Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next nine years because t
1 answer:
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Answer: Net present value = $446,556
Explanation:
First we'll compute the Weighted Average Cost of Capital :
Weighted Average Cost of Capital =
= 0.163× + 0.0729× (1 - 0.35 )×
= 0.1255
where;
= Cost of equity
= Proportion of equity
= Cost of debt
= Proportion of debt
Now, we'll compute the cost of capital using the following formula:
Cost of capital = Weighted Average Cost of Capital + adjustment factor
= 0.1255 + 0.0125
= 0.138 or 13.8%
∴ Net present value = Cash outflows - Total PV of cash flows
= $3,900,000 - $1,260,000 (Annuity value of 13.8% for 5 years)
= $3,900,000 - $3,453,444
= $446,556
Therefore, the correct answer is option(b).
Answer:
Refer To The attached screen shot. It contains the Income Statement Prepared under Absorption Costing.
Explanation:
Absorption Costing assumes that the Manufacturing Costs include Direct Material, Direct Labor, Variable Overhead, and Fixed Overhead. Whereas, Selling and Administrative Expenses are classified as period Costs. These period costs are recognized in the period in which they are incurred. On the other hand, the manufacturing costs are recognized when the goods on which the costs were incurred are sold. That's why we don't recognize $78,000 as a Fixed Overhead because these overhead costs were incurred to produce 6,000 rackets. We have to calculate the fixed overhead cost per unit and multiply it with the units sold.
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