Current Capital Structure and WACC

Target Capital Structure and WACC

What are some differences between these two structures? What issues could the target capital structure create?

1. Consider a monopolist facing linear demand P(Q) = 16 – Q.
   1. Find the monopolist’s profit-maximizing choice of price and quantity if the total cost function is C(Q) = 8Q.
   2. Find the monopolist’s profit-maximizing choice of price and quantity if instead C(Q) = 2Q². Note that this cost function yields exactly the same total cost as the original cost function C(Q) = 8Q for the monopolist’s optimal quantity in 2.1. Explain why the monopolist’s optimum quantity, however, is not the same in 2.1 and 2.2

Structuring a Make-or-Buy Problem

Fresh Foods, a large restaurant chain, needed to determine if it would be cheaper to produce 5,000 units of its main food ingredient for use in its restaurants or to purchase them from an outside supplier for $12 each. Cost information on internal production includes the following:

Fixed overhead will continue whether the ingredient is produced internally or externally. No additional costs of purchasing will be incurred beyond the purchase price. If required, round your answers to the nearest whole number.

Required:

1. What are the alternatives for Fresh Foods?
Make the ingredient in house or buy it externally.

2. List the relevant cost(s) of internal production and of external purchase.

The input in the box below will not be graded, but may be reviewed and considered by your instructor.

3. Which alternative is more cost effective and by how much? (Use total cost when giving your answer.)

4. Now assume that 40% of the fixed overhead can be avoided if the ingredient is purchased externally. Which alternative is more cost effective and by how much? (Use total cost when giving your answer.)

1. The Ace Pizza Company makes and sells frozen pizzas. The company pays $2500 to rent the building it uses and pays $500 to rent the equipment it uses. These are the firm’s fixed costs. The company’s variable costs are listed in the following table.

a) Calculate the firm’s total cost, average cost, and marginal cost for each quantity of output. Fill in the following table.

2. b) Assume that this is a perfectly competitive industry. If the price of a frozen pizza is $9 how many pizzas should the Ace Pizza Company produce if it wants to maximize its profit? Explain

3. c) When the price is $9 per pizza, how much revenue will Ace receive, when it produces the profit maximizing quantity of pizzas? Show your calculation.

4. d) What will the firm’s profit be, when it produces the profit maximizing quantity of pizzas? Show your calculation and explain this result.

5. e) Will this company be profitable if the price of frozen pizzas is $3? Explain

6. f) What is the minimum average total cost for the Ace Pizza Company? What is the significance of the minimum average total cost?

Required information

The following selected account balances are provided for Delray Mfg.

Prepare its schedule of cost of goods manufactured for the year ended December 31, 2017.

Prepare an income statement for Delray Mfg. (a manufacturer).

he following information applies to the questions displayed below.] A local Chevrolet dealership carries the following types of vehicles: Inventory Items Quantity Cost per Unit NRV per Unit Vans 2 $26,000 $24,000 Trucks 5 17,800 16,800 2-door sedans 1 12,800 14,800 4-door sedans 6 16,800 19,800 Sports cars 2 36,000 39,000 SUVs 7 29,600 27,000 Because of recent increases in gasoline prices, the car dealership has noticed a reduced demand for its SUVs, vans, and trucks.

1. Compute the total cost of the entire inventory.

2. Determine whether each inventory item would be reported at cost or net realizable value (NRV). Enter the Cost per Unit for the "Lower of Cost or net realizable value" and then multiply the quantity of each inventory item by the appropriate cost or NRV amount and enter it in the Total column.
  

3. Prepare necessary entry to write down inventory from cost to net realizable value. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

4. The write-down of inventory from cost to net realizable value reduces total assets and increases total expenses, leading to lower net income and lower retained earnings.

Landen Corporation uses a job-order costing system. At the beginning of the year, the company made the following estimates: Direct labor-hours required to support estimated production 120,000 Machine-hours required to support estimated production 60,000 Fixed manufacturing overhead cost $ 336,000 Variable manufacturing overhead cost per direct labor-hour $ 3.60 Variable manufacturing overhead cost per machine-hour $ 7.20 During the year, Job 550 was started and completed. The following information is available with respect to this job: Direct materials $ 206 Direct labor cost $ 238 Direct labor-hours 15 Machine-hours 5 Required: 1. Assume that Landen has historically used a plantwide predetermined overhead rate with direct labor-hours as the allocation base. Under this approach: a. Compute the plantwide predetermined overhead rate. b. Compute the total manufacturing cost of Job 550. c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550? 2. Assume that Landen’s controller believes that machine-hours is a better allocation base than direct labor-hours. Under this approach: a. Compute the plantwide predetermined overhead rate. b. Compute the total manufacturing cost of Job 550. c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550?

You have been given the following information:

The direct labor rate is $24.20 per DLH. The direct materials cost per unit for each product is given below:

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

a. Determine the unit product cost of each product under the company's traditional costing method where total overhead cost is allocated based on DLH used for each product.
b. Determine the unit product cost of each product under the activity-based costing method.
c. What is your conclusion?

In all computations involving dollars, round off your answer to the nearest whole cent.

Business Class

21. Tsymbal owns a parcel of real estate unencumbered by any liens (“free and clear”). She can be said to own the real estate:

a. conditionally;

b. subject to a life estate;

c. in fee simple absolute;

d. pursuant to a bailment contract.

22. Washington is a community property state.

T / F

23. In this type of deed, the seller not only conveys ownership in a parcel of real estate, but the owner also guarantees good title to the buyer.

a. a quit claim deed;

b. a sheriff’s deed;

c. a deed in trust;

d. a warranty deed.

24. This power allows the government to condemn private property and commit it to public use, after duly compensating the owner.

a, the power of fee simple absolute;

b. zoning;

c. eminent domain.

d. force majeure.

25. While she is attending a movie, McCulloch visits the restroom. While in the restroom, she removes her wristwatch and leaves it on the sink. Hasso finds the watch. The legal owner of the watch is:

a. McCulloch;

b. Hasso;

c. the owner of the theater;

d. the state of Washington.

You are given the sample mean and the population standard deviation. Use this information to construct the​ 90% and​ 95% confidence intervals for the population mean. Interpret the results and compare the widths of the confidence intervals. If​ convenient, use technology to construct the confidence intervals. A random sample of 6060 home theater systems has a mean price of ​$135.00135.00. Assume the population standard deviation is ​$15.8015.80. Construct a​ 90% confidence interval for the population mean.

The​ 90% confidence interval is ​(_,_​). ​(Round to two decimal places as​ needed.)

Construct a​ 95% confidence interval for the population mean. The​ 95% confidence interval is ​(_,_). ​(Round to two decimal places as​ needed.) Interpret the results.

Choose the correct answer below.

A. With​ 90% confidence, it can be said that the population mean price lies in the first interval. With​ 95% confidence, it can be said that the population mean price lies in the second interval. The​ 95% confidence interval is wider than the​ 90%.

B. With​ 90% confidence, it can be said that the population mean price lies in the first interval. With​ 95% confidence, it can be said that the population mean price