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marishachu [46]
3 years ago
8

Assume the Hiking Shoes division of the All About Shoes Corporation had the following results last year (in thousands). Manageme

nt's target rate of return is 20% and the weighted average cost of capital is 30%. Its effective tax rate is 40%.-Sales $5,000,000-Operating income 1,250,000-Total assets 1,000,000-Current liabilities 750,000What is the division's Residual Income (RI)?A) $1,050,000B) $420,000C) $2,000,000D) $950,000
Business
1 answer:
NNADVOKAT [17]3 years ago
5 0

Answer:

A) $1,050,000

Explanation:

Residual income

= Net operating income - (Total assets*Target rate of return)

= 1,250,000 - (20%*1,000,000)

= $1,050,000

Therefore, The division's Residual Income is $1,050,000.

You might be interested in
The Holmes Company's currently outstanding bonds have a 8% coupon and a 13% yield to maturity. Holmes believes it could issue ne
Marina86 [1]

Answer: 8.45%

Explanation:

From the question, we are informed that Holmes Company's currently has an outstanding bonds and has a 8% coupon and a 13% yield to maturity.

We are further told that Holmes believes it could issue new bonds at par that would provide a similar yield to maturity and that its marginal tax rate is 35%.

Holmes's after-tax cost of debt will therefore be calculated as:

= Yield to maturity × (1 - Marginal tax rate)

= 13% × (1 - 35%)

= 13% × (65%)

= 0.13 × 0.65

= 0.0845

= 8.45%

7 0
3 years ago
The Brisbane Manufacturing Company produces a single model of a CD player. Each player is sold for $182 with a resulting contrib
k0ka [10]

Answer:

Year 3 cashflow:

current system: 243,360

alternative system: 102,240

Present cost:

current system PV -$971,665.9146

alternative system PV  -$1,075,964.17

Explanation:

<u>Current Scenario:</u>

42,000 inspection cost

<u>Repairs:</u>

1,520 identified x  $75 = 114,000

<u>Refunds:</u>

480 units x $182 = 87,360

Total yearly cost: 243,360

PV of an annuity of $243,360 during 5 years:

Present Value of Annuity  

C \times \displaystyle \frac{1-(1+r)^{-time} }{rate} = PV\\  

C 243,360

time 5

rate 0.08

243360 \times \displaystyle \frac{1-(1+0.08)^{-5} }{0.08} = PV\\  

PV $971,665.9146  

<u>New Scenario:</u>

Inspection cost: $42,000  + $25,000 = $77,000

Repair cost: 350 units x $41 = $14,320

Refunds: 50 units x $182 x 120% = $10,920

Total yearly cost: $102,240

F0 cost:

470,000 workers trainings

210,000 purchase cost

Total F0 cost: 680,000

Present Value of Annuity  

C \times \displaystyle \frac{1-(1+r)^{-time} }{rate} = PV\\  

C 102,240

time 5

rate 0.08

102240 \times \displaystyle \frac{1-(1+0.08)^{-5} }{0.08} = PV\\  

PV $408,214.6742  

PV of residual value:

PRESENT VALUE OF LUMP SUM  

\frac{Maturity}{(1 + rate)^{time} } = PV  

Maturity  18,000.00

time   5.00  

rate  0.08

\frac{18000}{(1 + 0.08)^{5} } = PV  

PV   12,250.50  

Net present value:

- 680,000 -408,214.67 + 12,250.50 = 1,075,964.17

4 0
2 years ago
A contract tells an organization how it must act and the consequences for failing to act properly.
s344n2d4d5 [400]
<h2>Yes the statement is True. A contract tells an organization how must act and the consequences for failing to act properly.</h2>

Explanation:

It is true that a contract is an agreement which is stating rules and regulation and also the consequences which the company has to face if the rules are violated.

A contract,

  • is an legal agreement
  • is signed for specific period
  • contains rules
  • consists of benefits which the company will get
  • also contains terms & conditions which might change from time to time
  • should be signed by company as well as the party
  • should even be signed by the witness of both the side
6 0
3 years ago
Why is it important to have a high intrest rate for an investment and a low one for a loan?​
Anna [14]

Answer:

Explanation:

Investment is an act of setting some amount side to grow and accumulate in the nearest future .. Investment is quite different from savings so Higher interest rate on investment is very important because tends to act as an aiding factor in letting such investment yield a lot of profit and grow.

While loan on the other hand is debt borrowed that has not been paid back, people lend money for so many reasons and they do this because they don't enough capital so they source for external fund, but in the situation where interest rate accrued on loan is high, then it will be difficult for such individual to pay back because this will increase the money that has to be paid back.

7 0
3 years ago
Gaston Company is considering a capital budgeting project that would require a $2,400,000 investment in equipment with a useful
Rudik [331]

Answer:

$1,053,890.40

Explanation:

Net operating income   $460,000

Less: Tax at 30%            <u>$138,000</u>

After tax income            $322,000

Add: Depreciation         <u>$660,000</u>

Net cash inflow              <u>$982,000</u>

<u />

Year   Cash inflow    PVF(13%)       PV of cash-flows

0        ($2,400,000)         1                ($2,400,000)

1-5      $982,000           3.5172          <u>$3,453,890.40</u>

Project's net present value             <u>$1,053,890.40</u>

7 0
2 years ago
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