BUSINESS COLLEGE

The following data (in millions) are taken from the financial statements of Tarrow Corporation: Recent Year Prior Year Revenue $386,972 $356,000 Operating expenses 326,634 303,000 Operating income $60,338 $53,000 a. For Tarrow Corporation, determine the amount of change in millions and the percent of change (round to one decimal place) from the prior year to the recent year for: Revenue Operating expenses Operating income Amount of Change (in millions) Percent of Change (round to 1 decimal place) Increase or Decrease 1. Revenue $fill in the blank 1 30,976 fill in the blank 2 % 2. Operating expenses fill in the blank 4 fill in the blank 5 3. Operating income fill in the blank 7 fill in the blank 8 b. During the recent year, revenue and operating expenses . As a result, operating income , from the prior year.

Answers

Answer 1
Answer:

Answer:

Tarrow Corporation

a) Amount of change in millions and the percent of change:

                                   Amount      Percentage   Direction

                                of Change     of Change   of Change

Revenue                    $30,972           8.7%          Increase

Operating expenses   23,634           7.8%          Increase

Operating income       $7,338          13.8%          Increase

b) During the recent year, revenue and operating expenses increased by 8.7% and 7.8% respectively.  As a result, the operating income increased by 13.8%, from the prior year.

Explanation:

a) Data and Calculations:

Tarrow Corporation:

                                Recent Year    Prior Year    Change  Percentage

Revenue                   $386,972      $356,000    $30,972   8.7% Increase

Operating expenses 326,634         303,000      23,634    7.8% Increase

Operating income     $60,338        $53,000       $7,338  13.8% Increase

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Cheap Money Bank offers your firm a discount interest loan at 8.25% for up to $25 million and, in addition, requires you to maintain a 15 percent compensating balance against the amount borrowed. What is the effective annual interest rate on this lending arrangement?

Answers

Answer:

10.75%

Explanation:

The computation of the effective annual interest rate is shown below:

= Interest  ÷ total net amount available

where,

Total net amount available would be

= Loan amount - Loan amount × interest rate - loan amount × compensating percentage

= $25,000,000 - $25,000,000 × 8.25% - $25,000,000 × 15%

= $25,000,000 - $2062,500 - $3,750,000

= $19,187,500

And, the interest would be $2,062,500

Now put these values to the above formula  

So, the rate would equal to

= $2,062,500 ÷ $19,187,500

= 10.75%

Blitz Industries has a debt-equity ratio of .6. Its WACC is 9.1 percent, and its cost of debt is 6.4 percent. The corporate tax rate is 22 percent. a. What is the company's cost of equity capital?
b. What is the company's unlevered cost of equity capital?
c-1. What would the cost of equity be if the debt-equity ratio were 2?
c-2. What would the cost of equity be if the debt-equity ratio were 1.0?
c-3. What would the cost of equity be if the debt-equity ratio were zero?

Answers

Answer: a. WACC = Ke(E/V} + kd(D/V)(1-T)

                            9.1 = ke(100/160) + 6.4(60/160)(1-0.22)

                            9.1 = ke(0.625) + 2.4(0.78)

                            9.1 = 0.625ke + 1.872

                  9.1-1.872 = 0.625ke

                        7.228 = 0.625ke

                              ke = 7.228/0.625

                               ke = 11.56%

                b. WACC = Ke(E/V)

                          9.1   = ke(100/160)    

                          9.1   = 0.625ke

                           ke = 9.1/0.625

                           ke = 14.56%

                 c-1.    WACC = Ke(E/V} + kd(D/V)(1-T)

                                 9.1  = ke(1/3) + 6.4(2/3)(1-0.22)

                                 9.1  = 0.3333ke + 3.328

                     9.1 - 3.328 = 0.3333ke

                            5.772   = 0.3333ke

                                 ke = 5.772/0.3333

                                 ke = 17.32%

   

                    c-2.     9.1 = ke(1/2) + 6.4(1/2)(1-0.22)  

                                9.1 = 0.5ke   + 2.496

                   9.1 - 2.496 = 0.5ke

                           6.604 = 0.5ke

                                ke = 6.604/0.5

                                ke = 13.21%

             

                   c-3.  9.1 = ke (0/0) + kd (0/)

                            ke = 0%

Explanation:

a. in the a part of the question, the debt-equity ratio was 0.6 ie 60/100. Thus, the value of the firm equals 160. The figures given in the question were substituted in the formula. Cost of equity was not provided, therefore, it becomes the subject of the formula. The variables are defined as follows:

ke = Cost of equity = ?

kd = Cost of debt  = 6.4%

 E = Value of equity = 100

 D = Value of debt = 60

 V = Value of the firm ie E + D = 100 + 60 = 160

 T = Tax rate = 22% = 0.22

b. In this part of the question, only equity would be considered since we are calculating unlevered cost of equity. The part of the formula that deals with debt will be ignored.

c-1.  In this case, the debt-equity ratio is 2. Therefore, debt equals 2 while equity is 1. The value of the firm becomes 3. There is need to substitute these values in the original formula while other variables remain constant.

c-2. In this scenario, the debt-equity ratio is 1. Thus, equity is 1 and debt is also 1. The value of the company changes to 2. These new values would be substituted in the formula in order to obtain the new cost of equity.

c-3. since the debt-equity ratio is 0, therefore, the cost of equity equals 0.

Final answer:

a. The company's cost of equity capital is 8.6014%. b. The company's unlevered cost of equity capital is 5.8729%. c-1. If the debt-equity ratio were 2, the cost of equity would be 8.6788%. c-2. If the debt-equity ratio were 1.0, the cost of equity would be 8.8894%. c-3. If the debt-equity ratio were zero, the cost of equity would be 5.8729%.

Explanation:

a. The formula to calculate the cost of equity capital is: Cost of Equity = WACC - (Debt/Equity) * (WACC - Cost of Debt) * (1 - Tax Rate). So, by plugging in the given values, we get Cost of Equity = 9.1% - 0.6 * (9.1% - 6.4%) * (1 - 0.22) = 9.1% - 0.6 * 2.7% * 0.78 = 9.1% - 0.4986% = 8.6014%.

b. The unlevered cost of equity capital can be calculated using the formula: Unlevered Cost of Equity = Cost of Equity / (1 + (Debt/Equity) * (1 - Tax Rate)). So, by plugging in the given values, we get Unlevered Cost of Equity = 8.6014% / (1 + 0.6 * 0.78) = 8.6014% / 1.468 = 5.8729%.

c-1. If the debt-equity ratio were 2, the new cost of equity can be calculated using the same formula as in part a. By plugging in the new debt-equity ratio, we get Cost of Equity = 9.1% - 2 * (9.1% - 6.4%) * (1 - 0.22) = 9.1% - 2 * 2.7% * 0.78 = 9.1% - 0.4212% = 8.6788%.

c-2. If the debt-equity ratio were 1.0, the new cost of equity can be calculated using the same formula as in part a. By plugging in the new debt-equity ratio, we get Cost of Equity = 9.1% - 1.0 * (9.1% - 6.4%) * (1 - 0.22) = 9.1% - 1.0 * 2.7% * 0.78 = 9.1% - 0.2106% = 8.8894%.

c-3. If the debt-equity ratio were zero (meaning no debt), the new cost of equity would be the same as the unlevered cost of equity calculated in part b, which is 5.8729%.

Learn more about Cost of Equity Capital here:

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The benefits and detriments of using electronic records EHR for your patience

Answers

EHR's provide quick and easy access to patients records. It also reduces the need for paper charts and filling space. The chances of losing a single document gets reduced as well since files are saved on a server. Information is stored more neatly and easily identifiable.However, if the server crashes or gets hacked the patient information is either lost or completely compromised. Servers go down and have bugs which can delay access to information that is immediately needed. Servers also need constant maintenance.

Wilson, Inc., has a current stock price of $46.00. For the past year, the company had net income of $6,800,000, total equity of $21,690,000, sales of $40,100,000, and 5.2 million shares of stock outstanding.1. What are eamings per share (EPS)? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g. 32.16.)
2. What is the price-eamings ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answers

Answer:

1. What are eamings per share (EPS)? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g. 32.16.)

Answer: $ 1.31 / share

2. What is the price-eamings ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer: 35.11

Explanation:

Earning Per Share (EPS) = Net Income - Preferred dividends / Outstanding Number of Share

Earning Per Share (EPS) = $6,800,000 - 0 / 5,200,000 shares

Earning Per Share (EPS) = $6,800,000 / 5,200,000 shares

Earning Per Share (EPS) = $1.31 / share

Price earning ratio = Share price / Earning per share

Price earning ratio = $46 per share / $1.31 per share

Price earning ratio = $46 / $1.31

Price earning ratio = 35.11

Two methods can be used to produce expansion anchors. Method A costs $65,000 initially and will have a $18,000 salvage value after 3 years. The operating cost with this method will be $28,000 in year 1, increasing by $3600 each year. Method B will have a first cost of $108,000, an operating cost of $8000 in year 1, increasing by $8000 each year, and a $38,000 salvage value after its 3-year life. At an interest rate of 8% per year, which method should be used on the basis of a present worth analysis

Answers

Answer:

Method B should be used

Explanation:

Note: See the attached excel file for the calculation of the present worth of Method A and Method B.

From the attached excel file, we have:

Present worth of Method A = –$210,889.85

Present worth of Method B = –$118,011.18

Since the present worth of Method A and B above imply Method A costs more than Method B, Method B should be used.

Astro Mile ​& Co. owns vast amounts of corporate bonds. Suppose Astro Mile buys $ 1,400,000 of BitterCo bonds at face value on January​ 2, 2018. The BitterCo bonds pay interest at the annual rate of 8​% on June 30 and December 31 and mature on December 1. Astro Mile intends to hold the investment until maturity. Required:
a. Journalize any required 2016 entries for the bond investment.
b. How much cash interest will Astro Mile receive each year from CoteCorp?
c. How much interest revenue will Astro Mile report during 2016 on this bond investment?

Answers

Answer:

Dr bond investment             $1,400,000

Cr cash                                                        $1,400,000

Cash interest is  $112,000.00

Interest revenue for the year is also $ 112,000.00  

Explanation:

The cash paid for the investment is $1,400,000, this would be debited to bond investment and credited to cash since it is an outflow of cash from the business.

At six-month interval, coupon receivable=$1,400,000*8%*1/2=$ 56,000.00  

annual coupon receivable=$ 56,000.00 *2=$ 112,000.00  
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