A project will generate $1 million net cash flow annually in perpetuity. If the project costs $7 million, what is the lowest WACC shown below that will make the NPV negative?
A. 10%
B. 12%
C. 14%
D. 16%
In: Accounting
What is the WACC for a firm with equal amounts of debt and equity financing, a 17% before-tax company cost of capital, a 35% tax rate, and a 10% coupon rate on its debt that is selling at par value?
A. 10.40%
B. 14.25%
C. 15.25%
D. 16.00%
In: Accounting
What is the WACC for a firm with equal amounts of debt and equity financing, a 16% before-tax company cost of capital, a 35% tax rate, and a 10% coupon rate on its debt that is selling at par value?
A. 10.40%
B. 14.25%
C. 15.13%
D. 16.00%
In: Accounting
What will be the effect of using the book value of debt in WACC decisions if interest rates have decreased substantially since a firm's long-term bonds were issued?
A. The debt-to-value ratio will be overstated.
B. The debt-to-value ratio will be understated.
C. There will be no effect on WACC decisions.
D. It cannot be determined without knowing interest rates.
In: Accounting
How much will a firm need in cash flow before tax and interest to satisfy debtholders and equity holders if the tax rate is 35%, there is $13 million in common stock requiring a 10% return, and $6 million in bonds requiring a 6% return?
A. $1,392,000
B. $1,488,000
C. $2,360,000
D. $2,480,000
In: Accounting
Should a project be accepted if it offers an annual after-tax cash flow of $1,250,000 indefinitely, costs $10 million, is riskier than the firm's average projects, and the firm uses a 12.5% WACC?
A. Yes, since NPV is positive.
B. Yes, since a zero NPV indicates marginal acceptability.
C. No, since NPV is zero.
D. No, since NPV is negative.
In: Accounting
How much will a firm need in cash flow before tax and interest to satisfy debtholders and equity holders if the tax rate is 40%, there is $10 million in common stock requiring a 12% return, and $6 million in bonds requiring an 8% return?
A. $1,392,000
B. $1,488,000
C. $2,480,000
D. $2,800,000
In: Accounting
A family friend, Mr. Burn Out availed of the early retirement scheme offered by his employer. He said that he was already tired of the same routine of spending eight full hours in an office doing the same thing for the last twenty years.
Mr. Burn Out plans to get into the field of entrepreneurship. He would invest part of his retirement pay in a business that would deal with the sale of medical supplies to local clinics and hospitals.
When Mr. Burn Out learned that you are an accountant, he confessed that he is excited with his planned investment project, but very much afraid because he cannot afford to fail and lose his hard-earned retirement pay.
You advised that a Feasibility Study be prepared for his planned investment project. The study, you said, would determine the viability of his proposed business undertaking. it would cover key areas, such as marketing, production or purchasing, and finance, among others. You emphasized that the financial aspect is the most critical of them all.
Mr. Burn Out requested you to prepare a feasibility study for his proposed business. You immediately started and gathered the following relevant data.
1. Projected sales for the first year of operations are $288,000, spread evenly during the year. All sales will be on account with an average collection period of one month.
2. The cost ratio will be 60% of sales.
3. At the end of the first year, the acid-test ratio will be 1:1, while the current ratio will be 2:1.
4. Once the business is underway, purchases will replace the stock sold each month. The average payment period for accounts payable arising from the purchases of merchandise will be two (2) months.
5. Mr. Burn Out will open an account with the nearest bank and deposit $260,000 to start the business.
6. Various fixed assets will be acquired for cash at a total cost of $240,000. These fixed assets will be depreciated at the rate of 10% per year using the straight-line method.
7. Operating expenses, other than depreciation, are estimated at $70,000 per year. There will be no accruals and prepayment at year-end.
8. Mr. Burn Out will make drawings in excess of the amount necessary to meet the above plans.
Question: The projected balance sheet as of the end of the first year of operations will show an owners' equity balance of?
In: Accounting
A family friend, Mr. Burn Out availed of the early retirement scheme offered by his employer. He said that he was already tired of the same routine of spending eight full hours in an office doing the same thing for the last twenty years.
Mr. Burn Out plans to get into the field of entrepreneurship. He would invest part of his retirement pay in a business that would deal with the sale of medical supplies to local clinics and hospitals.
When Mr. Burn Out learned that you are an accountant, he confessed that he is excited with his planned investment project, but very much afraid because he cannot afford to fail and lose his hard-earned retirement pay.
You advised that a Feasibility Study be prepared for his planned investment project. The study, you said, would determine the viability of his proposed business undertaking. it would cover key areas, such as marketing, production or purchasing, and finance, among others. You emphasized that the financial aspect is the most critical of them all.
Mr. Burn Out requested you to prepare a feasibility study for his proposed business. You immediately started and gathered the following relevant data.
1. Projected sales for the first year of operations are $288,000, spread evenly during the year. All sales will be on account with an average collection period of one month.
2. The cost ratio will be 60% of sales.
3. At the end of the first year, the acid-test ratio will be 1:1, while the current ratio will be 2:1.
4. Once the business is underway, purchases will replace the stock sold each month. The average payment period for accounts payable arising from the purchases of merchandise will be two (2) months.
5. Mr. Burn Out will open an account with the nearest bank and deposit $260,000 to start the business.
6. Various fixed assets will be acquired for cash at a total cost of $240,000. These fixed assets will be depreciated at the rate of 10% per year using the straight-line method.
7. Operating expenses, other than depreciation, are estimated at $70,000 per year. There will be no accruals and prepayment at year-end.
8. Mr. Burn Out will make drawings in excess of the amount necessary to meet the above plans.
Question: In the first year of operations, Mr. Burn Out's drawings will amount to?
In: Accounting
A family friend, Mr. Burn Out availed of the early retirement scheme offered by his employer. He said that he was already tired of the same routine of spending eight full hours in an office doing the same thing for the last twenty years.
Mr. Burn Out plans to get into the field of entrepreneurship. He would invest part of his retirement pay in a business that would deal with the sale of medical supplies to local clinics and hospitals.
When Mr. Burn Out learned that you are an accountant, he confessed that he is excited with his planned investment project, but very much afraid because he cannot afford to fail and lose his hard-earned retirement pay.
You advised that a Feasibility Study be prepared for his planned investment project. The study, you said, would determine the viability of his proposed business undertaking. it would cover key areas, such as marketing, production or purchasing, and finance, among others. You emphasized that the financial aspect is the most critical of them all.
Mr. Burn Out requested you to prepare a feasibility study for his proposed business. You immediately started and gathered the following relevant data.
1. Projected sales for the first year of operations are $288,000, spread evenly during the year. All sales will be on account with an average collection period of one month.
2. The cost ratio will be 60% of sales.
3. At the end of the first year, the acid-test ratio will be 1:1, while the current ratio will be 2:1.
4. Once the business is underway, purchases will replace the stock sold each month. The average payment period for accounts payable arising from the purchases of merchandise will be two (2) months.
5. Mr. Burn Out will open an account with the nearest bank and deposit $260,000 to start the business.
6. Various fixed assets will be acquired for cash at a total cost of $240,000. These fixed assets will be depreciated at the rate of 10% per year using the straight-line method.
7. Operating expenses, other than depreciation, are estimated at $70,000 per year. There will be no accruals and prepayment at year-end.
8. Mr. Burn Out will make drawings in excess of the amount necessary to meet the above plans.
Question: The projected balance of inventories at the end of the first year of operations is?
In: Accounting
A family friend, Mr. Burn Out availed of the early retirement scheme offered by his employer. He said that he was already tired of the same routine of spending eight full hours in an office doing the same thing for the last twenty years.
Mr. Burn Out plans to get into the field of entrepreneurship. He would invest part of his retirement pay in a business that would deal with the sale of medical supplies to local clinics and hospitals.
When Mr. Burn Out learned that you are an accountant, he confessed that he is excited with his planned investment project, but very much afraid because he cannot afford to fail and lose his hard-earned retirement pay.
You advised that a Feasibility Study be prepared for his planned investment project. The study, you said, would determine the viability of his proposed business undertaking. it would cover key areas, such as marketing, production or purchasing, and finance, among others. You emphasized that the financial aspect is the most critical of them all.
Mr. Burn Out requested you to prepare a feasibility study for his proposed business. You immediately started and gathered the following relevant data.
1. Projected sales for the first year of operations are $288,000, spread evenly during the year. All sales will be on account with an average collection period of one month.
2. The cost ratio will be 60% of sales.
3. At the end of the first year, the acid-test ratio will be 1:1, while the current ratio will be 2:1.
4. Once the business is underway, purchases will replace the stock sold each month. The average payment period for accounts payable arising from the purchases of merchandise will be two (2) months.
5. Mr. Burn Out will open an account with the nearest bank and deposit $260,000 to start the business.
6. Various fixed assets will be acquired for cash at a total cost of $240,000. These fixed assets will be depreciated at the rate of 10% per year using the straight-line method.
7. Operating expenses, other than depreciation, are estimated at $70,000 per year. There will be no accruals and prepayment at year-end.
8. Mr. Burn Out will make drawings in excess of the amount necessary to meet the above plans.
Question: What is the projected cash balance at the end of the first year of operations?
In: Accounting
A family friend, Mr. Burn Out availed of the early retirement scheme offered by his employer. He said that he was already tired of the same routine of spending eight full hours in an office doing the same thing for the last twenty years.
Mr. Burn Out plans to get into the field of entrepreneurship. He would invest part of his retirement pay in a business that would deal with the sale of medical supplies to local clinics and hospitals.
When Mr. Burn Out learned that you are an accountant, he confessed that he is excited with his planned investment project, but very much afraid because he cannot afford to fail and lose his hard-earned retirement pay.
You advised that a Feasibility Study be prepared for his planned investment project. The study, you said, would determine the viability of his proposed business undertaking. it would cover key areas, such as marketing, production or purchasing, and finance, among others. You emphasized that the financial aspect is the most critical of them all.
Mr. Burn Out requested you to prepare a feasibility study for his proposed business. You immediately started and gathered the following relevant data.
1. Projected sales for the first year of operations are $288,000, spread evenly during the year. All sales will be on account with an average collection period of one month.
2. The cost ratio will be 60% of sales.
3. At the end of the first year, the acid-test ratio will be 1:1, while the current ratio will be 2:1.
4. Once the business is underway, purchases will replace the stock sold each month. The average payment period for accounts payable arising from the purchases of merchandise will be two (2) months.
5. Mr. Burn Out will open an account with the nearest bank and deposit $260,000 to start the business.
6. Various fixed assets will be acquired for cash at a total cost of $240,000. These fixed assets will be depreciated at the rate of 10% per year using the straight-line method.
7. Operating expenses, other than depreciation, are estimated at $70,000 per year. There will be no accruals and prepayment at year-end.
8. Mr. Burn Out will make drawings in excess of the amount necessary to meet the above plans.
Question: As of the end of the first year of operations, the projected total current assets is?
In: Accounting
A family friend, Mr. Burn Out availed of the early retirement scheme offered by his employer. He said that he was already tired of the same routine of spending eight full hours in an office doing the same thing for the last twenty years.
Mr. Burn Out plans to get into the field of entrepreneurship. He would invest part of his retirement pay in a business that would deal with the sale of medical supplies to local clinics and hospitals.
When Mr. Burn Out learned that you are an accountant, he confessed that he is excited with his planned investment project, but very much afraid because he cannot afford to fail and lose his hard-earned retirement pay.
You advised that a Feasibility Study be prepared for his planned investment project. The study, you said, would determine the viability of his proposed business undertaking. it would cover key areas, such as marketing, production or purchasing, and finance, among others. You emphasized that the financial aspect is the most critical of them all.
Mr. Burn Out requested you to prepare a feasibility study for his proposed business. You immediately started and gathered the following relevant data.
1. Projected sales for the first year of operations are $288,000, spread evenly during the year. All sales will be on account with an average collection period of one month.
2. The cost ratio will be 60% of sales.
3. At the end of the first year, the acid-test ratio will be 1:1, while the current ratio will be 2:1.
4. Once the business is underway, purchases will replace the stock sold each month. The average payment period for accounts payable arising from the purchases of merchandise will be two (2) months.
5. Mr. Burn Out will open an account with the nearest bank and deposit $260,000 to start the business.
6. Various fixed assets will be acquired for cash at a total cost of $240,000. These fixed assets will be depreciated at the rate of 10% per year using the straight-line method.
7. Operating expenses, other than depreciation, are estimated at $70,000 per year. There will be no accruals and prepayment at year-end.
8. Mr. Burn Out will make drawings in excess of the amount necessary to meet the above plans.
Question: The projected balance of accounts receivable at the end of the first year of operations is?
In: Accounting
A family friend, Mr. Burn Out availed of the early retirement scheme offered by his employer. He said that he was already tired of the same routine of spending eight full hours in an office doing the same thing for the last twenty years.
Mr. Burn Out plans to get into the field of entrepreneurship. He would invest part of his retirement pay in a business that would deal with the sale of medical supplies to local clinics and hospitals.
When Mr. Burn Out learned that you are an accountant, he confessed that he is excited with his planned investment project, but very much afraid because he cannot afford to fail and lose his hard-earned retirement pay.
You advised that a Feasibility Study be prepared for his planned investment project. The study, you said, would determine the viability of his proposed business undertaking. it would cover key areas, such as marketing, production or purchasing, and finance, among others. You emphasized that the financial aspect is the most critical of them all.
Mr. Burn Out requested you to prepare a feasibility study for his proposed business. You immediately started and gathered the following relevant data.
1. Projected sales for the first year of operations are $288,000, spread evenly during the year. All sales will be on account with an average collection period of one month.
2. The cost ratio will be 60% of sales.
3. At the end of the first year, the acid-test ratio will be 1:1, while the current ratio will be 2:1.
4. Once the business is underway, purchases will replace the stock sold each month. The average payment period for accounts payable arising from the purchases of merchandise will be two (2) months.
5. Mr. Burn Out will open an account with the nearest bank and deposit $260,000 to start the business.
6. Various fixed assets will be acquired for cash at a total cost of $240,000. These fixed assets will be depreciated at the rate of 10% per year using the straight-line method.
7. Operating expenses, other than depreciation, are estimated at $70,000 per year. There will be no accruals and prepayment at year-end.
8. Mr. Burn Out will make drawings in excess of the amount necessary to meet the above plans.
Question: The projected balance of accounts payable at the end of the first year of operation is?
In: Accounting
A family friend, Mr. Burn Out availed of the early retirement scheme offered by his employer. He said that he was already tired of the same routine of spending eight full hours in an office doing the same thing for the last twenty years.
Mr. Burn Out plans to get into the field of entrepreneurship. He would invest part of his retirement pay in a business that would deal with the sale of medical supplies to local clinics and hospitals.
When Mr. Burn Out learned that you are an accountant, he confessed that he is excited with his planned investment project, but very much afraid because he cannot afford to fail and lose his hard-earned retirement pay.
You advised that a Feasibility Study be prepared for his planned investment project. The study, you said, would determine the viability of his proposed business undertaking. it would cover key areas, such as marketing, production or purchasing, and finance, among others. You emphasized that the financial aspect is the most critical of them all.
Mr. Burn Out requested you to prepare a feasibility study for his proposed business. You immediately started and gathered the following relevant data.
1. Projected sales for the first year of operations are $288,000, spread evenly during the year. All sales will be on account with an average collection period of one month.
2. The cost ratio will be 60% of sales.
3. At the end of the first year, the acid-test ratio will be 1:1, while the current ratio will be 2:1.
4. Once the business is underway, purchases will replace the stock sold each month. The average payment period for accounts payable arising from the purchases of merchandise will be two (2) months.
5. Mr. Burn Out will open an account with the nearest bank and deposit $260,000 to start the business.
6. Various fixed assets will be acquired for cash at a total cost of $240,000. These fixed assets will be depreciated at the rate of 10% per year using the straight-line method.
7. Operating expenses, other than depreciation, are estimated at $70,000 per year. There will be no accruals and prepayment at year-end.
8. Mr. Burn Out will make drawings in excess of the amount necessary to meet the above plans.
Question: The projected income before tax is?
In: Accounting