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Strike441 [17]
3 years ago
5

Sunnyvale Inc. is considering investing in a new project. The average invested assets of the project would be $450,000 and the i

ncremental operating income would be $37,000. The company currently generates operating income of $220,000 and the invested assets are $2,005,000. The required rate of return (hurdle rate) is 5% on new projects.
Required:
a. What is the ROI before investing in the project?
b. What is the residual income before investing in the project?
c. What is the after investing in the project? (Round your answer to 2 decimal places.)
d. What is the residual income after investing in the project?
Business
1 answer:
hram777 [196]3 years ago
8 0

Answer:

Rate of Interest = Operating Income/Average Invested Asset

Residual Income = (Operating Income- Average Invested Assets)*Minimum Required rate of return

a. ROI before investing = $220,000/$2,005,000

ROI before investing = 0.109725686

ROI before investing = 10.97%

b. Residual Income = $220,000 - $2,005,000*5%

Residual Income = $220,000 - $100,250

Residual Income = $119,750

c. ROI after investing = ($220,000+$37,000) / ($2,005,000+$450,000)

ROI after investing = $257,000/$2,455,000

ROI after investing = 0.10468432

ROI after investing = 10.47%

d. Residual Income after investing = $220,000 + $37,000

Residual Income after investing = $257,000

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Lauren is the owner of a bakery that earns 0 (zero) economic profit. Last year, her total revenue was $145,000, her rent was $12
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Explanation: The explicit costs are observable, that is, those that we can easily take into account and decrease our operating result (salaries paid to employees, material costs, taxes, etc.)

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3 years ago
In 2019, Carla Enterprises issued, at par, 60 $1,000, 8% bonds, each convertible into 100 shares of common stock. Carla had reve
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Answer:

Diluted earnings per share for 2020. is 93 cents

Explanation:

Diluted Earnings per share shows the<em> future position</em> of the Earnings per shareholders once the potential shareholders begin exercising their rights.

Potential Shareholders exists due to Financial Instruments that <em>might be converted into ordinary shares</em>. Examples are Convertible Bonds, Options, Convertible Preference shares.

<em>Step 1 Calculate Basic Earnings Per Share</em>

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<u>Profits attributable to Ordinary Shareholders :</u>

Earnings  ( $14,700 - $6,900)                                                     $7,800

<em>Less</em> After tax Interest on Bonds (60×$1,000×8%×80%)         ( $3,840)

Profits attributable to Ordinary Shareholders                           $ 3960

<u>Weighted Average Number of Ordinary Shares</u>

Common stock  outstanding                                                       2,400 shares

Basic Earnings Per Share = $ 3960/ 2,400

                                            = 165 cents

<em>Step 2 Calculate Diluted Earnings Per Share</em>

Diluted Earnings Per Share = Adjasted Basic Earnings per Share Earnings/ Adjasted  Number of Ordinary Shares

<em></em>

<u>Adjusted Basic Earnings per Share Earnings</u>

Profits attributable to Ordinary Shareholders                           $ 3960

Add Savings on Interest (60×$1,000×8%×80%)                        $3,840

<em>Adjusted Basic Earnings per Share Earnings                          $7,800</em>

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Common stock  outstanding                                                       2,400 shares

Add 60× 100 shares of Convertible Bonds                                6,000 shares

<em>Adjusted  Number of Ordinary Shares                                    8,400 shares</em>

Diluted Earnings Per Share =  $7,800/8,400 shares

                                                = 93 cents

7 0
3 years ago
Present Value of Ordinary Annuity Period/Rate 5% 6% 7% 8% 9% 10 7.7217 7.3601 7.0236 6.7101 6.4177 11 8.3064 7.8869 7.4987 7.139
klasskru [66]

Answer:

The discount rate of 8% for 11 year period provides the present value of annual cash flows to be equal to the initial investment.

Explanation:

Using the table of present value of annuity provided, we can check the rate and time period which is return the present value of cash flows from the project to be equal to initial Investment.

We are told that the Project's life is expected to be 11 Years. Thus using the 11 year period from the table we can see the following rates,

<u>11 Year Period</u>

Rate = 5%  ,  Annuity Factor = 8.3064  

Rate = 6%  ,  Annuity Factor = 7.8869

Rate = 7%  ,  Annuity Factor = 7.4987

Rate = 8%  ,  Annuity Factor = 7.1390

Rate = 9%  ,  Annuity Factor =  6.8052

We know that the annual cash flows from the project is $1,000,000 and we know the Initial Outlay is $7,139,000.

Multiplying the annual cash flow from the above annuity factors for each rate we can see which rate provides the present value of annual cash flows to be equal to initial outlay.

Rate = 5%  ,  Present value = 8.3064 *  1000000    = $8,306,400  

Rate = 6%  ,  Annuity Factor = 7.8869 *  1000000    = $7,886,900

Rate = 7%  ,  Annuity Factor = 7.4987 *  1000000    = $7,498,700

Rate = 8%  ,  Annuity Factor = 7.1390 *  1000000    = $7,139,000

Rate = 9%  ,  Annuity Factor =  6.8052 *  1000000    = $6,805,200

From the above calculation we can see that the rate of 8% provides the present value of annual cash flows to be equal to the initial investment.

7 0
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