20. WACC and NPV [LO3, 5] Sommer, Inc., is considering a project that will result in initial aftertax cash savings of $2.3 million at the end of the first year, and these
savings will grow at a rate of 2 percent per year indefinitely. The firm has a target
4.6 percent. The cost-saving proposal is somewhat riskier than the usual project the
firm undertakes; management uses the subjective approach and applies an adjustment factor of +3 percent to the cost of capital for such risky projects. Under what
circumstances should the company take on the project?

Answers

Answer 1

Answer: Mark Brainliest please

Sommer Inc is considering the new project, and yet we have to calculate under what circumstances the company have to take on the project. In order to assess the project, we need to compute the break-even cost such as the present value of future cash flows and calculate the WACC weighted cost of capital. It measures the weighted cost of equity and the after tax cost of debt. The following information are given: Debt to equity ratio = 0.90 Cost of equity = 13% After-tax cost of debt = 4.8% After-tax cost of savings = $2.7 million Debt to equity ratio = Debt / Equity = 0.90 Therefore, Value of firm = value of debt + value of equity Value of firm = 0.90E + E Value of firm

See the calculation of WACC as attachment

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A person who is confident, focused and highly determined would best be described with which of the following terms?
Selma operates a contractor's supply store. She maintains her books using the cash method. At the end of the year, her accountant computes her accrual basis income that is used on her tax return. For 2015, Selma had cash receipts of $1.4 million, which included $200,000 collected on accounts receivable from 2014 sales. It also included the proceeds of a $100,000 bank loan. At the end of 2015, she had $250,000 in accounts receivale from customers, all from 2015 sales.Required:a. Compute Selma's accrual basis gross receipts for 2015.b. Selma paid cash for all of the purchases. The total amount paid for merchandise in 2020 was $1,300,000. At the end of 2019, she had merchandise on hand with a cost of $150,000. At the end of 2020, the cost of merchandise on hand was $300,000. Compute Selma's gross income (profit) from merchandise sales for 2015.
The government of Argentina has taken over all the country's banks. No compensation has been paid. Some U.S. citizens and businesses had accounts in the banks. Absent treaty provisions the takeover: a. can be partially set aside by a U.S. federal court on the accounts of U.S. citizens and businesses. b. can be reviewed by the U.S. State Department. c. can be set aside by a U.S. federal court because no compensation was paid. d. is immune from review under the act of state doctrine.

Which statement bestexplains the association between a risk factor and the development of adisease?a. Anyone with a risk factor will develop the disease.
b. The absence of a risk factor guarantees freedom from the disease.
c. The fewer risk factors for a disease, the better the chances for good health.
d. Interventions must be targeted to each individual risk factor.
e. Risk factors tend to be short-lived, so their presence does not predict long-term risk ofdisease.

Answers

Answer:

C. The fewer the Risk Factors for a Disease the better the Chances of a Good Health

Explanation:

Understanding Risk factors in health is very important especially when trying to find ways to ensure good health. Risk factors are important in many important health decisions. For instance, it is important to know family and personal risks, risks and benefits of a treatement and even the risk factors for a disease. All these assist in making better decisions both by the individual and the medical practitoner

A disease's risk factor represent those situations, living conditions, habits, choices etc that can heighten the probability of getting a certain disease. A disease's risk factor represents those things or factors that tend to increase the chances of contracting such a disease, while it doesn't necessarily mean they will definitely occur, the higher these factors, then the higher the possiblity of contracting it and the lower the risk factors then the lower the possibility of contracting the disease.

For instance, it is known that smoking cigarette is a risk factor especially for lung cancer, however, family history, exposure to second hand smoke as well as radon gas are also factors that can contribute to lung cancer. These repesent the risk factors.

Risk factors are divided into five:

Physiological
Behavioural
Demographic
Environmental
Genetic.

Haskell Corp. is comparing two different capital structures. Plan I would result in 12,000 shares of stock and $100,000 in debt. Plan II would result in 8,700 shares of stock and $155,000 in debt. The interest rate on the debt is 5 percent. Compare both of these plans to an all-equity plan assuming that EBIT will be $80,000. The all-equity plan would result in 18,000 shares of stock outstanding. Assuming that the corporate tax rate is 40 percent, what is the EPS for each of these plans? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Assuming that the corporate tax rate is 40 percent, what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? (Do not round intermediate calculations.)

Answers

Answer:

Please find attached detailed solution to the above question.

Explanation:

Please as attached detailed solution.

Which relationship BEST illustrates a comparison of absolute advantage and comparative advantage? A) A country with an absolute advantage will always have a comparative advantage in producing products. B) A country with a comparative advantage can produce a greater output of a products than a country with an absolute advantage. C) A country with an absolute advantage can produce a product at a lower opportunity cost than a country with a comparative advantage in producing all products. D) A country with a comparative advantage can produce a product at a lower opportunity cost, even if another country has an absolute advantage in the production of all goods.

Answers

Answer:

D) A country with a comparative advantage can produce a product at a lower opportunity cost, even if another country has an absolute advantage in the production of all goods.

Explanation:

Comparative advantage is when a country produces a product at a lower opportunity cost when compared with a country.

An absolute advantage is when a country produces greater quantities of a product when compared with another country.

I hope my answer helps you

Answer: D

Explanation: UsaTestPrep

New Business is just being formed by 10 investors, each of whom will own 10% of the business. The firm is expected to earn $1,000,000 before taxes each year. The corporate tax rate is 34% and the personal tax rate for the firm's investors is 35%. The firm does not need to retain any earnings, so all of its after-tax income will be paid out as dividends to its investors. The investors will have to pay personal taxes on whatever they receive. How much additional spendable income will each investor have if the business is organized as a partnership rather than as a corporation? Group of answer choices $26,078 $20,332 $22,763 $19,006 $22,100

Answers

The additional spendable income will each investor have if the business is organized as a partnership rather than as a corporation is $22,100.

The calculation is as follows:

Income if formed as corporation in hands of each shareholder should be

= 1,000,000 × 10% × ( 1- .34 ) × (1- .35)

= 100,000 × .66 × .65

= $42,900

Now

Income will be taxable in hands of partner = 1,000,000 ×10% ×(1-.35)

= 100,000 ×.65

= 65000

Now

Additional income should be

= $65,000 - $42,900

= $22,100

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Answer:

$22,100

Explanation:

Calculation for the additional spendable income

First step is to find the Corporation Spendable income amount

Corporate taxes$340,000

($1,000,000*34%)

Income after corporate tax $660,000

($1,000,000-$340,000)

Tax on dividends $231,000

($660,000*35%)

Spendable income $429,000

($660,000-$231,000)

Second step is to find the Partnership Spendable income amount

Taxes paid by business $0

Income received by investors $1,000,000

Taxes paid by partners as personal income $350,000

($1,000,000*35%)

Spendable income $650,000

($1,000,000-$350,000)

Last step is to find the Difference between Corporation Spendable income amount and the Partnership Spendable income amount

Using this formula

Difference in Spendable income=Corporation Spendable income amount - Partnership Spendable income amount

Let plug in the formula

Difference in Spendable income=$429,000-$650,000

Difference in Spendable income=$221,000

Which means that the amount of $221,000 is the

Total gain amount from being a partnership.

Hence, the Individual investor gain will be calculated as $221,000*10%

Individual investor gain=$22,100

Therefore the amount of spendable income that each investor will have if the business is organized as a partnership rather than as a corporation will be $22,100

Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 50,000 of these balls, with the following results:_______. Sales (50,000 balls) $ 1,250,000
Variable expenses 750,000
Contribution margin 500,000
Fixed expenses 320,000
Net operating income $ 180,000
Required:
1. Compute (a) last year's CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last year’s sales level.
2. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $3.00 per ball. If this change takes place and the selling price per ball remains constant at $25.00, what will be next year's CM ratio and the break-even point in balls?
3. Refer to the data in (2) above. If the expected change in variable expenses takes place, how many balls will have to be sold next year to earn the same net operating income, $202,000, as last year?
4. Refer again to the data in (2) above. The president feels that the company must raise the selling price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year (as computed in requirement 1a), what selling price per ball must it charge next year to cover the increased labor costs?
5. Refer to the original data. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per ball by 40.00%, but it would cause fixed expenses per year to double. If the new plant is built, what would be the company’s new CM ratio and new break-even point in balls?
6. Refer to the data in (5) above.
a. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $202,000, as last year?
b. Assume the new plant is built and that next year the company manufactures and sells 37,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage.

Answers

Answer:

Please find attached solutions

Explanation:

a. Last year contribution margin ratio

= Contribution margin / Sales

= $500,000 / $1,250,000

= 40%

ai Break even point in balls

But Contribution margin per unit

= $25 - $15

= $10 per unit.

Therefore ,

Break even point in balls

= Fixed cost / Contribution margin per unit

= $320,000 / $10

= 32,000 balls.

b. The degree of operating leverage at last year' s sales level

= Contribution margin / Net operating income

= $500,000 / $180,000

= 2.78

Please other solutions are as attached.

Final answer:

The manufacturing company must calculate and consider several factors when deciding on changes to labor costs and manufacturing processes, including the Contribution Margin (CM) ratio, break-even point, degrees of operating leverage, and the potential impact of a new automated plant.

Explanation:

The Northwood Company, which manufactures basketballs, has to make several business decisions based on manufacturing costs, sales, and net operating income. Many essential factors have to be calculated, such as the Contribution Margin (CM) ratio, the break-even point, the degree of operating leverage, and potential changes due to increased labor rates and a different manufacturing plant.

1. (a) Last year's CM ratio was 40% (500,000 / 1,250,000). The break-even point in balls is 32,000 balls (320,000 / 25 ×0.40). (b) The degree of operating leverage at last year’s sales level is 2.78 (500,000 / 180,000).
2. If variable expenses increase by $3.00 per ball, next year's CM ratio will be 28% ((25-18) / 25). The break-even point in balls is 45,714 balls (320,000 / (25×0.28)).
3. If the expected change in variable expenses takes place, 56,667 balls will have to be sold next year to earn the same net operating income, $202,000 ((320,000 + 202,000) / (25×0.28)).
4. To maintain the same CM ratio, the selling price per ball must be $30.00 next year ((15+3)/0.4).
5. If a new automated manufacturing plant is built, the new CM ratio would be 64% ((15×0.6) / 25) and the new break-even point in balls is 50,000 balls ((320,000×2) / (25×0.64)).
6. (a) If the new plant is built, 56,333 balls will have to be sold next year to earn the same net operating income, $202,000 ((320,000×2 + 202,000) / (25×0.64)). (b) If 37,000 balls are sold, the company's contribution format income statement would show sales of $925,000, variable expenses of $333,000, fixed expenses of $640,000, and a net operating loss of $48,000. The degree of operating leverage is negative in this case because of the loss.

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Farmer and Taylor formed a partnership with capital contributions of $200,000 and $250,000, respectively. Their partnership agreement calls for Farmer to receive a $70,000 per year salary. The remaining income or loss is to be divided equally. If the net income for the current year is $135,000, then Farmer and Taylor's respective shares are: