The cash flows of a firm next year will be $100, $200 and $300 in (equally probable) bad, normal and good states, respectively. The firm dissolves at the end of the year and discount rates are zero. Shareholders decide to issue bonds with face value $100 and distribute the proceeds as dividends. Shareholders decide to issue additional debt, according to the existing covenants, with face value $100 and pocket the proceeds as dividends.
1. What is the change in shareholder and bondholder wealth, if the new issue is of equal seniority to the old one? Answer: Shareholders: +16.67 Bondholders: -16.67
2. What is the change in shareholder wealth, if the new issue is of higher seniority to the old one? S: +33.33 B: -33.33
3. What is the change in shareholder wealth, if the new issue is of lower seniority (junior debt) to the old one? Both $0
This is about covenants, I have the answers but please show work!
In: Finance
Question
The following data pertain to the operations of a manufacturing company for the year 2018
Item Amount (sh)
Sales revenues 1,000,000
Direct materials inventory, Jan 1, 2018 15,000
Direct labour 300,000
Depreciation, plant 60,000
Depreciation, equipment 40,000
Cutting tools used 10,000
Indirect labour 5,000
Factory lighting and power 10,000
Factory supervisor’s salary 50,000
Indirect materials 10,000
Finished goods inventory, Jan 1, 2018 30,000
Work in progress inventory, December 31, 2018 20,000
Office Supplies 10,000
Finished goods inventory, December 31, 2018 40,000
Direct materials inventory, December 31, 2018 25,000
Sales representatives salaries 250,000
Work in progress inventory, Jan 1, 2018 30,000
Purchases of direct materials 110,000
Factory supplies 5,000
Depreciation, administration office 50,000
Required; (a) Prepare a statement of the cost of goods manufactured
(b) Prepare an income statement for the company
In: Accounting
Problem 2.
At the end of the current year, Accounts Receivable has a balance of $550,000; Allowance for Doubtful Accounts has a credit balance of $5,500; and net sales for the year total $2,500,000. Using the aging method (analysis of receivables), the proper balance of Allowance for Doubtful Accounts is estimated as $25,000.
Determine the amount of the adjusting entry for uncollectible accounts and journalize the entry.
Date Account Title Debit Credit
Determine the adjusted balances of the following items, and show your work.
Accounts Receivable $_______________________
Allowance of Doubtful Accounts $______________________
Bad Debt Expense $_________________________
Net realizable value of accounts receivable $_____________________________
In: Accounting
chris has a $500,000 fifteen-year term for a mortgage on a house in atlanta, to be amortized over 30 years of monthly payments. The bank quotes her an APR of 9.20% with weekly compounding. he will be making monthly payments starting one month from today. What is the payment on this loan?
In: Finance
A couple will retire in 40 years; they plan to spend about $37,000 a year in retirement, which should last about 20 years. They believe that they can earn 7% interest on retirement savings.
a. If they make annual payments into a savings plan, how much will they need to save each year? Assume the first payment comes in 1 year. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
b. How would the answer to part (a) change if the couple also realize that in 15 years they will need to spend $67,000 on their child’s college education? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
In: Finance
On December 15 of year 1 Javier purchased a building, including the land it was on, to assemble his new equipment. The total cost of the purchase was $1,432,000; $317,000 was allocated to the basis of the land and the remaining $1,115,000 was allocated to the basis of the building.
Using MACRS, what is Javier’s depreciation deduction on the building for years 1 through 3?
What would be the year 3 depreciation deduction if the building was sold on March 18 of year 3?
Assume the building was purchased and placed in service on November 5 instead of December 15. Using MACRS, what is Javier’s depreciation deduction on the building for years 1 through 3?
Assume the building is residential property. Using MACRS, what is Javier’s depreciation deduction on the building for years 1 through 3?
What would be the depreciation for 2018, 2019, and 2020 if the property were nonresidential property purchased and placed in service December 15, 2001 (assume the same original basis)?
In: Accounting
| PARAMETERS FOR BASELINE CASE | ||||
| The following numbers are estimates for the upcoming year for a manufacturing company. | ||||
| Since the company is effective at implementing a JIT inventory system, assume there is | ||||
| no beginning or ending inventory. | ||||
| No. of units sold | 120,000 | |||
| Selling price per unit | $240.00 | |||
| Fixed Expenses | Variable Expenses (per unit sold | |||
| Production costs: | ||||
| Direct materials | $18.00 | |||
| Direct labor | 36.00 | |||
| Factory overhead | $2,160,000 | 24.00 | ||
| Marketing expenses: | ||||
| Sales salaries and commissions | 540,000 | 7.50 | ||
| Advertising | 360,000 | |||
| Miscellaneous mktg. expenses | 108,000 | |||
| Administration expenses: | ||||
| Office salaries | 720,000 | |||
| Supplies | 105,000 | 1.50 | ||
| Miscellaneous admin. expenses | 72,000 | |||
| TOTAL EXPENSES | $4,065,000 | $87.00 | ||
| Contribution Margin Income Statement | ||||
| Sales Revenues (120,000 Units at $240) | $28,800,000.00 | |||
| Variable Costs: | ||||
| Direct Materials (120,000 Units at $18) | $2,160,000 | |||
| Direct Labor (120,000 Units at $36) | $4,320,000 | |||
| Variable factory Overhead (120,000 x $24) | $2,880,000 | |||
| Variable selling expenses (120,000 x 7.50) | $900,000 | |||
| Variable Adminstrative Expenses (120,000 x 1.50) | $180,000 | |||
| Total Variable Cost | $10,440,000.00 | |||
| Contribution Margin (Sales - Total Variable Cost) | $18,360,000.00 | |||
| Total Fixed Costs | $4,065,000.00 | |||
| Operating Income | $14,295,000.00 | |||
| Contribution Margin Per Unit (B11 - C26) | ||||
| =Unit selling price – Unit total variable cost | ||||
| =$240 - $87 | ||||
| =$153 per unit | ||||
| Contribution Margin Percentage (A43 / B11 * 100) | ||||
| =Unit Contribution Margin / Unit Selling Price * 100 | ||||
| =$153 / $240 * 100 | ||||
| =63.75% | ||||
| Breakeven Point in Units (C40 / A51) | ||||
| =Total Fixed Costs / Contribution Percentage | ||||
| =$4,065,000 / 63.75% | ||||
| =$6,376,471 | ||||
You want to determine whether the following four suggestions (i.e., e, f, g, h) would improve the company’s performance. Determine the effects of each suggestion on operating income, contribution margin per unit, contribution margin percentage, breakeven point in units, and breakeven point in sales dollars.
Calculate the effects of each suggestion independently of the other suggestions. In other words, use the original baseline case data and make the first change (e); use the original baseline case data and make the second change (f); and so on. However, do not overwrite the original baseline case. The easiest way to do this is to copy the original data to a new sheet and then replace the original data parameters. To copy a sheet, click on the sheet name. Select “Move or Copy.” Click on the “Create a copy” box. Click OK. Rename your new sheet to indicate the name of the new scenario. For example, you could name the sheet for (e) ‘Commission.’ To rename a sheet, right click on the sheet name. Select “Rename.” Key in the new name.
Put all personnel on commission. This action would affect the sales salaries and commissions expense by eliminating the fixed portion and increasing the variable portion by $4.50 per unit. Sales would increase by 44,000 units.
Redesign the package for the product. This would decrease the variable direct materials cost by $1.50 per unit but would increase the fixed factory overhead by $36,000.
Launch a new advertising campaign. This would increase fixed advertising expense by $348,000 but would increase sales volume by 4,800 units.
Reduce the selling price of the product by $15.00 per unit. This would increase sales volume by 16,800 units.
In: Accounting
The stock price is $100. There are two European options that expire in 1 year with an exercise price of $110. The call option premium is $3 and the put option premium is $12.5. The risk free rate is 6% compounded annually. Is Put-Call Parity violated? If so, you must show the appropriate strategy to capture that profit. You must show a full arbitrage table with payoffs today and in the future. Round to 4 decimals
SHOW YOUR WORK TO GET CREDIT FOR ANY CALCULATIONS
In: Finance
You plan to make 15 deposits at the end of each year in an account that pays 6% compound interest annually. If the first deposit is $ 1,000 and subsequently 500 are added each year to the amount deposited the previous year (1000, 1500, ...), the amount of the account at the end of the 15 years will be close to:
a. $71,550
b. $97,777
c. $92,242
d. $87,021
e.No correct answer is provided.
In: Accounting
you are analyzing a project and have this data :
year : cash flow
0. : -40,000
1 : 18,675
2 : 23,900
3. : 21,750
required rate of return = 13 % target payback = 2.0 years
point:1+ 1.5 +1.5 + 2
compute following :
a) pay back period
b) discounted pay back period
c) NPV
D) IRR OF THIS PROJECT
E) ACCEPT OR REJECT PROJECT
In: Accounting