Answer:
a.
15%
b.
29.57
Explanation:
The price of a stock whose dividends are expected to grow at a constant rate forever can be calculated using the constant growth model of the dividend discount model approach. The DDM values the stock based on the preset value of the expected future dividends from the stock. The price of the stock today under this model is,
P0 = D1 / r - g
Where
P0 = Price of stock
D1 = Future Dividend
r = Expected rate of return
g = Growth rate
a.
As we have the price of the price of the stock, we need to calculate the expected rate of return by extracting the formula.
r = (D1 / P0) + g
As per given data
P0 = Price of stock = $34
D1 = Future Dividend = $3.40
g = Growth rate = 5% = 0.05
Placing Values in the formula
r = ( $3.4 / 34 ) + 0.05
r = 0.15 = 15%
b.
As per given data
D1 = Future Dividend = $3.40
g = Growth rate = 5% = 0.05
r = Expected rate of return = 16.5%
Placing Values in the formula
P0 = D1 / r - g
P0 = $3.40 / (16.5% - 5%)
P0 = $29.57
Answer:
Innova
a) Make or Buy IMC2 Incremental Analysis:
Make IMCs (per unit)
Direct material $61.48
Direct labor 37.19
Material handling 7.16
Variable overhead 71.60
Total unit cost 177.43
Buy IMC2 (per unit)
Purchase price $230
Net Income will decrease by ($52.57) if IMC2 is bought.
b) Innova should not purchase the component. It costs more to buy IMC2 than to make it based on incremental analysis.
Explanation:
a) Incremental Analysis is a decision-making technique used in business to determine the true cost difference between alternatives. It is also called the relevant cost approach, marginal analysis, or differential analysis. Using incremental analysis, sunk cost or past cost is disregarded as irrelevant. The fixed cost element equalling $47.74 per unit is a sunk cost that is not relevant for incremental analysis.
b) In a make or buy decision, the company considers if internalization of production will be of greater economic benefits than outsourcing.
c) Variable overhead is calculated as ($126.50 - $7.16) x 60% = $71.60
Answer:
Option (b) is not true.
Explanation:
In a periodic system, the costs of acquisition of inventory are not directly debited to an inventory account; they are usually updated periodically. It is a system where the cost is added in the inventory account at the end of the period only, that is why option (b) is incorrect the cost of inventory or acquisitions are not added directly. Perpetual system is a technique where inventory acquisition cost indirectly added to an inventory account.
Answer:
Total cost= 40,000 + 30X
Explanation:
Giving the following information:
The semiautomatic process has a fixed cost of $40,000 per year and a variable cost of $30 per unit.
We need to use the following formula:
Total cost= fixed costs + unitary variable cost*X
Total cost= 40,000 + 30X
Answer:
If sales fall by 20 percent from 1,000,000 papers per month to 800,000 papers per month, <em>Average Fixed Costs will increase from $1.85 per paper to $2.31 per paper.</em>
Explanation:
The fixed costs mentioned add up to 600,000 + 1,250,000 = $1,850,000 per month
The other costs mentioned (printing cost and delivery cost) are variable with output (per paper).
As fixed costs are the same regardless of output, falling sales will reduce the quantity on which fixed cost are spread (to calculate fixed cost) and thus make average fixed cost increases.
In this case, it increases from 1,850,000/1,000,000 (= $1.85 per paper) to 1,850,000/800,000 (= $2.31 per paper)
