What is next year's dividend or D1 if the dividend growth rate in year 1 is 25%, in year 2 is 15%, and in year 3 is 10%. After year 3 the dividend is expected to grow at a constant rate of 6% indefinitely. The required return is 12% per year, while the current stock price is $27.94
In: Finance
The firm Gelati-Banking (GB) is considering a project with the following characteristics. Sales will be $100 MM for sure in the first year and grow 10% in the second year; thereafter, the long term growth rate is 3%. Gross Profit Margin (Gross Profit over Sales) will be 20%. Depreciation will be $10 MM each year for the next two years. Working Capital held for the project will have to be 10% of sales. Additional CAPX each year will be $11MM in year 1 and $12 MM in year 2. All cash flows defined here are deterministic and will go on indefinitely. Interest rates are as follows: 3-month t-bill is 3%, the 2 year treasury is 4% and the long bond (30-year) is trading at 5% per year. The Corporate Tax Rate is 40%. What would the investment need to be for this project to be breakeven (ignoring depreciation effects of the investment)? Assume that 1) Everything grows at 3% per year from year 2 onwards to infinity; and 2) The cash flow stream that goes from time 0 on indefinitely is similar in nature to a long term treasury bond.
In: Finance
The firm Gelati-Banking (GB) is considering a project with the following characteristics. Sales will be $100 MM for sure in the first year and grow 10% in the second year; thereafter, the long term growth rate is 3%. Gross Profit Margin (Gross Profit over Sales) will be 20%. Depreciation will be $10 MM each year for the next two years. Working Capital held for the project will have to be 10% of sales. Additional CAPX each year will be $11MM in year 1 and $12 MM in year 2. All cash flows defined here are deterministic and will go on indefinitely. Interest rates are as follows: 3-month t-bill is 3%, the 2 year treasury is 4% and the long bond (30-year) is trading at 5% per year. The Corporate Tax Rate is 40%. What would the investment need to be for this project to be breakeven (ignoring depreciation effects of the investment)? Assume that 1) Everything grows at 3% per year from year 2 onwards to infinity; and 2) The cash flow stream that goes from time 0 on indefinitely is similar in nature to a long term treasury bond.
In: Finance
Problem 2: Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: Variable costs per unit: Manufacturing: Direct materials $ 25 Direct labor $ 18 Variable manufacturing overhead $ 3 Variable selling and administrative $ 2 Fixed costs per year: Fixed manufacturing overhead $ 320,000 Fixed selling and administrative expenses $ 90,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $54 per unit.
Required: 1. Assume the company uses variable costing: a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
2. Assume the company uses absorption costing: a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
In: Accounting
On January 1, Year 1, Company ABC hired a general contractor to begin construction of a new office building. ABC negotiated a $900,000, five-year, 10% loan on January 1, Year 1, to finance construction. Payments made to the general contractor for the building during Year 1 amount to $1,000,000. Payments were made evenly throughout the year. Construction is completed at the end of Year 1, and ABC moves in and begins using the building on January 1, Year 2. The building is estimated to have a 40-year life and no residual value. On December 31, Year 3, ABC determines that the market value for building is $970,000. On December 31, Year 5, ABC estimates the market value for the building to be $950,000.
Required: Use the two alternative methods allowed by IAS 16 with respect to the measurement of property, plant, and equipment subsequent to initial recognition to determine:
1. THe carrying amount of the building that would be reported on the balance sheet at the end of Year 1-5
2. The amounts to be reported in net income related to this building for Years 1-5
In: Accounting
The Eyes Have It sells custom eyewear during Year One that come with an embedded warranty. If the glasses break during Year Two, they will be fixed for free. Customers may also purchase an extended warranty that covers Year Three. During Year One, the company sold 55,000 pairs of eyeglasses for $1,000,000. Customers who purchased 40,000 of those pairs also purchased the Year Three extended warranty. The extended warranty brought in additional cash of $200,000. The company expects that 6 percent of the glasses will break during Year Two, and another 8 percent will break during Year Three. Each repair will cost $20 to fix.
a. Record the embedded warranty in Year One.
b. Record the sale of the extended warranties in Year One.
c. Assume that during Year Two the company spends $70,000 to repair glasses for these customers.
Prepare the necessary journal entry.
d. Assume that during Year Three the company spends another $102,000 to repair glasses that are
covered under the extended warranty. Prepare the necessary journal entry.
In: Accounting
Problem 2: Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: Variable costs per unit: Manufacturing: Direct materials $ 25 Direct labor $ 18 Variable manufacturing overhead $ 3 Variable selling and administrative $ 2 Fixed costs per year: Fixed manufacturing overhead $ 320,000 Fixed selling and administrative expenses $ 90,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $54 per unit.
Required: 1. Assume the company uses variable costing: a. Compute the unit product cost for Year 1 and Year
2. b. Prepare an income statement for Year 1 and Year 2.
2. Assume the company uses absorption costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
In: Accounting
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:
| Variable costs per unit: | ||
| Manufacturing: | ||
| Direct materials | $ | 25 |
| Direct labor | $ | 12 |
| Variable manufacturing overhead | $ | 2 |
| Variable selling and administrative | $ | 1 |
| Fixed costs per year: | ||
| Fixed manufacturing overhead | $ | 400,000 |
| Fixed selling and administrative expenses | $ | 90,000 |
During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $51 per unit.
Required:
1. Assume the company uses variable costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
2. Assume the company uses absorption costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
In: Accounting
1.
|
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.7 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,080,000 in annual sales, with costs of $775,000. The project requires an initial investment in net working capital of $300,000, and the fixed asset will have a market value of $210,000 at the end of the project. If the tax rate is 35 percent, what is the project’s year 0 net cash flow? Year 1? Year 2? Year 3? (Negative amounts should be indicated by a minus sign.) |
| Years | Cash Flow |
| Year 0 | $ |
| Year 1 | $ |
| Year 2 | $ |
| Year 3 | $ |
|
If the required return is 12 percent, what is the project's NPV? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| NPV | $ |
2.
|
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.7 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,080,000 in annual sales, with costs of $775,000. The project requires an initial investment in net working capital of $300,000, and the fixed asset will have a market value of $210,000 at the end of the project. If the tax rate is 35 percent, what is the project’s year 1 net cash flow? Year 2? Year 3? (Use MACRS) (Enter your answers in dollars, not millions of dollars, i.e. 1,234,567. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) |
| Years | Cash Flow |
| Year 0 | $ |
| Year 1 | $ |
| Year 2 | $ |
| Year 3 | $ |
|
If the required return is 12 percent, what is the project's NPV? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| NPV | $ |
In: Finance
Martin Towing Company is at the end of its accounting year ending December 31. The following data that must be considered were developed from the company’s records and related documents:
On January 1 of the current year, the company purchased a new hauling van at a cash cost of $28,000. Depreciation estimated at $3,500 for the year has not been recorded for the current year.
During the current year, office supplies amounting to $1,000 were purchased for cash and debited in full to Supplies. At the end of last year, the count of supplies remaining on hand was $500. The inventory of supplies counted on hand at the end of the current year was $150.
On December 31 of the current year, Lanie’s Garage completed repairs on one of the company’s trucks at a cost of $2,600; the amount is not yet recorded by Martin and by agreement will be paid during January of next year.
On December 31 of the current year, property taxes on land owned during the current year were estimated at $1,800. The taxes have not been recorded and will be paid in the next year when billed.
On December 31 of the current year, the company completed towing service for an out-of-state company for $4,000 payable by the customer within 30 days. No cash has been collected, and no journal entry has been made for this transaction.
On July 1 of the current year, a three-year insurance premium on equipment in the amount of $900 was paid and debited in full to Prepaid Insurance on that date. Coverage began on July 1 of the current year.
On October 1 of the current year, the company borrowed $13,000 from the local bank on a one-year, 12 percent note payable. The principal plus interest is payable at the end of 12 months.
The income before any of the adjustments or income taxes was $30,000. The company’s federal income tax rate is 30 percent. (Hint: Compute adjusted pre-tax income based on (a) through (g) to determine income tax expense.)
Required:
Indicate whether each transaction relates to a deferred revenue, deferred expense, accrued revenue, or accrued expense.
Prepare the adjusting entry required for each transaction at December 31 of the current year.
In: Accounting