Cost of common stock equity Ross Textiles wishes to measure its cost of common stock equity. The firm's stock is currently selling for $41.16. The firm just recently paid a dividend of $3.97. The firm has been increasing dividends regularly. Five years ago, the dividend was just $2.99.
After underpricing and flotation costs, the firm expects to net $38.28 per share on a new issue.
a. Determine average annual dividend growth rate over the past 5 years. Using that growth rate, what dividend would you expect the company to pay next year?
b. Determine the net proceeds, Nn, that the firm will actually receive.
c. Using the constant-growth valuation model, determine the required return on the company's stock, r Subscript srs, which should equal the cost of retained earnings, r Subscript rrr.
d. Using the constant-growth valuation model, determine the cost of new common stock, r Subscript nrn.
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a.The average annual dividend growth rate over the past 5 years is ___ (Round to two decimal places.)
Using that growth rate, the dividend you expect the company to pay next year is ___ (Round to two decimal places.)
b.The net proceeds, Nn, the firm will actually receive are ___ (Round to two decimal places.)
c.Using the constant-growth valuation model, the cost of retained earnings, r Subscript srs, is ____ (Round to two decimal places.)
d.Using the constant-growth valuation model, the cost of new common stock, r Subscript nrn, is ____ (Round to two decimal places.)
In: Finance
ABC Corporation has three support departments with the following costs and cost drivers: Support Department Cost Cost Driver Graphics Production $200,000 number of copies made Accounting 500,000 number of invoices processed Personnel 400,000 number of employees ABC has three operating divisions, Micro, Macro, and Super. Their revenue, cost, and activity information are as follows: Micro Macro Super Revenues $700,000 $850,000 $650,000 Direct operating expenses 50,000 70,000 100,000 Number of copies made 20,000 30,000 50,000 Number of invoices processed 700 800 500 Number of employees 130 145 125 The support department allocation rate for the Accounting Department is a.$714 b.$250 c.$625 d.$0.004
ABC Corporation has three support departments with the following costs and cost drivers:
| Support Department | Cost | Cost Driver |
| Graphics Production | $200,000 | number of copies made |
| Accounting | 500,000 | number of invoices processed |
| Personnel | 400,000 | number of employees |
ABC has three operating divisions, Micro, Macro, and Super. Their revenue, cost, and activity information are as follows:
| Micro | Macro | Super | |
| Revenues | $700,000 | $850,000 | $650,000 |
| Direct operating expenses | 50,000 | 70,000 | 100,000 |
| Number of copies made | 20,000 | 30,000 | 50,000 |
| Number of invoices processed | 700 | 800 | 500 |
| Number of employees | 130 | 145 | 125 |
The support department allocation rate for the Personnel Department is
a.$2,758
b.$1,000
c.$3,200
d.$3,077
ABC Corporation has three support departments with the following costs and cost drivers:
| Support Department | Cost | Cost Driver |
| Graphics Production | $200,000 | number of copies made |
| Accounting | 500,000 | number of invoices processed |
| Personnel | 400,000 | number of employees |
ABC has three operating divisions, Micro, Macro, and Super. Their revenue, cost, and activity information are as follows:
| Micro | Macro | Super | |
| Revenues | $700,000 | $850,000 | $650,000 |
| Direct operating expenses | 50,000 | 70,000 | 100,000 |
| Number of copies made | 20,000 | 30,000 | 50,000 |
| Number of invoices processed | 700 | 800 | 500 |
| Number of employees | 130 | 145 | 125 |
The support department cost that will be allocated to the Micro Division is
a.$145,000
b.$345,000
c.$60,000
d.$200,000
ABC Corporation has three support departments with the following costs and cost drivers:
| Support Department | Cost | Cost Driver |
| Graphics Production | $200,000 | number of copies made |
| Accounting | 500,000 | number of invoices processed |
| Personnel | 400,000 | number of employees |
ABC has three operating divisions, Micro, Macro, and Super. Their revenue, cost, and activity information are as follows:
| Micro | Macro | Super | |
| Revenues | $700,000 | $850,000 | $650,000 |
| Direct operating expenses | 50,000 | 70,000 | 100,000 |
| Number of copies made | 20,000 | 30,000 | 50,000 |
| Number of invoices processed | 700 | 800 | 500 |
| Number of employees | 130 | 145 | 125 |
The support department cost that will be allocated to the Macro Division is
a.$305,000
b.$405,000
c.$130,000
d.$175,000
In: Accounting
Marginal Incorporated (MI) has determined that its after-tax cost of debt is 10.0%. Its cost of preferred stock is 14.0%. Its cost of internal equity is 16.0%, and its cost of external equity is 21.0%. Currently, the firm's capital structure has $372 million of debt, $30 million of preferred stock, and $198 million of common equity. The firm's marginal tax rate is 25%. The firm is currently making projections for the next period. Its managers have determined that the firm should have $70 million available from retained earnings for investment purposes next period. What is the firm's marginal cost of capital at a total investment level of $255 million?
In: Finance
1. Differentiate historical cost concept from the fair value cost concept of measurement. State clearly their advantages and disadvantages.
In: Accounting
Marginal Incorporated (MI) has determined that its before-tax cost of debt is 10.0%. Its cost of preferred stock is 11.0%. Its cost of internal equity is 14.0%, and its cost of external equity is 18.0%. Currently, the firm's capital structure has $470 million of debt, $150 million of preferred stock, and $380 million of common equity. The firm's marginal tax rate is 25%. The firm is currently making projections for the next period. Its managers have determined that the firm should have $92 million available from retained earnings for investment purposes next period. What is the firm's marginal cost of capital at a total investment level of $358 million?
In: Finance
The firm I Love Cost Accounting, Co. provides cost accounting tutoring as well as CMA test prep classes. Cost accounting tutoring brings in $1,200,000 in revenue. CMA test prep classes bring in $4,000,000 in revenue.
Cost accounting tutoring costs the firm $2,100,000, and CMA test prep classes cost the firm $2,750,000.
If the firm drops cost accounting tutoring, then revenue for CMA test prep classes will decrease by 20%. And if the firm drops cost accounting tutoring, it cannot avoid $70,000 of the cost of providing cost accounting tutoring.
| a. |
It is $100,000 LESS profitable to keep the cost accounting tutoring product than to drop it. |
|
| b. |
It is $100,000 MORE profitable to keep the cost accounting tutoring product than to drop it. |
|
| c. |
It is $30,000 MORE profitable to keep the cost accounting tutoring product than to drop it. |
|
| d. |
It is $30,000 LESS profitable to keep the cost accounting tutoring product than to drop it. |
In: Accounting
14.
Consider a monopoly facing the following demand, marginal revenue,
total cost, and marginal cost curves:
Demand curve: P = 12 – 0.002 Q
Marginal revenue curve: MR = 12 – 0.004 Q
Marginal cost curve: MC = 3 + 0.001 Q
a. Calculate the profit maximizing output of this monopoly. Briefly explain your answer.
b. What is the socially efficient output level? Briefly explain your answer.
c. Suppose the government wants to adopt a price ceiling to induce this monopoly to produce at the socially efficient output level. Briefly explain what the level of this price ceiling should be and what will be the economic profit of this monopoly under this price ceiling.
In: Economics
Income Statement
Predetermined Overhead Rate, Application of Overhead to Jobs, Job Cost, Unit Cost
On August 1, Cairle Company’s work-in-process inventory consisted of three jobs with the following costs:
| Job 70 | Job 71 | Job 72 | |
| Direct materials | $1,500 | $2,000 | $850 |
| Direct labor | 1,900 | 1,300 | 900 |
| Applied overhead | 1,520 | 1,040 | 720 |
During August, four more jobs were started. Information on costs added to the seven jobs during the month is as follows:
| Job 70 | Job 71 | Job 72 | Job 73 | Job 74 | Job 75 | Job 76 | |
| Direct materials | $800 | $1,235 | $3,600 | $5,000 | $300 | $560 | $80 |
| Direct labor | 1,000 | 1,400 | 2,200 | 1,800 | 600 | 850 | 180 |
Before the end of August, Jobs 70, 72, 73, and 75 were completed. On August 31, Jobs 72 and 75 were sold.
Cairle’s selling and administrative expenses for August were $1,300. Assume that Cairle prices its jobs at cost plus 25 percent.
Required:
Prepare an income statement for Cairle Company for August.
| Cairle Company | |
| Income Statement | |
| For the Month of August | |
| Sales | $ |
| Cost of goods sold | |
| Gross margin | $ |
| Selling and administrative expenses | |
| Operating income | $ |
Feedback
In: Accounting
The following equations describe a firm’s demand, marginal revenue, total cost, & marginal cost:
Demand: P = 1,000 – 10Q
Total Cost: TC = 500 + 10Q + Q^2
Marginal Revenue: MR = 1,000 – 20Q
Marginal Cost: MC = 10 + 2Q
a. What level of output should be produced to maximize profits?
b. What is the market price?
c. How much profit will be earned?
d. The firm sells cereal and competes with other firms selling slightly differentiated cereal products. What type of market is this firm operating in?
The following equations describe a firm’s total cost and marginal cost:
Total Cost: TC = 500 + 10Q + Q^2
Marginal Cost: MC = 10 + 2Q
e. If the firm is a price taker and other firms in the industry sell output at a price of $100, what price should the manager of this firm put on the product?
f. What level of output should be produced to maximize profits?
g. How much profit will be earned?
h. The firm sells orange juice, which is a perfect substitute, at a farmers market. What type of market is this firm operating in?
In: Economics
What are the four purposes of cost allocation?
Why should budgeted cost rates, rather than actual cost rates, be used for allocating the variable costs of service departments?
In: Accounting