1. Stock Valuation: A stock has an initial price of $100 per share, paid a dividend of $2.00 per share during the year, and had an ending share price of $125. Compute the percentage total return, capital gains yield, and dividend yield.

Capital Gains = 125-100 = 25 and Dividend Yield = $2

            Total return percent = (25+2)/100 = 27/100 = 27%

            Capital Gain return = 25/100 = 25%

            Dividend Yield = 2/100 = 2%

2. Total Return: You bought a share of 4% preferred stock for $100 last year. The market price for your stock is now $120. What was your total return for last year?

Dividend = 4% of 100 = $4. The capital gain = 120-100 = 20

Total return for last year = $24 = 24%

3. CAPM - A stock has a beta of 1.20, the expected market rate of return is 12%, and a risk-free rate of 5 percent. What is the expected rate of return of the stock?

CAPM - Expected return of Stock = Rf + beta*(Rm - Rf) = 5 +1.2*(12-5) = 13.4%

4. WACC: The Corporation has a targeted capital structure of 80% common stock and 20% debt. The cost of equity is 12% and the cost of debt is 7%. The tax rate is 30%. What is the company's weighted average cost of capital (WACC)?

We*Re + Wd*Rd*(1-T) = 0.8*12 + 0.2*7*(1-0.3) = 10.58%

5. Flotation Costs: Medina Corp. has a debt-equity ratio of .75. The company is considering a new plant that will cost $125 million to build. When the company issues new equity, it incurs a flotation cost of 10%. The flotation cost on new debt is 4%. What is the initial cost of the plant if the company raises all equity externally?

125 million will be raised by issuing both debt and equity so that D/E remains 0.75.

D = 0.75E

E + 0.75E = 125

E = 71.43, D =125- 71.43 = 53.57

Initial cost of the plant will be = 125 + 71.43*0.10 + 53.57*0.04 = 125 + 9.2858 = 134.2858

1. Stock Valuation: A stock has an initial price of $100 per share, paid a dividend of $2.00 per share during the year, and had an ending share price of $125. Compute the percentage total return, capital gains yield, and dividend yield.

Capital Gains = 125-100 = 25 and Dividend Yield = $2

            Total return percent = (25+2)/100 = 27/100 = 27%

            Capital Gain return = 25/100 = 25%

            Dividend Yield = 2/100 = 2%

2. Total Return: You bought a share of 4% preferred stock for $100 last year. The market price for your stock is now $120. What was your total return for last year?

Dividend = 4% of 100 = $4. The capital gain = 120-100 = 20

Total return for last year = $24 = 24%

3. CAPM - A stock has a beta of 1.20, the expected market rate of return is 12%, and a risk-free rate of 5 percent. What is the expected rate of return of the stock?

CAPM - Expected return of Stock = Rf + beta*(Rm - Rf) = 5 +1.2*(12-5) = 13.4%

4. WACC: The Corporation has a targeted capital structure of 80% common stock and 20% debt. The cost of equity is 12% and the cost of debt is 7%. The tax rate is 30%. What is the company's weighted average cost of capital (WACC)?

We*Re + Wd*Rd*(1-T) = 0.8*12 + 0.2*7*(1-0.3) = 10.58%

5. Flotation Costs: Medina Corp. has a debt-equity ratio of .75. The company is considering a new plant that will cost $125 million to build. When the company issues new equity, it incurs a flotation cost of 10%. The flotation cost on new debt is 4%. What is the initial cost of the plant if the company raises all equity externally?

125 million will be raised by issuing both debt and equity so that D/E remains 0.75.

D = 0.75E

E + 0.75E = 125

E = 71.43, D =125- 71.43 = 53.57

Initial cost of the plant will be = 125 + 71.43*0.10 + 53.57*0.04 = 125 + 9.2858 = 134.2858

Based on the above answers explain how companies make financial decisions

Variable Costs, Contribution Margin, Contribution Margin Ratio

Super-Tees Company plans to sell 18,000 T-shirts at $21 each in the coming year. Product costs include:

Variable selling expense is the redemption of a coupon, which averages $1.05 per T-shirt; fixed selling and administrative expenses total $11,000.

Required:

1. Calculate the following values:
Round dollar amounts to the nearest cent and round ratio values to three decimal places (express the ratio as a decimal rather than a percentage).

2. Prepare a contribution-margin-based income statement for Super-Tees Company for the coming year. If required, round your per unit answers to the nearest cent.

3. What if the per unit selling expense increased from $1.05 to $2.25? Calculate new values for the following:
Round dollar amounts to the nearest cent and round ratio values to four decimal places (express the ratio as a decimal rather than a percentage):

Variable Costs, Contribution Margin, Contribution Margin Ratio

Super-Tees Company plans to sell 10,000 T-shirts at $24 each in the coming year. Product costs include:

Direct materials per T-shirt $8.40
Direct labor per T-shirt $1.68
Variable overhead per T-shirt $0.72
Total fixed factory overhead $40,000

Variable selling expense is the redemption of a coupon, which averages $1.20 per T-shirt; fixed selling and administrative expenses total $15,000.

Required:

1. Calculate the following values:
Round dollar amounts to the nearest cent and round ratio values to three decimal places (express the ratio as a decimal rather than a percentage).

a. Variable product cost per unit $
b. Total variable cost per unit $
c. Contribution margin per unit $
d. Contribution margin ratio
e. Total fixed expense for the year $

2. Prepare a contribution-margin-based income statement for Super-Tees Company for the coming year. If required, round your per unit answers to the nearest cent.

Super-Tees Company
Contribution-Margin-Based Operating Income Statement
For the Coming Year
Total Per Unit
$ $

$ $

$

3. What if the per unit selling expense increased from $1.20 to $2.55? Calculate new values for the following:
Round dollar amounts to the nearest cent and round ratio values to four decimal places (express the ratio as a decimal rather than a percentage):

a. Variable product cost per unit $
b. Total variable cost per unit $
c. Contribution margin per unit $
d. Contribution margin ratio
e. Total fixed expense for the year $

Super-Tees Company plans to sell 11,000 T-shirts at $24 each in the coming year. Product costs include:

Variable selling expense is the redemption of a coupon, which averages $1.20 per T-shirt; fixed selling and administrative expenses total $15,000.

1. Calculate the following values:
Round dollar amounts to the nearest cent and round ratio values to three decimal places (express the ratio as a decimal rather than a percentage).

2. Prepare a contribution-margin-based income statement for Super-Tees Company for the coming year. If required, round your per unit answers to the nearest cent.

3. What if the per unit selling expense increased from $1.20 to $2.55? Calculate new values for the following:
Round dollar amounts to the nearest cent and round ratio values to four decimal places (express the ratio as a decimal rather than a percentage):

Production and Direct Labor Cost Budgets

Two-Leg Company manufactures slacks and jeans under a variety of brand names, such as Kickers and 101 Denims. Slacks and jeans are assembled by a variety of different sewing operations. Assume that the sales budget for Kickers and 101 Denims shows estimated sales of 30,870 and 65,540 pairs, respectively, for May. The finished goods inventory is assumed as follows:

Assume the following direct labor data per 10 pairs of Kickers and 101 Denims for four different sewing operations:

a. Prepare a production budget for May.

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b. Prepare the May direct labor cost budget for the four sewing operations, assuming a $10 wage per hour for the inseam and outerseam sewing operations and a $18 wage per hour for the pocket and zipper sewing operations.

Variable Costs, Contribution Margin, Contribution Margin Ratio

Super-Tees Company plans to sell 13,000 T-shirts at $24 each in the coming year. Product costs include:

Variable selling expense is the redemption of a coupon, which averages $1.20 per T-shirt; fixed selling and administrative expenses total $13,000.

Required:

1. Calculate the following values:
Round dollar amounts to the nearest cent and round ratio values to three decimal places (express the ratio as a decimal rather than a percentage).

2. Prepare a contribution-margin-based income statement for Super-Tees Company for the coming year. If required, round your per unit answers to the nearest cent.

3. What if the per unit selling expense increased from $1.20 to $2.55? Calculate new values for the following:
Round dollar amounts to the nearest cent and round ratio values to four decimal places (express the ratio as a decimal rather than a percentage):

a). The below calculation indicated on the both parameter of short run and life time profit ,option 3 is one of the most suitable for advertisement of the company, calculated below.

b). To determine the benefits of an advertising campaign, should Hula Island use the profit on the first sale or the expected lifetime profits? Why?

c). To choose between advertising campaigns, should Hula Island use the total expected profits or the ratio of total expected profits to advertising costs? Why?

2. Using your answer from Question 1 (either short-run or lifetime, total expected profits, or the ratio of total expected profits to advertising costs), determine the winner of the comparison between Options 1 and 2. Advertising Option 3 is different from the other two options in that the auction determines the fixed advertising cost. Assume Hula wins the search engine auction with a bid of $105. Which advertising option (1, 2, or 3) would you recommend to management?

Variable Costs, Contribution Margin, Contribution Margin Ratio

Super-Tees Company plans to sell 13,000 T-shirts at $16 each in the coming year. Product costs include:

Variable selling expense is the redemption of a coupon, which averages $0.80 per T-shirt; fixed selling and administrative expenses total $14,000.

Required:

1. Calculate the following values:
Round dollar amounts to the nearest cent and round ratio values to three decimal places (express the ratio as a decimal rather than a percentage).

2. Prepare a contribution-margin-based income statement for Super-Tees Company for the coming year. If required, round your per unit answers to the nearest cent.

3. What if the per unit selling expense increased from $0.80 to $1.75? Calculate new values for the following:
Round dollar amounts to the nearest cent and round ratio values to four decimal places (express the ratio as a decimal rather than a percentage):

Moody Corporation uses a job-order costing system with a plantwide predetermined overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates:

Required:

1. Compute the plantwide predetermined overhead rate.

2. During the year, Job 400 was started and completed. The following information was available with respect to this job:

Compute the total manufacturing cost assigned to Job 400.

3. If Job 400 includes 60 units, what is the unit product cost for this job?

4. If Moody uses a markup percentage of 120% of its total manufacturing cost, then what selling price per unit would it have established for Job 400?

Problem 2-16 Plantwide Predetermined Overhead Rates; Pricing [LO2-1, LO2-2, LO2-3]

Landen Corporation uses a job-order costing system. At the beginning of the year, the company made the following estimates:

During the year, Job 550 was started and completed. The following information is available with respect to this job:

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?

Problem 2-18 Job-Order Costing for a Service Company [LO2-1, LO2-2, LO2-3]

Speedy Auto Repairs uses a job-order costing system. The company’s direct materials consist of replacement parts installed in customer vehicles, and its direct labor consists of the mechanics’ hourly wages. Speedy’s overhead costs include various items, such as the shop manager’s salary, depreciation of equipment, utilities, insurance, and magazine subscriptions and refreshments for the waiting room.

The company applies all of its overhead costs to jobs based on direct labor-hours. At the beginning of the year, it made the following estimates:

Required:

1. Compute the predetermined overhead rate.

2. During the year, Mr. Wilkes brought in his vehicle to replace his brakes, spark plugs, and tires. The following information was available with respect to his job:

Compute Mr. Wilkes’ total job cost.

3. If Speedy establishes its selling prices using a markup percentage of 60% of its total job cost, then how much would it have charged Mr. Wilkes?