Answer:
a)
Project Y and Project Z
b)
Project X and Project Y
c)
Project X and Project Z
Explanation:
Apply the CAPM to calculate the required return for each project as followed:
Project W: 4% + 0.75 * (11%-4%) = 9.25%
Project X: 4% + 0.90 * (11%-4%) = 10.3%
Project Y: 4% + 1.15 * (11%-4%) = 12.05%
Project Z: 4% + 1.45 * (11%-4%) = 14.15%
So, for:
a)
Which projects have a higher expected return than the firms 11 percent cost of capital: Project Y 12.8% and Project Z 13.9% which are given.
b)
Project should be accepted is project that has expected returns higher than required return which is Project X and Project Y.
c)
Using the firm's overall cost of capital as a hurdle rate:
Project Z will be accepted which is incorrect because its Required returned is higher than its expected returns ( 14.15% > 13.9%)
Project X will be rejected which is incorrect because its Required returned is lower than its expected returns ( 10.3% < 10.8%).
Answer:
Genie will have better access to highly skilled human capital at a lower cost.
Explanation:
During times of economic downturn, the rate of unemployment rises due to reduced production by firms in the economy. When the economy slows down, consumption drops, leading to reduced demand for goods and services. A reduction in demand forces organizations to cut down production, and consequently laying off workers.
Service and manufacturing industries do not create employment opportunities during economic downturns. As a result, college graduates cannot find jobs, which increases unemployment. An increase in unemployment and a low supply of jobs leads to a reduction in wage rates. Genie software will, therefore, be able to find highly qualified employees at a lower cost during times of economic downturns.
Answer: 6.22%
Explanation:
To find the annual rate of return, find the geometric mean of the returns:
= ¹⁸√ (1 + 3.8%)⁸ * (1 + 8.2%)¹⁰ - 1
= ¹⁸√ 2.9638173484126186153 - 1
= 1.0622187633434 - 1
= 6.22%
Answer:
a.
<u>Differential analysis on whether to continue or discontinue Product Tango</u>
Continue Discontinue
Sales $195,200 $0
Less Variable Costs :
Cost of Goods Sold ($115,600) $0
Selling Expenses ($33,000) $0
Less Fixed Costs :
Fixed Costs ($58,300) ($58,300)
Net Income/ (Loss) ($12,300) ($58,300)
b
Continue with Product Tango. Because it brings a contribution towards the Fixed Costs helping to achieve a smaller loss margin.
Explanation:
From the differential analysis, Fixed costs will remain the same whether the product is discontinued or not. This is because they are centrally controlled. Only the variable costs would change.
Answer:
(a) Issued $50,000 par value common stock for cash = Financing Activities
b) Purchased a machine for $30,000, giving a long-term note in exchange. Financing Activities = Non-cash Investing and Financing Activity
(c) Issued $200,000 par value common stock upon conversion of bonds having a face value of $200,000 = Non-cash Investing and Financing Activities
(d) Declared and paid a cash dividend of $18,000 = Financing Activities
(e) Sold a long-term investment with a cost of $15,000 for $15,000 cash = Investing Activities
(f) Collected $16,000 from sale of goods = Operating Activities
Explanation:
The Cash flows related to raising of capital is known as Cash flow from Financing Activities.
The Cash flows related to growing and selling of Assets of the business is known as Cash flow from Investing Activities.
The Cash flow related to trade in Ordinary course business of the Company is known as Cash flow from Operating Activities.
