Question 1

You have looked at the current financial statements for Reigle Homes, Co. The company has an EBIT of $4,950,000 this year. Depreciation, the increase in net working capital, and capital spending were $330,000, $166,000, and $580,000, respectively. You expect that over the next five years, EBIT will grow at 15 percent per year, depreciation and capital spending will grow at 20 per year, and NWC will grow at 10 per year. The company has $28,000,000 in debt and 485,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.45 percent indefinitely. The company’s WACC is 9.75 percent and the tax rate is 22 percent. What is the price per share of the company's stock?

Question 2

Dewey Corp. is expected to have an EBIT of $2,700,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $205,000, $110,000, and $210,000, respectively. All are expected to grow at 19 percent per year for four years. The company currently has $15,500,000 in debt and 820,000 shares outstanding. At Year 5, you believe that the company's sales will be $27,900,000 and the appropriate price-sales ratio is 2.6. The company’s WACC is 8.8 percent and the tax rate is 25 percent. What is the price per share of the company's stock?

Lambda Company, which produces tool boxes, uses a standard cost system and carries all inventories at standard. The standard manufacturing overhead costs per switch are based on direct labour hours and are shown below: Variable overhead (5 hours @ $12 per direct manufacturing labour hour) $ 60 Fixed overhead (5 hours @ $15* per direct manufacturing labour hour) 75 Total overhead per box $135 *Based on capacity of 200,000 direct manufacturing labour hours per month. The following information is available for the month of December: • 46,000 boxes were produced although 40,000 boxes were scheduled to be produced. • 225,000 direct manufacturing labour hours were worked at a total cost of $5,625,000. • Variable manufacturing overhead costs were $2,750,000. • Fixed manufacturing overhead costs were $3,050,000.

Calculate:

The variable overhead spending variance for December

The variable manufacturing overhead efficiency variance for December

The fixed manufacturing overhead spending variance for December

The fixed overhead production volume variance for December was

What amount should be credited to the allocated manufacturing overhead control account for the month of December?

Under the 2-variance method, the flexible budget variance for December was

Under the 3-variance method, the spending variance for December was

As a real estate analyst, you are requested by the manager to construct a simple linear regression for the relationship between the house value (x) and the upkeep spending (y).

(a) Write the simple linear regression equation below.

(b) What are b0 and b1?

(c) Interpret the meanings of b0 and b1.

(d) If the house value (x) is 150, what will the upkeep spending (y) be, using the simple linear regression model 4a?

(e) Draw the scatterplot showing the relationship between the house value (x) and the upkeep spending (y).

4. As a real estate analyst, you are requested by the manager to construct a simple linear regression for the relationship between the house value (x) and the upkeep spending (y).

(a) Write the simple linear regression equation below.

(b) What are b0 and b1?

(c) Interpret the meanings of b0 and b1.

(d) If the house value (x) is 150, what will the upkeep spending (y) be, using the simple linear regression model 4a?

(e) Draw the scatterplot showing the relationship between the house value (x) and the upkeep spending (y).

Walkenhorst Company’s machining department prepared its 2019 budget based on the following data:

The department uses machine hours to apply factory overhead to production. In 2019, the department used 88,000 machine hours and incurred $636,000 in total manufacturing overhead cost to manufacture 43,000 units. Actual fixed overhead cost for the year was $380,000.

Required:

Determine for the year:

1. The fixed, variable, and total factory overhead application rates (per machine hour). (Round your answers to 2 decimal places.)

2. The total flexible budget, for factory overhead cost based on output achieved in 2019.

3. The production volume variance. State whether this variance was favorable (F) or unfavorable (U).

4. The total overhead spending variance. State whether this variance was favorable (F) or unfavorable (U).

5. The overhead efficiency variance. State whether this variance was favorable (F) or unfavorable (U).

6. The variable overhead spending variance and the fixed overhead spending variance. State whether each variance is favorable (F) or unfavorable (U).

From 77 of its restaurants, Noodles & Company managers collected data on per-person sales and the percent of sales due to "potstickers" (a popular food item). Both numerical variables failed tests for normality, so they tried a chi-square test. Each variable was converted into ordinal categories (low, medium, high) using cutoff points that produced roughly equal group sizes. At α = .01, is per-person spending independent of percent of sales from potstickers? Potsticker % of Sales Per Person Spending Low Medium High Row Total Low 11 4 8 23 Medium 6 11 6 23 High 4 13 14 31 Col Total 21 28 28 77 Click here for the Excel Data File

(a) The hypothesis for the given issue is H0: Percentage of Sales and Per-Person Spending are independent. No Yes

(b) Calculate the chi-square test statistic, degrees of freedom, and the p-value. (Round your test statistic value to 2 decimal places and p-value to 4 decimal places. Leave no cells blank - be certain to enter "0" wherever required.) Test statistic d.f. p-value

(c) We reject the null and find dependence. No Yes

1. How would you describe the state of the U.S. economy during the Great Depression?

a-There was a prolonged period of very high unemployment and negative or low GDP growth. There was a brief period of deflation.

b-There was a prolonged period of very high unemployment and very high rates of inflation. GDP growth was slow.

c-There was a prolonged period of very low unemplyment and negative real interest rate. GDP growth was slow.

d-There was a prolonged period of very low unemplyment and negative real interest rate. GDP growth was slow.

2.Will deflation make an economic downturn more or less severe?

a-More severe. Deflation increases the real value of debt leading to more bankruptcies.

b-Less severe. Deflation lowers the real value of debt leading to fewer bankruptcies.

c-Less severe. Deflation increases the real value of debt leading to greater investment and spending by savers.

d-More severe. Deflation lowers the real value of debt and prices leading to more consumer spending.

e-More severe. Deflation increases the real value of debt leading to lower prices, more output and more bankruptcies.

f-Less severe. Deflation leads to lower prices, more consumer spending and economic expansion.

In October, Nicole eliminated all existing inventory of cosmetic items. The trouble of ordering and tracking each product line had exceeded the profits earned. In December, a supplier asked her to sell a prepackaged spa kit. Feeling she could manage a single product line, Nicole agreed. Nicole’s Getaway Spa (NGS) would make monthly purchases from the supplier at a cost that included production costs and a transportation charge. NGS would keep track of its new inventory using a perpetual inventory system. On December 31, NGS purchased 20 units at a total cost of $5.30 per unit. Nicole purchased 20 more units at $7.30 in February. In March, Nicole purchased 20 units at $9.30 per unit. In May, 40 units were purchased at $9.10 per unit. In June, NGS sold 40 units at a selling price of $11.30 per unit and 50 units at $11.70 per unit.

4.value: 0.25 pointsRequired information Required: 1. State whether the transportation cost included in each purchase should be recorded as a cost of the inventory or immediately expensed. Cost of the Inventory Immediately Expensed

5.value:

2. Compute the Cost of Goods Available for Sale, Cost of Goods Sold, and Cost of Ending Inventory using the first-in, first-out (FIFO) method. (Round "Cost per Unit" to 2 decimal places.)

6.value:

4. Would a different inventory cost flow assumption allow Nicole’s Getaway Spa to better minimize its income tax?

The LIFO method would allow Nicole’s Getaway Spa to better minimize income tax. Product costs have been increasing, so LIFO will produce the highest Cost of Goods Sold, which results in the lowest Income before Income Tax Expense.

The FIFO method would allow Nicole’s Getaway Spa to better minimize income tax. Product costs have been increasing, so FIFO will produce the highest Cost of Goods Sold, which results in the lowest Income before Income Tax Expense.

In this exercise we examine the effects of overbooking in the airline industry. Ontario Gateway Airlines' first class cabins have 10 seats in each plane. Ontario's overbooking policy is to sell up to 11 first class tickets, since cancellations and no-shows are always possible (and indeed are quite likely). For a given flight on Ontario Gateway, there were 11 first class tickets sold. Suppose that each of the 11 persons who purchased tickets has a 20% chance of not showing up for the flight, and that the events that different persons show up for the flight are independent. The money for tickets to the passengers who didn’t show up are returned.

(a) What is the probability that at most 5 of the 11 persons who purchased first class tickets show up for the flight?

(b) What is the probability that exactly 10 of the persons who purchased first class tickets show up for the flight?

(c) Suppose that there are 10 seats in first class available and that the cost of each first class ticket is $1,200. (This $1,200 contributes entirely to profit since the variable cost associated with a passenger on a flight is close to zero.) Suppose further that any overbooked seat costs the airline $3,000, which is the cost of the free ticket issued the passenger plus some potential cost in damaged customer relations. (First class passengers do not expect to be bumped!) Thus, for example, if 10 of the first class passengers show up for the flight, the airline's profit is $12,000. If 11 first class passengers show up, the profit is $9,000. What is the expected profit from first class passengers for this flight?

(d) Suppose that only 10 first class tickets were sold. What would be the expected profit from first class passengers for this flight?

(e) People often travel in groups of two or more. Does this affect the independence assumption about passenger behavior?