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denis-greek [22]
3 years ago
15

Assume a risk-free rate of interest of 4%, an expected rate of return on the market portfolio of 9% and a beta of 1.2 then the t

raditional domestic CAPM results in a cost of equity of
Business
1 answer:
Yuki888 [10]3 years ago
5 0

Answer:

10%

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)

= 4% + 1.2 × (9% - 4%)

= 4% + 1.2 × 5%

= 4% + 6%

= 10%

The (Market rate of return - Risk-free rate of return) is also called market risk premium

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5 0
3 years ago
Sprague Company has been operating for several years, and on December 31, 207, presented the following balance sheet.
Firdavs [7]

Answer:

A. Current Ratio= 2.63

B. Acid-Test Ratio = 1.44

C. Debt to Assets Ratio 51.16%

D. Return on assets 5.81%

Explanation:

a. Calculation forn Current Ratio

First step is to Calculate the Total Current Assets

Cash 40,000

Receivables 75,000

Inventory 95,000

Total Current Assets 210,000

Now let calculate Current Ratio

Current Ratio= Current Assets / Current Liabilities

Current Ratio=210,000/80,000

Current Ratio= 2.63

b Calculation for Acid-Test Ratio

Acid-Test Ratio=(Current Assets - Inventory) / Current Liabilities

Acid-Test Ratio =(210,000-95,000)/80,000

Acid-Test Ratio =115,000/80,000

Acid-Test Ratio = 1.44

c. Calculation for Debt to Assets Ratio

First step is to calculate total Debt

Accounts payable 80,000

Mortgage payable 140,000

Total Debt 220,000

Now let calculate the Debt to Assets Ratio

Debt to Assets Ratio= Total Debt/ Total Assets

Debt to Assets Ratio=220,000/430,000

Debt to Assets Ratio= 51.16%

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Return on assets 5.81%

4 0
3 years ago
Pincus Associates uses the allowance method to account for bad debts. During 2021, its first year of operations, Pincus provided
Gemiola [76]

Answer:

What journal entry did Pincus record to write off uncollectible accounts during 2021

Dr Allowance for Uncollectible Accounts $ 6,300

Cr Accounts receivable $ 6,300

What journal entry did Pincus record to recognize bad debt expense for 2021?

Dr Bad Debt Expense $ 8,040

Cr Allowance for Uncollectible Accounts $ 8,040

Explanation:

Pincus provided a total of $156,000 of services on account.  

Dr Accounts receivable $ 156,000

Cr Sales $ 156,000

In 2021, the company wrote off uncollectible accounts of $6,300  

Dr Allowance for Uncollectible Accounts $ 6,300

Cr Accounts receivable $ 6,300

By the end of 2021, cash collections on accounts receivable totaled $132,300.  

Dr Cash $ 132,300

Cr Accounts receivable $ 132,300

Balances on Accounts 31.12.2012 before adjustment  

Accounts receivable CREDIT $ 17,400

Allowance for Uncollectible Accounts DEBIT $ 6,300

Pincus estimates that 10% of the accounts receivable balance at 12/31/2021 will prove uncollectible.  

Dr Bad Debt Expense $ 8,040

Cr Allowance for Uncollectible Accounts $ 8,040

If the company applies the allowance method, it means that the account Allowance for Uncollectible Accounts must show as balance the % of estimated value.

Because the company already has a DEBIT balance ($6,300) in the Allowance for Doubtful Accounts  it's necessary to register an entry that COMPLEMENT ($8,040) the existing value and reflect the value estimated as bad debts ($1,740).

Bad Debt Expense = $8,040 - $6,300 = $1,740

It's necessary to reflect $1,740 in the Allowance for Uncollectible Accounts as Credit, so we need an entry of $8,040.

7 0
3 years ago
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