One year ago, your company purchased a machine used in manufacturing for $ 120 comma 000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $ 160 comma 000 today. The CCA rate applicable to both machines is 40 %; neither machine will have any long-term salvage value. You expect that the new machine will produce earnings before interest, taxes, depreciation, and amortization (EBITDA) of $ 40 comma 000 per year for the next 10 years. The current machine is expected to produce EBITDA of $ 24 comma 000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $ 50 comma 000. Your company's tax rate is 35 %, and the opportunity cost of capital for this type of equipment is 10 %. Should your company replace its year-old machine? What is the NPV of replacement? The NPV of replacement is $ nothing
In: Finance
Question 1. Weighted average cost of capital (LO11-1) Sauer Milk Inc. wants to determine the minimum cost of capital point for the firm. Assume it is considering the following financial plans:
|
Cost (aftertax) |
|
|
|
Plan A |
||
|
Debt........................................ |
4.0% |
30% |
|
Preferred stock........................................ |
8.0 |
15 |
|
Common equity........................................ |
12.0 |
55 |
|
Plan B |
||
|
Debt........................................ |
4.5% |
40% |
|
Preferred stock........................................ |
8.5 |
15 |
|
Common equity........................................ |
13.0 |
45 |
|
Plan C |
||
|
Debt........................................ |
5.0% |
45% |
|
Preferred stock........................................ |
18.7 |
15 |
|
Common equity........................................ |
12.8 |
40 |
|
Plan D |
||
|
Debt........................................ |
12.0% |
50% |
|
Preferred stock........................................ |
19.2 |
15 |
|
Common equity........................................ |
14.5 |
35 |
b.
Briefly discuss the results from Plan C and Plan D, and why one is
better than
the other.
In: Finance
I just need the closing entries and post closing trial balance for this question.
Henrietta’s Pine Bakery
Background
You are an Analyst for the professional service firm,
FINACC LLP. Your firm specializes in providing a wide variety of
internal business solutions for different clients. Given the
outstanding feedback you received on your first engagement working
for Big Spenders Inc., a Senior Manager in the Financial Advisory
group requested your support on a compilation engagement.
Additional Information
Henrietta’s was established in 1963 when it first
opened its doors in Dwight, Muskoka on highway 60. Over the past 50
years, there have been four owners and is currently owned by Carine
& Geoff Harris who incorporated and took over the store on
January 1, 2013. Their sons, Kyle and Nicholas have been an
intricate part of the business from dishwashing to head bakers.
Henrietta's has grown over the years with the addition of new items
all the time, but the "Sticky Buns and Clouds" remain the most
popular items amongst the 150 varieties of breads and
pastries.
Henrietta’s runs out of 90 square meters (1,000 share
feet) of space. It has one entrance into the bakery and doors
leading out to highway 60. Henrietta’s pays $5,000 per month for
the rental of the space. Carine and Geoff were able to
negotiate with the landlord and were not required to pay the first
month’s rent in advance. All of the rental payments are current and
up to date. For the last two years, Henrietta’s has had a very
reliable accountant prepare its year-end financial statements and
everything has been correct. This year, Henrietta’s accountant
retired and Geoff did the best he could recording his own financial
information. For the information he was not sure about, he kept all
of the required supporting documentation. Geoff hired your firm,
FINACC LLP to prepare his financial statements for the year. Geoff
supplied you with his unadjusted trial balance and the information
in Exhibit I to assist you.
Supplementary Information
The amount currently sitting in prepaids arose due the
insurance policy last year. Geoff didn’t know how to correct it, so
he left it. This year’s insurance policy was purchased on November
1 for $9,000. The policy runs from November 1 to October 31 of each
year.
Geoff has a note that he owed $900 in wages to his
employees for the period ending December 31st.
The loan was incurred when the bakery was opened. The
loan carried an interest rate of 8%. The interest is payable two
months after year end and the principal is due in 2019.
Henrietta’s will sometimes book special events with
small organizations that are allowed to pay after the event has
taken place. On December 29th, a small company had a gathering at
the bakery. The company was billed $1,089 and has 30 days to pay
it. Geoff has not yet recorded this in his financial
records.
Henrietta’s declared a dividend of $5,000 on December
30th.
Geoff didn’t know how to record amortization for the
year and so left it for you to record. Amortization for all assets
is charged using a straight-line method by taking the cost of the
asset and dividing it by its expected useful life. The assets have
expected useful lives as follows:
o Computer: 5 years
o Bakery equipment: 10
years
o Furniture and fixtures: 20 years
The information shows that Henrietta’s owes $400 for a
telephone bill and $400 for electricity for December. These amounts
have not been recorded yet.
Exhibit I
Henrietta’s Pine Bakery
Unadjusted Trial Balance
December 31, 2015
Account Name
Debit
Credit
Cash
$35,000
Accounts Receivable
5,600
Food Inventory
21,000
Merchandise Inventory
62,500
Prepaids
3,400
Computers
30,000
Accumulated Amortization – Computers
12,000
Bakery Equipment
90,000
Accumulated Amortization – Bakery Equipment
18,000
Furniture and Fixtures
150,000
Accumulated Amortization – Furniture and Fixtures
15,000
Accounts Payable
18,000
Accrued Liabilities
-
Interest Payable
Dividend Payable
-
Long-term Loan
220,000
Common Shares
50,000
Retained Earnings
22,000
Food Revenue
468,500
Internet Revenue
127,000
Merchandise Revenue
103,000
Food Expense
240,000
Internet Expense
54,000
Electricity Expense
65,000
Telephone Expense
20,000
Interest Expense
0
Salary Expense
200,000
Insurance Expense
9,000
Supplies Expense
8,000
Depreciation Expense
-
Rent Expense
60,000
1,053,500
1,053,500
Based on the information you have prepare the
adjusting journal entries, an adjusting trial balance, the
statement of earnings (income statement), statement of financial
position (balance sheet), and statement of retained earnings. After
you have completed the statements, prepare the closing journal
entries and the posting closing trial balance. Ensure you show all
of your work, and prepare proper journal entries and properly
formatted financial statements.
Note to students: Issues are hidden within
the case. It is your responsibility to read the case facts and
identify the critical issues required for discussion and
analysis.
Evaluation
Case Analysis 2 will be marked in its entirety out of
100. The following rubric indicates the criteria students are to
adhere to, and their relative weights to the assignment overall.
The instructor may also generate a class case discussion, upon
which a grade scaling might be deemed appropriate.
In: Accounting
In: Accounting
In: Accounting
In order to complete your case analysis successfully, you should consider
You are required to prepare for the case before the class and bring any documents that will support your analysis. An average grade will come from you answering questions with basic coverage and accuracy, showing all your preparation. Additional points come from including greater detail, astute and informed commentary where appropriate, and connections to readings and other content.
Respond in a single Word doc (or comparable text editor).
Henrietta’s Pine Bakery
Background
You are an Analyst for the professional service firm, FINACC LLP. Your firm specializes in providing a wide variety of internal business solutions for different clients. Given the outstanding feedback you received on your first engagement working for Big Spenders Inc., a Senior Manager in the Financial Advisory group requested your support on a compilation engagement.
Additional Information
Henrietta’s was established in 1963 when it first opened its doors in Dwight, Muskoka on highway 60. Over the past 50 years, there have been four owners and is currently owned by Carine & Geoff Harris who incorporated and took over the store on January 1, 2013. Their sons, Kyle and Nicholas have been an intricate part of the business from dishwashing to head bakers. Henrietta's has grown over the years with the addition of new items all the time, but the "Sticky Buns and Clouds" remain the most popular items amongst the 150 varieties of breads and pastries.
Henrietta’s runs out of 90 square meters (1,000 share feet) of space. It has one entrance into the bakery and doors leading out to highway 60. Henrietta’s pays $5,000 per month for the rental of the space. Carine and Geoff were able to negotiate with the landlord and were not required to pay the first month’s rent in advance. All of the rental payments are current and up to date. For the last two years, Henrietta’s has had a very reliable accountant prepare its year-end financial statements and everything has been correct. This year, Henrietta’s accountant retired and Geoff did the best he could recording his own financial information. For the information he was not sure about, he kept all of the required supporting documentation. Geoff hired your firm, FINACC LLP to prepare his financial statements for the year. Geoff supplied you with his unadjusted trial balance and the information in Exhibit I to assist you.
Supplementary Information
o Computer: 5 years
o Bakery equipment: 10 years
o Furniture and fixtures: 20 years
Exhibit I
Henrietta’s Pine Bakery
Unadjusted Trial Balance
December 31, 2015
|
Account Name |
Debit |
Credit |
|
Cash |
$35,000 |
|
|
Accounts Receivable |
5,600 |
|
|
Food Inventory |
21,000 |
|
|
Merchandise Inventory |
62,500 |
|
|
Prepaids |
3,400 |
|
|
Computers |
30,000 |
|
|
Accumulated Amortization – Computers |
12,000 |
|
|
Bakery Equipment |
90,000 |
|
|
Accumulated Amortization – Bakery Equipment |
18,000 |
|
|
Furniture and Fixtures |
150,000 |
|
|
Accumulated Amortization – Furniture and Fixtures |
15,000 |
|
|
Accounts Payable |
18,000 |
|
|
Accrued Liabilities |
- |
|
|
Interest Payable |
||
|
Dividend Payable |
- |
|
|
Long-term Loan |
220,000 |
|
|
Common Shares |
50,000 |
|
|
Retained Earnings |
22,000 |
|
|
Food Revenue |
468,500 |
|
|
Internet Revenue |
127,000 |
|
|
Merchandise Revenue |
103,000 |
|
|
Food Expense |
240,000 |
|
|
Internet Expense |
54,000 |
|
|
Electricity Expense |
65,000 |
|
|
Telephone Expense |
20,000 |
|
|
Interest Expense |
0 |
|
|
Salary Expense |
200,000 |
|
|
Insurance Expense |
9,000 |
|
|
Supplies Expense |
8,000 |
|
|
Depreciation Expense |
- |
|
|
Rent Expense |
60,000 |
|
|
1,053,500 |
1,053,500 |
Based on the information you have prepare the adjusting journal entries, an adjusting trial balance, the statement of earnings (income statement), statement of financial position (balance sheet), and statement of retained earnings. After you have completed the statements, prepare the closing journal entries and the posting closing trial balance. Ensure you show all of your work, and prepare proper journal entries and properly formatted financial statements.
Note to students: Issues are hidden within the case. It is your responsibility to read the case facts and identify the critical issues required for discussion and analysis.
In: Accounting
The mean number of arrival at an airport during rush hour is 20 planes per hour while the mean number of departures is 30 planes per hour. Let us suppose that the arrivals and departures can each be described by a respective poisson process. The number of passengers in each arrival or departure has a mean of 100 and a coefficient of variation of 40%.
a.) What is the probability that there will be a total of two arrivals and/or departures within a 6-minute period?
b.) Suppose that in the last hour there have been 25 plane-arrivals.
i.) What is the mean and variance of the total number of arriving passengers in the last hour?
ii.) What is the probability that the total number of arriving passengers exceeded 3000 in the last hour? State and justify all assumptions made.
In: Statistics and Probability
Siegmeyer Corp. is considering a new inventory system, Project A will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $325,000 in year two, $150,000 in year three, and $180,000 in year four. Siegmeyer’s required rate of return is 8%. Suppose Siegmeyer identifies another mutually exclusive project, Project B, with a net present value of $98,525.50 and IRR of 17.33%. If neither project can be replaced, compared to the values calculated in Problems 7 (NPV = $104,089.40) and 8 (IRR = 15.13%)
Siegmeyer should accept which project(s) (A, B, both or neither) and why?
In: Finance
Please show the steps how the risk premiums are calculated for y1=4.22% and y2=10.9%
Suppose there are two independent economic factors,
M1 and M2. The risk-free
rate is 6%, and all stocks have independent firm-specific
components with a standard deviation of 50%. Portfolios A
and B are both well diversified.
| Portfolio | Beta on M1 | Beta on M2 | Expected Return (%) |
| A | 1.6 | 2.5 | 40 |
| B | 2.4 | -0.7 | 10 |
What is the expected return–beta relationship in this economy?
(Do not round intermediate calculations. Round your answers
to 2 decimal places.)
rev: 04_04_2019_QC_CS-164824
Explanation
E(rP) = rf +
βP1[E(r1)
– rf] +
βP2[E(r2) –
rf]
We need to find the risk premium for these two factors:
γ2γ2 = [E(r1) –
rf] and
γ2γ2 = [E(r2) –
rf]
To find these values, we solve the following two equations with two unknowns:
40% = 6% + 1.6 γ1γ1 + 2.5 γ2γ2
10% = 6% + 2.4 γ1γ1 + (–0.7) γ2γ2
The solutions are: γ2γ2 = 4.22% and γ2γ2 = 10.90%
Thus, the expected return-beta relationship is:
E(rP) = 6% + 4.22βP1 + 10.90βP2
In: Finance
eriodic Inventory Using FIFO, LIFO, and Weighted Average Cost Method.
The units of an item available for sale during the year were as follows:
| Jan. 1 | Inventory | 10 | units at $39 | $390 |
| Aug. 13 | Purchase | 17 | units at $40 | 680 |
| Nov. 30 | Purchase | 13 | units at $41 | 533 |
| Available for sale | 40 | units | $1,603 | |
There are 16 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost using (a) the first-in, first-out (FIFO) method; (b) the last-in, first-out (LIFO) method; and (c) the weighted average cost method (round per-unit cost to two decimal places and your final answer to the nearest whole dollar).
| a. | First-in, first-out (FIFO) | $ |
| b. | Last-in, first-out (LIFO) | $ |
| c. | Weighted average cost | $ |
In: Accounting