Answer:
Calculation of Avoidable Cost:
Direct Materials $3.40
Direct Labor
8.00
Variable manufacturing overhead 8.50
Supervisor's salary 3.90
Total Avoidable Cost $23.8
Note: Depreciation is a sunk cost and not relevant for decision making.
General Fixed Overhead will remain the same irrespective of decision. Hence, not relevant for decision making.
Evaluation of offer:
Loss on Sale from outside supplier (26.70-23.8)*15,500 $(44,950)
Additional Segment Margin earned $27,500
Financial Advantage/(Disadvantage) $(17,450)
Hence, annual financial disadvantage for the company as a result of buying part U16 from the outside supplier = $17,450
Answer:
8%
Explanation:
This is calculated by using the Gordon growth model (GGM) formula which has the assumption that
dividend growth rate will be stable year after year forever. The formula is as follows:
P = d/(r – g) ……………………………………… (1)
Where;
P = current share price = $24.38
d = next year dividend = 0.56*1.06 = 0.5936
r = required return = ?
g = dividend constant growth forever = 6%, or 0.06
Substituting the values into equation and solve for r, we have:
24.38 = 0.5936/(r – 0.06)
24.38(r – 0.06) = 0.5936
24.38r – 1.4628 = 0.5936
24.38r = 0.5936 + 1.4628
r = 2.0564/24.38
r = 0.08, or 8%
Therefore, the required return on SONC is 8%.
Answer: 8.75 years
Explanation:
To solve this we can use the brilliant rule of 70 which posits in it's simplest form that an amount will double if we decide 70 by it's required rate.
For example if you want to know how long your 20 billion will take to double given a 15% rate you say,
= 70/15
= 4.67 years.
In that same light therefore, we can calculate for this question thus,
= 70/8
= 8.75 years.
If you need any clarification do comment.
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