The cost of capital plays a critical role in funding the operations of an organization. Recommend several ways a corporation can reduce their borrowing costs to gain a competitive advantage over a rival. Why did you make the recommendations that you did?

You are a trader and you are enticed by shares of BB that currently cost $52. There are two choices you can do, either you buy the BB shares at $52 or do the alternative and purchase European call options on BB shares. The premium on the option for BB shares is five dollars the time before the contract expires is 3 months and the exercise price of the contract is fifty dollars. The volatility is thirty percent per annum, the risk-free rate is twelve percent per annum. Also, there is no dividend being paid from the BB shares.

Entity A invested in 20,000 shares of a listed company in October 2019 at a cost of $3.80 per share.

On 31 December 2019, the shares have a market value of $3.40.

Entity A is not planning on selling these shares in the short term and elects to hold them as Fair Value through Other Comprehensive Income.

REQUIRED:

(1) Measure the amounts of the equity investment recognised in the Statement of Financial Position for the year-end of 2019.

(2) Measure the amounts recognised in the Statement of Profit or Loss for the financial asset as at 31 December 2019.

(3) Measure the amounts of the fair value reserve recognised in the Statement of Financial Position for the year-end of 2019.

The Cost of Producing Wine at Only a Small Fraction of the Price

Based on Dana Nigro, “What’s Behind the Bottle Price?” Wine Spectator, December 15, 2002:50–56.

Most consumer goods are not sold by the manufacturer. Instead, they are produced by the manufacturer, who sells to a wholesaler, who in turn sells to a retailer, who sells to the public. Such is the case with most wine.

There has been an outcry in recent years over increases wine in prices. Although prices have risen sharply, the multilevel market structure and the markup that occurs at the wholesale and retail levels have a much larger role in the price increases than the production of the wine itself. Total production costs for a typical $24 bottle of wine are just $4.92, or about 20.4% of the final price, whereas wholesale and retail markups together make up 40% of the final price. Not surprisingly, raw materials (grapes) are the single biggest cost. The cost of the grapes may be as much as 60% of total production costs but varies greatly from lower-quality inexpensive wines to the highest quality wines. The second-highest cost for many vintners is the barrels used to ferment the wine. French oak barrels cost as much as $700 apiece and last only a few years. The other major production cost, other than the actual physical plant where the winemaking occurs, is time. Quality wines spend 2–2 ½ years aging in barrels and then an additional 8 months in bottles before being ready for sale.

1. How much substitutability do you suppose exists between inputs in winemaking? How might this factor affect efforts to cut costs?
2. If a firm were to find a new technology that cut the required aging time in half, how would it affect the demand for other inputs?

The construction cost of a parking facility on a local university campus is $200,000. Assume that

maintenance will begin on the facility at the end of the third year of operation, and will increase by

$500/year until the end of the useful life of the facility. Maintenance costs are expected to accrue to

$2,000 during the third year of operation. If the interest rate is 7%, and the facility is expected to last

25 years, find the following (5 points):

a) The present worth of the maintenance costs of the facility (2 points)

b) The facility’s annual maintenance costs. (2 points)

c)

The university wants to charge an annual decal rate of $200/year. Is this a good economic

decision if there are 50 spaces in the parking facility? (1 point)

For Absorption Costing, I will calculate the Cost of Goods Sold by multiplying the Sales and (Fixed Manufacturing cost per unit + Variable Manufacturing Cost per unit). The reconciliation should be done using this formula: Net Income (Absorption Costing) - Net Income (Variable Costing) = Fixed Overhead in ending balance - Fixed Overhead in opening balance. Thank you.

true or false

A). The constant dividend growth model assumes that the cost of equity is smaller than the dividend growth rate.

B). Consumer staples excel in the economic downturn.

C). The cyclical indicator approach covers all important major economic sectors including the service sector and import-exports.

D). A larger spread between bonds with high default risk and low default risk indicates the economy is not in a good shape.

What is meant by classifying a unit as an “investment center” vs. a “cost” or “profit” center? Discuss how each of the following tools, individually and/or collectively, can and should be used to evaluate managers of such “investment center” individual divisions of a large organization: ROI, EVA, and the Balanced Scorecard. (Hint: discuss how each works, what each helps ensure, what dysfunctional behaviors can result from its use, and how multiple approaches can help ensure behavior that aligns individual incentives with overall corporate strategy.)

In 2008, a project requires an initial cost of -$250 and next year, in 2009, the investor receives $570 and the year after that, in 2010, the cash flows from the investment is -$120. What is the total number of IRRs in this project?

What is the NPV of a project if IRR < discount rate (Assuming that the first cash flow is negative and all of the cash flows from the project are positive)?

Which of the following method must be preferred if the number changes in the signs of future cash flows within the project’s economic life is more than one?