Periodic Inventory by Three Methods; Cost of Merchandise Sold The units of an item available for sale during the year were as follows:

Jan. 1 Inventory 40 units @ $108

Mar. 10 Purchase 70 units @ $116

Aug. 30 Purchase 20 units @ $120

Dec. 12 Purchase 70 units @ $126

There are 80 units of the item in the physical inventory at December 31. The periodic inventory system is used.

Determine the inventory cost and the cost of merchandise sold by three methods. Round interim calculations to one decimal and final answers to the nearest whole dollar. Cost of Merchandise Inventory and Cost of Merchandise Sold

Inventory Method: Merchandise Inventory: Merchandise Sold

First-in, first-out (FIFO):

Last-in, first-out (LIFO):

Weighted average cost:

Scenario

The economic concept of cost differs from the everyday notion of a monetary payment. In economics, the cost of doing something is what you have to give up to be able to do it. In this sense, you can face a cost even if you do not have to pay anyone anything. Economists refer to this as an opportunity cost.

Suppose that a farmer has land that can produce 20 bushels of corn per acre or 10 bushels of wheat per acre. She currently is producing 100 bushels of corn and 100 bushels of wheat.

What is the opportunity cost to the farmer, measured in bushels of corn, of producing 1 additional bushel of wheat (answer with numbers only.)

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Peter's Audio has a yield to maturity on its debt of 7.8 percent, a cost of equity of 12.4 percent, and a cost of preferred stock of 8 percent. The firm has 105,000 shares of common stock outstanding at a market price of $22 a share. There are 25,000 shares of preferred stock outstanding at a market price of $45 a share. The bond issue has a total face value of $1.5 million and sells at 98 percent of face value. If the tax rate is 34 percent, what is the weighted average cost of capital?

In a job order cost accounting system, the entry to record the flow of direct materials into production is:

• the total activity for the activity cost pool.
• the direct labor-hours required by the product.
• the machine-hours required by the product.
• the total direct labor-hours for the activity cost pool.

One advantage of proprietary software versus off-the-shelf software is that _____

What type of cost is the oil needed to maintain a large piece of equipment

Opportunity cost

Indirect cost

Fixed Cost

Variable Cost

Life-cycle cost (LCC) analysis is being used to help determine weather the purchase of a high-performance heating ventilation and air conditioning system is cost- effective. What would this analysis not consider?

1. Cash flows made time-equivalent by converting them to present values

2. Comparision with other measures of economic evaluations

3. Appropriate risk and uncertainty assessments

4. Customer satisfaction survey responses

A cost-cutting project will decrease costs by $67,300 a year. The annual depreciation will be $16,650 and the tax rate is 35 percent. What is the operating cash flow for this project?

49,573

29,383

17,728

43,745

37,918

An unlevered firm has a cost of capital of 13.6 percent and earnings before interest and taxes of $138,000. A levered firm with the same operations and assets has both a book value and a face value of debt of $520,000 with an annual coupon of 7 percent. The applicable tax rate is 21 percent. What is the value of the levered firm?

A firm’s weighted average cost of capital (WACC) is used as the discount rate to evaluate various capital budgeting projects. However, remember the WACC is an appropriate discount rate only for a project of average risk.

Analyze the cost of capital situations of the following company cases, and answer the specific questions that finance professionals need to address.

Consider the case of Fuzzy Button Clothing Company

Fuzzy Button Clothing Company has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2%.

If Fuzzy Button can raise all of its equity capital from retained earnings, its cost of common equity will be 14.7%. However, if it is necessary to raise new common equity, it will carry a cost of 16.8%.

If its current tax rate is 40%, how much higher will Fuzzy Button’s weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings? (Note: Round your answer to two decimal places.)

0.83%

0.98%

0.75%

1.01%

Consider the case of Peaceful Book Binding Company

he CFO of Peaceful Book Binding Company is trying to determine the company’s WACC. He has determined that the company’s before-tax cost of debt is 9.60%. The company currently has $750,000 of debt, and the CFO believes that the book value of the company’s debt is a good approximation for the market value of the company’s debt.

If PBBC is subject to a tax rate of 40%, Peaceful Book Binding Company’s WACC is ______.

Consider the case of Chilly Moose Fruit Producer

Chilly Moose Fruit Producer is considering a new project that will require an initial investment of $4 million. It has a target capital structure of 35% debt, 2% preferred stock, and 63% common equity. Chilly Moose Fruit has noncallable bonds outstanding that mature in 15 years with a face value of $1,000, an annual coupon rate of 11%, and a market price of $1,555.38. The yield on the company’s current bonds is a good approximation of the yield on any new bonds that it issues. The company can sell new shares of preferred stock that pay an annual dividend of $8 at a price of $95.70 per share. Assume that Chilly Moose Fruit new preferred shares can be sold without incurring flotation costs.

Chilly Moose Fruit does not have any retained earnings available to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently selling for $22.35 per share, and it is expected to pay a dividend of $2.78 at the end of next year. Flotation costs will represent 8% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 8.7%, and they face a tax rate of 40%.

Chilly Moose Fruit’s WACC for this project will be: (Note: Round your answer to two decimal places.)

18.38%

15.32%

12.26%

14.55%