Answer:
Correlation Coefficient Matrix A
A. True
Explanation:
A Correlation Coefficient Matrix is a tabular display of the correlation in variables, showing the linear relationships between each other. The variables are shown in rows and columns, and each cell in the table contains the correlation coefficient. The Correlation Coefficient Matrix A could be used to determine a team's winning percent scores when the revenues are checked.
In order to remain certified, I have to:
Submit a renewal form.
Complete a seller training course every 2 years.
Complete a 30 minute refresher course.
Do nothing, the certificate never expires.
In order to remain certified, you have to complete a seller training course every 2 years. Option B. This is further explained below.
What is the training course?Generally, the training course is simply defined as several types of training courses, and each one teaches a certain set oaf abilities.
In conclusion, Every two years, you must retake a seller training course to keep your certification current.
Read more about training course
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Boston Railroad decided to use the high-low method and operating data from the past six months to estimate the fixed and variable components of transportation costs. The activity base used by Boston Railroad is a measure of railroad operating activity, termed "gross-ton miles," which is the total number of tons multiplied by the miles moved. Transportation Costs Gross-Ton Miles January $1,454,100 323,000 February 1,621,300 361,000 March 1,145,800 234,000 April 1,554,400 350,000 May 1,303,700 281,000 June 1,671,400 380,000 Determine the variable cost per gross-ton mile and the fixed cost. Variable cost (Round to two decimal places.) $fill in the blank 1 per gross-ton mile Total fixed cost $fill in the blank 2
Answer:
Results are below.
Explanation:
Giving the following information:
Transportation Costs Gross-Ton Miles
January $1,454,100 323,000
February 1,621,300 361,000
March 1,145,800 234,000
April 1,554,400 350,000
May 1,303,700 281,000
June 1,671,400 380,000
To calculate the variable and fixed cost under the high-low method, we need to use the following formulas:
Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)
Variable cost per unit= (1,671,400 - 1,145,800) / (380,000 - 234,000)
Variable cost per unit= $3.6
Fixed costs= Highest activity cost - (Variable cost per unit * HAU)
Fixed costs= 1,671,400 - (3.6*380,000)
Fixed costs= $303,400
Fixed costs= LAC - (Variable cost per unit* LAU)
Fixed costs= 1,145,800 - (3.6*234,000)
Fixed costs= $303,400
three (3) State taxes and briefly describe each
A new kind of smartphone is selling for $500. The first cell phone costs $300 to produce, and each subsequent phone costs $325 to produce. What is the producer surplus for this market when selling four cell phones at this rate
Answer:The profit is $740
Explanation:4(500)-[3(320)+300]
4x500=2000
3x320=960+320=1260
2000-1260=$740
Chad is the founder of a firm producing self-driving vehicles. Because the industry is so new and chaotic, Chad favors a top-down strategic planning approach in which he exerts strong control over all aspects of the business, from product development and design to manufacturing and marketing. What is wrong with this scenario
Answer:
a. The self-driving vehicle industry is changing too much for the top- down approach to be effective.
Explanation:
The top-down strategic planning approach involves the company goals and their subdivisions. The aim is to gradually move from the top to down in a specific hierarchy. This approach lies on higher authority and in contrast the bottom-up strategy favors decision making that gives complete staff a voice.Saddle Inc. has two types of handbags: standard and custom. The controller has decided to use a plantwide overhead rate based on direct labor costs. The president has heard of activity-based costing and wants to see how the results would differ if this system were used. Two activity cost pools were developed: machining and machine setup. Presented below is information related to the company’s operations. Standard Custom Direct labor costs $60,000 $103,000 Machine hours 1,400 1,290 Setup hours 96 400 Total estimated overhead costs are $300,000. Overhead cost allocated to the machining activity cost pool is $195,000, and $105,000 is allocated to the machine setup activity cost pool.
1. Compute the overhead rate using the traditional (plantwide) approach. (Round answer to 2 decimal places, e.g. 12.25.)
2. Compute the overhead rates using the activity-based costing approach. (Round answers to 2 decimal places, e.g. 12.25.)
3. Determine the difference in allocation between the two approaches. (Round answers to 0 decimal places, e.g. 1,225.)
Answer:
Saddle Inc.
1. Overhead rate using the traditional (plantwide) approach is:
= $1.84
2. The overhead rates using activity-based costing approach are:
Machining = $72.49
Machine setup = $211.69
3. The difference in allocation between the two approaches:
Differences:
ABC approach $121,808 $178,188 $299,996
Using plantwide $110,400 $189,520 $299,920
Differences $11,408 -$11,332 $76
Explanation:
a) Data and Calculations:
Total estimated overhead costs = $300,000
Machining activity = $195,000
Machine setup activity = $105,000
Standard Custom Total
Direct labor costs $60,000 $103,000 $163,000
Machine hours 1,400 1,290 2,690
Setup hours 96 400 496
Overhead rate based on direct labor costs = $1.84 ($300,000/163,000)
Overhead rates using activity-based costing approach:
Machining = $72.49 ($195,000/2,690)
Machine setup = $211.69 ($105,000/496)
Allocation of overhead costs:
Standard Custom Total
Using plantwide $110,400 $189,520 $299,920
Using ABC:
Machining $101,486 $93,512 $194,998
Machine setup 20,322 84,676 104,998
Total costs $121,808 $178,188 $299,996
Differences:
ABC approach $121,808 $178,188 $299,996
Using plantwide $110,400 $189,520 $299,920
Differences $11,408 -$11,332 $76
Alpha Industries stock sold for $39 a share at the beginning of the year. During the year, the company paid a dividend of $3 a share and then ended the year with a stock price of $37. The change in the stock price is best described as a:
Answer: c. capital loss.
Explanation:
A capital loss refers to a scenario where the price of a security falls below the price at which it was purchased. This is what happened to the Alpha Industries stock above as the price dropped from $39 to $37 which led to a capital loss of $2.
The dividends paid seem to outweigh the capital loss but we cannot be certain of this unless we know the tax rate being applied to the dividends and because these are usually high, the after tax dividends might have been lower the capital loss of $2.
All of the following will improve a firm's liquidity position except: Answer A)increase long-term debt and invest the money in marketable securities B)increase accounts receivable turnover C)increase inventory turnover D)increase the average collection period
Answer:
i think answer B is right
but i am not sure
Desks by Daisy sells a student desk for $100 per unit. The variable cost per desk is $40 and Daisy's fixed costs of producing the desks equals $15,000 per month. Daisy needs to sell _______ desks per month in order to break-even.
Answer:
250
Explanation:
Breakeven quantity are the number of units produced and sold at which net income is zero
Breakeven quantity = fixed cost / price – variable cost per unit
$15,000 / (100 - 40)
$15,000 / 60
250
If the slope of the budget line changes, there MUST have been a change in the consumer's preferences. an increase in the consumer's income. a change in the price of at least one good. a change in the price of both goods. None of these
Answer:
you change in the price of at least one good
For each item indicate whether it would appear on the income statement, balance sheet, or retained earnings statement: a. Service Revenue select a financial statement b. Utilities Expense select a financial statement c. Cash select a financial statement d. Accounts Payable select a financial statement e. Supplies select a financial statement f. Salaries and Wages Expense select a financial statement g. Accounts Receivable select a financial statement h. Common Stock select a financial statement i. Equipment select a financial statement j. Advertising Expense select a financial statement k. Dividends select a financial statement l. Notes Payable select a financial statement
Answer:
Indication of Financial Statement Items:
Item Financial Statement
a. Service Revenue Income Statement
b. Utilities Expense Income Statement
c. Cash Balance Sheet
d. Accounts Payable Balance Sheet
e. Supplies Balance Sheet
f. Salaries and Wages Expense Income Statement
g. Accounts Receivable Balance Sheet
h. Common Stock Balance Sheet
i. Equipment Balance Sheet
j. Advertising Expense Income Statement
k. Dividends Retained Earnings Statement
l. Notes Payable Balance Sheet
Explanation:
a) Company A's Income Statement is a financial statement that shows its financial performance in terms of profitability. It contains the revenue and expenses. It determines the net income (excess of revenue over expenses).
b) Company A's Balance Statement is a financial statement that indicates its financial position by showing the assets, liabilities, and equities.
c) The statement of retained earnings is a financial statement that connects its income statement to the balance sheet. It shows the movement in the retained earnings.
Locus Company has total fixed costs of $112,000. Its product sells for $35 per unit and variable costs amount to $25 per unit. Next year Locus Company wishes to earn a pretax income that equals 10% of fixed costs. How many units must be sold to achieve this target income level?
A.1,120.
B. 8,214.
C.11,200.
D.12,320.
E.14,080.
Answer:
D.12,320.
Explanation:
The computation of the number of units to be sold for attaining the target income level is given below:
Target profit
= 10% of fixed cost
= 10% of 112,000
= 11200
Now
Sales needed = (Fixed costs +target profit) ÷ unit contribution margin
= (112,000+11,200) ÷ (35-25)
= 123,200 ÷ 10
= 12,320 units
Ruby is considering a college degree. She learned that the total costs (including the tuition, fees, and forgone wages) of a college degree is $120,000. Her annual income with a college degree will be $14,000 higher than a high school graduate. She is planning to work for 15 years after graduation. How does her ROI on college change if she decides to work for 30 years instead of 15 years
Answer: Increase of 3.2%
Explanation:
Return on Investment (ROI) is the return that Ruby would make over her college degree fees.
It is the internal rate of return that would equate her future earnings to the investment in college fees.
Change in ROI = 11.18% - 7.98
= 3.2%
Increase of 3.2%
Dome Metals has credit sales of $144,000 yearly with credit terms of net 120 days, which is also the average collection period. Assume the firm adopts new credit terms of 5/10, net 120 and all customers pay on the last day of the discount period. Any reduction in accounts receivable will be used to reduce the firm's bank loan which costs 10 percent. The new credit terms will increase sales by 20% because the 5% discount will make the firm's price competitive.
Required:
a. If Dome earns 25 percent on sales before discounts, what will be the net change in income if the new credit terms are adopted?
b. Should the firm offer a discount?
Answer:
a. The net change in income if the new credit terms are adopted is a net gain of $2,880.
b. Since the discount of 5% will result in a net gain which is $2,880, the firm should offer a discount.
Explanation:
a. If Dome earns 25 percent on sales before discounts, what will be the net change in income if the new credit terms are adopted?
Old sales = $144,000
New Sales = Old sales * (100% + Percentage sales increase) = $144,000 * (100% + 20%) = $172,800
Increase in Sales = New Sales - Old sales = $172,800 - $144,000 = $28,800
Increase in Profit from new sales = Profit Margin * Increase in Sales = 25% * $28,800 = $7,200
Average Accounts Receivable without discount = Average Collection Period * Average daily Sales = 120 * ($144,000 / 360) = $48,000
Average Accounts Receivable with discount = Average Collection Period * Average daily Sales = 10 * ($172,800 / 360) = $4,800
Reduction in Accounts Receivable = Average Accounts Receivable without discount - Average Accounts Receivable with discount = $48,000 - $4,800 = $43,200
Loan balance as a result of reduction in accounts receivable. Therefore, we have:
Interest Saving = Interest Rate * Loan Reduction = 10% * $43,200 = $4,320
Cost of Discount = Discount Rate * New Sales = 5% * $172,800 = $8,640
Net Gain (loss) = Increase in Profit form new sales + Interest Saving - Cost of Discount = $7,200 + $4,320 - $8,640 = $2,880
Therefore, the net change in income if the new credit terms are adopted is an net gain of $2,880.
b. Should the firm offer a discount?
Since the discount of 5% will result in a net gain which is $2,880, the firm should offer a discount.
The following data come from the financial records of Campbell Corporation for Year 3: Sales $ 840,000 Interest expense 5,000 Income tax expense 25,500 Net income 25,500 Required How many times was interest earned in Year 3
Answer:
the times was interest earned in Year 3 is 11.2 times
Explanation:
The computation of the times interest earned ratio is given below:
The times interest earned ratio is
= (Net income+ Income tax expense+ Interest expense) ÷ Interest expense
= ($25,500 + $25,500 + $5,000) ÷ $5,000
= 11.2 times
Hence, the times was interest earned in Year 3 is 11.2 times
The same is to be relevant
Dake Corporation's relevant range of activity is 2,200 units to 5,000 units. When it produces and sells 3,600 units, its average costs per unit are as follows: Average Cost per Unit Direct materials $ 6.85 Direct labor $ 2.80 Variable manufacturing overhead $ 1.50 Fixed manufacturing overhead $ 3.00 Fixed selling expense $ 0.90 Fixed administrative expense $ 0.60 Sales commissions $ 0.70 Variable administrative expense $ 0.60 If 2,600 units are produced, the total amount of direct manufacturing cost incurred is closest to: rev: 12_18_2020_QC_CS-244896 Multiple Choice $28,990 $36,790 $25,090 $30,810
Answer: $25,090
Explanation:
Direct manufacturing costs are the direct material and direct labor costs tha were incurred to produce the goods in question.
Direct manufacturing costs = (Direct materials per unit + Direct labor per unit) * number of units produced
= (6.85 + 2.80) * 2,600
= 9.65 * 2,600
= $25,090
Jenna is a single taxpayer. During 2018, she earned wages of $110,000. She doesn't itemize deductions, so she will take the standard deduction to calculate 2018 taxable income. In addition, during the year she sold common stock that she had owned for five years for a net profit of $7,800. How much does Jenna owe to the IRS for taxes
Answer:
Jenna
The amount of tax that Jenna owes to the IRS for taxes (Tax Liability) for 2018 is:
= $23,520.
Explanation:
a) Data and Calculations:
Earned wages for 2018 = $110,000
Standard deduction = (12,000) for a single taxpayer
Taxable income = 98,000
Capital gains from common stock = $7,800
Capital gains tax rate for a single = 0% (below $40,000)
Taxable income = $98,000
Tax rate (24%) for income over $82,500
Tax liability = $23,520 ($98,000 * 24%)
The net income of a company for the year was $500,000. The company has no preferred stock. Common stockholders' equity was $1,200,000 at the beginning of the year and $2,500,000 at the end of the year. Calculate the rate of return on common stockholders' equity.
Answer:
27.03%
Explanation:
Average common stockholders' equity = (1,200,000+2,500,000) / 2
Average common stockholders' equity = $3,700,000 / 2
Average common stockholders' equity = $1,850,000
Rate of return on common stockholders' equity = Net Income / Average common stockholders' equity
Rate of return on common stockholders' equity = $500,000 / $1,850,000
Rate of return on common stockholders' equity = 0.27027
Rate of return on common stockholders' equity = 27.03%
Yosko Company manufactures luggage sets. Yosko sells its luggage sets to department stores. Yosko expects to sell 2,050 luggage sets for $280 each in January and 2,400 luggage sets for $280 each in February. All sales are cash only. Prepare the sales budget for January and February
Answer:
Yosko Company
Sales Budget
Two month ended January 31 and February 28
January February
Budgeted luggage sets to be sold 2,050 2,400
Sales price per set $280 $280
Total sales $574,000 $672,000
Harry is a 70-year-old retiree who joined the AARP. To celebrate, he took his daughter to a restaurant and flashed his new AARP card when the check came, earning him a 15 percent discount. What kind of benefit has Harry just used
Answer: c. material
Explanation:
Material benefits refer to the financial benefits that one gets from being part of a group. They usually refer to group members getting discounts on certain things as well as being charged with a different rate than others.
Henry being in the AARP gets the material benefit of being able to get discounts at many different stores and businesses. It is the country's way of trying to ease the burden of being retired after working for so long.
Machinery was purchased for $340,000. Freight charges amounted to $14,000 and there was a cost of $40,000 for building a foundation and installing the machinery. It is estimated that the machinery will have a $60,000 salvage value at the end of its 5-year useful life. Annual depreciation expense using the straight-line method will be a. $78,800. b. $57,200. c. $66,800. d. $56,000.
Answer:
$66,800
Explanation:
Depreciation is used in expensing the cost of an asset
Depreciation reduces the value of an asset
Straight line depreciation expense = (Cost of asset - Salvage value) / useful life
Cost = $340,000. + $14,000 + $40,000 = $394,000
($394,000 - $60,000) / 5 = $66,800
The management of Fuzzy Button Clothing Company controls 58% of the company's stock. The firm did not meet any of its quarterly sales projections for the last year. Some of the firm's institutional investors are worried that the firm's poor performance is partly because management has not been focused on maximizing shareholder wealth. Which of the following measures would the institutional investors most likely want to see implemented?
A. They would like to see the size of the board of directors increased, because larger boards usually implement a higher degree of corporate governance.
B. They would like to see that the company has an interlocking board of directors with one of the company's strategic partners
C. They would like to see that the majority of the company's board of directors is composed of true outsiders.
It is reasonable to assume that a firm's management is going to be ultimately motivated to act in their own best interest. It can be a serious problem for shareholders if management's self-interests do not align with shareholders' self-interests. Select the statement that best describes the board of directors' actions in the following scenario:
Happy Lion Manufacturing Inc. currently has $1.1 billion in cash on its balance sheet. The CFO thinks the firm will need $600 million in cash to finance operations for the next year. The CFO has recommended that the firm keep the excess cash in a marketable securities portfolio to allow for unexpected costs. However, the board of directors has decided that the firm will pay this money out to the shareholders in the form of a cash dividend.
D. The board's decision will give management the incentive to make decisions that are not in the shareholders' best interest.
E. The board's decision will help align management's interests with the shareholders' interests.
F. The board's decision is extremely risky and not very practical Flash Player WIN 32,0,0.387
Answer:
Fuzzy Button Clothing Company
1. The measure that the institutional investors would most likely want to see implemented is:
C. They would like to see that the majority of the company's board of directors is composed of true outsiders.
Happy Lion Manufacturing Inc.
2. The statement that best describes the board of directors' actions in the following scenario is:
E. The board's decision will help align management's interests with the shareholders' interests.
Explanation:
a) Data and Calculations:
Fuzzy Button Clothing Company
Management control = 58%
Institutional and other stockholders = 42% (100% - 58%)
Happy Lion Manufacturing Inc.
Cash on its balance sheet = $1.1 billion
Cash needed to finance operations next year = $600 million
Excess cash = $500 million ($1.1 billion Minus $600 million)
CFO's recommendation = keep excess cash in a marketable securities for unexpected costs
Board of directors' decision = pay the excess out to the shareholders in the form of a cash dividend.
is solicitation with the promise of reward is the highest level of sexual harassment
Answer:
false
Explanation:
a. Performed $8,200 of services on account.
b. Collected $5,600 cash on accounts receivable.
c. Paid $1,450 cash in advance for an insurance policy.
d. Paid $400 on accounts payable.
e. Recorded the adjusting entry to recognize $300 of insurance expense.
f. Received $1,600 cash for services to be performed at a later date.
g. Purchased land for $9,000 cash. Purchased supplies for $350 cash.
Required:
Record each of the above transactions.
Answer and Explanation:
The journal entries are as follows:
a.
Accounts receivable 8200
To Service revenue 8200
(being services performed on account is recorded)
b. Cash 5600
To Accounts receivable 5600
(Being collections on account is recorded)
c. Prepaid insurance 1450
To Cash 1450
(being cash paid in advance for insurance is recorded)
d. Accounts payable 400
to Cash 400
(Being record payment on account is recorded)
e. Insurance expense 300
To Prepaid insurance 300
(Being insurance expense is recorded)
f. Cash 1600
to Unearned revenue 1600
(Being cash received for services to be performed is recorded)
g. Land 9000
To Cash 9000
(Being land purchased for cash is recorded)
h. Supplies 350
To Cash 350
(being supplies purchased for cash is recorded)
You view tea and scones as perfect complements, and you prefer to consumer one cup of tea with one scone. Also, your indifference curves are plotted with tea on the vertical axis. If you presently have two cups of tea and one scone, what this the marginal rate of substitution (MRS) at this point
Answer:
Infinity
Explanation:
In the case when the tea and scones are considered to be the perfect complements also you give preference one cup of tea over the one scone
Plus the indifferent curve with tea should be plotted on the vertical axis
So in the case when there is 2 cups of tea with one scone so at this point, the MRS should be at infinity as the indifference curve should be in downward sloping because we presume that there is preferences done at monotonicity
Suppose I want to open my own restaurant. Currently I am working asa Financial Analyst at a top bank earning $175,000 a year, which I willhave to quit to open a restaurant. I am also going to invest $100,000of my savings which were earning an average annual rate of 6%.Whatis my opportunity cost(implicit cost) of opening the restaurant
Answer: $181000
Explanation:
Amount earned in a bank = $175000
Money invested = $100000
Interest Rate = 6%
Interest earned will be:
= 6% × $100000
= $6000
Therefore, the total earnings when the individual is working in the bank will be:
= $175000 + $6000
= $181000
Therefore, the pportunity cost of opening the restaurant will be the income that's foregone when working in the bank which is $181000.
On-Time Delivery Company acquired an adjacent lot to construct a new warehouse, paying $31,000 in cash and giving a short-term note for $278,000. Legal fees paid were $2,220, delinquent taxes assumed were $15,700, and fees paid to remove an old building from the land were $20,800. Materials salvaged from the demolition of the building were sold for $4,600. A contractor was paid $939,400 to construct a new warehouse. Determine the cost of the land to be reported on the balance sheet.
Answer:
the cost of the land that should be reported on the balance sheet is $343,120
Explanation:
The calculation of the cost of the land that should be reported on the balance sheet is given below:
= cash payment + Short term note payable + legal fees paid + delinquent taxes + fees paid for removing out the old building - salvage value
= $31,000 + $278,000 + $2,220 + $15,700 + $20,800 - $4,600
= $343,120
hence, the cost of the land that should be reported on the balance sheet is $343,120
The Northern Division of Southwest Clothing Inc. forecasts (has budgeted) the following income statement for the upcoming year: Sales $850,000 Variable Costs (520,000) Contribution Margin 330,000 Fixed Costs (480,000) Operating loss ($150,000) Unfortunately, every other division in the company is also expecting an operating loss for the coming year. The company's management is considering shutting down the Northern Division and has determined that $350,000 of the $480,000 Fixed Costs shown would be eliminated if that happens. If the Northern Division is shutdown, what is the change (impact) in Southwest's forecast operating results
Answer:
Operating loss will decrease by $20,000
Explanation:
Operating loss from normal business activities and if the division is not shut down = $150,000.
Operating loss if division is shut down by the management = $130,000 ($480,000 - $350,000) because the management has determined that $350,000 of the $480,000 Fixed Costs shown would be eliminated if that happens.
So, if the Northern Division is shutdown, the Operating loss will decrease by $20,000 (From $150,000 to $130,000)
Exercise 19-17 (Algo) EPS; stock dividend; nonconvertible preferred stock; treasury shares; shares sold; stock options [LO19-5, 19-6, 19-7, 19-8] On December 31, 2020, Berclair Inc. had 380 million shares of common stock and 4 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2021, Berclair purchased 96 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2021. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2021, was $600 million. Also outstanding at December 31 were 30 million incentive stock options granted to key executives on September 13, 2013. The options were exercisable as of September 13, 2020, for 30 million common shares at an exercise price of $56 per share. During 2021, the market price of the common shares averaged $70 per share. Required: Compute Berclair's basic and diluted earnings per share for the year ended December 31, 2021. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10). Do not round intermediate calculations.)
Answer:
Berclair Inc.
Basic earnings per share = $1.87
Diluted earnings per share = $1.70
Explanation:
a) Data and Calculations:
Common Stock Cumulative Preferred Stock
Dec. 31, 2012 Outstanding 380,000,000 4,000,000 shares
Dividend rate 9%
Stock par value $100
Total value of stock $400 million
Annual preferred dividend $36 million ($400 m * 9%)
March 1, 2021 Treasury stock (96,000,000)
July 1, 2021 Stock dividend 14,200,000 (284,000,000 * 5%)
October 1, 2021 Treasury stock 4,000,000
Outstanding shares 302,200,000 4,000,000 shares
Stock options 30,000,000
Total shares and options 332,200,000
Net income for the year = $600,000,000
Preferred stock dividend 36,000,000
Earnings for available for
common stockholders $564,000,000
Basic earnings per share = $1.87 ($564,000,000/302,200,000)
Diluted earnings per share = $1.70 ($564,000,000/332,200,000)
Calculating Weighted Average Cost of Capital and Economic Value Added (EVA)
Ignacio, Inc., had after-tax operating income last year of $1,196,500. Three sources of financing were used by the company: $2 million of mortgage bonds paying 4 percent interest, $4 million of unsecured bonds paying 6 percent interest, and $9 million in common stock, which was considered to be relatively risky (with a risk premium of 8 percent). The rate on long-term treasuries is 4 percent. Ignacio, Inc., pays a marginal tax rate of 30 percent.
Required:
Calculate the after-tax cost of each method of financing. Enter your answers as decimal values rounded to three places. For example, 4.36% would be entered as ".044".
Mortgage bonds __________
Unsecured bonds __________
Common stock __________
Answer:
Mortgage bonds after-tax cost:
= Interest rate * (1 - tax rate)
= 4% * ( 1 - 30%)
= 4% * 70%
= 2.8%
Unsecured bonds after-tax cost:
= 6% * (1 - 30%)
= 6% * 70%
= 4.2%
Common stock:
= Long term treasury rate + risk premium
= 4% + 8%
= 12%
