Challenging Business Problems with Detailed Answers

. Gibson Company sales for the year 2019 were $4.5 million. The firms variable operating cost ratio was 0.45 and fixed costs (that is, overhead and depreciation) were $1 million. Its average (and marginal) income tax rate is 25 percent. Currently, the firm has $2.4 million of long-term bank loans outstanding at an average interest rate of 12 percent. The remainder of the firms capital structure consists of common stock (110,000 shares outstanding at the present time). a. Calculate Gibsons degree of combined leverage for 2019. b. Gibson is forecasting a 15 percent increase in sales for this year (2020). Furthermore, the firm is planning to purchase additional labor-saving equipment which will increase fixed costs by $200,000 and will reduce the variable cost ratio to 0.42. Financing this equipment with debt will require additional bank loans of $900,000. Calculate Gibsons expected degree of combined leverage for 2020. c. Determine how much Gibson must reduce its interest expenses in 2020 (for example, through the sale of common stock) to maintain its DCL at the 2019 level. d. Assuming that the debt is permanent (or perpetual) what is the reduction in debt associated with the interest expense reduction in part c?
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Dehner Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on direct labor-hours. The company based its predetermined overhead rate for the current year on the following data: Total direct labor-hours 101,000 Total fixed manufacturing overhead cost $ 595,900 Variable manufacturing overhead per direct labor-hour $ 3.00 Recently, Job P951 was completed with the following characteristics: Number of units in the job 25 Total direct labor-hours 100 Direct materials $ 840 Direct labor cost $ 10,100 The unit product cost for Job P951 is closest to: (Round your intermediate calculations to 2 decimal places.)
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____ is a consumer problem, need, or desire that a business could provide a solution for.A. Change or trendB. Company goalC. Business opportunityD. Business idea
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A consumer products company found that % of successful products also received favorable results from test market research, whereas % had unfavorable results but nevertheless were successful. That is, P(successful product and favorable test market) and P(successful product and unfavorable test market). They also found that % of unsuccessful products had unfavorable research results, whereas % of them had favorable research results, that is P(unsuccessful product and unfavorable test market) and P(unsuccessful product and favorable test market). Find the probabilities of successful and unsuccessful products given known test market results, that is, P(successful product given favorable test market), P(successful product given unfavorable test market), P(unsuccessful product given favorable test market), and P(unsuccessful product given unfavorable test market).
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YIELD CURVE FOR ZERO COUPON BONDS RATED AA Maturity YTM Maturity YTM Maturity YTM 1 year 8.00 % 7 year 9.15 % 13 year 10.45 % 2 year 8.11 % 8 year 9.25 % 14 year 10.65 % 3 year 8.20 % 9 year 9.35 % 15 year 10.75 % 4 year 8.50 % 10 year 9.47 % 16 year 10.95 % 5 year 8.75 % 11 year 9.52 % 17 year 11.00 % 6 year 8.85 % 12 year 9.77 % 18 year 11.25 % Assume that there are no liquidity premiums. To the nearest basis point, what is the expected interest rate on a four-year maturity AA zero coupon bond purchased six years from today
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On January 1, 2018, the Accounts Receivable and the Allowance for Doubtful Accounts balances of Kendall Company were $40,000 and $1,500 respectively. During the year 2018, the company reported $80,000 of credit sales, and collected $78,200 cash from receivables. The company also wrote off $500 of receivables as uncollectible in 2018. The company estimates that it will be unable to collect 4% of the year-end accounts receivable balance. Determine the amount of bad debts expense to be recognized in the 2018 income statement
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For 2019, Gourmet Kitchen Products reported $21 million of sales and $17 million of operating costs (including depreciation). The company has $15 million of total invested capital. Its after-tax cost of capital is 10% and its federal-plus-state income tax rate was 25%. What was the firm's economic value added (EVA), that is, how much value did management add to stockholders' wealth during 2019? Write out your answer completely. For example, 25 million should be entered as 25,000,000. Round your answer to the nearest dollar, if necessary.
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Roquan, a single taxpayer, is an attorney and practices as a sole proprietor. This year, Roquan had net business income of $90,000 from his law practice (net of the associated for AGI self-employment tax deduction). Assume that Roquan pays $40,000 in wages to his employees, has $10,000 of property (unadjusted basis of equipment he purchased last year), and has no capital gains or qualified dividends. His taxable income before the deduction for qualified business income is $100,000. (Leave no answer blank. Enter zero if applicable.) Required: Calculate Roquans deduction for qualified business income. Assume the same facts provided above, except Roquans taxable income before the deduction for qualified business income is $300,000.
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Acheson Corporation, which applies manufacturing overhead on the basis of machine-hours, has provided the following data for its most recent year of operations. Estimated manufacturing overhead $ 157,150 Estimated machine-hours 4,520 Actual manufacturing overhead $ 156,200 Actual machine-hours 4,620 The estimates of the manufacturing overhead and of machine-hours were made at the beginning of the year for the purpose of computing the company's predetermined overhead rate for the year. The applied manufacturing overhead for the year is closest to:
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E. O. Cue, Materials Management Specialist for Cue's Custom Billiard Balls, periodically needs to place orders for ivory, one of the raw materials used in producing billiard balls. Mr. Cue knows that manufacturing uses ivory at a rate of 50 kilograms each day, and that it costs $ .04 per day to carry a kilogram of ivory in inventory. He also knows that the clerical costs for placing an order for ivory are $100.00 per order, and that the lead time between placing and receiving each order is four days. Assume 250 days in one year. What is Mr. Cue's economic order quantity (EOQ) for ivory?
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On October 28, 2013, Mercedes Company committed to a plan to sell a division that qualified as a component of the entity according to GAAP regarding discontinued operations and was properly classified as held for sale on December 31, 2013, the end of the company's fiscal year. The division's loss from operations for 2013 was $2,000,000. The division's book value and fair value less cost to sell on December 31 were $3,000,000 and $2,500,000, respectively. What before-tax amount(s) should Mercedes report as loss on discontinued operations in its 2013 income statement? Group of answer choices
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Hero Manufacturing has 6 million shares of common stock outstanding. The current share price is $85 and the book value per share is $8. The company also has two bond issues outstanding, both with semiannual coupons. The first bond issue has a face value $65 million and a coupon of 8 percent and sells for 95 percent of par. The second issue has a face value of $40 million and a coupon of 9 percent and sells for 108 percent of par. The first issue matures in 23 years, the second in 5 years. a. What are the company's capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) b. What are the company's capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) c. Which are more relevant? Market value weights Book value weights
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Is the percentage of Flying Cows expected long-term cash flows consistent with the value cited in the professional studies? No, because only 50.05% of the firms share price is derived from its expected long-term free cash flows. Yes, because 75.42% of the firms share price is derived from its expected long-term free cash flows. No, because the percentage of Flying Cows expected long-term cash flows is actually 14.30%. Yes, because 85.70% of the firms share price is derived from its expected long-term free cash flows.
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If Mainway Toy Company declares a 4-for-1 stock split, the price of the companys stock after the split, assuming that the total value of the firms stock remains the same after the split, will be$380.00 Scorecard Athletics Corp. is one of Mainways leading competitors. Scorecards market intelligence research team shares Mainways plans of announcing a stock split, influencing the distribution policy makers. Consequently, executives at Scorecard decide to offer stock dividends to its shareholders. Scorecard currently has 1,900,000 shares of common stock outstanding. If the firm pays a 7% stock dividend, what will be the total number of shares outstanding after the stock dividend?
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Imagine that a small manufacturing company decides to invest in a materials resources planning (MRP) system. This is a computerized information system that improves efficiency by automating such work as planning needs for resources, ordering materials, and scheduling work on the shop floor. The company hopes that with the new MRP system, it can grow by quickly and efficiently processing small orders for a variety of products. Which of the human resource functions are likely to be affected by this change? How can human resource management help the organization carry out this change successfully?
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Whirly Corporations contribution format income statement for the most recent month is shown below: Total Per Unit Sales (7,400 units) $ 251,600 $ 34.00 Variable expenses 140,600 19.00 Contribution margin 111,000 $ 15.00 Fixed expenses 55,100 Net operating income $ 55,900 Required: (Consider each case independently): 1. What would be the revised net operating income per month if the sales volume increases by 70 units? 2. What would be the revised net operating income per month if the sales volume decreases by 70 units? 3. What would be the revised net operating income per month if the sales volume is 6,400 units?
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On January 1, 2019, Company A acquired 100% of the voting common stock of Company B from Company Bs shareholders. Prior to the transaction, Company A had 11,440 shares of voting common stock outstanding and Company B had 5,000 shares of voting common stock outstanding. Which of the following terms or conditions of the transaction is an indicator that Company B is the acquiring entity for accounting purposes? a. The full slate of the Board of Directors is elected every two years. Company A Directors (from before the transaction) occupy 8 of the 12 seats on Company As Board after the acquisition. Company B Directors (from before the transaction) occupy 4 of the 12 seats on Company As Board after the acquisition.b. Company A issued 14,560 new shares of Company A common stock to execute the transaction.c. Company A changed its name to "Company B."d. Immediately after the transaction, Company Bs Chief Operating Officer became Company As Chief Operating Officer. All other executive positions were held by Company A executives
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Activity Cost Pools Estimated Overhead Cost Expected Activity Assembly $ 515,520 52,500 machine-hours Processing orders $ 62,763 1,950 orders Inspection $ 86,089 1,960 inspection-hours Data concerning the company's product L19B appear below: Annual unit production and sales 600 Annual machine-hours 1,160 Annual number of orders 240 Annual inspection hours 190 Direct materials cost $ 54.74 per unit Direct labor cost $ 27.45 per unit According to the activity-based costing system, the unit product cost of product L19B is closest to: (Round your intermediate calculations to 2 decimal places.)
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g Bob estimates when he retires in 20 years, he will need to have $2,000,000 to finance his desired retirement lifestyle. He believes inflation will average 2% over time and their retirement investment return will average 6% until he retires. After retirement, he will invest more conservatively and the portfolio will average a 5% return during a 25 year retirement. If he currently has nothing saved for retirement, what initial amount must he save if his intention is to increase his retirement fund contribution at the inflation rate each year to meet the savings goal
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Andrea would like to organize SHO as either an LLC (taxed as a sole proprietorship) or a C corporation. In either form, the entity is expected to generate an 11 percent annual before-tax return on a $200,000 investment. Andreas marginal income tax rate is 35 percent and her tax rate on dividends and capital gains is 15 percent. Andrea will also pay a 3.8 percent net investment income tax on dividends and capital gains she recognizes. If Andrea organizes SHO as an LLC, Andrea will be required to pay an additional 2.9 percent for self-employment tax and an additional 0.9 percent for the additional Medicare tax. Further, she is eligible to claim the deduction for qualified business income. Assume that SHO will pay out all of its after-tax earnings every year as a dividend if it is formed as a C corporation. a. How much cash after taxes would Andrea receive from her investment in the first year if SHO is organized as either an LLC or a C corporation? (Round intermediate calculations and your final answers to the nearest whole dollar.)
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module 3 BlockWood Inc. has been providing raw materials to Couches Corp., a furniture company. The management at Couches recently decided to cut the prices it pays for the raw materials. BlockWood Inc. tried to negotiate a price that would be feasible for both companies, but Couches did not agree to pay more than what they had quoted. As BlockWood Inc. was facing similar difficulties with other buyers too, it eventually stopped supplying raw materials and took to manufacturing furniture instead. This scenario best illustrates ________.
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Cormorant Corp. manufactured equipment at a cost of $600,000 and leased it to Boreal Corp. on January 1, year 9 for an eight-year period expiring December 31, year 16. Eight years is considered a major part of the assets economic life. Equal payments under the lease are $60,000 and are due on January 1 and July 1 of each year. The first payment was made on January 1, year 9. The list selling price of the equipment is $750,000 and the implicit rate used by Cormorant is 8%. What amount of selling profit or loss should Cormorant report for the year ended December 31, year 9?
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HELP PLSSS Define what an "industry credential" is in relation to Career Technical Education. Then explain2 important reasons for acquiring industry credentials (also called technical certifications).Your answer should include BOTH the definition and two reasons for acquiring them.1. Definition of Industry Credential:2. Two reasons for acquiring industry credentials or technical certifications:
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What is the key difference between a transaction account (checking) and a time deposit (savings, CD, etc.)?
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