Answer:
See the explanation below:
Explanation:
a- Calculate ROE and EPS under each of the economic scenarios before any debt is issued.
Under an expansion
Earnings before interest and taxes (EBIT) = $23,000 * (100% + 20%) = $27,600
Earnings after taxes = $27,600 * (100% - 35%) = $17,940
Return on equity (ROE) = Earnings after taxes / Total market value of equity = $17,940 / $180,000 =
0.0997, or 9.97%
Earnings per share (EPS) = Earnings after taxes / Number of shares of stock outstanding = $17,940 /
6,000 = $2.99 per share
Under a recession
Earnings before interest and taxes (EBIT) = $23,000 * (100% - 30%) = $16,100
Earnings after taxes = $16,100 * (100% - 35%) = $10,465
Return on equity (ROE) = Earnings after taxes / Total market value of equity = $10,465 / $180,000 =
0.0581, or 5.81%
Earnings per share (EPS) = Earnings after taxes / Number of shares of stock outstanding = $10,465 /
6,000 = $1.74 per share
b- Repeat part a, assuming that the company goes through with the capitalization.
Under an expansion
Earnings before interest and taxes (EBIT) = $23,000 * (100% + 20%) = $27,600
Interest on debt = $75,000 * 7% = $5,250
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Earnings after interest = $27,600 - $5,250 = $22,350
Earnings after taxes = $22,350 * (100% - 35%) = $14,527.50
Return on equity (ROE) = Earnings after taxes / Total market value of equity = $14,527.50/ $180,000 =
0.0807, or 8.07%
Earnings per share (EPS) = Earnings after taxes / Number of shares of stock outstanding = $14,527.50 /
6,000 = $2.42 per share
Under a recession
Earnings before interest and taxes (EBIT) = $23,000 * (100% - 30%) = $16,100
Interest on debt = $75,000 * 7% = $5,250
Earnings after interest = $16,100 - $5,250 = $10,850
Earnings after taxes = $10,850 * (100% - 35%) = $7,052.50
Return on equity (ROE) = Earnings after taxes / Total market value of equity = $7,052.50 / $180,000 =
0.0392, or 3.92%
Earnings per share (EPS) = Earnings after taxes / Number of shares of stock outstanding = $7,052.50 /
6,000 = $1.18 per share
c- Calculate the percentage changes in EPS when the economy expands or enters a recession.
Percentage change under expansion = ($2.42 - $2.99)/$2.99 = 0.1902 decrease, or 19.02% decrease.
Percentage change under recession = ($1.18 - $1.74)/ $1.74 = 0.3218 decrease, or 32.18% decrease
Answer:
journal entries to make are as shown below: DAKOTA MINING CO
question 1
Date Transaction Debit credit amount
July 23 land purchase Land account $ 4,715,000
july 23 land purchase Bank $ 4,715,000
question 2
July 25 Machine cost machine account $410,000
July 25 Machine cost bank $410,000
December 31 depletion 5 months profit $441,600
December 31 depletion mine reserve $0.92/ton
December 31 Depreciation profit $441,600
December 31, depreciation land $441,600
Explanation:
Purchase of fixed asset: the asset account usually have debit balances, so you debit the asset account and credit Dakota bank account where the money was paid out. The land account and machine accout will have the purchase cost/installation cost as debit balances(entries) respectively while Dakota Mining co bank account will be credited with the respective amounts $ 4,715,000 -land purchase and $410,000- machine cost/installation.
The depletion quantity in 5 months was given. using ratio we extrapolate the depletion quantity was a full year as 1,152,000 QTY (12/5 X 480,000)
= 1,152,000 QTY the useful life of the mine is then calculated by dividing the reserve amount by the annual production of 1,152,000 = 4.448784 yrs
depreciation annually = divide cost of land by useful life = $1.059,840
5 months depreciation = 5/12 x annual depreciation = $441,600
depletion per ton is gotten as follows: divide $441,600 by 480,000 tons mined for 5 months = 0.92/ton depletion rate
Answer:
operating income increase by 30,413 dollars
Explanation:
We will calculate the income as usuall revenues - expense
We aren't given with other manufacturing cost so we assume this are all the cost involved in the order:
Special Order Revenue: 230 trees at $160 each: 36,800
Special Order Cost:
mold cost: 5,000
variable cost: 230 trees x 6.03 dollars = 1,387
Total cost for the order: 6,387
Financial outcome: 36,800 - 6,387 = 30,413
The special order from the local shopping mall would increase the Faux Trees Company's operating income by $22,413.10.
To determine the change in the operating income due to this special order, we must first calculate the total revenue and total costs associated with the order. The total revenue can be calculated as the product of the offered price per tree ($160) and the number of trees ordered (230), which equals $36,800.
The total cost is the sum of the initial investment for the molds ($5000), plus the variable cost per tree ($6.03) multiplied by the number of trees (230), which equals $6386.90.
So, the change in operating income, or profit, due to this special order can be found by subtracting the total costs ($6386.90 + $5000) from the total revenue ($36800). In this case, the special order would increase the company's operating income by $22,413.10.
#SPJ12
Answer:
b. debit to Loss on Bond Retirement of $1,000.
Explanation:
Options are "A. credit to Gain on Bond Retirement of $1,000. B. debit to Loss on Bond Retirement of $1,000. C. debit to Bonds Payable of $101,000. D. credit to Cash of $100,000."
When a bond is retired before maturity a gain or loss may arise. In such case if the price paid to retire the bonds is greater the carrying amount of bonds then the company need to record a loss on retirement in the book. On the other hand if the price paid is less than the carrying amount of the bonds at retirement, then the company records a gain on retirement of bonds.
Answer:
True
Explanation:
Given a certain production level, cost minimization is equal to product maximization. Cost minimization refers to the production level where average total cost per unit is lowest. On the other hand, production maximization refers to maximizing product output given certain restraints, e.g. amount of raw materials, number of labor hours, etc. Product maximization basically refers to the efficiency of production.
If someone can achieve product maximization and cost minimization, they should be maximizing profit.
Answer:
C. $5,150
Explanation:
Calculation for what will be the value of interest payment at the end of fifth year in real dollars
First step is to calculate the Interest amount per year
Interest amount per year = 100,000*6%
Interest amount per year = $6,000
Now let calculate the value of interest payment at the end of fifth year in real dollars
Value of interest payment in 5th year in real dollars = 6,000/(1+3.1%)^5
Value of interest payment in 5th year in real dollars= 6,000/1.164913
Value of interest payment in 5th year in real dollars= $5,150
Therefore the Value of interest payment in 5th year in real dollars will be $5,150
Answer:
Depreciation expense in 2019 is $144,050
Explanation:
O’Dell Vegetables uses the straight-line method of depreciation, Depreciation Expense each year is calculated by following formula:
Depreciation Expense = (Cost of machine − Salvage Value )/Useful Life
From July 1, 2016 to 2018:
Annual Depreciation Expense = ($984,000 - $140,000)/8 = $105,500
Depreciation Expense in 2016 = $105,500x6/12 = $52,750
Accumulated Depreciation (end 2018) = $52,750 + $105,500 + $105,500 = $263,750
From 2019, the machine would become uneconomical after December 31, 2023:
Salvage Value = 0 and Remaining useful life = 5 year
Depreciation Expense = (Historical Cost - Accumulated Depreciation - Salvage Value)/Remaining Useful Life = ($984,000-$263,750-0)/5 = $144,050
Depreciation in 2019 is $144,050