The following expenditures relating to plant assets were made by Prather Company during the first 2 months of 2017.
1. Paid $5,000 of accrued taxes at time plant site was acquired.
2. Paid $200 insurance to cover possible accident loss on new factory machinery while the machinery was in transit.
3. Paid $850 sales taxes on new delivery truck.
4. Paid $17,500 for parking lots and driveways on new plant site.
5. Paid $250 to have company name and advertising slogan painted on new delivery truck.
6. Paid $8,000 for installation of new factory machinery.
7. Paid $900 for one-year accident insurance policy on new delivery truck.
8. Paid $75 motor vehicle license fee on the new truck.
Instructions
(a) Explain the application of the historical cost principle in determining the acquisition cost of plant assets.
(b) List the numbers of the foregoing transactions, and opposite each indicate the account title to which each expenditure should be debited.
In: Accounting
WACC and NPV. Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt–equity ratio of .45. It’s considering building a new $37 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $5.1 million in perpetuity. There are three financing options:
A new issue of common stock: The required return on the company’s new equity is 15 percent.
A new issue of 20-year bonds: If the company issues these new bonds at an annual coupon rate of 7 percent, they will sell at par.
Increased use of accounts payable financing: Because this financing is part of the company’s ongoing daily business, the company assigns it a cost that is the same as the overall firm WACC. Management has a target ratio of accounts payable to long-term debt of .15. (Assume there is no difference between the pretax and aftertax accounts payable cost.)
What is the NPV of the new plant? Assume that the company has a 35 percent tax rate.
In: Finance
EXCEL TEMPLATE) Watchstone Concrete Products issued 30-year maturity bonds 15 years ago with a coupon rate of 10.75%. The principal amount was $15,000,000. Interest rates have steadily decreased and the company could issue new bonds today at a coupon rate of 9.50%. The new issue would be used to pay off the old bonds and would have a maturity of 15 years. The original issue had flotation costs of $375,000 which were set up on an amortization schedule over 30 years with equal amounts each year. The old bonds are callable with a premium of 4.5%. An investment banking firm would charge a flotation fee of $225,000 on the new issue that would be amortized over the life of the new bonds. Rover’s marginal tax rate is 25%. Calculate the NPV of the bond refund
a.Old and nwe Bond Principal?
b.Old and new Bond Interest Rate?
c.Old and new Bond Flotation Cost?
d.Old and new Bond Maturity (Years)?
e.Tax Rate?
f.Call Premium Rate?
In: Finance
Hughes Corporation is considering replacing a machine used in the manufacturing process with a new, more efficient model. The purchase price of the new machine is $150,000 and the old machine can be sold for $100,000. Output for the two machines is identical; they will both be used to produce the same amount of product for five years. However, the annual operating costs of the old machine are $18,000 compared to $10,000 for the new machine. Also, the new machine has a salvage value of $25,000, but the old machine will be worthless at the end of the five years. You are deciding whether the company should sell the old machine and purchase the new model. You have determined that an 8% rate properly reflects the time value of money in this situation and that all operating costs are paid at the end of the year. For this initial comparison you ignore the effect of the decision on income taxes.
Required:
1. What is the incremental cash outflow required to acquire the new machine?
2. What is the present value of the benefits of acquiring the new machine?
In: Accounting
Bronson manufacturing is considering replacing an existing production line with a new line that has a greater output capacity and operates with less labor than the existing line. The new line would cost $1 million, have a five-year life, and be depreciated using straight line method. At the end of five years, the new line would be sold as scrap for $200,000 (in year 5 dollars). Because the new line is more automated, it would require fewer operators, resulting in a saving of $40,000 per year before tax & unadjusted for inflation (in today’s dollars). Additional sales with the new machine are expected to result in additional net cash inflows, before tax, of $60,000 per year (in today’s dollars). If Bronson invests in the new line, a one-time investment of $10,000 in additional working capital will be required. The tax rate is 30%, the opportunity cost of capital is 10% and the annual rate of inflation is 3%.
Required:
What is the net present value of the new production line?
Please show your calculations clearly.
In: Finance
Teardrop Inc. wishes to expand its facilities.
The company currently has 10 million shares outstanding and no debt.
The stock sells for $20 per share but the book value per share is $47.
Net income for Teardrop is currently $2.7 million.
The new facility will cost $28 million and it will increase net income by $340,000.
The par value of the stock is $1 per share.
Assume a constant price-earnings ratio.
Required:
1. a) Calculate the net book value per share.
Assume no change is applied to determine the number of new shares.
1. b) Calculate the new total earnings.
(Enter your final answer in dollars)
1. c) Calculate the new EPS.
Assume incremental net income to be considered.
1. d) Calculate the new stock price.
Assume incremental net income to be considered.
1. e) Calculate the new market-to-book ratio.
2. What would the new net income for the company have to be for the stock price to remain unchanged?
In: Accounting
A solid, homogeneous sphere with a mass of m0, a
radius of r0 and a density of ρ0 is placed in
a container of water. Initially the sphere floats and the water
level is marked on the side of the container. What happens to the
water level, when the original sphere is replaced with a new sphere
which has different physical parameters? Notation: r means the
water level rises in the container, f means falls, s means stays
the same. Combination answers like 'f or s' are possible answers in
some of the cases i.e r or s, f or s, and r or f or s.
The new sphere has a density of ρ > ρ0
and a radius of r = r0.
The new sphere has a mass of m = m0 and a density of ρ
> ρ0.
The new sphere has a radius of r = r0 and a mass of m
> m0.
The new sphere has a radius of r < r0 and a mass
of m > m0.
The new sphere has a radius of r < r0 and a density
of ρ > ρ0.
The new sphere has a mass of m < m0 and a density of ρ >
In: Physics
You work in a sales department and want to know if a new advertisement campaign is effective at increasing sales. You have three quarters (quarter of a year) of sales data after the new advertisement campaign: Q1= $100,000 , Q2 = $110,000, and Q3= $75,000. You know quarterly sales prior to the new ad campaign followed a normal distribution with a mean of $80,000 and a standard deviation of $10,000. \
-Write the distribution for sales prior to the new advertisement using the notation for a normal distribution: X~
Explain why the sales prior to the new advertisement campaign should be interpreted as the population for this study.
Our null hypothesis is H0: X ̅=80,000. Interpret this hypothesis in words and be sure to identify the population mean in this interpretation.
Calculate the 90% confidence interval for mean quarterly sales following the new advertisement. Conduct a hypothesis test for whether quarterly sales have changed since the new advertisement campaign has been running. Interpret the results of your hypothesis test from part e in words.
In: Statistics and Probability
Question 16
C.T. Balls Cargo incorporated is responsible for the majority of imports brought into New Jersey. In fact, C.T. Balls carries 82 percent of New Jersey's imports. Taking this into consideration, New Jersey lawmakers enacted a law that only allows C.T. Balls Cargo incorporated to bring imports to New Jersey. The New Jersey legislature is aware that the law conflicts with the U.S. Constitution, but believes the law to be valid because there is a rational reason for the law. The New Jersey legislature stated that they passed the law because it is more cost effective and less burdensome for the state to only have to regulate one cargo ship company.
Which of the following statements regarding the above hypothetical scenario is true?
The law is valid because their is a rational basis for the law.
The U.S. Constitution has no effect on any state laws, including New Jersery's import law.
The law would be valid if it involved exports, but is void because it pertains to imports.
The law is void and has no legal effect
In: Operations Management
List 3 goals in SMART Format for the new campus building project at HMC Sheridan College
List 3 assumptions for the new campus building project at HMC Sheridan
List 3 constraints for the new campus building project at HMC Sheridan
In: Operations Management