Question 1
Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Please showing your work in a MS-Excel spreadsheet. 1. Which of the following statements best describes the optimal capital structure? a. The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company?s earnings per share (EPS). b. The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company?s stock price. c. The optimal capital structure is the mix of debt, equity, and preferred stock that minimizes the company?s cost of equity. d. The optimal capital structure is the mix of debt, equity, and preferred stock that minimizes the company?s cost of debt. e. The optimal capital structure is the mix of debt, equity, and preferred stock that minimizes the company?s cost of preferred stock. 2. Which of the following statements is CORRECT? a. A firm can use retained earnings without paying a flotation cost. Therefore, while the cost of retained earnings is not zero, its cost is generally lower than the after-tax cost of debt. b. The capital structure that minimizes a firm?s weighted average cost of capital is also the capital structure that maximizes its stock price. c. The capital structure that minimizes the firm?s weighted average cost of capital is also the capital structure that maximizes its earnings per share. d. If a firm finds that the cost of debt is less than the cost of equity, increasing its debt ratio must reduce its WACC. e. Other things held constant, if corporate tax rates declined, then the Modigliani-Miller tax-adjusted tradeoff theory would suggest that firms should increase their use of debt. 3. Which of the following statements is CORRECT? a. In general, a firm with low operating leverage also has a small proportion of its total costs in the form of fixed costs. b. There is no reason to think that changes in the personal tax rate would affect firms? capital structure decisions. c. A firm with high business risk is more likely to increase its use of financial leverage than a firm with low business risk, assuming all else equal. d. If a firm's after-tax cost of equity exceeds its after-tax cost of debt, it can always reduce its WACC by increasing its use of debt. e. Suppose a firm has less than its optimal amount of debt. Increasing its use of debt to the point where it is at its optimal capital structure will decrease the costs of both debt and equity financing. 4. Companies HD and LD have identical amounts of assets, operating income (EBIT), tax rates, and business risk. Company HD, however, has a much higher debt ratio than LD. Company HD?s basic earning power ratio (BEP) exceeds its cost of debt (rd). Which of the following statements is CORRECT? a. Company HD has a higher return on assets (ROA) than Company LD. b. Company HD has a higher times interest earned (TIE) ratio than Company LD. c. Company HD has a higher return on equity (ROE) than Company LD, and its risk, as measured by the standard deviation of ROE, is also higher than LD?s. d. The two companies have the same ROE. e. Company HD?s ROE would be higher if it had no debt. 5. Which of the following statements is CORRECT? a. Generally, debt-to-total-assets ratios do not vary much among different industries, although they do vary among firms within a given industry. b. Electric utilities generally have very high common equity ratios because their revenues are more volatile than those of firms in most other industries. c. Drug companies (prescription, not illegal!) generally have high debt-to-equity ratios because their earnings are very stable and, thus, they can cover the high interest costs associated with high debt levels. d. Wide variations in capital structures exist both between industries and among individual firms within given industries. These differences are caused by differing business risks and also managerial attitudes. e. Since most stocks sell at or very close to their book values, book value capital structures are almost always adequate for use in estimating firms' costs of capital. CORRCECT ANSWER IS: 1/B 2/B 3/A 4/C 5/D,hi can i get it today plz. thank you.
Question 2
"Winfrey Co.'s March 31 inventory of raw materials is $ 150,0000. Raw materials purchases in April are $ 400,000, and factory payroll cost in April $220,000. Overhead costs incurred in April are: indirect materials, $30,000; indirect labor, $14,000; factory rent, $20,000; factory utilities, $ 12,000; and factory equipment depreciation, $30,000. The predetermined overhead rate is 50% of direct labor cost. Job 306 is sold for $380,000 cash in April. Costs of the three jobs worked on in April follow. Balances on March 31: Direct Materials: Job 306 = $14,000 Job 307 = $18,000 Direct Labor: Job 306= 18,000 Job 307 = 16,000 Applied Overhead: Job 306 = 9,000 Job 307 = 8,000 Costs during April: Direct materials: Job 306 = 100,000 Job 307 = 170,000 Job 308 = 80,000 Direct Labor: Job 306 = 30,000 Job 307 = 56,000 Job 308 = 120,000 Applies Overhead: Job 306, 307, & 308 = =??? Status on April 30: Job 306 = Finished(sold) Job 307 = Finished (unsold) Job 308 = In process Part 1: Determine the total of each production cost incurred for April (Direct labor, direct materials, and applied overhead), and the total cost assigned to each job (including balances from March 31)
Question 3
1. Suppose that when your wealth increases from $100,000 to $200,000, your holdings of savings deposits increase from $10,000 to $12,000. Your wealth elasticity of demand for savings deposits then is: A) less than 1 and savings deposits are necessity asset B) greater than 1 and saings deposits are a necessity asset C) less than 1 and savings deposits are a luxury asset D) greater than 1 and savings deposits are a luxury asset 2. A bank lending depositors' money to a local business and a pension fund investing contributions in shares of a company are similar financial activities in that: A) both involve the use of financial markets B) both involve funds being channeled from savers to borrowers through financial intermediaries C) both involve a reduction in the overall level of liquidity in the financial system D) both involve in an increase in the overall level of risk in the financial system 3. Which of the following statements is correct? A) The financial sector is a large source of jobs in the U.S. economy, but a relatively small source of jobs in other major economies B) The financial sector is a relatively small source of jobs in the U.S. economy, but a large source of jobs in other major economies. C) The financial sector is a large source of jobs in the U.S. and other major economies. D) The financial sector is a relatively small but important source of jobs in the U.S. and other major economies 4. The most important reason why economies at an early stage of development tend to operate inefficiently is that: A) They tend to be dominated by the agricultural sector, where productivity is usually low. B) They tend to have authoriatarian governments that stifle innovation. C) They tend to be plagued by superstitious beliefs that stifle innovation. D) They tend not to have specialization of labor 5. The most common type of simple loan is a(an) A) automobile loan from a bank B) mortgage loan from a bank C) commercial loan from a bank D) Corporate bond 6. As wealth decreases, which of the following is likely to account for a larger fraction of a saver's portfolio? A) Corporate stock B) Corporate bonds C) U.S. government securities D) Checking account balance 7. If the equilbrium price in the bond market for a one-year discount bond is $950, then the equilibrium interest rate in the loanable funds market must be: A) 5% B) 5.26% C) 50% D) 10% 8. Which of the following rankins of sources of funds for businesses from the least important to the most important is correct? A) Stock issues, bond issues, loans from financial institutions B) Bond issues, stock issues, loans from financial institutions C) Loans from financial institiutions, stock issues, bond issues D) Loans from financial institutions, bonds issues, stock issues 9. The financial system accounts for about what percentage of the U.S. economy's value added (GDP)? A) 2% B) 22% C) 42% D) 72% 10. As a result of higher expected inflation: A) the demand and supply curves for loanable funds both shift to the right and the equilibrium interest rate usually rises. B) the demand and supply curves for loanable funds both shift to the left and the equilibrium interest rate usually falls. C) the demand curve for loanable funds shifts to the right, the supply curve for loanable funds shifts to the left, and the equilbrium interest rate usually rises. D) the demand curve for loanable funds shifts to the left, the supply curve for loanable funds shifts to the right, and the equilibrium interest rate usually rises. 11. Which of the following was an important consequence of the regulatory reforms that followed the deposit insurance crisis of the 1980s and early 1990s? A) An unprecedented consolidation of the U.S. banking industry B) A series of bank panics C) Unprecedentedly high interest rates D) New restrictions on interstate banking
Question 4
winston industries and ewing inc enter into an agreement that requires ewing unc to build three diesel electric engines to winstons specifications. Upon completion of the engines winston has agreed tolease them for a period of 10 years and to assume all costs and risks of ownership. The lease is noncancelable, becomes effective on January 012011 and requires annyal rental payments of $413971 each January1 starting January 012011. Winstons incremental borrowing rate is 10%. The implicit interest rate used by Ewing and known to Winston is 8%. The total cost of building the three engines is $2600000. The economic life of the engines is 10 Years with residual value set at zero. Winstopn depreciates similar equipment on a straightline basis. At the end of the lease winsont assumes title to the engines. Collectibility of the lease payments is reasonably certain; no uncertanties ezxist relative tounreimbursable lessor costs. A prepare journal entry to record transaction on January 012011 on the books of winston B.prepare journal entry to record transaction on January 012011 on the books of Ewing. C. prepare the journal entries for the lessee and lessor to reocrd the first rental opayment D.prepare journal entries for lessee and lessor to record interest exzpense(revenue)at dec 31 2011 E show the items and amounts that woul be reported on the balance sheet.,Can you show the math so Iunerstand it? Thank you!! :)
Question 5
A manufacturing company is thinking of launching a new product. The company expects to sell $950,000 of the new product in the first year and $1,500,000 each year thereafter. Direct costs including labor and materials will be 45% of sales. Indirect incremental costs are estimated at $95,000 a year. The project requires a new plant that will cost a total of $1,500,000, which will be a depreciated straight line over the next 5 years. The new line will also require an additional net investment in inventory and receivables in the amount of $200,000. Assume there is no need for additional investment in building the land for the project. The firm's marginal tax rate is 35%, and its cost of capital is 10%. To receive full credit on this assignment, please show all work, including formulae and calculations used to arrive at financial values. Assignment Guidelines: Using the information in the assignment description: Prepare a statement showing the incremental cash flows for this project over an 8-year period. Calculate the payback period (P/B) and the net present value (NPV) for the project. Answer the following questions based on your P/B and NPV calculations: Do you think the project should be accepted? Why? Assume the company has a P/B (payback) policy of not accepting projects with life of over 3 years. If the project required additional investment in land and building, how would this affect your decision? Explain. Your submitted assignment (125 points) must include the following: A double-spaced Word document of 2?3 pages that contains your calculation values, your complete calculations, any formulae that you used, and your answers to the two questions listed in the assignment guidelines. You must include your explanation of how you used Microsoft Excel for your calculations if applicable. Grading: You will be graded on the accuracy of your value calculations as well as your demonstrated understanding of payback periods, net present value, and cash flows. This assignment will be assessed using the rubric provided here. Please submit your assignment. For assistance with your assignment, please use your text, Web resources, and all course materials.
