The change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to increase and the level of investment spending to decrease. If the interest increase, it follows that the spending would decrease.
Answer:
B. Accept X and reject Y
Explanation:
Here are the options
A. Accept both X and Y
B. Accept X and reject Y
C. Reject X and accept Y
D. Reject both X and Y
E. The answer cannot be determined based on the information provided
the project should be accepted if the WACC of the department is less than the rate of return on the project
WACC = weight of equity x cost of equity + weight of debt x after tax cost of debt
weight of debt = D / (D + E) = 0.45E /1.45E
weight of equity = E / (D + E) = E / 1.45E
WACC = ( 0.45E /1.45E) x (5.1) + ( E / 1.45E) x 14.7
= 5.1 x (0.45/1.45) + 14.7 x (1/1.45)
=1.583 + 10.138
11.72%
Division X's WACC = 11.72% - 0.5% = 11.22%
Division Y's WACC = 11.72% + 1% = 12.72%
The rate of return of Division Y's project is 12.3%. Thus, division Y's project should not be accepted
the rate of return of Division X's project is 11.64%. Thus, division X's project should be accepted
Answer:
loss of $137,000.
Explanation:
<u>Analysis of effects of eliminating business segment</u>
Income :
Savings - Variable Costs $863,000
Savings - Fixed Cost ($203,000 x 30%) $60,900
Total Income $923,900
Costs :
Lost Sales $1,060,000
Total Costs $1,060,000
Financial Advantage/ (Disadvantage) ($137,000)
therefore,
The impact on operating income for eliminating this business segment would be: loss of $137,000.
By the term quarter, we mean to say that a year is to be divided in four equal parts. Each year has 12 months. Therefore, each quarter is only composed of 3 months. The rate of tripling the money in 36 months can also be expressed in its equivalent in 3 months.
3/36 = x /3
The value of 3 is equal to 9/36 or 1/4. Therefore, the money will grow by 0.25% every quarter.
In terms of evaluating balance sheet, the two primary
questions that are being formulated are the following;
-
The assets are financially secure or stable
-
The firm has assets that are sufficient and are
short term in means of having debts that are only short and temporary.