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a_sh-v [17]
3 years ago
5

Fran Smith has two investment opportunities. The interest rate for both investments is 20%. Interest on the first investment wil

l compound annually while interest on the second will compound quarterly. Which investment opportunity should Fran choose?
Business
1 answer:
RoseWind [281]3 years ago
5 0

Answer:

Fran should choose that which compounds quarterly

Explanation:

In Compound Interest investment, the interest at the end of the compounding period is added to form a new base capital.

If this is done every 3 months, the principal at the beginning of each quarter increases while in annual compounding, the interest is added at the end of the year.

Generally, for investment, the more frequent is it compounded the better. On the other hand, less frequent compounding is preferred for borrowers.

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The following market information was gathered for the corporation. The firm has 1,000 bonds outstanding, each selling for $1,100
Nana76 [90]

Answer:

9.127%

Explanation:

For calculating the WACC we need to do following calculations which are shown below:

value of debt = 1,000 ×  $1,100 = $1,100,000

cost of debt = 8% ×  (1 - 0.3) = 4.8%

value of equity = 50,000 shares × $18 = $900,000

value of preferred stock = 5,000 × $40 = $200,000

Now

Market value of firm = $1,100,000 + $900,000 + $200,000 = $2,200,000

The formula is shown below:

= Weightage of debt × cost of debt + (Weightage of common stock) × (cost of common stock) + (Weightage of preferred stock) × (cost of preferred stock)

WACC = ($1,100,000 ÷ $2,200,000) × 4.8% + ($900,000 ÷ $2,200,000) × 14% + ($200,000 ÷ $2,200,000) × 11%

= 9.127%

3 0
3 years ago
Last years ending inventory was overstated. This error would cause...
Vsevolod [243]

Answer:

This periods end assets to be overstated

Explanation:

As inventory is summarized in the assets if the final inventory is overstated it will generate an overstate in the following years.

7 0
3 years ago
Xyx Motors pays Nick $1,567.46 in dividends every year. If the dividend on one share of Xyx Motors is $4.33, how many shares doe
notsponge [240]

Answer:

Option C 362 Number of shares

Explanation:

The number of shares can be calculated by using the following formula:

Number of shares = Total Dividends paid / Dividend per share

As we know that:

The total dividends = $1567.46

And the dividend per share = $4.33

By putting the values in the above equation we have:

Number of shares = $1567.46 / $4.33 = 362 Number of shares

7 0
3 years ago
Read 2 more answers
Northwood Company manufactures basketballs. The company has a ball that sells for S25. At present, the ball is manufactured in a
Maksim231197 [3]

Answer:

1A. Compute the CM ratio and the break-even point in balls.

  • CM ratio = 2.5
  • break even point = 21,000 balls

1B. Compute the degree of operating leverage at last year.

  • 31.82%

2. Due to an increase in labor rates, the company estimates that variable expenses will increase by $3 per ball next year. If this change takes place and the selling price per ball remains constant at $25, what will be the new CM ratio and break-even point in balls?

  • CM ratio = 3.57
  • break even point = 30,000 balls

3. Refer to the data in (2) above. If the expected change in variable expenses takes place, how many balls will have to be sold next year to earn the same net operating income, $90,000, last year?

  • 42,858 balls

4. The president feels that the company must raise the selling price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year, what selling price per ball must it charge next year to cover the increased labor costs?

  • new price of $28 per ball

5. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per ball by 40%, but it would cause fixed expenses per year to double. If the new plant is built, what would be the company's new CM ratio and new break-even point in balls?

  • CM = 1.32
  • 26,250 balls

6.a. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $90,000, as last year?

  • 31,875 balls

6.b. Assume the new plant is built and that next year the company manufactures and sells 30,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage.

Income Statement

Total revenue $750,000

Variable expenses <u>($270,000) </u>

Contribution margin $480,000

Fixed expenses <u>($420,000 )</u>

Net operating income $60,000

Degree of operating leverage = 60.87%

6.c. If you were a member of top management, would you have been in favor of constructing the new plant?

  • If you cannot avoid paying the salary raise, then the company needs to carry on the new plant project.

Explanation:

sales price per ball = $25

variable expenses: $15 per unit

  • direct labor $9
  • other variable costs $6

CM ratio = net sales / CM = $750,000 / $300,000 = 2.5

break even point = total fixed costs / CM per unit = $210,000 / $10 = 21,000 balls

degree of operating leverage = fixed costs / total costs = $210,000 / $660,000 = 31.82%

new CM ratio = net sales / CM = $750,000 / $210,000 = 3.57

break even point = total fixed costs / CM per unit = $210,000 / $7 = 30,000 balls

sales level for $90,000 profit = ($210,000 + $90,000) / $7 = 42,857.14 ≈ 42,858 balls

CM ratio (new plant) = net sales / CM = $750,000 / $570,000 = 1.32

break even point = total fixed costs / CM per unit = $420,000 / $16 = 26,250 balls

sales level for $90,000 profit = ($420,000 + $90,000) / $16 = 31,875 balls

8 0
3 years ago
A baking company has different product ranges like whole-wheat pizzas for the diet-conscious and rich cookies for children and y
Sidana [21]

Answer:

D. market segments

Explanation:

4 0
3 years ago
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