Consider a firm with a contract to sell an asset for $138,000 five years from now. the asset costs $74,000 to produce today. given a relevant discount rate on this asset of 12 percent per year, calculate the profit the firm will make on this asset.

Answers

Answer 1

Answer:

The cost to produce today = 74000

At a discount of 12%, the future value of costs in 5 years = PV*(1+r)^n where PV = 74000, r= 12% = 0.12 and n = 5 years = 5

The value of costs in 5 years = 74000*(1+0.12)^5

The value of costs in 5 years = 74000*1.12^5

The value of costs in 5 years 130,413.28

Price in 5 years = 138,000

Profit = 138,000-130,413.28 = 7,586.72

The profit the firm will make on this asset (considering time value of money) = $7,586.72

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Wentworth's Five and Dime Store has a cost of equity of 11.4 percent. The company has an aftertax cost of debt of 5 percent, and the tax rate is 35 percent. If the company's debt–equity ratio is .74, what is the weighted average cost of capital?

Answers

Answer:

WACC = 6.66%

Explanation:

Weighted average cost of capital is the average cost of all of the long-term types of finance used by a company weighted according to the that amount of finance used in relation to the total pool of fund

WACC = (Wd×Kd) + (We×Ke)

After-tax cost of debt = Before tax cost of debt× (1-tax rate)

Kd-After-tax cost of debt = 5%

Ke-Cost of equity = 11.4%

Wd-Weight f debt -74%

We-Weight of equity = 26%

WACC = (0.74× 5%) + (0.26 × 11.4%) = 6.66%

WACC = 6.66%

With regard to a futures contract, the long position is held by a. the trader who plans to hold the contract open for the lengthiest time period. b. the trader who commits to delivering the commodity on the delivery date. c. the trader who bought the contract at the largest discount. d. the trader who has to travel the farthest distance to deliver the commodity. e. the trader who commits to purchasing the commodity on the delivery date.

Answers

Answer:

The answer is e. the trader who commits to purchasing the commodity on the delivery date.

Explanation:

The long position in a forward position agrees to buy the stock when the contract expires. The long futures position is an unlimited profit, unlimited risk position that can be entered by the futures speculator to profit from a rise in the price of the underlying

A project that provides annual cash flows of $2,700 for nine years costs $8,800 today.Requirement 1:A. At a required return of 9 percent, what is the NPV of the project?
B. At a required return of 28 percent, what is the NPV of the project?
C. At what discount rate would you be indifferent between accepting the project and rejecting it?

Answers

Answer:

A. $8,187.17

B. $597.38

C. 30%

Explanation:

Calculate the Net Present Value of the Project at the Required Return of 9%

The following is the calculation of NPV using a financial calculator :

($8,000) CFj

$2,700 CFj

9.00 % i/yr

Shift NPV $8.187.1666 or $8,187.17

Calculate the Net Present Value of the Project at the Required Return of 9%

The following is the calculation of NPV using a financial calculator :

($8,000) CFj

$2,700 CFj

28.00 % i/yr

Shift NPV $597.3765 or $597.38

You will be indifferent between accepting the project and rejecting it at the internal rate of return. The Internal Rate of Return is the interest rate that makes the Present Vale of Cash Flows to equal the Initial Cost of the Investment.

Use the Data given to find the Internal Rate of Return :

($8,000) CFj

$2,700 CFj

Shift IRR 30%

You buy one Home Depot June 60 call contract and one June 60 put contract. The call premium is $5 and the put premium is $3. Your maximum loss from this position could be a. $300. b. $800. c. None of the options are correct. d. $200. $500.

Answers

Answer:

b. $800

Explanation:

The calculation of maximum loss from this position is shown below:-

Maximum Loss from this position = (Assume figure × Call premium) + (Assume figure × Put premium)

= (100 × $5) + (100 × $3)

= $500 + $300

= $800

Therefore for computing the maximum loss from this position we simply applied the above formula.

Jack Corporation purchased a 20% interest in Jill Corporation for $1,780,000 on January 1, 2018. Jack can significantly influence Jill. On December 10, 2018, Jill declared and paid $2.4 million in dividends. Jill reported a net loss of $5.4 million for the year. What amount of loss should Jack report in its income statement for 2018 relative to its investment in Jill?

Answers

Answer:

$1,560,000

Explanation:

The computation of the amount of loss related to the investment is shown below:

= Net loss × interest percentage + dividend paid × interest percentage

= $5,400,000 × 20% + $2,400,000 × 20%

= $1,080,000 + $480,000

= $1,560,000

We simply added the net loss and the dividend with their interest percentage so that the correct amount can come

All other information which is given is not relevant. Hence, ignored it

Stevenson Company purchased equipment for $250,000 on January 1, 2010. The estimated salvage value is $50,000, and the estimated useful life is 5 years. The straight-line method is used for depreciation. On July 1, 2013 Stevenson sold the equipment for $100,000. The journal entry to record the sale of the equipment will include.

Answers

Answer: The following journal entries would be recorded upon disposal of the equipment:

Debit Credit

Cash $100,000

Accumulated depreciation $140,000

Equipment $250,000

Loss on disposal of asset $10,000

Explanation: Using the straight-line method of depreciation, the following formula applies: (Historical cost - Salvage value) / No of years

Depreciation = ($250,000 - $50,000) / 5 years = $40,000 yearly

Accumulated depreciation (January 1, 2010 - July 1, 2013) for three and half years is $140,000 (3.5 years * $40,000). This means that the equipment had a net book value (NBV) of $110,000 as at the time of disposal. So, the above entries would eliminate the asset in the books and recognise the loss on disposal (sales proceed was less than the NBV).

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