Master Business with Fun Quizzes & Brain Teasers!
Orange Inc., an orange juice producer with a current debt-to-equity ratio of 2, is considering expanding its operations to produce toothpaste. Unsurprisingly, the toothpaste industry faces a different set of risks than the orange juice industry. However, the executives at Orange Inc. observe that Paste Inc., a toothpaste company, has a cost of equity of 12%, a cost of debt of 6%, and a debt-to-value ratio of 40%. Orange Inc. plans to finance its expansion into toothpaste production with 50% debt and 50% equity. The cost of debt for Orange Inc. is also 6%, and the corporate tax rate is 25%. Solve for the discount rate that Orange Inc. should use when evaluating whether to go forward with the expansion Note: Orange Inc. does not want to use the Adjusted Present Value method. Appropriate Rate = 12.08% Appropriate Rate = 9.60% Appropriate Rate = 13.20% Appropriate Rate = 8.85% Assume Last Inc. has no cash on hand, but wants to take on a project that adds $30 million in market value to the firm's assets, and has an NPV of $20 million. The project requires an initial investment of $10 million. LastQ Inc. wants to maintain its 50% Debt to Value Ratio. How much debt should LastQ issue, and how much should they pay stockholders in dividends? Issue $30 million in debt, pay $5 million to shareholders Issue $15 million in debt, pay $5 million to shareholders Issue $10 million in debt, pay $20 million to shareholders Issue $20 million in debt, pay $8 million to shareholders
Portions of the financial statements for Peach Computer are provided below. PEACH COMPUTER Income Statement For the year ended December 31, 2021 Net sales $1,800,000 Expenses: Cost of goods sold $1,050,000 Operating expenses 560,000 Depreciation expense 50,000 Income tax expense 40,000 Total expenses 1,700,000 Net income $100,000 PEACH COMPUTER Selected Balance Sheet Data December 31 2021 2020 Increase (I) or Decrease (D) Cash $102,000 $85,000 $17,000 (I) Accounts receivable 45,000 49,000 4,000 (D) Inventory 75,000 55,000 20,000 (I) Prepaid rent 3,000 5,000 2,000 (D) Accounts payable 45,000 37,000 8,000 (I) Income tax payable 5,000 10,000 5,000 (D)Required:Prepare the operating activities section of the statement of cash flows for Peach Computer using the direct method.
Deitz Corporation is projecting a cash balance of $33,300 in its December 31, 2019, balance sheet. Deitzs schedule of expected collections from customers for the first quarter of 2020 shows total collections of $205,350. The schedule of expected payments for direct materials for the first quarter of 2020 shows total payments of $47,730. Other information gathered for the first quarter of 2020 is sale of equipment $3,330; direct labor $77,700, manufacturing overhead $38,850, selling and administrative expenses $49,950; and purchase of securities $15,540. Deitz wants to maintain a balance of at least $27,750 cash at the end of each quarter. Prepare a cash budget for the first quarter.
On June 30, 20X1, a tornado damaged Jensen Corporations warehouse and factory, completely destroying the work-in-process inventory. Neither the raw materials nor finished goods inventories were damaged. A physical inventory taken after the tornado revealed the following valuations: Raw materials $87,000 Work-in-process 0 Finished goods 151,000 $238,000 The inventory of January 1, 20X1, consisted of the following: Raw materials $41,000 Work-in-process 128,000 Finished goods 173,000 $342,000 A review of the books and records disclosed that the gross profit margin historically approximated 28% of sales. The sales total for the first six months of 20X1 was $405,000. Raw material purchases totaled $150,000. Direct labor costs for this period were $112,000, and manufacturing overhead has historically been applied at 50% of direct labor. Required: Compute the value of the work-in-process inventory lost at June 30, 20X1.
Katie, a single taxpayer, is a shareholder in Engineers One, a civil engineering company. This year, Katies share of net business income from Engineers One is $200,000 (net of the associated for AGI self-employment tax deduction). Assume that Katies allocation of wages paid by Engineers One to its employees is $300,000 and her allocation of Engineers Ones qualified property is $150,000 (unadjusted basis of equipment, all purchased within past three years). Assume Katie has no other business income and no capital gains or qualified dividends. Her taxable income before the deduction for qualified business income is $400,000. Required: A. Calculate Katies deduction for qualified business income. B. Assume the same facts provided above, except Katies net business income from Engineers One is $400,000 (net of the associated for AGI self-employment tax deduction), and her taxable income before the deduction for qualified business income is $350,000.
1. Calculate the income elasticities of demand for the following: A. Income rises by 20%; demand increases by 10%. B. Income rises from $30,000 to $40,000; demand increases (at a constant price) from 16 to 19. 2. For each of the following pairs of goods, state whether the cross-price elasticity is likely positive, negative, or zero. Explain.A. Pen, pencil. Close to zero. While they are substitutes they are not close substitutes. Negative. They are complements. Positive. They are close substitutes.B. Ketchup, hot dogs. Negative. They are complements. Positive. They are close substitutes. Close to zero. While they are substitutes they are not close substitutes.C. Tortillas, lobster tail. Negative. They are complements. Positive. They are close substitutes. Close to zero. While they are substitutes they are not close substitutes.D. Home heating oil, natural gas. Positive. They are close substitutes. Negative. They are complements. Close to zero. While they are substitutes they are not close substitutes.3. One football season Dominos Pizza, a corporate sponsor of the Washington Redskins (a football team), offered to reduce the price of its $8 medium-size pizza by $1 for every touchdown scored by the Redskins during the previous week. Until that year, the Redskins werent scoring many touchdowns. Much to the surprise of Dominos, in one week in 1999, the Redskins scored 1 touchdown. (Maybe they like pizza.) Dominos pizzas were selling for $7 a pie! The quantity of pizzas demanded soared the following week from 50 pies an hour to 60 pies an hour. What was price elasticity of demand for Dominos pizza?4. When tolls on the Dulles Airport Greenway were reduced from $2.00 to $0.75, traffic increased from 12,000 to 34,000 trips a day. Assuming all changes in quantity were due to the change in price, what is the price elasticity of demand for the Dulles Airport Greenway?5. Determine the price elasticity of demand if, in response to an increase in price of 20%, quantity demanded decreases by 25%.6. When the price of ketchup falls by 17%, the demand for hot dogs rises by 4%b. Income rises from $75,000 to $90,000; demand increases (at a constant price) from 50 to 55..A. Calculate the cross-price elasticity of demand.B. Are the goods complements or substitutes: .C. In the original scenario, what would have to happen to the demand for hot dogs for us to conclude that hot dogs and ketchup are substitutes?1. The demand for hot dogs would have to decline.2. The demand for hot dogs would have to remain unchanged.3. The demand for hot dogs would have to rise.7. Calculate the income elasticities of demand for the following:A. Income rises by 5%; demand increases by 5%.B. Income rises from $75,000 to $90,000; demand increases (at a constant price) from 50 to 55.8. One football season Dominos Pizza, a corporate sponsor of the Washington Redskins (a football team), offered to reduce the price of its $8 medium-size pizza by $1 for every touchdown scored by the Redskins during the previous week. Until that year, the Redskins werent scoring many touchdowns. Much to the surprise of Dominos, in one week in 1999, the Redskins scored 1 touchdown. (Maybe they like pizza.) Dominos pizzas were selling for $7 a pie! The quantity of pizzas demanded soared the following week from 50 pies an hour to 60 pies an hour. What was price elasticity of demand for Dominos pizza?
ClevelandInc. leased a new crane to Abriendo Construction under a 5-year, non-cancelable contract starting January 1, 2020. Terms of the lease require payments of $48,555 each January 1, starting January 1, 2020. The crane has an estimated life of 7 years, a fair value of $240,000, and a cost to Cleveland of $240,000. The estimated fair value of the crane is expected to be $45,000 (unguaranteed) at the end of the lease term. No bargain purchase or renewal options are included in the contract, and it is not a specialized asset. Both Cleveland and Abriendo adjust and close books annually at December 31. Collectibility of the lease payments is probable. Abriendos incremental borrowing rate is 8%, and Clevelands implicit interest rate of 8% is known to Abriendo. Discuss what should be presented in the balance sheet, the income statement, and the related notes of both the lessee and the lessor at December 31, 2020.
Superior Micro Products uses the weighted-average method in its process costing system. During January, the Delta Assembly Department completed its processing of 26,800 units and transferred them to the next department. The cost of beginning work in process inventory and the costs added during January amounted to $662,560 in total. The ending work in process inventory in January consisted of 4,000 units, which were 50% complete with respect to materials and 30% complete with respect to labor and overhead. The costs per equivalent unit for the month were as follows: Materials Labor Overhead Cost per equivalent unit $12.70 $4.00 $6.60Required:1. Compute the equivalent units of materials, labor, and overhead in the ending work in process inventory for the month.2. Compute the cost of ending work in process inventory for materials, labor, overhead, and in total for January.3. Compute the cost of the units transferred to the next department for materials, labor, overhead, and in total for January.4. Prepare a cost reconciliation for January.
Southern Rim Parts estimates its manufacturing overhead to be $418,500 and its direct labor costs to be $930,000 for year 1. The first three jobs that Southern Rim worked on had actual direct labor costs of $52,000 for Job 301, $77,000 for Job 302, and $110,000 for Job 303. For the year, actual manufacturing overhead was $464,000 and total direct labor cost was $847,000. Manufacturing overhead is applied to jobs on the basis of direct labor costs using pre-determined rates. Required: A. How much overhead was assigned to each of the three jobs, 301, 302, and 303?B. What was the over- or underapplied manufacturing overhead for year 1?
Effective versus nominal interest ratesBank A pays 8% interest compounded annually on deposits, while Bank B pays 7% compounded daily. Based on the EAR (or EFF%), which bank should you use?A. You would choose Bank A because its EAR is higher.B. You would choose Bank B because its EAR is higher.C. You would choose Bank A because its nominal interest rate is higher.D. You would choose Bank B because its nominal interest rate is higher.E. You are indifferent between the banks and your decision will be based upon which one offers you a gift for opening an account.Could your choice of banks be influenced by the fact that you might want to withdraw your funds during the year as opposed to at the end of the year? Assume that your funds must be left on deposit during an entire compounding period in order to receive any interest.A. If funds must be left on deposit until the end of the compounding period (1 year for Bank A and 1 day for Bank B), and you think there is a high probability that you will make a withdrawal during the year, then Bank A might be preferable.If funds must be left on deposit until the end of the compounding period (1 year for Bank A and 1 day for Bank B), and you have no intentions of making a withdrawal during the year, then Bank B might be preferable.B. If funds must be left on deposit until the end of the compounding period (1 day for Bank A and 1 year for Bank B), and you think there is a high probability that you will make a withdrawal during the year, then Bank B might be preferable.C. If funds must be left on deposit until the end of the compounding period (1 year for Bank A and 1 day for Bank B), and you think there is a high probability that you will make a withdrawal during the year, then Bank B might be preferable.D. If funds must be left on deposit until the end of the compounding period (1 day for Bank A and 1 year for Bank B), and you think there is a high probability that you will make a withdrawal during the year, then Bank A might be preferable.
The Excellent Agency specializes in developing advertising campaigns for smaller retail clients. Excellent is hired by Shadowleaf Shoes, a small regional chain of six shoe stores, to develop a slogan and specific ads to be used in a three-month newspaper campaign. Shadowleafs marketing director, Manuel Margolis, is adamant while meeting with Excellent's account executive, Kia Chin, that the campaign must be catchy and modern to appeal to a target audience that has an active lifestyle and is between the ages of 18 and 35. More importantly, Margolis wants the slogan to be memorable and unique. Kia Chin, representing Excellent, develops a campaign and presents it to Margolis. The campaign is based on the slogan "Do What You Do in a Shadowleaf Shoe." Visuals depict mens legsdifferent sizes, skin colors, etc.walking, jogging, dancing, and otherwise moving in every type of Shadowleafs shoes. Margolis feels that this campaign will target young male consumers, but will also get the attention of others regarding the comfort of the shoes, raising awareness of the Shadowleaf brand. After running the ads, the Excellent Agency wins an advertising effectiveness award. It seems that the surprising and appealing visuals gave the slogan unexpectedly positive social meaning for people of all ages, not just men aged 18 to 35. When Manuel Margolis insists on a measuring stick for the creativity of the campaign, what will the Xcellent Agency tell him, if Kia Chin is smart? A. "The award alone proves that this ad is loaded with creativity." B. "If people like the ad, theyll buy the product." C. "We met the technical standards for this advertising effort." D. "Great brands do more than just get attention, they make emotional connections."
Cone Corporation is in the process of preparing its December 31, 2021, balance sheet. There are some questions as to the proper classification of the following items: A. $50,000 in cash restricted in a savings account to pay bonds payable. The bonds mature in 2025. B. Prepaid rent of $24,000, covering the period January 1, 2022, through December 31, 2023. C. Notes payable of $200,000. The notes are payable in annual installments of $20,000 each, with the first installment payable on March 1, 2022. D. Accrued interest payable of $12,000 related to the notes payable. E. Investment in equity securities of other corporations, $80,000. Cone intends to sell one-half of the securities in 2022.Required:Prepare the asset and liability sections of a classified balance sheet to show how each of the above items should be reported.
Balance sheet information for Pawn Company and its 90%-owned subsidiary, Sox Corporation, at December 31, 20X1, is summarized as follows: Pawn Sox Current assets-net $200,000 $50,000 Property, plant, and equipment-net 1,000,000 600,000 Investment in Sox 558,000 $1,758,000 $650,000 Current liabilities $100,000 $30,000 Capital stock 800,000 400,000 Retained earnings 858,000 220,000 $1,758,000 $650,000 Pawn acquired its interest in S for cash when S's assets and liabilities were smaller than their fair values. The consolidated balance sheet of P and S at December 31, 20X1 will show:a. non-controlling interest, $65,000b capital stock, $800,000c. investment in Sioux, $558,000d. retained earnings, $1,078,000
The Sheridan Inc., a manufacturer of low-sugar, low-sodium, low-cholesterol TV dinners, would like to increase its market share in the Sunbelt. In order to do so, Sheridan has decided to locate a new factory in the Panama City area. Sheridan will either buy or lease a site depending upon which is more advantageous. The site location committee has narrowed down the available sites to the following three very similar buildings that will meet their needs. Building A: Purchase for a cash price of $612,100, useful life 26 years. Building B: Lease for 26 years with annual lease payments of $71,490 being made at the beginning of the year. Building C: Purchase for $655,200 cash. This building is larger than needed; however, the excess space can be sublet for 26 years at a net annual rental of $6,850. Rental payments will be received at the end of each year. The Sheridan Inc. has no aversion to being a landlord. In which building would you recommend that The Sheridan Inc. locate, assuming a 11% cost of funds?
Suppose you decide (as did Steve Jobs and Mark Zuckerberg) to start a company. Your product is a software platform that integrates a wide range of media devices, including laptop computers, desktop computers, digital video recorders, and cell phones. Your initial market is the student body at your university. Once you have established your company and set up procedures for operating it, you plan to expand to other colleges in the area and eventually to go nationwide. At some point, hopefully sooner rather than later, you plan to go public with an IPO and then to buy a yacht and take off for the South Pacific to indulge in your passion for underwater photography. 1. What is an agency relationship? When you first begin operations, assuming you are the only employee and only your money is invested in the business, would any agency conflicts exist? 2. If you expanded and hired additional people to help you, might that give rise to agency problems?3. Suppose you need additional capital to expand and you sell some stock to outside investors. If you maintain enough stock to control the company, what type of agency conflict might occur?4. List three provisions in the corporate charter that affect takeovers.5. Briefly describe the use of stock options in a compensation plan. What are some potential problems with stock options as a form of compensation?6. What is block ownership? How does it affect corporate governance?7. Briefly explain how regulatory agencies and legal systems affect corporate governance.
For each of the following incidents, determine whether the individuals will be motivated to behave as desired. Frank Edwards is head basketball coach at a small regional state university, a campus of the states main university system. He has just had a visit with Walter Johnson, a local high school athlete who is clearly one of the states blue chip basketball prospects. Frank desperately needs a player of Walters potential to turn his mediocre team around, but he realizes that it wont be easy to sign him. He is confident that he made it clear to Walter that there is a scholarship available for Walter if he wants it. He also knows that Walter needs a scholarship to be able to go to college. However, an article in the Sunday Sports section reports that two of the major state university coaches (larger schools upstate, with nationally known basketball programs) also intend to actively recruit Walter. Coach Edwards should take which of the following actions?A. Send Walter a written and notarized offer of the scholarship.B. Write Walter's parents, stressing that the scholarship will cover all of his tuition, room and board, and book expenses.C. Write a letter to Walter stressing to him the value of a college education.D. Talk to Walter again, stressing the likelihood that he would make the starting five in his freshman year.E. Do nothing. Walter will probably sign with him anyway.
Headland Mining Company purchased land on February 1, 2020, at a cost of $1,169,500. It estimated that a total of 52,800 tons of mineral was available for mining. After it has removed all the natural resources, the company will be required to restore the property to its previous state because of strict environmental protection laws. It estimates the fair value of this restoration obligation at $96,300. It believes it will be able to sell the property afterwards for $107,000. It incurred developmental costs of $214,000 before it was able to do any mining. In 2020, resources removed totaled 26,400 tons. The company sold 19,360 tons. Compute the following information for 2020. A) Per unit mineral cost.B) Total material cost of December 31, 2020, inventory.C) Total material cost in cost of goods sold at December 31, 2020.