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Ch 10: Pro forma
financial statements can best be described as financial statements: that state projected values for future time periods.
|
Currently, Rangel Accessories sells 42,600
handbags annually at an average price of $149 each. It is considering adding a lower-priced line of handbags that sell for $79 each. The firm estimates it can sell 21,000 of the lower-priced
handbags but expects to sell 7,200 fewer of the higher-priced handbags by doing so. What is the
amount of annual sales
that should be used when evaluating the addition of the
lower-priced handbags?- $586,200 (
Sales = 21,000($79) − 7,200($149) = $586,200
)
|
A project will produce operating cash inflows of $61,000 per year for 10 years in
a row. The initial fixed asset investment in the project will be $94,000. The net aftertax salvage value is estimated at $7,000 and will be received during the last year of the project's life.
What is the net present value of the project if the required rate of return is 14.5 percent?- $219,878 (
NPV = −$94,000 + $61,000{[1 − (1/1.145
10
)]/.145} +
$7,000/1.145
10
= $219,878)
|
The
stand-alone principle
advocates that project analysis should be based solely on which one of the following costs?: Incremental
| Net working
capital:
can create either an initial cash inflow or outflow.
Ch 13:
The
expected return of a stock
, based on the likelihood of various economic outcomes, equals the:
weighted average
of the returns for each economic state.
|
To calculate the
expected risk premium on a stock, one must subtract the
risk-free rate
from the stock’s expected return.
|
The following items are included when
calculating the expected return
on a
portfolio
: I. Percentage of the portfolio invested in each individual security, II. Projected states of the economy, III. The performance of each security given various economic states, IV.
Probability of occurrence for each state of the economy.
|
The best measure of systematic risk:
Beta |
The
capital asset pricing model
explains the relationship between the expected
return on a security and the level of that security's systematic risk.
|
The stock of Rullo Rigs has a beta of 1.34. The risk-free rate of return is 1.9 percent, the inflation rate is 2.2 percent, and
the market risk premium is 6.9 percent. What is the expected rate of return on this stock?- 11.1% (
E(
r
) = .019 + 1.34(.069)= .111, or 11.1%
)
|
If a security is fairly
priced, its
risk premium
divided by its beta will equal the slope of the security market line.
|
Stock Alpha has a beta of .79 and a reward-to-risk ratio that is less than the reward-to-risk
ratio of Stock Omega. Omega has a beta of 1.12. This information implies that: either Alpha is overpriced or Omega is underpriced or both .
| Ch14:
When utilizing the capital asset pricing
model approach to value equity, the outcome: assumes the
reward-to-risk ratio
is constant.
|
The cost of preferred stock is equivalent to the:
rate of return on a perpetuity
.
|
When
calculating a firm’s
weighted average cost of capital
, the capital structure weights: are based on the market values of the outstanding securities.
|
Statement regarding the
weighted
average cost
of
capital
: It is the return investors require on the total assets of the firm.
|
Assume a
firm employs debt
in its capital structure. Which statement is accurate?: The WACC
would most likely decrease if the firm replaced its preferred stock with debt.
|
Montez Supply is expected to pay an annual dividend of $.95 per share next year. The market price of the
stock is $43.50 and the growth rate is 4.5 percent. What is the
cost of equity
? - 6.68% (
R
E
= $.95/$43.50 + .045= .0668, or 6.68%
)
|
Kelley Couriers just paid its annual
dividend of $5.25 per share. The stock has a market price of $58.25 and a beta of 1.2. The return on the U.S. Treasury bill is 1 percent and the market risk premium is 8.5 percent. What is
the
cost of equity
?- 11.2% (
R
E
= .01 + 1.2(.085= .112, or 11.2%
)
|
The Dry Well has 6.85 percent preferred stock outstanding with a market value per share of $79, a
stated value of $100 per share, and a book value per share of $29. What is the
cost of preferred stock
?- 8.67%
(
R
P
= .0685($100)/$79= .0867, or 8.67%
)
|
The
Downtowner has 168,000 shares of common stock outstanding valued at $53 per share along with 13,000 bonds selling for $1,008 each. What weight should be given to the debt when the
company computes its
weighted average cost of capital
?- 59.54% (
D = 13,000($1,008) = $13,104,000 | E = 168,000($53) = $8,904,000 |
V
=
$13,104,000 + 8,904,000= $22,008,000 |
W
D
= $13,104,000/$22,008,000= .5954, or 59.54%)
|
Mullineaux Corporation has a target capital structure of
46 percent common stock, 5 percent preferred stock, and the balance in debt. Its cost of equity is 15.8 percent, the cost of preferred stock is 8.3 percent, and the aftertax cost of debt is 6.8
percent. What is the
WACC
given a
tax rate
of 23 percent?- 11.02% (
WACC = .46(.158) + .05(.083) + .49(.068)= .1102, or 11.02%
)
| Ch16:
Ignoring taxes, at
the break-even point between a levered and an
unlevered capital structure
, the: company is earning just enough to pay for the cost of the debt.
| Financial risk
is: dependent upon a
company’s capital structure.
| Financial risk
is the type of equity risk related to a firm’s capital structure policy.
|
According to the
static theory of capital structure
, a company borrows
up to the point where the marginal benefit of the interest tax shield derived from increased debt is just equal to the marginal expense of the resulting increase in financial distress costs.
|
The
optimal capital structure
: will vary over time as taxes and market conditions change.
|
Galaxy Products is comparing two different capital structures, an all-equity plan (Plan I) and a
levered plan (Plan II). Under Plan I, the company would have 112,000 shares of stock outstanding. Under Plan II, there would be 75,000 shares of stock outstanding and $600,000 in debt.
The interest rate on the debt is 6.7 percent and there are no taxes. What is the
break-even EBIT
?- $121,686 (
EBIT/112,000 = [EBIT − .067($600,000)]/75,000 =
$121,686
)
|
Shin Cosmetics has a weighted average cost of capital of 11.30 percent. The company can borrow at 6.5 percent. What is the
cost of equity if the debt-equity ratio
is 1.2?-
17.06% (
R
E
= .113 + (.113 − .065)(1.2= .1706, or 17.06%
)
|
Japhet Events has a debt-equity ratio of 1.3. The pretax cost of debt is 8 percent and the required return
on assets is 12.6 percent. Ignoring taxes, what is the company's
cost of equity
?- 18.58% (
R
E
= .126 + (.126 − .08)(1.3= .1858, or 18.58%
)
|
In general, the
capital
structures
of U.S. firms: vary significantly across industries.
|
The explicit costs, such as legal and administrative expenses, associated with corporate default are classified as
direct
bankruptcy
costs.
|
Project X has cash flows of $8,500, $8,000, $7,500, and $7,000 for Years 1 to 4, respectively. Project Y has cash flows of $7,000, $7,500, $8,000, and $8,500 for Years 1 to 4, respectively.
Which one of the following statements is true concerning these two projects given a
positive discount rate
? (No calculations needed.): Project X has both a higher present and a higher
future value than Project Y.
|
You are comparing two investment options that each pay 6 percent interest compounded annually. Both options will provide you with $12,000 of income.
Option A pays $2,000 the first year followed by two annual payments of $5,000 each. Option B pays three annual payments of $4,000 each. Which one of the following statements is
correct given these two investment options? Assume a
positive discount rate
. (No calculations needed.): Option B has a higher present value at Time 0.
|
Five years from today, you hope
to donate $10,000 to the alumni association. Thereafter, you intend for your annual contributions to grow at a rate of 3 percent per year, forever. If you can earn 7 percent per year on your
investments, how much must you
invest today
to
fund this donation
?- $190,724 (
GPPV
4
= $10,000/(.07 − .03= $250,000|PV = $250,000/1.07
4
= $190,724
)
|
Werden Drilling offers 5.5 percent coupon bonds with semiannual payments and a yield to maturity of 7 percent. The bonds mature in 10 years. What is the
market price per bond
if the
face value
is $1,000?- $893.41 (
Bond price = $27.50({1 − [1/(1 + .07/2)
10 × 2
]}/(.07/2)) + $1,000/(1 + .07/2)
10 × 2
= $893.41
)
|
Stoessel,
Incorporated, issued 20-year bonds 3 years ago at a coupon rate of 8.5 percent. The bonds make semiannual payments. If these bonds currently sell for 91.4 percent of par value, what is the
YTM
?- 9.53% (
$914 = $42.50({1 − [1/(1 +
r
)
17 × 2
]}/
r
) + $1,000/(1 +
r
)
17 × 2
YTM = 2(4.766%)= 9.53%
)
|
When using the t
wo-stage dividend growth
model
,:
g
1
can be greater than
R
.
|
An agent who maintains an inventory from which he or she buys and sells securities is called a:
dealer
.
|
The common stock of Shepard Auto sells for
$47.92 per share. The stock is expected to pay $2.28 per share next year when the annual dividend is distributed. The company increases its dividends by 1.65 percent annually. What is the
market rate of return
on this stock?- 6.41% (
R
= $2.28/$47.92 + .0165= .0641, or 6.41%
)
|
If a project has a net present value equal to zero, then: the
project earn
s a
return exactly equal to the discount rate.
|
Statement related to the
internal rate of return
(
IRR
): The IRR is equal to the required return when the net present value is equal to zero.
|
Six
months ago, you purchased 1,400 shares of ABC stock for $21.33 a share. You have received dividend payments equal to $.60 a share. Today, you sold all of your shares for $24.47 a share.
What is your
total dollar return
on this investment?- $5,236 (Total dollar return =
1,400 × ($24.47 − 21.33 + .60) = $5,236
)
|
A bond par value is $2,000 and the
coupon rate is 6.2 percent. The bond price was $1,946.75 at the beginning of the year and $1,983.62 at the end of the year. The inflation rate for the year was 2.5 percent. What was the
bond's real return
for the year?- 5.62% (Bond return = (
$1,983.62 − 1,946.75 + 124)/$1,946.75= .0826, or 8.26% |
r
= [(1 + .0826)/(1 +
.0250)] − 1= .0562, or 5.62%
)
|
One year ago, you purchased 140 shares of Titan Wood Products for $50.15 per share. The stock has paid dividends of $.57 per share over the
past year and is currently priced at $55.06. What is your
total dollar return
on your investment?- $767.20 (Dollar return = (
$55.06 − 50.15 + .57) × 140= $767.20
)
|
Last
year, you purchased 660 shares of Forever, Incorporated, stock at a price of $48.74 per share. You received $990 in dividends and a total of $38,353 when you sold the stock. What was the
capital gains yield
on this stock?- 19.23% (Capital gains yield =
[($38,353/660) − 48.74]/$48.74= .1923, or 19.23%
)
|
A stock had returns of 16.87 percent, −6.63
percent, and 23.63 percent for the past three years. What is the
standard deviation of the returns
?- 15.88% (
Average return
=
(.1687 − .0663 + .2363)/3= .1129, or
own 420 shares of Stock X at a price of $41 per share, 290 shares of Stock Y at a price of $64 per share, and 355 shares of Stock Z at a price of $87 per share. What is the
portfolio weight
of Stock Y?- .2784 (Weight of Y =
290($64)/[420($41) + 290($64) + 355($87)]= .2784
)
|
A portfolio consists of $15,800 in Stock M and $24,900 invested in Stock
N. The expected return on these stocks is 9.20 percent and 12.80 percent, respectively. What is the
expected return on the portfolio
?- 11.40% (Weight of M =
$15,800/($15,800 +
24,900)= .3882
| Portfolio expected return = .
3882(9.2%) + (1 – .3882)(12.8%) = 11.40%)
|
You recently purchased a stock that is expected to earn 11 percent in a
booming economy, 5 percent in a normal economy, and lose 3 percent in a recessionary economy. There is 15 percent probability of a boom, 72 percent chance of a normal economy, and
13 percent chance of a recession. What is your
expected rate of return
on this stock?- 4.86% (
E(
R
) = .15(.11) + .72(.05) + .13(–.03)= .0486, or 4.86%
)
|
A
stock will have a loss of 11.4 percent in a bad economy, a return of 11.2 percent in a normal economy, and a return of 25.1 percent in a hot economy.
There is 30 percent probability of a bad economy, 33 percent probability of a normal economy, and 37 percent probability of a hot economy. What is the
variance of the stock's returns
?-
.02220 ( E(
R
) = .
30(−0.114) + .33(0.112) + .37(0.251)= .0956, or 9.56%
| σ
2
=
.30(−0.114 − .0956)
2
+ .33(0.112 − .0956)
2
+
.37(0.251 − .0956)
2
= .02220)
|
You have a portfolio that is invested 25 percent in Stock A, 40 percent in Stock B, and 35 percent in Stock C. The betas of the stocks are .70,
1.25, and 1.54, respectively. What is the
beta of the portfolio
?- 1.21 (β
Portfolio
=
.25(.70) + .40(1.25) + .35(1.54)= 1.21
)
|
Judy's Boutique just paid an annual dividend of
$3.67 on its common stock. The firm increases its dividend by 3.45 percent annually. What is the company's
cost of equity
if the current stock price is $43.72 per share?- 12.13% (
R
E
=
[($3.67(1.0345))/$43.72] + .0345= .1213, or 12.13%
)
|
Smathers Corporation stock has a beta of 1.11. The market risk premium is 7.80 percent and the risk-free
rate is 3.24 percent annually. What is the company's
cost of equity
?- 11.90% (
R
E
=
.0324 + 1.11(.0780)= .1190, or 11.90%
)
|
11.29%
|
Variance
=
1/2[(.1687 − .1129)
2
+ (−.0663 − .1129)
2
+ (.2363 − .1129)
2
= .02523
|
Standard deviation
=
.02523
1/2
= .1588, or
15.88%
)
|
You
Bethesda Water has an issue of preferred stock outstanding with a coupon rate of 5.30 percent that sells for $94.38 per share. If the par value is $100, what is the
cost
of the company's
preferred stock
?- 5.62% (
R
P
=
$5.30/$94.38= .0562, or 5.62%
)
|
Bermuda Cruises issues only common stock and coupon bonds. The firm has a debt-equity ratio of .77. The
cost of equity is 11.7 percent and the pretax cost of debt is 6.7 percent. What is the
capital structure weight
of the firm's equity if the firm's tax rate is 21 percent?- .5650 (
X
E
= 1/(1 +
.77)= .5650
)
|
Ornaments, Incorporated, is an all-equity firm with a total market value of $476,000 and 14,100 shares of stock outstanding. Management believes the earnings before
interest and taxes (EBIT) will be $66,200 if the economy is normal. If there is a recession, EBIT will be 15 percent lower, and if there is a boom, EBIT will be 25 percent higher. The tax
rate is 21 percent. What is the
EPS in a recession
?- $3.15 (EPS = [$66,200(1 − .15) − $66,200(1 − .15)(.21)]/14,100]= $3.15)
|
Taunton's is an all-equity firm that has 155,500 shares of
stock outstanding. The CFO is considering borrowing $287,000 at 7 percent interest to repurchase 24,500 shares. Ignoring taxes, what is the
value of the firm
?- $1,821,571 (Value per
share =
$287,000/24,500= $11.71
| Firm value =
155,500($11.71)= $1,821,571
)
|
Debbie's Cookies has a return on assets of 8.5 percent and a cost of equity of 11.6
percent. What is the
pretax cost of debt
if the debt–equity ratio is .84? Ignore taxes.- 4.81% (
.116 = .085 + [(.085 −
R
D
) × .84]= .0481, or 4.81%
)
|
The
optimal
capital structure
maximizes shareholder value. | The
value of a firm is maximized
when the: weighted average cost of capital is minimized.
|
You just won the $89 million California
State Lottery. The lottery offers you a choice of receiving a lump sum today or $89 million split into 26 equal annual installments at the end of each year (with the first amount paid a year
from now). Assume the funds can be invested at an annual rate of 7.65%. What dollar amount of the
lump sum would exactly equal the present value
of the annual installments? Round
off to the nearest $1: $38,163,612
|
At an annual interest rate of 7% the
future value of $5,000
in
five years
is closest to: $7,013
|
ABC Corp has just paid its annual dividend of $1.50 per
share, and it is expected that these dividend payments will continue indefinitely. If ABC’s equity cost of capital is 12%, then the
value of a shar
e of ABC’s stock is closest to: $12.50
|
Consider a bond with a zero percent coupon rate with 20 years to maturity. With a face value of $1,000. The price will this bond trade if the YTM is 6% is closest to: $312 | GM is expected
to pay a dividend of $2.00 in the coming year. Dividends are expected to grow at the rate of 2% per year. The risk-free rate is 4% and the market risk premium is 5%. GM has a beta of 1.2.
The
value of the stock
should be: $25.00
|
George Clooney has been offered $14 million (to be paid in 1 year from now) for starring in Batman 4, Batman 5, and Batman 6. If Clooney
accepts this offer, he will have to forego acting in Ocean’s 14, Ocean’s 15, and Ocean’s 16 that would have paid him $5 million each (in 2, 3, and 4 years from now). Clooney assumes his
personal cost of capital is 10%. Based on this information, the
NPV today
of Clooney’s decision to accept Batman films is: $1.42 million
|
You have $10,000 to invest. You invested
$3,500 in Firm 1 and the remaining amount in Firm 2. The return on these firms is 20% and 15%, respectively. The
return on your portfolio
is: 16.75%
|
A firm is funded with $500
million in equity and $475 million in debt. The yield to maturity on bonds issued by the firm is 7.85%. The tax rate is 40%. The firm has a beta of 1.15. The risk-free rate is 5%, and the
market risk premium is 9%. The
weighted average cost of capital
for this firm is: 10.17%
|
A stock had returns of 5, 14, 11, -8, and 6 percent over the past 5 years. The
standard
deviation
for this stock is: 8.44%
|
The relative proportions of debt, equity, and other securities that a firm uses to finance itself is referred to as:
Capital structure
|
Incremental cash
flows
are the difference between a firm’s future cash flows with a project and those without the project |
Stand-alone principle
is the assumption that evaluation of a project may be based
on the project’s incremental cash flows
|
What is the
standard deviation of the returns
on a stock given the following information? - 3.82% (E(
r
) = .08(.171)
+ .70(.076) + .22(.017)= .07062, or 7.062% | σ = [.08(.171 − .07062)
2
+ .70(.076 − .07062)
2
+ .22(.017 − .07062)
2
]
.5
= .0382, or 3.82%) | What is the
expected return of an equally weighted portfolio
comprised of the following three stocks?- 10.96% (E(
R
P
)
Boom
= (.19 + .13 + .07)/3= .13, or 13% |
E(
R
P
)
Normal
= (.15 + .05 + .13)/3= .11, or 11%|E(
R
P
)
Bust
= (−.29 − .14 + .22)/3= −.07, or −7%|E(
R
P
)
Boom
= .25(.13) + .72(.11) + .03(−.07= .1096, or
10.96%) | Galvatron Metals has a bond outstanding with a coupon rate of 6.7 percent and semiannual payments. The bond currently sells for $1,891
and matures in 17 years. The par value is $2,000 and the company's tax rate is 21 percent. What is the company's
aftertax cost of debt?
- 5.74%
($1,891 = $67.00{1 − [1/(1 +
R
)
34
]}/
R
+ $2,000/
R
34
= .0363, or 3.63%
|
YTM = 3.630% × 2= 7.26%
|
R
D
= 7.26%(1 − .21)= 5.74%) | Stoessel,
Incorporated, issued 20-year bonds 3 years ago at a coupon rate of 8.5 percent. The bonds make semiannual payments. If these bonds currently sell for
91.4 percent of par value, what is the
YTM
?- 9.53% ($914 = $42.50({1 − [1/(1 +
r
)
17 × 2
]}/
r
) + $1,000/(1 +
r
)
17 × 2
YTM = 2(4.766%)= 9.53%
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• 33.33%
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Data are as follows: In year 2020, sales are 150,000 units with Selling price per unit of 10 and VC per unit iof 6.50 per unit. Fixed cost is 155,000 and Interest cost is 90,000. Q3. Assume that the company expects to have sales increase by 20%, what will be the resulting change in EBIT in year 2021?
A• 25%
B• 26.45%
C• 33.33%
D• 28.38%
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2. A manager is using the equation Y(t) = 6400 + 70t to forecast quarterly demand for a product. In the equation, t = 0 at Q2 of last year. Quarter relatives are Q1 = 0.89, Q2 = 0.88, Q3 = 0.73, and Q4 = 1.5. What forecasts are appropriate for the last quarter of this year?
a. 10230
b. 10125
c. 9810
d. 10020
e. 4546.67
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Samsung expects to sell 5,000 units of Galaxy Tablet S6 lite this year at P26,990.00 each. What is the projected sales revenue?
JBL expects to sell 7,000 units of wireless earbuds this year at P7,199.00 each. What is the projected sales revenue?
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2. Company XYZ sells CDs. The price of its new CD is $15.
Fixed costs are $1,500,000 per year. Variable costs are $9.
The company expects to sell 300,000 units this year.
a. How many DVDS will the company need to sell to
break even?
b. If the forecasts are correct, how much will company
XYZ make or lose this year (before taxes)?
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2. Your company is evaluating a switch from a cash policy to a net 30 policy. The price
per unit is $49, and the variable cost per unit is $20. The company currently sells 100
units per month. Under the proposed policy, the company expects to sell 110 units
per month. The required monthly return is 2%.
a) What is the NPV of the switch?
Part 1:
Incremental cash flow = (P – V)(S' – 5)
Incremental cash flow = ($49 – $20)($110 – 100)
Incremental cash flow = $29 * $10 = $290
t 2:
Incremental cash flow
Cost of capital
Incremental cash flow
Incremental cash flow =02
$290
= $14500
Part 3:
Switch Cost = (P + S) + V(S' – 5)
Switch cost = ($49 + 100) + $20($110 – $100)
Switch cost = $4900 + $200 = $5100
Therefore:
NPV of Switch = $14500 – $5100 = $9400
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A chain of take-away pizza stores is considering introducing a new line of gluten-free pizzas. Net revenue from the new line of pizzas is expected to total $500,000 per year, but 15% of this net revenue is forecast to consist of people switching from the regular pizzas to the gluten-free pizzas.
How would you describe this situation in terms of the NPV analysis upon which the situation will be based.
Question 1Answer
a.
There is a negative externality equal to $425,000 which should be included in the NPV analysis for the gluten-free pizza project.
b.
There is a positive externality equal to $425,000 which should be included in the NPV analysis for the gluten-free pizza project.
c.
There is a positive externality equal to $75,000 which should be included in the NPV analysis for the gluten-free pizza project.
d.
There is a negative externality equal to $75,000 which should be included in the NPV analysis for the gluten-free pizza project.
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The Mitchem Marble Company has a target current ratio of
2.1
but has experienced some difficulties financing its expanding sales in the past few months. At present, the firm has a current ratio of
2.8
and current assets of
$2.69
million. If Mitchem expands its receivables and inventories using its short-term line of credit, how much additional short-term funding can it borrow before its current ratio standard is reached?
Question content area bottom
Part 1
The additional amount of receivables and inventories (short-term debt) is
$enter your response here
million. (Round to two decimal places.)
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Hyperion, Inc. currently sells its latest high-speed color printer, the Hyper 500, for $350. It plans to lower the price to $300 next year. Its cost of goods sold for the Hyper 500 is $200 per unit, and thi year's sales are expected to be 20,000 units.a) Suppose that if Hyperion drops the price to $300 immediatley, it can increase this year's sales by 25% to 25,000 units. What would be the incremental impact on this eyar's EBIT of such a price drop?b) Suppose that for each printer sold, Hyperion expects additional sales of $75 per year on ink cartridges for the next years, and Hyperion has a gross profit margin of 70% on ink cartridges. What is the incremntal impact on EBIT for the next three years of a priced drop this year?
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Sunny Manufacturing is considering extending trade credit to some customers previously considered poor risks. Sales would increase
by $220,000 if credit is extended to these new customers. Of the new accounts receivable generated, 10 percent will prove to be
uncollectible. Additional collection costs will be 5 percent of sales, and production and selling costs will be 70 percent of sales.
a. Compute the incremental income before taxes.
$
Incremental income before taxes
b. What will the firm's incremental return on sales be if these new credit customers are accepted? (Round the final answer to 2
decimal place.)
Incremental return on sales
%
c. If the receivable turnover ratio is 4 to 1, and no other asset buildup is needed to serve the new customers, what will Sunny
Manufacturing's incremental return on new average investment be? (Do round intermediate calculations. Round the final answer to
the nearest whole percentage.)
Incremental return on new average investment
%
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which one is correct please suggest?
QUESTION 39
Getrag expects its sales to increase 20% next year from its current level of $4.7 million. Getrag has current assets of $660,000, net fixed assets of $1.5 million, and current liabilities of $462,000. All assets are expected to grow proportionately with sales. If Getrag has a net profit margin of 10%, what additional financing will be needed to support the increase in sales? Getrag does not pay dividends.
a.
$339,600
b.
No financing needed, surplus of $224,400
c.
No financing needed, surplus of $524,400
d.
$283,200
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[EXCEL] Payback: Northern Specialties just purchased inventory-management computer software at a cost of $1,645,276. Cost savings from the investment over the next six years will produce the following cash flow stream: $212,455, $292,333, $387,479, $516,345, $645,766, and $618,325. What is the payback period on this investment? please use excel
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JBL expects to sell 7,000 units of wireless earbuds this year at P7,199.00 each. What is the projected sales revenue?
ROS Corporation sold 9,000 flashlight umbrellas in 2020. Their expected units to be sold this year is 10,000 units. What is the percentage change in sales volume?
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•StarQuest plans to introduce a new entertainment package and estimates immediate sales of $300 million. However, due to production conflicts, the product launch may be delayed two years, allowing competition to reduce sales by 10 percent. Using a 6 percent opportunity cost, determine the cost of the delay.
answer is 59.7010
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Important: EXCEL Spreadsheet Must be Used for this Problem.
Per your request, Table 14-1 is included as an attachment.
The Hurricane Lamp Company forecasts that next year’s sales will be $6 million. Fixed operating costs are estimated to be $800,000, and the variable cost ratio (that is, variable costs as a fraction of sales) is estimated to be 0.75. The firm has a $600,000 loan at 10 percent interest. It has 20,000 shares of $3 preferred stock and 60,000 shares of common stock outstanding. Hurricane Lamp is in the 40 percent corporate income tax bracket.
a) Forecast Hurricane Lamp’s earnings per share (EPS) for next year. Develop a complete income statement using the revised format illustrated in Table 14.1. Then determine what Hurricane Lamp’s EPS would be if sales were 10 percent above the projected $6 million level.
Answer: EPS (Sales = $6 million) = $5.40
b) Calculate Hurricane Lamp’s degree of operating leverage (DOL) at a sales level of $6 million using the following:
The…
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Mikes Bike Co. currently sells 11 million bike tires each year at a price of $17 per tire. It is about to introduce a new tire, and it forecasts annual sales of 17 million of these improved tires at a price of $23 each. However, demand for the old tire will decrease, and sales of the old tire are expected to fall to 4 million per year (note, this says "fall TO 4 million per year," not "fall BY."). The old tire costs $6 each to manufacture, and the new ones will cost $9 each. What is the proper cash flow to use to evaluate the present value of the introduction of the new tire? (Hint: Realized cash inflows from new tire sales minus unrealized cash inflows from old tire sales.)
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