Answer:
$4,250
Explanation:
The computation of the operating income or EBIT is shown below:
Earning before interest and taxes = Sales reported - operating cost other than depreciation - depreciation expense
= $12,500 - $7,250 - $1,000
= $4,250
We simply deduct the operating cost and the depreciation expense from the sales reported to arrive the earning before interest and taxes
All other information which is given in the question is not relevant. hence, ignored it
Answer:
The price of the stock today or the price at which the stock should sell today is $61.30
Explanation:
The price of the stock today can be calculated using the Dividend Discount Model approach which values a stock based on the present value of the expected future dividends from the stock. The price of this stock will be,
P0 = 3.15 * (1+0.2) / (1+0.12) + 3.15 * (1+0.2) * (1+0.15) / (1+0.12)^2 +
3.15 * (1+0.2) * (1+0.15) * (1+0.1) / (1+0.12)^3 +
[(3.15 * (1+0.2) * (1+0.15) * (1+0.1) * (1+0.05) / (0.12 - 0.05)) / (1+0.12)^3]
P0 = $61.296 rounded off to $61.30
a. If you require a risk premium of 8%, how much will you be willing to pay for the portfolio?
b. Suppose the portfolio can be purchased for the amount you found in (a). What will the expected rate of return on the portfolio be?
c. Now suppose you require a risk premium of 15%. What is the price you will be willing to pay now?
d. Comparing your answers to (a) and (c), what do you conclude about the relationship between the required risk premium on a portfolio and the price at which the portfolio will sell?
Answer:
a. If you require a risk premium of 8%, how much will you be willing to pay for the portfolio?
the expected value of our portfolio = ($120,000 x 50%) + ($300,000 x 50%) = $210,000
the current market price of the investment = $210,000 / 1.13 = $185,840.71
discount rate = 5% + 8% = 13%
b. Suppose the portfolio can be purchased for the amount you found in (a). What will the expected rate of return on the portfolio be?
13%, it should be equal to the discount rate
c. Now suppose you require a risk premium of 15%. What is the price you will be willing to pay now?
the current market price of the investment = $210,000 / 1.21 = $175,000
discount rate = 5% + 15% = 20%
d. Comparing your answers to (a) and (c), what do you conclude about the relationship between the required risk premium on a portfolio and the price at which the portfolio will sell?
the higher the risk premium, the lower the market price of the portfolio
Answer:
41.28 million
Explanation:
the net present value of the two alternatives needs to be determined. The appropriate alternative would be the plane with the higher NPV
Net present value is the present value of after-tax cash flows from an investment less the amount invested.
NPV can be calculated using a financial calculator
Alternative 1
Cash flow in year 0 = $-100 million
Cash flow each year from year 1 to 5 = $28 million
I = 9%
NPV = $8.91 million
Alternative 2
Cash flow in year 0 = $-132 million
Cash flow each year from year 1 to 10 = $27 million
I = 9%
NPV = $41.28 million
The second alternative has the higher NPV and it would increase the value of the company by $41.28 million if accepted
To find the NPV using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
The question involves determining the Net Present Value (NPV) of each plane's cash flows, discounted at the company's cost of capital. The plane that provides the higher NPV should be selected, with the difference in the two NPV's representing the use value increase for the company.
To decide which project Shao Airlines should accept, we need to determine the Net Present Value (NPV) of each project. The NPV is the sum of the present values of all cash flows associated with a project, discounted at the firm's cost of capital.
For Plane A, the NPV is calculated over its expected life of 5 years. Using the formula for NPV, we get:
NPV A = ($28 million / (1.09)^1) + ($28 million / (1.09)^2) + ($28 million / (1.09)^3) + ($28 million / (1.09)^4) + ($28 million / (1.09)^5) - $100 million
Similarly, Plane B's NPV is calculated over 10 years. Since Shao Airlines plans to serve the route for only 10 years, it means Plane A will have to be purchased twice. Therefore, a similar NPV formula applies, but for 10 years and accounting for the double cost:
NPV B = 2 × [($27 million / (1.09)^1) + ($27 million / (1.09)^2) + ... + ($27 million / (1.09)^10)] - 2×$132 million
The project with the higher NPV should be accepted, and its NPV relative to the alternative represents the value increase for the company.
Learn more about Net Present Value here:
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Answer:
A. 36,000 units
B. 40,000 units
C. 32,800 units.
Explanation:
A. To calculate units transferred out we add beginning work in process to units transferred during the period and subtract the ending work in process units.
8,000 + 32,000 - 4,000 = 36,000
Units transferred out of process in June = 36,000
B. The equivalent units of production for materials will be ;
8,000 + 32,000 = 40,000.
C. The equivalent units of production for Conversion costs will be:
(8000 * 30%) + 32000 - (4000 * 40%) = 32,800.
Answer:
The correct answer is letter "A": The convenience yield is always positive or zero.
Explanation:
The convenience yield reflects the premium of possessing an asset instead of one of its derivates or contracts. This situation arises in front of inverted markets, where holding the asset itself may bring more profits than purchasing a derivate of the same asset.
The convenience yield tends to be positive or zero because the prices of assets cannot fall below zero. In other words, they are not negative.
convenience yield is a benefit of owning a physical asset over a futures contract. The yield is typically positive or zero. In the context of investment and consumption assets, the yield assumptions may vary.
The question is focusing on the concept of convenience yield in finance and its relationship with investment and consumption assets. Convenience yield is the non-monetary advantage or benefit that a holder gets from owning a physical good or an asset over a futures contract on that asset. If you decide to hold an asset as opposed to a futures contract on the asset, it means because the net benefits – that is the benefits from holding the asset, minus the benefits of holding the contract – must be nonzero. Therefore, option A is correct: The convenience yield is always positive or zero.
Moreover, for an investment asset, which is purchased with the hope that it will generate income or appreciate in value, the convenience yield is generally assumed to be zero because holding it delivers no utility beyond the financial returns it provides. So option B is not always true. The convenience yield being negative for a consumption asset, an asset purchased for current use, is also unlikely (option C is incorrect). Such a negative value would suggest that owning the asset is somehow disadvantageous - which contradicts the reason for purchasing a consumption asset. Lastly, the convenience yield does not measure the average return earned on futures contracts, therefore option D is also incorrect.
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Answer:
July 1st: Debit Cash=$1,200 Credit Interest Received=$1,200
December 31st: Debit Interest Receivable=$1,200, Credit Interest Earned= $1,200
Explanation:
July 1st Receipt of Interest
Step 1: Calculate Interest Receivable for the entire Year
=($40,000×6%)= 40,000×0.06= $2,400
=$2,400
Step 2:Calculate Interest Receivable for the first 6 months (Semi-annual Payment)
January 1st to July 1st is 6 Months, we therefore divide the annual interest receivable into 2
$2,400÷2=$1,200
Step 3: Entries for the July 1 Receipt of Interest
Debit Cash = $1,200
Credit Interest Received=$1,200
Step 4: Calculate the Interest Accrual for the Decembe 31st
Between July 1st and December 31st is equally 6 months, therefore, the remaining $1,200 is for the second half of the year.
Step 5: Entries for December 31st Interest Accrual
Debit Interest Receivable = $1,200
Credit Interest Earned= $1,200