Answer:
The company promises to deliver upgrades for two years to a customer if they purchase software that costs $100. These upgrades need to be accounted for so they will be accounted for from the $100.
The $100 will therefore be split between the cost price of the software and the 2 year upgrades.
The part of the $100 that is the cost price will be recognized by the company as revenue immediately at the date of sale.
The upgrades however, will not. This is because you can only recognize revenue for services performed and these have not been performed yet. They will therefore be classified as Deferred revenue which is a liability account showing that the company owes people performance obligations.
As the years go by and the upgrades are given, the revenue will be recognized.
community hospital in a rual community operates the ambulance service. the hospital purchases a new ambulance for $150,000. they estimate a useful life of 10 years and a salvage value of $20,000. what is the annual charge for depreciation on this asset?
Answer:
$150,000×20,000=3.000.000.000
Explanation:
3.000.000.000÷10=300.000.000 years
Schultz Tax Services, a tax preparation business had the following transactions during the month of June:
1. Received cash for providing accounting services, $3,000.
2. Billed customers on account for providing services, $7,000.
3. Paid advertising expense, $800.
4. Received cash from customers on account, $3,800.
5. paid cash dividends, $1,500.
6. Received telephone bill, $220.
7. Paid telephone bill, $220
Based on the information given above, calculate the balance of Cash at June 30. (Hint: Use the following reconciliation.)
Cash, June 1 $25,000
Plus: cash receipts for June ____________
Minus: cash payments for June ____________
Cash, June 30 ____________
Answer:
$29,280
Explanation:
It is important to consider only cash transactions when preparing a Cash Reconciliation.
Schultz Tax Services Cash Reconciliation
Cash, June 1 $25,000
Plus: cash receipts for June
Receipts for Accounting Services $3,000
Receipts from Accounts Receivables $3,800 $6,800
Minus: cash payments for June
Advertising expense paid $800
Dividends paid $1,500
Telephone expense paid $220 ($2,520)
Cash, June 30 $29,280
Conclusion :
The balance of Cash at June 30 is $29,280
I am currently stuck on an application question on why I left my job. How would I awswer this question if I worked at an amusement park for two summers but left the first time because of ride issues and bronchitis/ and the second time I left due to drivers ed interfering with my work schedule, including not being able to get to and from work. Thank you for your time.
Answer:
Give the reasons that you wrote
Explanation:
If I were you I would put the reasons that you wrote above but just make it sound more professional. Ex: I left my job at (name of amusement park) in (month) of (year) due to health issues.
A coffee shop buys 2000 bags of their most popular coffee beans each month. The cost of ordering and receiving shipments is $12 per order. Accounting estimates annual carrying costs are $3.60. The supplier lead time is 8 operating days. The shop operates 240 days per year. Each order is received from the supplier in a single delivery. There are no quantity discounts.
Required:
a. What quantity should the shop order with each order?
b. How many times per year will the shop order?
c. How many operating days will elapse between two consecutive orders?
d. What is the reorder point if the company wishes to carry a safety stock of 10 bags?
e. What is the store's minimum total annual cost of placing orders & carrying inventory?
Solution :
The optimal order quantity, EOQ = [tex]$\sqrt{\frac{2 \times \text{demand}\times \text{ordering cost}}{\text{holding cost}}}$[/tex]
EOQ = [tex]$\sqrt{\frac{2 \times 2000 \times 12}{3.6}}$[/tex]
= 115.47
The expected number of orders = [tex]$\frac{\text{demand}}{EOQ}$[/tex]
[tex]$=\frac{2000}{115.47}$[/tex]
= 17.32
The daily demand = demand / number of working days
[tex]$=\frac{2000}{240}$[/tex]
= 8.33
The time between the orders = EOQ / daily demand
[tex]$=\frac{115.47}{8.33}$[/tex]
= 13.86 days
ROP = ( Daily demand x lead time ) + safety stock
[tex]$=(8.33 \times 8)+10$[/tex]
= 76.64
The annual holding cost = [tex]$\frac{EOQ}{2} \times \text{holding cost}$[/tex]
[tex]$=\frac{115.47}{2} \times 3.6$[/tex]
= 207.85
The annual ordering cost = [tex]$\frac{\text{demand}}{EOQ} \times \text{ordering cost}$[/tex]
[tex]$=\frac{2000}{115.47} \times 12$[/tex]
= 207.85
So the total inventory cost = annual holding cost + annual ordering cost
= 207.85 + 207.85
= 415.7
Prepare journal entries for each of the following: a. Issued a check to establish a petty cash fund of $550. If an amount box does not require an entry, leave it blank. fill in the blank 34ed1d068fd9f9a_2 fill in the blank 34ed1d068fd9f9a_3 fill in the blank 34ed1d068fd9f9a_5 fill in the blank 34ed1d068fd9f9a_6 b. The amount of cash in the petty cash fund is $190. Issued a check to replenish the fund, based on the following summary of petty cash receipts: store supplies, $211 and miscellaneous selling expense, $133. Record any missing funds in the cash short and over account. If an amount box does not require an entry, leave it blank. fill in the blank d87119f87056fd0_2 fill in the blank d87119f87056fd0_3 fill in the blank d87119f87056fd0_5 fill in the blank d87119f87056fd0_6 fill in the blank d87119f87056fd0_8 fill in the blank d87119f87056fd0_9 fill in the blank d87119f87056fd0_11 fill in the blank d87119f87056fd0_12
Answer:
A. Dr Petty Cash $550
Cr Cash $550
B..Dr Store Supplies $211
Dr Miscellaneous Selling Expense $133
Dr Cash Short and Over $16
Cr Cash $360
Explanation:
A. Preparation of the Joural entry if Issued a check to establish a petty cash fund of $550
Dr Petty Cash $550
Cr Cash $550
(To record creation of petty cash)
(b)
Dr Store Supplies $211
Dr Miscellaneous Selling Expense $133
Dr Cash Short and Over $16
($550-$211-$133-$190)
Cr Cash $360
($211+$133+$16)
(To record expense and replenish the petty cash)
Interest cost included in pension expense recognized for a period by an employer sponsoring a defined-benefit pension plan represents the shortage between the expected and actual returns on plan assets. increase in the projected benefit obligation due to the passage of time. increase in the fair value of plan assets due to the passage of time. amortization of the discount on accumulated OCI (PSC).
Answer: Increase in the projected benefit obligation due to the passage of time.
Explanation:
The interest cost is used to show how much the Projected Benefit Obligation (PBO) owed by the employer to the Defined Benefit pension plan has increased by in the period.
The interest cost increases based on the unpaid beginning PBO for the period that arises as the employment term of the employee increases and the interest rate is the discount rate that is used to discount the PBO.
Which of the following policies would dramatically and permanently reduce government outlays? Choose one or more: A. reducing the cost-of-living increase for Social Security recipients B. reducing welfare payments for every month an unemployed person doesn't find a job C. lowering wages for workers involved in all government construction projects D. reducing the number of overseas military bases E. lowering Medicare and Social Security taxes
Answer: A. reducing the number of people eligible for Medicare and Medicaid by half
E. raising the age to receive Social Security to 75
Explanation: That’s correct! By raising the age to receive Social Security to 75 and reducing the number of people eligible for Medicare and Medicaid by half, the government would dramatically and permanently reduce its outlays because these are mandatory payments.
The policy that can be followed so that the government outlays can be reduced permanently is A: reducing the cost-of-living increase for Social Security recipients.
An outlay can be regarded as a payment, it can be explained as payments by the federal government which is been tracked back to congressionally setting up an appropriations accounts.It is a payment for liquidation of an obligation , and different from repayment of debt principal. Option A explained how this outlay by government can be reduced.Therefore, option A is correct.
Learn more at:
https://brainly.com/question/20542666?referrer=searchResults
Assume that the international Fisher effect (IFE) holds between the United States and the United Kingdom. The U.S. inflation is expected to be 5 percent, while British inflation is expected to be 3 percent. The interest rate offered on pounds is 7 percent, and the U.S. interest rate is 7 percent. What does this say about real interest rates expected by British investors
Answer:
Nominal rate of return= 3.9%
Explanation:
Inflation is the increase in the price level. It erodes the value of money.
Nominal interest is that quoted for investment or loan transactions. It has not been been adjusted for inflation.
Real interest rate is the amount of interest in terms of the the quantity of good and services that can be purchased. It is the nominal interest rate adjusted for inflation.
The relationship between inflation, real interest and nominal interest rate is given using the Fishers Effect;
N = ( (1+R) × (1+F)) - 1
R= (1+N)/(1+F) -1
N- nominal rate, R-real rate, F- inflation
Real rate of return = 1.07/1.03 - 1= 0.039
Nominal rate of return = 0.039× 100
Nominal rate of return= 3.9%
If investors receive shares of stock in companies that they fund on crowdfunding websites like Kickstarter, would their investments be considered to be securities? Group of answer choices Yes, because it is an investment of money in a common enterprise and the investors expect profit from the efforts of others. No, they do not involve the investment of money or other consideration. No, because the profit arises solely from the efforts of the investors. Yes, because the requirements of the 1934 Securities Exchange Act are all met.
Answer:
Yes, because it is an investment of money in a common enterprise and the investors expect profit from the efforts of others.
Explanation:
In the case when the investor would received the shares of the companies and that should be funded on the website of crown funding so this would be considered as securities as this a money investment that to be made in a common enterprise also the investor expected the profit. In addition to this, the SEC permits the equity crowdfunding with effective from May 2016
Therefore the first option is correct
The total earnings of an employee for a payroll period is referred to as
Answer:
Net pay.
Explanation:
An employee can be defined as an individual who is employed by an employer of labor to perform specific tasks, duties or functions in an organization.
Basically, an employee is saddled with the responsibility of providing specific services to the organization or company where he is currently employed while being paid a certain amount of money hourly, daily, weekly, or monthly depending on the contractual agreement between the two parties (employer and employee).
Net pay can be defined as the total amount of money earned by an employee for a payroll period. Thus, it is the earnings of an employee after all deductions, fees, or contributions have been subtracted from the gross pay and as such, it is the take home of an employee for a payroll period.
The cost of all your ingredients for your cake is $3.49. Your consistently sell 150 cakes per week for $976 in total sales. What is your food cost percentage
Answer:
54%
Explanation:
Free Corporation acquired machinery at a cost of $1,250,000 on January 1, 2018. Free Corporation adopted the double-declining balance method. They determined that the estimated useful life was ten years, with no residual value. At the beginning of 2021, a decision was made to change to the straight-line method of depreciation for the machinery. The depreciation expense for 2021 would be
Answer:
$91,429
Explanation:
Depreciation using the double-declining balance method is calculated as follows :
Depreciation expense = 2 x SLDP X BVSLDP
where,
SLDP = 100 ÷ useful life
= 100 ÷ 10
= 10%
therefore,
2018
Depreciation expense = 2 x 10% x $1,250,000 = $250,000
2019
Depreciation expense = 2 x 10% x ($1,250,000 - $250,000) = $200,000
2020
Depreciation expense = 2 x 10% x ($1,250,000 - $250,000 - $200,000 = $160,000
2021
Step 1 : New Depreciable Amount calculation
New Depreciable Amount = Cost - Accumulated depreciation to date
where,
Accumulated depreciation = total depreciation to date
= $250,000 + $200,000 + $160,000
= $610, 000
therefore
New Depreciable Amount = $1,250,000 - $610, 000
= $640,000
Step 2 : New useful life calculation
New useful life = 10 - 3 = 7
Step 3 : Depreciation expense
Depreciation expense = New Depreciable Amount ÷ Estimated useful life
= $640,000 ÷ 7
= $91,429
The depreciation expense for 2021 would be $91,429
Your factory has been offered a contract to produce a part for a new printer. The contract would last for 3 years and your cash flows from the contract would be $4.99 million per year. Your upfront setup costs to be ready to produce the part would be $8.16 million. Your discount rate for this contract is 8.4%.
A. What is the? IRR?
B. The NPV is $ 4.99 ?million, which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV?
Answer and Explanation:
The computation of the net present value and the internal rate of return is shown below:
After applying the excel formulas for NPV and IRR i.e.
For NPV = NPV()
For IRR = IRR(IRR)
The NPV and IRR is $4.61 million and 38% respectively
Since the NPV is in positive so the project should be accepted also the IRR would be agree with the NPV
The field of operations management is shaped by advances in which of the following fields?
Answer:
E) all of the above
Explanation:
THIS ARE THE OPTIONS FOR THE QUESTION BELOW
A) chemistry and physics
B) industrial engineering and management science
C) biology and anatomy
D) information technology
E) all of the above
Operations management can be regarded as administration of business practices which brings about creation
of highest level of efficiency that can be created within an organization. It is responsible for conversion of materials as well as labor to goods/services so that profit can be maximized efficiently
in an organization. It should be noted that The field of operations management is shaped by advances in fields such as ;
✓chemistry and physics
✓management science
✓ biology and anatomy
✓information technology
✓Industrial engineering
f a taxpayer sells property for cash, the amount realized consists of the net proceeds from the sale. For each of the following, indicate the effect on the amount realized if: The property is sold on credit. A mortgage on the property is assumed by the buyer. A mortgage on the property is assumed by the seller. The buyer acquires the property subject to a mortgage of the seller. Stock that has a basis to the purchaser of $6,000 and a fair market value of $10,000 is received by the seller as part of the consideration.
Answer:
a. The property is sold on credit.
The amount realized is the cash received at the date of sale and the cash that will be received in future when the credit is settled.
b. A mortgage on the property is assumed by the buyer.
The amount realized increases because the seller will see their debt reduced and still receive cash from the buyer for the purchase of the property.
c. A mortgage on the property is assumed by the seller.
The amount realized decreases because the realized amount will have to be net of the mortgage that the seller now has to pay.
d. The buyer acquires the property subject to a mortgage of the seller.
Amount realized increases as the buyer will become the one making mortgage payments instead of the seller which effectively means that the seller gets the realized value net of debt.
e. Stock that has a basis to the purchaser of $6,000 and a fair market value of $10,000 is received by the seller as part of the consideration.
Realized value increases to $10,000 because that is the fair value of the stock when exchange for the property.
From 1970 to 1998 the U.S. dollar a. gained value compared to the German mark because inflation was higher in the U.S. b. gained value compared to the German mark because inflation was lower in the U.S. c. lost value compared to the German mark because inflation was higher in the U.S. d. lost value compared to the German mark because inflation was lower in the U.S.
Answer:
lost value compared to the German mark because inflation was lower in Germany
Explanation:
Inflation is a persistent rise in the general price levels
Types of inflation
1. demand pull inflation – this occurs when demand exceeds supply. When demand exceeds supply, prices rise
2. cost push inflation – this occurs when the cost of production increases. This leads to a reduction in supply. Higher prices are the resultant effect
If inflation of the currency of a country increases relative to that of another country, the value of that currency decreases
Heavy Products, Inc. (HPI) developed standard costs for direct material and direct labor. In 2020, HPI estimated the following standard costs for one of their major products, the 10-gallon plastic container.
Budgeted quantity Budgeted price
Direct materials 0.1 pounds $90 per pound
Direct labor 0.2 hours $30 per hour
During June, Heavy Products produced and sold 21,000 containers using 2,400 pounds of direct materials at an average cost per pound of $93 and 2,100 direct manufacturing labor-hours at an average wage of $30.50 per hour. June's direct material flexible-budget variance is:_____.
A) $18,720 favorable.
B) $880,000 unfavorable.
C) $100,000 favorable.
D) $60,000 unfavorable.
Answer:
$34,200
Explanation:
Calculation to determine what June's direct material flexible-budget variance is
Flexible-budget variance = (2,400 × $93) − (21,000 × 0.1 × $90)
Flexible-budget variance =$223,200-$189,000
Flexible-budget variance =$34,200 U
Takelmer Industries has a different WACC for each of three types of projects. Lowrisk projects have a WACC of 8.00%, averagerisk projects a WACC of 10.00%, and highrisk projects a WACC of 12%. Which of the following projects do you recommend the firm accept? Project Level of Risk IRR A Low 9.50% B Average 8.50% C Average 7.50% D Low 9.50% E High 14.50% F High 17.50% G Average 11.50% A. B, C, E, F, G B. A, D, E, F, G, C. A, B, C, D, E, F, G D. A, B, C, D, G
Answer:
The correct option is B. A, D, E, F, G.
Explanation:
IRR can described as the discount rate makes a project's net present value (NPV) to be equal to zero. Any rate that is higher than the IRR results in a negative NPV.
The weighted average cost of capital (WACC) can be described as cost of capital of a firm that is calculated by givng proportional weight to each category of capital of the firm.
For this question, the decision rule is therefore to reject any project that its IRR is less than its associated WACC.
The analysis can be done as follows:
Project Level of Risk IRR WACC Recommendation
A Low 9.50% 8.00% Accept
B Average 8.50% 10.00% Reject
C Average 7.50% 10.00% Reject
D Low 9.50% 8.00% Accept
E High 14.50% 12% Accept
F High 17.50% 12% Accept
G Average 11.50% 10.00% Accept
Based on the analysis above, projects A, D, E, F and G are therefore recommended to the firm to accept.
Therefore, the correct option is B. A, D, E, F, G.
Under the retrospective approach to accounting for changes in accounting principles, Multiple select question. prior years' financial statements are revised to reflect the impact of the new accounting principle change. a journal entry is made to adjust asset accounts to what their balances would have been had the new method been used in the current year forward. a journal entry is made to adjust all balance sheets accounts to what they would have been if the new method had always been used. only the current year and future financial statements are revised to reflect the impact of the accounting principle change. a journal is made to adjust the firm's Retained earnings balance to reflect the cumulative effect of the accounting principle change.
Answer:
Under the retrospective approach to accounting for changes in accounting principles,
a journal is made to adjust the firm's Retained earnings balance to reflect the cumulative effect of the accounting principle change.
Explanation:
A change in an accounting principle refers to a change in the accounting method. An example is using a different depreciation method (straight-line instead of double-declining method) or switching between Weighted-Average to LIFO inventory valuation method. Where there is a change in accounting principle, the change is applied retrospectively to the earliest period when financial statements are presented. The purpose is to ensure that the comparative financial statements reflect the new application of the accounting principle just as the current financial statements do. However, this cannot be done if it were impractical.
Classify each event either as shifting the aggregate demand curve or as causing movement along the curve.
a. As inflation drops to nearly zero, people save more and therefore more loanable funds are available.
b. Technological advances generate wealth in a broad range of industries.
Answer:
Classification of events as Shifting the Aggregate Demand Curve or Causing Movement along the Curve:
a. = shifting the aggregate demand curve.
b. = causing movement along the demand curve.
Explanation:
When technological advances generate wealth in a broad range of industries, the movement along the demand curve denotes a change in both price and quantity demanded. This is obtainable because technological advances usually reduce costs of production and prices. The reduced price can increase demand. On the other hand, inflation that drops to nearly zero will cause a shift in a demand curve because the quantity demanded can increase with the price of the good remaining the same.
One of the benefits of time management is that it takes away all of your leisure time.
True or false?
Answer:
false po ate or kuya
Answer:
false
Explanation:
Time management taking away free time isn't a plus, and that's not what it's supposed to do in the first place
PLEASE HELP FAST!!!!!!!!!!!!!!!!!
Which candidate do you think proposed a more compelling argument about inflation? Support your claim with specific data presented by the candidates. Be sure to mention at least one counterpoint, and refute this point with evidence.
Answer:
What type of canidate? Like ones running for presidents?
This is your opinion and backup your beliefs with evidence
Explanation:
Answer:
I think the more compelling argument winner has to go to Jimmy Carter. Lots of facts stated, not just opinions and assumptions. For example; when he stated written facts from the CPI that his plan to bring inflation down has worked for him during is presidency.
With that being said I have to give credit where credit is due, Ronald Regan definitely had some powerful comebacks. Like for when he was showing that his governing in the state of California has worked in the past so why would it not work while running the country.
Explanation: no explination
plus not my answer
The current listed price per share of a certain common stock is $15. The cash dividend expected from this corporation in one year is $2 per share. All market research indicates that the expected constant growth rate in dividends will be 4 percent per year in future years. What is the rate of return on this investment that an investor can expect if shares are purchased at the current listed price
Answer:
the rate of return on the investment is 17.33%
Explanation:
The computation of the rate of return is shown below:
The Rate of return is
= (Dividend at year 1 ÷ Price year at 0) + growth rate
= ($2 ÷ 15) + 0.04
= 17.33%
Hence, the rate of return on the investment is 17.33%
We simply applied the above formula so that the rate of return could come
And, the same would be relevant
Under its executive stock option plan, National Corporation granted 20 million options on January 1, 2021, that permit executives to purchase 20 million of the company’s $1 par common shares within the next six years, but not before December 31, 2023 (the vesting date). The exercise price is the market price of the shares on the date of grant, $23 per share. The fair value of the options, estimated by an appropriate option pricing model, is $5 per option. Suppose that the options are exercised on April 3, 2024, when the market price is $25 per share.
Ignoring taxes, what journal entry will National record? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)
Answer:
April 23, 2024
Dr Cash $460 million
Dr PIC Stock Options $100 million
($20 million*$5 per option)
Cr Common stock $20 million
C- PIC Excess of Par $540 million
Explanation:
Preparation of the journal entry that National will record
April 23, 2024
Dr Cash ($23 exercise price × 20 million shares) $460 million
Dr PIC Stock Options $100 million
($20 million*$5 per option)
Cr Common stock (20 million shares at $1 par per share) $20 million
C- PIC Excess of Par $540 million
($460 million+$100 million-$20 million)
Suppose that Riverview Community Bank loans out all of its excess reserves that resulted from the $178,000 Fed bond purchase to Ms. Barlett who uses the funds to purchase a house from Mr. Rho. Mr. Rho deposits the proceeds of the home sale into his checking account at Waterfield Bank. Illustrate the T-account for Waterfield Bank after this transaction has occurred.
Answer:
The deposit of $178,000 by Mr. Rho appears under Liabilities of Waterfield Bank as shown in the attached photo.
Explanation:
Note: See the attached photo for the T-account Illustration for Waterfield Bank after this transaction has occurred.
The the proceeds of the home sale deposited by Mr. Rho into his checking account at Waterfield Bank is liability to Waterfield Bank. Therefore, the deposit of $178,000 by Mr. Rho appears under Liabilities of Waterfield Bank as shown in the attached photo.
*The best answer will receive brainliest, I will friend you, and I will like all of the questions you've asked or answered.
*Any submission unorthodox or not relating to the question will be reported!!!
What manufacturing process do you believe is the most valuable to the business world? Explain why you think so. Then, discuss which of today’s manufacturing processes will not last and why you believe it will become obsolete or irrelevant.
Answer:
I would say metal/steel.
Explanation:
Metal is used to create many things. It is used in every aspect of our lives; in cars and construction products, refrigerators and washing machines, cargo ships and surgical scalpels. It can be recycled over and over again without loss of property.
Answer:
Tech
Explanation:
Hi, I believe that Technology industry is one of the biggest business in the world as nowadays everything runs on technology and everything has evolved to a more advanced way and standard.I believe that it won't last as while technology is huge currently and is getting bigger as time goes on but it's the old technology that will stop manufacturing that has been outdated or replaced.Such as the headphone jack will be removed from cars, phones, tablets, iPads, laptops, planes and many more as Bluetooth has been in the tech industry for a while now.Not to mention apple have removed this from their iPhone 7 back in September 2016.
Thank you for reading/Listening.
hope this helped ;)
The calculation of the payback period for an investment when net cash flow is uneven is:
Answer:
Determining when the cumulative total of net cash flows reaches zero.
Explanation:
On October 1, 2021, Cullumber Company purchased to hold to maturity, 4100, $1000, 10% bonds for $4010000 which includes $61000 accrued interest. The bonds, which mature on February 1, 2030, pay interest semiannually on February 1 and August 1. Cullumber uses the straight-line method of amortization. The bonds should be reported in the December 31, 2021 balance sheet at a carrying value of $3949000. $3953530. $4010000. $4100000.
Answer:
Cullumber Company
The bonds should be reported in the December 31, 2021 balance sheet at a carrying value of:
= $3,949,000
Explanation:
a) Data and Calculations:
October 1, 2021:
Face value of bonds = $4,100,000
Cash payment for bonds = $4,010,000
Accrued interest on bonds = $61,000
Unamortized Bonds Discount = $151,000 ($4,100,000 - $4,010,000 + $61,000)
Carrying value = Face Value - Unamortized discounts
= $3,949,000 ($4,100,000 - $151,000) or ($4,010,000 - $61,000)
Amortization of discount using the straight-line method on March 31:
Interest Revenue = $205,000
Semi-annual amortized discount = $7,550 ($151,000/20)
You are risk managers of your own life (student life). Identify your loss exposures (>10), assess them and make a map
Southern Corporation has a capital structure of 40% debt and 60% common equity. This capital structure is expected not to change. The firm's tax rate is 34%. The firm can issue the following securities to finance capital investments: Debt: Capital can be raised through bank loans at a pretax cost of 9.7%. Also, bonds can be issued at a pretax cost of 7.0%. Common Stock: Retained earnings will be available for investment. In addition, new common stock can be issued at the market price of $67. Flotation costs will be $2 per share. The recent common stock dividend was $3.68. Dividends are expected to grow at 5% in the future. What is the cost of external equity
Answer:
Cost of equity = 10.9%
Explanation:
The Dividend Valuation Model(DVM) is a technique used to value the worth of an asset. According to this model, the value of an asset is the sum of the present values of the future cash flows would that arise from the asset discounted at the required rate of return.
If dividend is expected to grow at a given rate , the value of a share is calculated using the formula below:
D0× (1+g)/Po × (1-F) + g
Do - dividend in the following year, K- requited rate of return , g- growth rate , F= Floatation cost in %
DATA:
D0- 3.68
g- 5%
P=67
K- ?
Po×(1-F)= 67-3.68=$63.32
Ke = 3.68× 1.05/ 63.32 + 0.05 =0.109
Cost of equity = 0.109× 100= 10.9%
Cost of equity = 10.9%