of shares | |||||||||
| Intrinsic price per share | |||||||||
| Estimating the Value of R&R’s Stock Price (Millions, Except for Per Share Data) | |||||||||
| INPUTS: | |||||||||
| Value of operations = | |||||||||
| Value of nonoperating assets = | |||||||||
| All debt = | |||||||||
| Preferred stock = | |||||||||
| Number of shares of common stock = | |||||||||
| ESTIMATING PRICE PER SHARE | |||||||||
| Value of operations | |||||||||
| + Value of nonoperating assets | |||||||||
| Total estimated value of firm | |||||||||
| − Debt | |||||||||
| − Preferred stock | |||||||||
| Estimated value of equity | |||||||||
| ÷ Number of shares | |||||||||
| Estimated stock price per share = | |||||||||
In: Finance
Consider an example of the market; if the supply and demand represented as:
Qs = - 200 + 4p ; Qd = 800 – p
Solve:
a) Equilibrium price and equilibrium quantity and calculate total revenue?
b) If there were a price celling equal to 250 per each cloth imposed, calculate the price elasticity of demand? Does this consider elastic, inelastic or unit elastic? Also, calculate the total revenue?
c) Now consider the shoes market; if the supply and demand is:
d) Compare the total revenue for the clothing market and the total revenue you found on the clothing market. Which one of product’s total revenue has been increased after the price have been increase and why?
e) Recall part a (the cloth market) Calculate the CS & PS.
f) Now, if the government impose sales tax equal to 12.5% on cloth, what is the CS, PS, government revenue, DWL and show this on the graph?
g) Without calculation, would you expect to have higher/ lower government revenue and DWL on shoes and why?
In: Economics
Amasoon is a bookstore selling economic textbooks, and Booky is a bookstore selling mathematics textbooks. While Amasoon owns a physical shop located in Denver, Booky operates on the internet. Therefore, Amasoon has a fixed cost of $180,000 per year, while Booky has no fixed cost. Since Amasoon has a physical shop, the publisher is willing to sell the textbooks to Amasoon at a discounted price of $60 per copy. Booky has to buy the books for $100 per copy from the publisher, however. There is no other cost in their operations.
Currently, both bookstores set the price of textbooks at $200 per copy. At this price, the quantity demanded and the price elasticity of demand for both books are the same. Specifically, the amount required is 2,000 copies per year for each textbook, and the price elasticity of demand is -2.
In: Economics
Problem 1
Bill can produce either tables or chairs. Bill can work up to 10 hours a day. His production possibilities are given in the table below:
Tables | Chairs |
0 | 100 |
10 | 80 |
20 | 60 |
30 | 40 |
40 | 20 |
50 | 0 |
Construct the production possibilities frontier (PPF) for Bill. Put tables on the Horizontal axis and chairs on the vertical axis.
What is Bill’s opportunity cost of producing one additional table?
What is Bill’s opportunity cost of producing one additional chair?
Currently Bill is producing 20 tables and 40 chairs.
Is this allocation of resources efficient? Why?
Show this allocation on the graph and advise Bill how he can be more efficient.
Problem 2
Suppose the market for corn is given by the following equations for supply and demand:
QS = 2p − 2
QD = 13 − p
where Q is the quantity in millions of bushels per year and p is the price.
Calculate the equilibrium price and quantity.
Sketch the supply and demand curves on a graph indicating the equilibrium quantity and price.
Calculate the price-elasticity of demand and supply at the equilibrium price/quantity.
The government judges the market price is under expectations and announces a price floor equal to $7 per bushel.
Would there be a surplus or a shortage?
What would be the quantity of excess supply or demand that results?
Use the graph to show you results.
In: Economics