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#SPJ4
Answer:
The question is not complete:
Here is the complete question:
The projected benefit obligation was $460 million at the beginning of the year. Service cost for the year was $25 million. At the end of the year, pension benefits paid by the trustee were $21 million and there were no pension-related other comprehensive income accounts requiring amortization. The actuaries discount rate was 5%. The actual return on plan assets was $24 million although it was expected to be only $23 million.
What was the pension expense for the year?
Here is the answer: The pension expense is $25 million.
Explanation:
Pension is the form of defined benefit contribution plan which require employers to make certain periodic contribution on behalf of employees. This contribution is reported as an expense in the income statement if even though the benefit has not been enjoyed by the employees. To determine the value of this expenses to be included in the income statement, the components of the pension expenses are relevant.
Components of pension expense are service cost, interest cost, return on plan asset, amortization of prior service costs and gain or loss from change in asset value.
Here is the determination of the pension expense as required by the question.
$`M
Service cost 25
Interest ($460,000,000*5%) 23
Expected return on plan asset (23)
Amortization of prior service costs -
Gain or loss in change in value -
Pension expense 25
Answer:
Total overhead cash disbursement= $59,080
Explanation:
Giving the following information:
Estimated direct labor hours= 2,800
The variable overhead rate is $7.00 per direct labor-hour.
Estimated fixed manufacturing overhead= $43,120 per month
Includes depreciation of $3,640
To calculate the cash disbursement, we need to deduct from the fixed manufacturing overhead the depreciation expense because it is not a cash disbursement.
Variable overhead= 7*2,800= 19,600
Fixed overhead= 43,120-3,640= 39,480
Total overhead cash disbursement= $59,080
Answer:
Please find the attached file for the complete solution:
Explanation:
Answer:
$18,800
Explanation:
The amortization expense can be calculated by dividing the cost of copyright to purchase by the estimated useful life and then multiplied by the number of months covered until May 1, 2017.
Amortization expense = Cost to purchase / Estimated useful life) x 8/12 Amortization expense = ($112,800 / 4 years) * 8/12
Amortization expense = $18,800
As the copyright is purchased on may 1 it will cover 8 months till 31 december 2017
Answer:
$1,280 million
Explanation:
The change between the opening inventory balance and the ending inventory balance for a period is as a result of the purchases of inventory and the sale of inventory during the period.
All of these elements are related as;
Opening inventory + purchases - cost of goods sold = ending inventory
As such, to estimate the merchandise inventory purchased,
let the purchase for the period be T
1500 + T - 880 = 1900 (All amounts in millions of $)
T = 1900 + 880 - 1500
= 1280
The merchandise purchases for the third quarter is $1,280 million.
WACC Estimation
The table below gives the balance sheet for Travellers Inn Inc. (TII), a company that was formed by merging a number of regional motel chains.
Travellers Inn: December 31, 2012 (Millions of Dollars)
Cash $10 Accounts payable $10
Accounts receivable 20 Accruals 10
Inventories 20 Short-term debt 5
Current assets $50 Current liabilities $25
Net fixed assets 50 Long-term debt 30
Preferred stock 5
Common equity
Common stock $10
Retained earnings 30
Total common equity $40
Total assets $100 Total liabilities and equity $100
The following facts also apply to TII:
1. Short-term debt consists of bank loans that currently cost 8%, with interest payable quarterly. These loans are used to finance receivables and inventories on a seasonal basis, bank loans are zero in the off-season.
2. The long-term debt consists of 30-year, semiannual payment mortgage bonds with a coupon rate of 8%. Currently, these bonds provide a yield to investors of rd= 12%. If new bonds were sold, they would have a 12% yield to maturity.
3. TII's perpetual preferred stock has a $100 par value, pays a quarterly dividend of $2.50, and has a yield to investors of 11%. New perpetual preferred would have to provide the same yield to investors, and the company would incur a 3% flotation cost to sell it.
4. The company has 4 million shares of common stock outstanding. P0 = $20, but the stock has recently traded in price the range from $17 to $23. D0 = $1 and EPS0 = $2. ROE based on average equity was 26% in 2008, but management expects to increase this return on equity to 31%; however, security analysts and investors generally are not aware of management's optimism in this regard.
5. Betas, as reported by security analysts, range from 1.3 to 1.7; the T-bond rate is 10%; and RPM is estimated by various brokerage houses to be in the range from 4.5% to 5.5%. Some brokerage house analysts reports forecast dividend growth rates in the range of 10% to 15% over the foreseeable future.
6. TII's financial vice president recently polled some pension fund investment managers who hold TII's securities regarding what minimum rate of return on TII's common would make them willing to buy the common rather than TII bonds, given that the bonds yielded 12%. The responses suggested a risk premium over TII bonds of 4 to 6 percentage points.
7. TII is in the 35% federal-plus-state tax bracket.
8. TII's principal investment banker predicts a decline in interest rates, with rd falling to 10% and the T-bond rate to 6%, although the bank acknowledges that an increase in the expected inflation rate could lead to an increase rather than a decrease in interest rates.
Assume that you were recently hired by TII as a financial analyst and that your boss, the treasurer, has asked you to estimate the company's WACC under the assumption that no new equity will be issued. Your cost of capital should be appropriate for use in evaluating projects that are in the same risk class as the assets TII now operates. Do not round intermediate steps. Round your answer to two decimal places.
%
NOTE:
Wrong Answers:
14.29% & 14.76% --> Please someone give me right answer, I am posting same question 4th time; please dont post spam.
--> It's Problem 9-17 of mangerial finance course WACC Estimation problem; required to consider above table with given 8 assumption to get WACC value; it will be only one answer liike 15.12%; 17.32%.....
Answer:
Explanation:
(1) Cost of short-term debt after tax : 8% ( 1 – tax rate)
= 8% ( 1 – 35%)
= 8% (65%)
= 5.2%
Market value of Short term debt ( in million $) = 5
(2) Cost of long-term debt after tax: 8% ( 1 – tax rate)
= 8% ( 1 – 35%)
= 8% (65%)
= 5.2%
Market value of long term debt ( in $ million) = ( par value of Debt * coupon rate) / Yield
= (30 * 8%) / 12%
= 2.4 / 12%
= 20
(3) Market price of preferred stock = annual Dividend / Yield to investor
= ($2.50*4) / 0.11
= $ 10 / 0.11
= $ 90.909
Cost of new preferred stock = Annual dividend / Current market price – floatation cost
= ($2.50*4) / $ 90.909 – ( 3% * $ 90.909)
= $ 10 / $ 90.909 – $ 2.727
= $ 10 / $ 88.182
= 0.1134
= 11.34%
Market value of Preferred stock ($ millions) = Par value of Preferred * Annual Dividend rate / Yield
= 5 * ( $ 10 / $ 100) / 0.11
= 5 * 0.1 / 0.11
= 0.5 / 0.11
= 4.545454
(4) Market value of Common stock ($ millions) = No of common stock outstanding * Current market price
= 4 * 20
= 80
Retention ratio = (1 – dividend pay-out ratio)
= (1 – $1 / $ 2)
= (1 – 0.5)
= 0.5
= 50%
Growth rate = return on equity * retention ratio
= 26% * 0.5
= 13%
Cost of common stock (Alternative 1) = (Dividend for next year / Current market price) + growth rate
= [1 ( 1+ 0.13) / 20 ] + 13%
= [1 ( 1.13) / 20 ] + 13%
= [1.13 / 20 ] + 13%
= 5.65% + 13%
= 18.65%
Cost of common stock (alternative 2) = Risk free rate + Beta (Market risk premium)
= 10% + [(1.3 + 1.7)/2] [(4.5% + 5.5%) /2]
= 10% + [(1.3 + 1.7)/2] [(4.5% + 5.5%) /2]
= 10% + (1.5)( 5%)
=10% + 7.5%
= 17.5%
Cost of Common stock (Alternative 3) = Yield on TII Bond + Average Risk premium
= 12% + (4% + 6%) / 2
= 12% + (10%) / 2
= 12% + 5%
= 17%
Cost of common stock = Highest of Alternative 1, Alternative 2 & Alternative 3
= Highest of (18.65%, 17.5% and 17%)
= 18.65%
Answer : Weighted Average cost of capital (WACC) of Company is 15.28% (take a look to the document attached)