Sunset Sarsaparilla is building a new bottling plant. This plant will cost $140M to construct, and will produce EBIT of $19M per year for the next 12 years. Sunset has a tax rate of 40%. Another firm in the same industry, Vim Pop, has an equity beta of 1.2 and a debt to equity ratio of 0.9. Sunset’s debt to equity ratio is 1.5, the risk free rate is 4%, and the excess return on the market is 8%. Assume both firms can borrow at 5.5%.

1A. Find Sunset’s equity beta using Vim as a comparable firm.

1B. Estimate Sunset Sarsaparilla’s cost of levered equity

1C. Using this estimated cost of equity, find the NPV of opening this bottling plant using the WACC method.

Gateway Communications is considering a project with an initial fixed assets cost of $1.76 million that will be depreciated straight-line to a zero book value over the 10-year life of the project. At the end of the project the equipment will be sold for an estimated $234,000. The project will not change sales but will reduce operating costs by $384,500 per year. The tax rate is 34 percent and the required return is 10.9 percent. The project will require $49,000 in net working capital, which will be recouped when the project ends. What is the project's NPV?

• $117,989

• $160,744

• $155,559

• $112,859

• $149,576

Dog Up! Franks is looking at a new sausage system with an installed cost of $920,400. This cost will be depreciated straight-line to zero over the project's 6-year life, at the end of which the sausage system can be scrapped for $141,600. The sausage system will save the firm $283,200 per year in pretax operating costs, and the system requires an initial investment in net working capital of $66,080. Required: If the tax rate is 31 percent and the discount rate is 12 percent, what is the NPV of this project?

At 30 June 2019, the financial statements of McMaster Ltd showed a building with a cost of $300 000 and accumulated depreciation of $152 000. The business uses the straight-line method to depreciate the building. When acquired, the building’s useful life was estimated at 30 years and its residual value at $60 000. On 1 January 2020, McMaster Ltd made structural improvements to the building costing $94 000. Although the capacity of the building was unchanged, it is estimated that the improvements will extend the useful life of the building to 40 years, rather than the 30 years originally estimated. No change is expected in the residual value.

Required

1. Calculate the number of years the building had been depreciated to 30 June 2019.
2. Give the general journal entry to record the cost of the structural improvements on 1 January 2020.   

c.Give the general journal entry to record the building’s depreciation expense for the year ended 30 June 2020.

How might cost-effectiveness of educational programming be communicated to administrators? 200 words

Using a single diagram with the same cost and revenue functions, compare and contrast the price, output and profitability of a single-price monopolist with that of a perfectly competitive firm.

A company has inventory of 10 units at a cost of $10 each on June 1. On June 3, it purchased 20 units at $12 each. 12 units are sold on June 5. Using the average-cost periodic inventory method, what is the cost of the 12 units that were sold?

Select one:

a.  $136.

b.  $130.

c.  $204.

d.  $340.

x A monopoly faces the demand curve P = 110 — Q and has the cost function C (Q) = 10Q + Q2. Compare the total Q, profits, producer surplus, consumer surplus and DWL compared to perfect competition for: a. single-price monopoly, b. the perfectly price-discriminating monopoly, c. and a quantity-discriminating monopoly (block pricing) by considering one possible price schedule: sell its first 25 units (Q1) at P1 = 85 and sell an additional (Q2 — Q1) = —235 units at P2= = 230.

Entries for Sale of Fixed Asset

Equipment acquired on January 8 at a cost of $132,750 has an estimated useful life of 15 years, has an estimated residual value of $7,050, and is depreciated by the straight-line method.

a. What was the book value of the equipment at December 31 the end of the fourth year?
$

b. Assume that the equipment was sold on April 1 of the fifth year for $91,965.

1. Journalize the entry to record depreciation for the three months until the sale date. If an amount box does not require an entry, leave it blank. Round your answers to the nearest whole dollar if required.

2. Journalize the entry to record the sale of the equipment. If an amount box does not require an entry, leave it blank. Do not round intermediate calculations.

Explain why the replacement cost approach is rarely used to value an entire business.