Answer:
The answer is option B. For a levered firm, flotation costs should <u>be spread over the life of a project, thereby reducing the cash flows for each year of the project.</u>
Explanation:
When a company’s securities are listed on a public exchange, there is a general saying that securities are floated on the exchange. That is how the name flotation costs came about.
Flotation is actually the costs incurred by a company in issuing its securities to public. it is also called issuance costs.
Examples of Flotation costs include charges paid to the investment bankers, lawyers, accountants, registration fees of the securities regulator and the exchange on which the issue is to be listed.
Flotation cost would vary based on several factors, such as company’s size, issue size, issue type (debt vs equity),
In summary, Flotation costs are the cost a company incurs to issue new stock making new equity cost more than existing ones.
Business analysts argue that flotation costs are a one-time expense that should be adjusted out of future cash flows in order to not overstate the cost of capital forever.
It is based on this premise that i chose option B, which states that flotation costs be spread over the life of a project thereby reducing the cash flows for each year of the project at levered firms.
Answer:
$12,053.86
Explanation:
The easiest way to calculate this is using an excel spreadsheet and the future value function. Using the FV function =FV(rate,nper,pmt)
- rate = 3%/12 = 0.25%
- nper = 36
- pmt = 175
This function will give us the future value of the annuity =FV(0.25%,36,175) = $6,583.60
Now we must add the future value of the original $5,000:
future value = $5,000 x (1 + 0.0025)³⁶ = $5,470.26
total future value = $6,583.60 + $5,470.26 = $12,053.86
if you do not want to use an excel spreadsheet, you can use the following formula:
F = P x ([1 + r]ⁿ - 1 )/r
F = 175 x [(1 + 0.0025)³⁶ - 1] / 0.0025 = $6,583.60
the answer will be the same
Answer:
$24.21
Explanation:
Direct materials $8.20
Direct labor 8.30
Variable manufacturing overhead 1.2
Fixed manufacturing overhead (70% × $4.30 is avoidable) = 3.01
8.2 + 8.3 + 1.2 + 3.01 = 20.71
Relevant manufacturing cost = $20.71
$7.00 per unit ÷ 4 minutes per unit = $1.75 per minute
$1.75 per minute × 2 minutes = $3.5
$20.71 + $3.5
= $24.21
Answer:
I used an excel spreadsheet since there is not enough room here. I ordered the given data:
Fixed Variable Actual Total
Revenue $276 $33,130
Technician wages $8,300 $8,150
Mobile lab operating exp. $5,000 $34 $9,260
Office expenses $2,500 $3 $2,740
Advertising expenses $1,570 $1,640
Insurance $2,850 $2,850
Miscellaneous expenses $970 $2 $535
