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SCORPION-xisa [38]
4 years ago
5

This year Andrews achieved an ROE of 11.6%. Suppose the Board of Directors of Andrews mandates that management take measures to

increase financial Leverage (=Assets/Equity) next year. Assuming Sales, Profits, and Assets remain the same next year, what effect would you expect this new Leverage policy will have on Andrews ROE?
Business
1 answer:
ivann1987 [24]4 years ago
5 0

Answer: c. Andrews ROE will increase.

Explanation:

The Board of Directors has ordered that measures be put in place to increase financial Leverage which is Assets/Equity. That means that there are 2 ways this is to be done based on the formula which would be to either; increase Assets or Decrease Equity.

It is assumed that Sales, Profits, and <em>Assets </em>remain the same next year so the measures will therefore involve decreasing Equity.

Return on Equity = Net income/Shareholder equity.

Profits are assumed to remain the same, however, as per the Board's directives, Equity will fall. This will mean that Net Income will be divided by a lower figure which will lead to a higher ROE.

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Scented cards Regular cards Inspection hours 100/190=0.53 90/190=0.47 Set up hours 90/120=0.75 30/120=0.25 Machine hours 170/800=0.21 630/800=0.79 Number of moves 210/265=0.79 55/265=0.21

2 .There has been diversification of different activities or drivers among both the products, thus increasing significance of activity Based distribution of overheads. Since if we use blanket rate for allocation of overhead on the basis of machine hours, it will certainly leads to a distorted view as machine hours are significantly higher in case of regular cards whereas consumption of other resources is comparatively lower for it. This, in such a situation its significance certainly gets increased.

3. Activity rates which could be used to assign cost to each product will be calculated as Total cost for the driver/number of units of that driver. It is calculated in the table as follows :-

(A) ( B ) number of units (C=A=B) cost per unit Driver/activity total (hours) of (hour) of cost driver/activity driver/activity

Total cost for the driver/number of units of that driver. It is calculated in the table as follows :-

Driver/activity (A) total cost ( B ) number of units (hours) of driver/activity (C=A=B) cost per unit (hour) of driver/activity Inspecting products 4930 190 (100+90) 25.95 Setting up equipment 4700 120 (90+30) 39.17 Machining 6500 800 (170+630) 8.13 Moving material 1370 265 (210+55) 5.17

4 . We have total inspection cost as 4930 And activity rate for inspecting product is $20per inspecting hour This total inspecting hours will be = 4930/20=246.5 hours Thus total inspection hours would be 246.5.

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When consumed, many goods and services have an impact on other people not using the product. which word describes this impact?
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The substitution effect is defined as the outcome of consuming various goods and services on those who do not use them.

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