BUSINESS COLLEGE

A. If Canace Company, with a break-even point at $259,000 of sales, has actual sales of $350,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales?Round the percentage to the nearest whole number.1. $
2. %

Answers

Answer 1
Answer:

Answer:

Margin of safety in dollars is $91,000

Margin of safety as percentage of sales is 26%

Explanation:

Margin of safety can be defined as the amount of output or sales that a business can make before it reaches its breakeven point.

To calculate margin of safety in dollars

Margin of safety= Sales - Breakeven sales

Margin of safety= 350,000- 259,000

Margin of safety= $91,000

To calculate margin of safety as a percentage of sales, we use the following formula.

Margin of safety = (Sales- Breakeven point) ÷ Sales

Margin of safety = (350,000- 259,000)÷ 350,000

Margin of safety= 0.26= 26%
Answer 2
Answer:

Answer:

1. Margin of Safety(MOS) expressed in dollars =91,000

2. Margin of Safety(MOS) expressed as percentage = 26% (to the nearest whole number)

Explanation:

The MARGIN OF SAFETY is applied as a measure of the difference between the actual sales and break-even sales.

In other words, to find Margin of Safety, you subtract break-even sales from the actual sales.

MOS is used to determine at which level sales can drop before a business incurs losses. It is a tool by which actual or budgeted sales may be decreased without resulting in any loss.

1. Formula for Margin of Safety(in dollars):

Margin of Safety(in dollars) = Actual/Budgeted Sales ➖ Break-even Sales

Where:

Actual Sales = $350,000

Break-even Sales = $259,000

➡ Margin of Safety(in dollars) = $350,000 ➖ $259,000 = 91,000(ans)

2. Formula for Margin of Safety (expressed as a percentage) = [(Actual/Budgeted Sales ➖ Break-even Sales) ➗ Actual/Budgeted Sales] ✖ 100%

Where:

Actual Sales = $350,000

Break-even Sales = $259,000

➡ Margin of Safety (in percentage) = [($350,000 ➖ $259,000) ➗ $350,000] ✖ 100%

= ($91,000 ➗ $350,000) ✖ 100%

= 0.26 ✖ 100% = 26%(ans).

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A firm's current profits are $1,400,000. These profits are expected to grow indefinitely at a constant annual rate of 4 percent. If the firm's opportunity cost of funds is 7 percent, determine the value of the firm: Instructions: Enter your responses rounded to two decimal places. a. The instant before it pays out current profits as dividends. $ 49933333.33 million b. The instant after it pays out current profits as dividends.

A company’s past experience indicates that 60% of its credit sales are collected in the month of sale, 30% in the next month, and 5% in the second month after the sale; the remainder is never collected. Budgeted credit sales were: Ch7_Q181 The cash inflow in the month of June is expected to be $282,500. $213,750. $225,000. $270,000.

Answers

Answer:

$213,250

Explanation:

The calculation of cash inflow is shown below:-

                    Expected cash collections

                       For the month of June

Months       Sales              Percentage     Expected collections

April           $282,500        5%                    $14,125

May            $213,750         30%                  $64,125

June           $225,000        60%                 $135,000

Total collection in the month of June        $213,250

Here we assume Sales for April$282,500, May $213,750 and June $225,000.

Please ignore the last value as it is not relevant to the question

You have been asked to estimate the beta for a large South Korean company, with large holdings in steel and financial services. A regression of stock returns against the local market index yields a beta of 1.10, but the firm is 15% of the index. You have collected the average betas for global companies in each of the sectors, as well as the average debt equity ratios in each sector: Setor Average Regression Beta Average D/E ratio
Steel 1.18 30%
Financial
Services 1.14 70%
The average tax rate for these industries is 40%.
In the most recent period, the company you are analyzing earned 70% of its operating income from steel and 30% from financial services. The firm also had a debt/equity ratio of 150%, and a tax rate of 30%. Estimate the levered beta for the company.

Answers

Answer:

The levered beta for the company is 1.93.

Explanation:

Levered beta for the company = (Weight of steel business*levered beta of steel business) + (Weight of financial services business*levered beta of financial services business)

Levered beta of steel business = Unlevered beta of steel sector*[1+(1 - firm's tax rate)*(firm's debt/equity ratio)

levered beta of financial services business = Unlevered beta of financial services sector*[1+(1 - firm's tax rate)*(firm's debt/equity ratio)

Unlevered beta of steel sector = Current beta of steel sector/[1+(1 - avg. tax rate of firms in the sector)*(Avg. debt/equity ratio of the sector)  

Unlevered beta of steel sector = 1.18/[1+((1-0.4)*0.3)]

Unlevered beta of steel sector = 1.18/[1+(0.6*0.3)]

Unlevered beta of steel sector = 1.18/(1+0.18)

Unlevered beta of steel sector = 1.18/1.18

Unlevered beta of steel sector = 1

Levered beta of steel business = 1*[1+((1-0.3)*1.5)]

Levered beta of steel business = 1*[1+(0.7*1.5)]

Levered beta of steel business = 1*(1+1.05)

Levered beta of steel business = 1*2.05

Levered beta of steel business = 2.05

Unlevered beta of financial services sector = Current beta of financial services sector/[1+(1 - avg. tax rate of firms in the sector)*(Avg. debt/equity ratio of the sector)

Unlevered beta of financial services sector = 1.14/[1+((1-0.4)*0.7)]

Unlevered beta of financial services sector =1.14/[1+(0.6*0.7)]

Unlevered beta of financial services sector = 1.14/(1+0.42)

Unlevered beta of financial services sector = 1.14/1.42

Unlevered beta of financial services sector = 0.80

Levered beta of financial services business = 0.8*[1+((1-0.3)*1.5)] = 0.8*[1+(0.7*1.5)] = 0.8*(1+1.05) = 0.8*2.05 = 1.64

Levered beta for the company = (0.7*2.05) + (0.3*1.64)

Levered beta for the company = 1.44 + 0.49

Levered beta for the company = 1.93

Hence, the levered beta for the company is 1.93.

Final answer:

To estimate the levered beta for a company with operations in multiple sectors - steel and financial services in this case - you take a weighted average of the sector betas based on earnings distribution to get the unlevered beta. You then adjust for the company's debt/equity ratio and tax rate to get the levered beta. The estimated levered beta for this company is 2.378.

Explanation:

To estimate the levered beta for the company, we first need to consider the betas for each of the sectors the company operates in - steel and financial services. Given the firm's earnings distribution, the unlevered beta is computed as 0.7*Steel Beta + 0.3*Financial Services Beta = 0.7*1.18 + 0.3*1.14 = 1.16.

Next, to calculate the levered beta, we need to factor in the firm's debt/equity ratio. We use the formula for the levered beta: Levered Beta = Unlevered Beta * (1 + (1 - Tax Rate) * D/E ratio). Substituting the values we have: Levered Beta = 1.16 * (1 + (1 - 0.3) * 1.5) = 1.16 * 2.05 = 2.378. Therefore, the estimated levered beta is 2.378.

Learn more about Levered Beta Calculation here:

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Will Presley sells management training classes to entrepreneurs and Fortune 1000 companies.Last quarter his sales were very disappointing.When asked,he admitted that his poor performance was directly related to his wife having a new baby.He had not the time to devote to sales that he should have.As a result of Will's poor performance in the last quarter,which of the following is likely to occur? A) His expectancy estimates will be higher and his instrumentality estimate will remain the same
B) His instrumentality estimates will be lower and his expectancy estimates will remain the same
C) His expectancy estimates for the next quarter will be lower
D) Neither her expectancy nor instrumentality estimates will change
E) His expectancy estimates for the next quarter will be higher

Answers

Answer:

Option E

His expectancy estimates for the next quarter will be higher

Explanation:

Will Presley's expectancy rate will be higher in the next sales quarter. This is because he feels that the birth of his new baby is instrumental to his his poor sales performance. Now that he feels that factor has been taken out of the way, he expects that there will be a great increase in the next sales quarter.

Shown below are selected data from the financial statements of the Supreme Company. (Dollar amounts are in millions, except for the per share data). Income statement data:

$'000
Net sales $1,230
Cost of goods sold $520
Operating expenses $440
Net income $390
Balance sheet data:

$'000
Average total equity $2,400
Average total assets $4,000
Supreme reported earnings per share for the year of $4 and paid cash dividends of $1 per share.

At year-end, the Wall Street Journal listed Supreme's capital stock as trading at $88 per share.

Required:

Compute the following:

a). Gross profit rate

b). Supreme's operating income (in millions)

c). Return on assets

d). Return on equity

e). Price-earning ratio

Answers

Answer:

a. Gross profit rate =   Gross profit / sales

                              = $710,000 * 100

                                       $1,230,000

                              =  57.72%

b. Supreme Operating Income

Gross Profit                           $710,000

Operating expenses             (440,000)

Operating Profit                     270,000

c. Return on Asset  =   Return/  Average Asset

                                =   $390,000 * 100

                                       $4,000,000

                             =   9.75%

d. Return on equity  =   Return / Average equity

                                 =   $390,000 * 100

                                        $2,400,000

                               =      16.25%

e. Price-earnings ratio  =  Market price per share / earnings per share

                                       =   $88/ $4  

                                       =  22

Explanation:

Computation of Gross profit

                                                $'000

Net Sales                                1,230

Cost of goods sold                 (520)

Gross Profit                              710  

Workers and management agree on a contract that gives a 5% wage increase for each of the next three years. Everyone expected 3% inflation but inflation turned out to be 5% per year. Then at the end of three years... a. real wages will be higher than was expected.

b. real wages will have fallen

c. nominal and real wages will have changed by the same percentage.

d. real wages will be lower than was expected.

Answers

Answer:

The correct option is (d)

Explanation:

Real wages are nominal wages less inflation. Nominal wage is not adjusted for inflation. Everyone had expected an inflation of 3% per year while increase in wages per year is 5%. This implied that they will expect real wage of 2% (5% - 3%) per year.

However, it turned out that inflation was 5% per year. This means that real wages were actually 0% (5% - 5%). There was no increase in real wages at all. So, they received lower real wage (actually nil) as against expected real wage of 3% per year.

Coronado Industries purchased a truck at the beginning of 2017 for $108800. The truck is estimated to have a salvage value of $3000 and a useful life of 132250 miles. It was driven 18000 miles in 2017 and 26000 miles in 2018. What is the depreciation expense for 2017?

Answers

Answer:

The depreciation expense for 2017 is $14,400

Explanation:

Coronado Industries uses the units-of-production depreciation method to calculate Coronado Industries by the following formula:

Depreciation Expense = [(Cost of asset − Residual Value ) x Number of Units Produced]/Life in Number of Units

In the company,

Depreciation Expense per mile = ($108,800-$3,000)/132,250=  $0.8

The truck was 18000 miles in 2017, so the depreciation expense for 2017:

18,000 x $0.8 = $14,400
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