Answer:
A 6,500
Explanation:
The number of units to be sold is calculated as;
= (Pretax income + Fixed costs) ÷ Contribution margin
Given that;
Pretax income = $35,000
Fixed costs = $420,000
Contribution margin
= Selling price per unit - Variable cost per unit
= $200 - $130
= $70
= ($35,000 + $420,000) ÷ $70
= 6,500 units
In its first year of operations Best Corp. had income before tax of $540,000. Best made income tax payments totaling $177,000 during the year and has an income tax rate of 30%. What was Best's net income for the year?
Answer:
$378,000
Explanation:
Best Corp. has income before tax of $540,000.
The tax rate is 30%. the amount of tax will be 30% of $540,000.
= 30/100 x $540,000
=0.3 x 540,000
=$162,000
Tax amount = $162,000.
Net income = Income before tax - tax amount
=$540,000 - $162,000
=$378,000
When people believe that past behavior is the best predictor of future behavior, they have __________ expectationsa. rational
b. adaptive
c. irrational
d. reasonable
Customer groups represent different segments if: ___________.a. Their needs require different products/services or different prices. b. Other elements of the canvas need to change in order to reach them. c. They can be categorized into different groups. d. Distinctions only matter if tailoring parts of the business to reach some customers makes it more difficult to reach other customers.
Answer:
a. Their needs require different products/services or different prices
Explanation:
A customer segment is a term in business that is used to describe a group of consumers with identical or related needs, behaviors, or other characteristics. For example Mass Market, Niche Market, etc.
However, customer groups represent separate segments based on the following:
1. their needs mandate and justify a distinct offer
2. they are sold through various distribution means.
3. they need different types of connection or arrangement.
4. they are ready to pay for various items of the offer
Explain why it is important for entrepreneurs to talk with industry experts when
developing new business concepts(10 Marks)
Answer:
Find the explanation below.
Explanation:
It is important for entrepreneurs to talk with industry experts when developing new business concepts because they provide valuable information on the intricacies required to be successful in the business. The industry experts have acquired enough experience that makes it possible for them to provide advice on the;
1. right tools and technologies that would guarantee smoother business
2. the legal standards that must never be compromised
3. logistics management that is cost-effective, as well as,
4. trending and profitable industry procedures.
It is only normal that people with more and vast experience in a field would have valuable information that would prove useful to start-ups. Associating with such people would result in better business decision-making.
Which of the following would be most likely associated with the expansionary phase of the economic business cycle?
)
A)
unemployment rate is high
B)
inflation is at its highest level
businesses produce more and hire workers
D)
business profits are on the decline
The four P's include _____. product process promotion price
small business entrpanership
Answer:
These are the four Ps: the product (the good or service); the price (what the consumer pays); the place (the location where a product is marketed); and promotion (the advertising).
Explanation:
The market price of a security is $50. Its expected rate of return is 13%. The risk-free rate is 4% and the market risk premium is 6%. What will be the market price of the security if its beta doubles (and all other variables remain unchanged)? Assume that the stock is expected to pay a constant dividend in perpetuity.
Answer: New Market price =$29.55
Explanation:
Using the CAPM,Capital Asset Pricing Model CAPM formule , The expected return on stock is given as
Er = Rf +β( Mr)
which means
Expected return = Risk free rate + beta (market risk premium)
13%= 4% +beta (6%)
beta= 13%-4%/6%=0.13-0.04 /0.06
beta= 1.5
The dividend expected to be paid is given as
Expected dividend, D = Price of security X Expected return
= 50 X 13%
= $6.5
Now, if beta doubles, Expected return becomes
Er = Rf + 2β( Mr)
Er= 4% + 2 x 1.5( 6%)
=4%+ 3.0( 6%)
0.04 + 0.18
Er = 0.22 = 22%
New Market price
Expected dividend, D = Price of security X Expected return
Price = Expected dividend, D/Expected return
= $6.5/0.22
=$29.55
how long will it take 13,000 to grow to 18,000 if the investment earns at the interest rate of 3% compunded monthly
Answer:
130 months
Explanation:
The computation of the time period is shown below:
Given that
Present value = $13,000
Future value = $18,000
PMT = $0
RATE = 3% ÷ 12 = 0.25%
The formula is shown below:
= NPER(RATE;PMT;-PV;FV;TYPE)
The present value comes in positive
After applying the above formula, the time period is 130 months
Therefore the time that should be needed is 130 months
Yukelson Company owns the building occupied by its administrative office. The office building was reflected in the accounts at the end of last year as follows:
Cost when acquired $ 396,000
Accumulated depreciation (based on straight-line depreciation, an estimated life of 50 years, and a $36,000 residual value) 72,000
During January of this year, on the basis of a careful study, management decided that the total estimated useful life should be changed to 30 years (instead of 50) and the residual value reduced to $30,000 (from $36,000)). The depreciation method will not change.
Required:
1. Compute the annual depreciation expense prior to the change in estimates.
2. Compute the annual depreciation expense after the change in estimates.3. What will be the net effect of changing estimates on the balance sheet, net income, and cash flows for the year?
Answer:
1. Compute the annual depreciation expense prior to the change in estimates.
annual depreciation = ($396,000 - $36,000) / 50 = $7,200 per year
2. Compute the annual depreciation expense after the change in estimates.
annual depreciation = ($324,000 - $30,000) / 20 = $14,700 per year
3. What will be the net effect of changing estimates on the balance sheet, net income, and cash flows for the year?
Any changes in an asset's useful life are reported prospectively, this means that they do not affect any past records, only future records are affected. In this case, the depreciation expense per year will increase form $7,200 to $14,700, so net income will be negatively affected by it. Cash flows will not be affected, since depreciation expense is a non-cash expense. P,P&E on the balance sheet will be affected because the net value of the building will decrease faster.
Which displays the data while retaining all the properties of the charts?
Answer:
The appropriate answer is "Pivot table and the straight table".
Explanation:
Without statements, a pivot table could be described, creating a perspective vision to navigate several dimensional depths or rates. This same straight table distinguishes again from pivot table format throughout that this was not capable of showing subclasses and because the definition classification would be displayed throughout the form of such a document, although each row includes the qualities and quantities of the domain.She has read a number of newspaper articles about a huge IPO being carried out by a leading technology company. She wants to purchase as many shares in the IPO as possible and would even be willing to buy the shares in the open market immediately after the issue. What advice do you have for her?
Answer:
Explanation:
I believe the best advice that can be given is to do thorough research into the company before investing and do not invest more than you are willing to lose. Initial Public Offerings (IPO) can be incredibly risky investments because they can be complete scams or can be legit startup companies but make one mistake and quickly go bankrupt causing the shares to be worthless and you lose all of your money. But with great risk comes great reward, If they do manage to take you off you can make a lot of money. Therefore, research and invest only what you can live without is the best advice.
On July 1, 2020, Sweet Inc. made two sales.
1. It sold land having a fair value of $909,890 in exchange for a 4-year zero-interest-bearing promissory note in the face amount of $1,431,725. The land is carried on Sweet's books at a cost of $594,900.
2. It rendered services in exchange for a 3%, 8-year promissory note having a face value of $409,660 (interest payable annually).
Sweet Inc. recently had to pay 8% interest for money that it borrowed from British National Bank. The customers in these two transactions have credit ratings that require them to borrow money at 12% interest.
Required:
Record the two journal entries that should be recorded by Sweet Inc. for the sales transactions above that took place on July 1, 2020.
Answer:
1.
DR Note Receivable $1,431,725
CR Land $594,900
Gain on Disposal of land $314,990
Discount on Notes Receivable $521,835
Working
Gain on disposal = 909,890 - 594,900 = $314,990
Discount on Notes receivable = 1,431,725 - 909,890 = $521,835
2.
First find present value of the 8-year promissory note;
= 409,660 / ( 1 + 12%)⁸
= $165,454.80
Annual payment of 3% = 3% * 409,660 = $12,289.80
Paid every year for 8 years, the present value at 12% is;
= 12,289.80 * Present value interest factor for annuity, 12%, 8 years
= 12,289.80 * 4.9676
= $61,050.81
Present value of the note (revenue for services rendered) = 61,050.81 + 165,454.80 = $226,505.61
Discount on note receivable = 409,660 - 226,505.61 = $183,154.39
DR Notes Receivable $409,660
CR Service Revenue $226,505.61
Discount on Notes Receivable $$183,154.39
Luther Industries has 25 million shares outstanding trading at $18 per share. In addition, Luther has $150 million in outstanding debt. Suppose Luther's equity cost of capital is 13%, its debt cost of capital is 7%, and the corporate tax rate is 40%. Luther's unlevered cost of capital is closest to:_______A) 11.5%B) 10.8%C) 9.8%D) 13.0%
Answer:
B. 10.8%
Explanation:
To get the Market value of equity = 25m x $18 = $450 million
The Market value of debt is given to be = $150 million
To get the weight of equity= 450/600
To get the weight of debt = 150/600
we have Ke as cost of equity= 13%
Such that after tax cost of debt = 7%(1-0.40) = 4.2%
Then the Weighted average cost of capital = We(Ke) + Wd(Kd)
= 450/600 x 13% + 150/600 x 4.2%
This gives us
= 9.75% + 1.05%
Therefore the answer is
= 10.80%
So the option B is correct
Luther's unlevered cost of capital is closest to 10.8%. Therefore, correct response here is option B.
What is the term cost of capital about?
A cost of capital refers to as a return that a company needs to earn in order to achieve the cost of capital of particular project.
Solution:
To get the Market value of equity = 25m x $18 = $450 million
The Market value of debt is given to be = $150 million
To get the weight of equity= 450/600
To get the weight of debt = 150/600
Ke as cost of equity= 13%
Such that after tax cost of debt = 7%(1-0.40) = 4.2%
Then, the Weighted average cost of capital = We(Ke) + Wd(Kd)
Weighted average cost of capital= 450/600 x 13% + 150/600 x 4.2%
Weighted average cost of capital= 9.75% + 1.05%
Weighted average cost of capital=10.80%
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Performance appraisals can be improved by: Improving appraisal formats Selecting the right raters Training raters to rate more accurately Understanding how raters process information All of the choices are correct
Answer:
All of the choices are correct
Explanation:
Performance appraisals is one of the tools that helps in the maximizing and enhancing the energies of the employees towards achieving the goals. It is the way through which the performance of the employees are evaluated and analyzed. Some of the methods include providing rewards, promoting or demoting the employees and facilitating transfers. It helps in the flow of better communication of the employees and the employers. The improvement in the productivity of the employees, growth in the company's turnover and good relationship are some of the outputs of the performance appraisals.
Crystal wants the latest limited edition of Vogue magazine, but she needs to buy food for her family. Crystal prioritizes her needs over her wants. What will she most likely do? A. Purchase the groceries, because that is her need. B. Purchase the magazine, because it is a limited edition that she may not see again. C. Purchase the magazine before it becomes outdated. D. Purchase cheaper grocery items so she can still afford the magazine. E. Purchase neither groceries nor the magazine.
Answer:
A. Purchase the groceries, because that is her need.
Explanation:
PLATO
In the given case, Crystal prioritizes her needs over her wants, she most likely does Purchase the groceries, because that is her need. Thus the correct option is A.
What does the opportunity cost?A situation of abundance, where an individual has a variety of options available and chooses one option over another by evaluating their importance is referred to as opportunity cost.
In the given case, it is explained that The newest limited edition of Vogue is what Crystal wants, but she must also buy food for her family. Necessities are referred to as basic necessities, whilst wishes are referred to as personal preferences.
Opportunity costs can be seen in every situation where a person is required to decide between something and giving up something else. In the given case, Crystal has given up on her wants and prioritized her needs based on importance.
Therefore, option A is appropriate.
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Denise sells silk scarves at a hobby fair. Each scarf sells for $25 and has a variable cost of $15. Denise’s booth rental for one day is $30. Based on this information, what total revenue amount does Denise need to earn to break-even?
Answer:
Break-even point (dollars)= $75
Explanation:
Giving the following information:
Each scarf sells for $25 and has a variable cost of $15. Denise’s booth rental for one day is $30.
To calculate the break-even point in dollars, we need to use the following formula:
Break-even point (dollars)= fixed costs/ contribution margin ratio
Break-even point (dollars)= 30 / [(25 - 15)/25]
Break-even point (dollars)= $75
Kevin Rogers is interested in buying a five-year bond that pays a coupon of 10 percent on a semiannual basis. The current market rate for similar bonds is 8.8 percent. What should be the current price of this bon?
a. $1, 099.
b. $982
c. $1.048
d. $965
Answer:
c. $1.048
Explanation:
Assuming face value to be $1000
Semi annual coupon = (10% of 1000) / 2 = 50
Number of periods = 5 * 2 = 10
Semi annual rate = 8.8% / 2 = 4.4%
Current price = Coupon * [1 - 1 / (1 + r)^n] / r + FV / (1 + r)^n
Current price = 50 * [1 - 1 / (1 + 0.044)^10] / 0.044 + 1000 / (1 + 0.044)^10
Current price = 50 * [1 - 0.650122] / 0.044 + 650.122225
Current price = 50 * 7.951768 + 650.122225
Current price = 397.5884 + 650.122225
Current price = 1047.710625
Current price = $1,048
Ingram Electric Products is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be rejected.
WACC: 11.00%
Year 0 1 2 3
Cash flows -$800 $350 $350 $350
Answer:
the project's MIRR is 13.50 %.
Explanation:
MODIFIED INTERNAL RATE OF RETURN (MIRR)
-It is the rate that causes the Present Value of the Terminal Value (Future Cash flows at the end of the Project) to equal Present Value of Cash outflows.
-MIRR assumes a reinvestment rate at the end of the project
The First Step is to Calculate the Terminal Value at end of year 3.
Terminal Value (FV) = Sum of (PV x (1 + r) ^ 3 - n)
= $350 x (1.11) ^ 2 + $350 x (1.11) ^ 1 + $350 x (1.11) ^ 0
= $431.24 + $388.50 + $350.00
= $1,169.74
The Next Step is to Calculate the MIRR using a Financial Calculator :
(-$800) CFj
0 CFj
0 CFj
$1,169.74 CFj
Shift IRR/Yr 113.50 %
Therefore, the MIRR is 13.50 %
Your uncle repays a $300 loan from Tenth National Bank (TNB) by writing a $300 check from his TNB checking account. Assume these funds are the
only loans and deposits available for your uncle and the bank.
Please write at least 400 word reply.
British grocery retailer Tesco isnât accustomed to failure, but after spending five years and about $1.61 billion, Tesco managers began preparing to sell or close the companyâs 199 Fresh & Easy markets and get out of the United States for good. Fresh & Easy was a novel format for Americansâstores that were larger than convenience stores but smaller than supermarkets and that focused on selling fresh foods. As it turned out, Americans found the format neither fresh nor easy. Managers imported British favorites instead of adapting to American tastes, and each store carried the same selection of prepackaged meals and other products, no matter its location. There was no deli section where food could be made to order. Prepackaged sandwiches are commonplace to the British, but to American shoppers they seemed like something from a vending machine. The timing didnât help either. Fresh & Easy opened in the United States just before the recession devastated many of the areas in California, Arizona, and Nevada where it located its earliest stores. The chain never turned a profit.
Case Question
Based on this caselet and the concepts learned in this topic, which kind of international strategy do you think Tesco was applying in America? Tesco has now decided to open its stores in India. As a manager at Tesco, how will you do things differently this time to save the company from being a failure in India?
Answer:
1. Tesco was applying a standardization strategy in America. It treated the US domestic market as if it were the same as the British domestic market. It failed to recognize that American shoppers' tastes are different. Again, it preferred to deal with prepackaged food, an offering that is not very agreeable to the American shoppers. It also failed to domesticate the sources of its supply of grocery, preferring to import from Britain. Tesco should have purchased the grocery from the local market to make them fresh and agreeable to the local taste.
2. I will advise that the stores that are opened in India should not be patterned on the failed American strategy. Tesco should deploy a multidomestic international strategy by customizing its products, stores, and processes to the Indian market. The aim is to meet the taste of Indian shoppers. Tesco must understand that Indians prefer cooking their meals.As a result, the company must not delve into prepackaged food, but concentrate on selling Indian grocery and spices.
Explanation:
Companies employ a standardization strategy by treating the whole world as one market with little meaningful variation with the assumption of meeting people’s needs with one product. This strategy is best for some standardized products like equipment. Here, there is high global integration of markets with low local responsiveness.
On the other hand, multidomestic strategy is employed by companies to customize products or processes to the specific conditions in each country and to meet local customer tastes. For grocery shops that require the products to be fresh, a multidomestic strategy would be preferred. This strategy employs high local responsiveness with high global integration.
What was the opening price of Dow Jones Industrial Average on Dec 04, 2018 in the format of XXXXX.XX?
Answer:
$17,910.02
Explanation:
As per online search, the opening price was $17,910.02
Dow Jones Industrial Average (^DJI)
DJI - DJI Real-Time Price. Currency in USD
Summary
Time Period:
Dec 03, 2014 - Dec 05, 2014
Currency in USD
Download
Date Open High Low Close
Dec 03, 2014 17,880.90 17,924.15 17,855.59 17,912.62
Dec 04, 2014 17,910.02 17,937.96 1 7,814.81 17,900.10
A corporate bond currently yields 8.5 percent. Tax-except municipal bonds with the same risk, maturity, and liquidity currently yield 5.5 percent. At what tax rate would investors be indifferent between the two bonds? a. 35.29% b. 40.00% c. 24.67% d. 64.71% e. 30.04%
Answer:
a. 35.29%
Explanation:
The computation of the tax rate that could be non-different between the two bonds is shown below:
Given that
Corporate Bond yield = 8.5%
Municipal bonds yield = 5.5%
based on the above information
Tax Rate is
= 1 - ( Municipal bonds yield - Corporate Bond yield)
= 1 - (5.5% ÷ 8.5%)
= 35.29%
Hence, the tax rate is 35.29%
We simply applied the above formula so that the correct value could come
And, the same is to be considered
Rajiv lives in Houston and runs a business that sells pianos. In an average year, he receives $851,000 from selling pianos. Of this sales revenue, he must pay the manufacturer a wholesale cost of $476,000; he also pays wages and utility bills totaling $281,000. He owns his showroom; if he chooses to rent it out, he will receive $71,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Rajiv does not operate this piano business, he can work as an accountant, receive an annual salary of $34,000 with no additional monetary costs, and rent out his showroom at the $71,000 per year rate. No other costs are incurred in running this piano business.
a. What are Rajiv's explicit costs of selling pianos?
1. The salary Rajiv could earn if he worked in an accounting firm.
2. The wages and unitilty bills that Rajiv pays.
3. The wholesale cost for pianos that Rajiv pays the manufacturer.
4. The rental income Rajiv could receive per year if he chose to rent his showroom out.
b. What is the accounting profit of Rajiv's piano business?
1. $780,000
2. $65,000
3. $40,000
4. $-40,000 ($40,000 accounting loss)
5. $110,000
c. What is the economic profit of Rajiv's piano business?
a. $65,000
b. $40,000
c. $780,000
d. $-40,000 ($40,000 economic loss)
e. $110,000
Answer and Explanation:
The computation is shown below:
a. The explicit cost of selling pianos would involve the wages & salaries expense and the wholesale cost that he pays the manufactured. These are considered as actual and would be added in the accounting
b. The accounting profit would be
Accounting profit is
= revenue - explicit cost
= $851,000 - $476,000 - $281,000
= $94,000
this is the answer and the options that are given are wrong
c. The economic profit would be
= Accounting profit - opportunity cost
= $94,000 - $34,000 - $71,000
= -$11,000
this is the answer and the options that are given are wrong
At the beginning of the current period, Rose Corp. had balances in Accounts Receivable of $200,000 and in Allowance for Doubtful Accounts of $9,000 (credit).During the period, it had net credit sales of $800,000 and collections of $763,000.It wrote off as uncollectible accounts receivable of $7,300.However, a $3,100 account previously written off as uncollectible was recovered before the end of the current period.Uncollectible accounts are estimated to total $25,000 at the end of the period.(Omit cost of goods sold entries)Required:(a) Prepare the entries to record sales and collections during the period.(b) Prepare the entry to record the write-off of uncollectible accounts during the period.(c) Prepare the entries to record the recovery of the uncollectible account during the period.(d) Prepare the entry to record bad debt expense for the period.(e) Determine the ending balances in Accounts Receivable and Allowance for Doubtful Accounts.
Answer:
(a) Prepare the entries to record sales and collections during the period.
Dr Accounts receivable 800,000
Cr Sales revenue 800,000
Dr Cash 763,000
Cr Accounts receivable 763,000
(b) Prepare the entry to record the write-off of uncollectible accounts during the period.
Dr Allowance for doubtful accounts 7,300
Cr Accounts receivable 7,300
(c) Prepare the entries to record the recovery of the uncollectible account during the period.
Dr Accounts receivable 3,100
Cr Allowance for doubtful accounts 3,100
Dr Cash 3,100
Cr Accounts receivable 3,100
(d) Prepare the entry to record bad debt expense for the period.
Dr Bad debt expense 20,200
Cr Allowance for doubtful accounts 20,200
(e) Determine the ending balances in Accounts Receivable and Allowance for Doubtful Accounts.
Accounts receivable ending balance = $200,000 + $800,000 - $763,000 -$7,300 + $3,100 - $3,100 = $229,700
Allowance for doubtful accounts ending balance = $25,000
Allowance for doubtful accounts is a contra asset account that decreases the net balance of accounts receivable: accounts receivable = $229,700 - $25,000 = $204,700
Journal entries are the entries that record and maintain the financial transactions of the firm whether credit or cash. All the transactions that take place in the firm whether be it incoming or outgoing are recorded in the book of entries as the credit and the debit account.
The answers for the subparts a, b, c, d, d, and e are attached below.
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A company reports the following amounts for 2021:_________. Inventory (beginning) $ 20,000 Inventory (ending) 35,000 Purchases 170,000 Purchase returns 10,000 Calculate cost of goods sold, the inventory turnover ratio, and the average days in inventory for 2021. (Use 365 days in a year. Round your intermediate and final answers to 1 decimal place.)
Answer:
Cost of goods sold $145,000
Inventory turnover ratio 5.27 times
Average days in turnover 69 days
Explanation:
1. Cost of goods sold
= Beginning inventory + [Purchases - Purchases return ] - Ending inventory
= $20,000 + [$170,000 - $10,000] - $35,000
= $20,000 + $160,000 - $35,000
= $145,000
2. Inventory turnover ratio
= Cost of goods sold ÷ Average inventory
Given that;
Cost of goods sold = $145,000
Average inventory = (Beginning inventory + Ending inventory) ÷2
= ($20,000 + $35,000) ÷ 2
= $27,500
Therefore,
Inventory turnover ratio = $145,000 ÷ $27,500
= 5.27 times
3. Average days in turnover
= Average inventory / Cost of sales × Number of days in period
Average inventory = $27,500
Cost of sales = $145,000
Number of days = 365 day
Average days in turnover = ($27,500/$145,000) × 365 days
= 69 days
Here are incomplete financial statements for Donavan, Inc. Calculate the missing amounts.
DONAVAN, INC.
Balance Sheet
Assets
Cash
$ 14,100
Inventory
17,100
Buildings
37,900
Total assets
$69,100
Liabilities and Stockholders' Equity
Liabilities
Accounts payable
$ 5,200
Stockholders' Equity
Common stock
Entry field with correct answer
(a)
Retained earnings
Entry field with correct answer
(b)
Total liabilities and stockholders' equity
$69,100
DONAVAN, INC.
Income Statement
Revenues
$85,800
Cost of goods sold
Entry field with incorrect answer now contains modified data
(c)
Salaries and wages expense
10,400
Net Income
$
Entry field with incorrect answer now contains modified data
(d)
DONAVAN, INC.
Retained Earnings Statement
Beginning retained earnings
$19,100
Add: Net income
Entry field with incorrect answer now contains modified data
(e)
Less: Dividends
4,710
Ending retained earnings
$34,100
Answer and Explanation:
The computation of the missing amounts is shown below:
a. Common stock
= Total Liabilities and Stockholders' Equity - total liabilities - ending retained earnings
= $69,100 - $5,200 - $34,100
= $29,800
b. Retained earnings is $34,100
c. Cost of goods sold
= Revenues - salaries & wages expense - net income
= $85,800 - $10,400 - $19,710
= $55,690
Here net income would be
= Ending retained earnings + dividends - beginning retained earnings
= $34,100 + $4,710 - $19,100
= $19,710
d. Net income is $19,710
e. Net income is $19,710
To _____ an activity means to shorten the time it will take. A. smash B. fund C. crash D. aggregate E. matrix
Company X has 100 shares outstanding. It earns $1,000 per year and announces that it will use all $1,000 to repurchase its shares in the open market instead of paying dividends. Calculate the number of shares outstanding at the end of year 1, after the first share repurchase, if the required rate of return is 10 percent.a) 110.0
b) 100.0
c) 90.91
d) 89.0
Answer:
d) 89.0
Explanation:
The value of the company today is the present value of its cash flows in perpetuity which is the cash flows divided by the required rate of return.
value of the firm=$1000/10%=$10,000
share price=value of the firm/shares outstanding
share price=$10,000/100=$100
number of shares to be repurchased=$1000/$100=10
number of shares after repurchase=100-10=90
note that when 90.91 is rounded to a whole, it turns out to be 92 while 89 is rounded to 90
Last year, Brian bought a bond for $10,000 that promises to pay him $800 per year. This year, he can buy a bond for $10,000 that promises to pay $900 per year. If Brian wants to sell his old bond, what is its price likely to be?
Answer:
the price likely to be $8,889
Explanation:
The computation of the price likely to be is shown below:
The rate of interest in the last year
= $800 ÷ $10,000
= 8%
Now this year the rate of interest it would be
= $900 ÷ $10,000
= 9%
Now the price likely to be is
= $800 ÷ 9%
= $8,889
hence, the price likely to be $8,889
hence, the same is to be considered
Over the past 100 years, the rate of return on stocks has averaged about _____, and the return on bonds has averaged approximately _____.A. â10%; 5%B. 7%; 2%C. 1%; 2%D. 20%; 25%
Answer: B. 7%; 2%
Explanation:
0ver the past 100 years, stocks have showed a positive average return of 7% whilst bonds have shown a return of 2%. This makes sense because stocks generally offer higher returns than bonds which are fixed.
Stocks react to a variety of factors including interest rates and market fluctuations which makes them more risky whereas bonds which are fixed income securities are more stable in their returns making them less of a risk.
Stocks therefore offer a higher return to compensate for this risk as opposed to bonds.