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Answer:
A. T Account balance $19,100
B. $31,600
C.$31,600
Explanation:
Sarah Simmons Enterprises
A.
T-account account
Dr Cr
Dr C/o 10500 Cr Beginning balance 29,600
Cr C/o 10500
Cr Balance 19,100
b.
Simmons enterprise retained earnings ending balance will be:
Retained earnings 29,100
Less Dividends 10,500
Balance 19,100
Add (10,500+2,000) 12,500
Balance 31,600
C. Ending balance of Simmons, Capital will be 31,600 just as in ( b) where the retained earnings ending was 31,600
Answer:
1. $146,666.67
2. $129,411.76
Explanation:
In this question, we apply the Capital Asset Pricing Model (CAPM) formula which is shown below
Expected rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)
1. For computing the value of the firm, first we have to compute the Expected rate of return which is shown below:
= 5% + 0.5 × (10% - 5%)
= 5% + 0.5 × 5%
= 5% + 2.5%
= 7.5%
Now the value of firm would be
= Expected cash flows ÷ Expected rate of return
= $11,000 ÷ 7.5%
= $146,666.67
2. If beta is 0.7, then the expected rate of return and the value of firm would be
= 5% + 0.7 × (10% - 5%)
= 5% + 0.7 × 5%
= 5% + 3.5%
= 8.5%
Now the value of firm would be
= Expected cash flows ÷ Expected rate of return
= $11,000 ÷ 8.5%
= $129,411.76
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