Chapter 8. Minicase. A recent annual report for Diageo PLC explains that its investments are expected to

Chapter 8. Minicase. A recent annual report for Diageo PLC explains that its investments are expected to generate cash returns that exceed its “long-term cost of capital,” which Diageo estimated to be approximately 10%.

CHAPTER 8 COST OF CAPITAL 215 ISBN: 0-536-42875-1

Chapter 8. Minicase. A recent annual report for Diageo PLC explains that its investments are expected to generate cash returns that exceed its “long-term cost of capital,” which Diageo estimated to be approximately 10%. Diageo has three main lines of business: food items, such as Haagen Dazs ice cream; alcoholic beverages, such as Seagrams; and restaurants, such as Burger King. Diageo did not report costs of capital separately for these three businesses. Information from the annual report is given here, followed by relevant market data. Financial information: Cash and marketable securities $1,498 million (approximates market value) Short-term debt $706 million (approximates market value) Long-term debt $8,509 million ($8,747 million market value) Common shares outstanding 788 million Year-end share price $55.875 Income tax rate 34% Market data: Diageo’s beta 1.00 Diageo’s long-term borrowing rate 6.75% Riskless returns: Short term 5.13% Intermediate term 5.50 Long term 6.00 Market risk premium: Short term 8.40% Intermediate term 7.40 Long term 7.00

The following table provides information concerning publicly traded restaurant firms. FIRMSTOCK LISTEDBETATOTAL DEBT ($ MILLIONS) PREFERRED STOCK ($ MILLIONS)COMMON SHARES (MILLIONS)CLOSING STOCK PRICE Applebee’sNASDAQ1.3028.5-31.0$22.750 Bob Evans FarmsNASDAQ0.9554.7-42.319.000 Brinker InternationalNYSE1.70104.7-72.115.125 CKE RestaurantsNYSE1.1586.7-18.416.000 McDonald’sNYSE1.004,820.1411.1694.045.125 NPC InternationalNASDAQ0.8081.4-24.57.250 Shoney’sNYSE0.90440.4-41.510.250 Wendy’s InternationalNYSE1.15147.0-103.421.250

QUESTIONS

1. Diageo subtracts the value of its portfolio of short-term investments, which is held outside the United States and is not required to support day-to-day operations, from its total debt when calculating its “net debt ratio.” Use Diageo’s net debt ratio to calculate Diageo’s overall WACC.

2. Should Diageo use its overall cost of capital to evaluate its restaurant investments? Under what circumstances would it be correct to do so?

3. Estimate the cost of capital for Diageo’s restaurant businesses.

4. Explain why there is a difference between Diageo’s overall cost of capital and the cost of capital for its restaurant businesses.

SOLUTION PREVIEW

1)

WACC = Wd x Kd (1 - t) + We x Ke
Common share outstanding =			788	million
Year-end share price=			$              55.88
Value of equity=788*$55.875=			$        44,029.50	million

File name: Diageo-PLC.xls File type: application/vnd.ms-excel Price: $15

A recent annual report for Diageo PLC explains that its investments are expected to generate cash returns that exceed its

Diageo PLC explains that its investments are expected

COST OF CAPITAL 215 CHAPTER 8 Minicase  A recent annual report for Diageo PLC explains that its investments are expected

COST OF CAPITAL 215 CHAPTER 8 Minicase  ISBN: 0-536-42875-1

A recent annual report for Diageo PLC explains that its investments are expected to generate cash returns that exceed its “long-term cost of capital,” which Diageo estimated to be approximately 10%. Diageo has three main lines of business: food items, such as Haagen Dazs ice cream; alcoholic beverages, such as Seagrams; and restaurants, such as Burger King. Diageo did not report costs of capital separately for these three businesses. Information from the annual report is given here, followed by relevant market data. Financial information: Cash and marketable securities $1,498 million (approximates market value) Short-term debt $706 million (approximates market value) Long-term debt $8,509 million ($8,747 million market value) Common shares outstanding 788 million Year-end share price $55.875 Income tax rate 34% Market data: Diageo’s beta 1.00 Diageo’s long-term borrowing rate 6.75% Riskless returns: Short term 5.13% Intermediate term 5.50 Long term 6.00 Market risk premium: Short term 8.40% Intermediate term 7.40 Long term 7.00

The following table provides information concerning publicly traded restaurant firms. FIRMSTOCK LISTEDBETATOTAL DEBT ($ MILLIONS) PREFERRED STOCK ($ MILLIONS)COMMON SHARES (MILLIONS)CLOSING STOCK PRICE Applebee’sNASDAQ1.3028.5-31.0$22.750 Bob Evans FarmsNASDAQ0.9554.7-42.319.000 Brinker InternationalNYSE1.70104.7-72.115.125 CKE RestaurantsNYSE1.1586.7-18.416.000 McDonald’sNYSE1.004,820.1411.1694.045.125 NPC InternationalNASDAQ0.8081.4-24.57.250 Shoney’sNYSE0.90440.4-41.510.250 Wendy’s InternationalNYSE1.15147.0-103.421.250

QUESTIONS                                   

1. Diageo subtracts the value of its portfolio of short-term investments, which is held outside the United States and is not required to support day-to-day operations, from its total debt when calculating its “net debt ratio.” Use Diageo’s net debt ratio to calculate Diageo’s overall WACC.

2. Should Diageo use its overall cost of capital to evaluate its restaurant investments? Under what circumstances would it be correct to do so?

3. Estimate the cost of capital for Diageo’s restaurant businesses.

4. Explain why there is a difference between Diageo’s overall cost of capital and the cost of capital for its restaurant businesses.

SOLUTION PREVIEW

WACC = Wd x Kd (1 - t) + We x Ke
Common share outstanding =		788	million
Year-end share price=		$55.88
Value of equity=788*$55.875=		$44,029.50	million
Long term debt (market value) =		$8,747.00	million

File name: Diageo-PLC.xls File type: application/vnd.ms-excel Price: $15 

Inventory Analysis Adjusted trial balance is as follows:

Inventory Analysis Adjusted trial balance is as follows:

12/31/06 12/31/05

Cash $60,000 Cash $19,000

Inventory 32,000 Inventory 31,000

Accounts Payable 18,000 Accounts Payable 16,000

Sales 200,000 Sales 185,000

Cost of Sales 435,000 Cost of Sales 424,000

Net income for 2006 was $55,000. Accounts Payable was used for merchandise purchases only.

Questions:

1. Calculate the cost of goods available for sale for the year ended December 31, 2006. How much were purchases during 2006?

2. Calculate the inventory ratio for 2006. How many days does it take the company to sell inventory, on the average, during 2006?

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Select accounts from the chart of accounts of Boyden Company are shown below

Select accounts from the chart of accounts of Boyden Company are shown below

 

101 cash 112 accounts receivable 120 merchandise inventory 126 supplies 157 equipment 201 accounts payable 401 sales 412 sales returns and allowances 414 sales discounts 505 cost of goods 726 salaries expense

The cost of all merchandise sold was 60% of the sales price. During January Boyden completed the following transactions
 

Jan 3 purchased merchandise on account from Wortham co.$10,000

Jan 4 purchased supplies for cash$ 80

Jan 4 sold merchandise on account to Millan $ 5,250 invoice no. 371 terms 1/10 n/30

Jan 5 returned $300 worth of damaged goods purchased on account from Wortham co. on January 3

Jan 6 made cash sales for the week totaling $ 3,150

Jan 8 purchased merchandise on account from Noyes co. $4,500

Jan 9 sold merchandise on account to Connor Corp $6,400 invoice no 372 terms 1/10, n/30

11 purchased merchandise on account from Betz co. $3,700

13 paid in full Wortham co. on account less a 2% discount

13 made cash sales for the week totaling $6,260

15 received payment from Connor Corp for invoice no. 372

15 paid semi-monthly salaries of $14,300 to employees

17 received payment from Milan for invoice no. 371

17 sold merchandise on account to bullock co $1,200 invoice no 373 terms 1/10 n/30

19 purchased equipment on account from Murphy Corp $5,500

20 cash sales for the week totaled $3,200

20 paid in full Noyes co, on account less a 2% discount

23 purchased merchandise on account from Wortham co $7,800

24 purchased merchandise on account from Fogetta Corp $5,100

27 made cash sales for the week totaling $4,230
30 Received payment from bullock co. for invoice no 373

31 paid semi- monthly salaries of $13,200 to employees

31 sold merchandise on account to Millam $9,330 invoice no. 374 terms 1/10 n/30

Boyden Company uses he following journals:

1. Sales journal

2. Single column purchases journal

3. cash receipts with Columns for cash Dr, sales discounts, Dr account receivable Cr, sales CR, others accounts Cr and cost of goods sold Dr, merchandise inventory Cr, cash payment journals with columns for others accounts Dr, accounts payable Dr. Merchandise Inventory Cr and cash Cr general journal

Instructions: using the selected accounts provided:

1 record the January transactions in the appropriated journal noted

2 foot and cross foot all special journals

3. Show how posting would be made placing ledger accounts numbers and checkmarks as needed in the Journals

SOLUTION PREVIEW

BOYDEN COMPANY Sales Journal
Date	Account Debited	Inv.No.	Terms	Amount	COGS Debit Inv. Credit
4-Jan	Milam	371	1/10, n/30	5,250	3,150
9-Jan	Connor Corp.	372	1/10, n/30	6,400	3,840
17-Jan	Bullock Co.	373	1/10, n/30	1,200	720

 

File name: Boyden-Company.xls File type: application/vnd.ms-excel Price: $8

ACC230 WK5 Chapter 4 statement of cash flows page 141 Little Bit Inc.

ACC230 WK5 Chapter 4 statement of cash flows page 141 Little Bit Inc.

Statement of cash flows (Indirect method)

Chapter 4 statement of cash flows page 141

Little Bit Inc.

4.5 The following comparative balance sheet s and income statement are available for little Bit Inc. prepare a statement of cash flow s for 2009 using the indirect method analyse the statement 

File name: Little-Bit-Inc.xls File type: application/vnd.ms-excel Price: $7

Single-step income statement Presented below is an income statement for Morton Company for the year

Single-step income statement Presented below is an income statement for Morton Company for the year ended December 31,2007.

Morton Company

Income Statement

For the Year Ended December 31, 2007

Net sales $800,000 Costs and expenses Cost of goods sold 640,000 Selling, general, and administrative expenses 70,000 Other, net 20,000 Total costs and expenses 730,000 Income before income taxes 70,000 Income taxes 21,000 Net income $49,000

Additional information:

1. "Selling, general, and administrative expenses" included a usual but infrequent charge of $7,000 due to a loss on the sale of investments.

2. "Other, net" consisted of interest expense,$10,000, and an extraordinary loss of $10,000 before taxes due to earthquake damage. If the extraordinary loss had not occurred, income taxes for 2007 would have been $24,000 instead of $21,000.

3. Morton had 20,000 shares of common stock outstanding during 2007.

Instructions

Using the single-step format, prepare a corrected income statement, including the proper disclosure of special items and appropriate per share disclosures.

 

File name: Morton-Company.doc File type: application/msword Price: $4

Presented below is certain information pertaining to Juan Company

Presented below is certain information pertaining to Juan Company

Assets, January 1 $240,000

Assets, December 31 230,000

Liabilities, January 1 150,000

Common stock, December 31 80,000

Retained earnings, December 31 31,000

Common stock sold during the year 10,000

Dividends declared during the year 13,000

Using the "capital maintenance" approach compute the net income for the year

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The following trial balance was taken from the books of Fisk Corporation on December 31, 2007

The following trial balance was taken from the books of Fisk Corporation on December 31, 2007

Account Debit Credit Cash $12,000 Accounts Payable 40,000 Note Receivable 7,000 Allowance for Doubtful Accounts $1,800 Merchandise Inventory 44,000 Prepaid Insurance 4,800 Furniture and Equipment 125,000 Accumulated Depreciation-Furn & Equip 15,000 Accounts Payable 10,800 Common Stock 44,000 Retained Earnings 55,000 Sales 280,000 Cost of Goods Sold 111,000 Salaries Expense 50,000 Rent Expense 12,800 ________ Totals $406,600 $406,600

Income Summary

At year end, the following items have not yet been recorded:

a. Insurance unexpired at year end, $2,000.

b. Depreciation on furniture and equipment, 10% per year

c. Interest at 6% is receivable on the note for one full year

d. Rent paid in advance at December 31, $4,200 (originally charged to expense)

c. Accrued salaries at December 31, $5,800

Instructions

a) Prepare the necessary adjusting entries (omit explanations)

b) Prepare the necessary closing entries (omit explanations)

SOLUTION PREVIEW

a) Prepare the necessary adjusting entries (omit explanations) 

Adjusting entries:

Date	Account/description	Debit	Credit
Dec 31, 2007	Insurance expense       Prepaid Insurance	2,800	2,800
Dec 31, 2007	Depreciation expense       Accumulated depreciation – Furn. & equip	12,500	12,500

File name: Fisk-Corporation.doc File type: application/msword Price: $4

XYZ Company has an Accumulated Depreciation - Asset account with a balance of $22,000 on January 1,

XYZ Company has an Accumulated Depreciation - Asset account with a balance of $22,000 on January 1, 2004 and a balance of $30,000 on December 31, 2004. During the year, an asset with a book value of $6,000 was sold for $9,000. The original cost of the asset was $10,000 when it was purchased in 1999.

Question:
Calculate the amount of depreciation expense for the year 2004

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UNIT 7 Finance Assignment 1. You were hired as a consultant to Keys Company, and you were provided

UNIT 7 Finance Assignment 1. You were hired as a consultant to Keys Company, and you were provided with the following data: Target capital structure: 40% debt, 10% preferred, and 50% common equity. The after-tax cost of debt is 4.00%, the cost of preferred is 7.50%, and the cost of retained earnings is 11.50%. The firm will not be issuing any new stock. What is the firm’s WACC?

a. 7.55%

b. 7.73%

c. 7.94%

d. 8.10%

e. 8.32%

2. Several years ago the Haverford Company sold a $1,000 par value bond that now has 25 years to maturity and an 8.00% annual coupon that is paid quarterly. The bond currently sells for $900.90, and the company’s tax rate is 40%. What is the component cost of debt for use in the WACC calculation?

a. 5.40%

b. 5.73%

c. 5.98%

d. 6.09%

e. 6.24%

3. Tapley Inc. recently hired you as a consultant to estimate the company’s WACC. You have obtained the following information. (1) Tapley's bonds mature in 25 years, have a 7.5% annual coupon, a par value of $1,000, and a market price of $936.49. (2) The company’s tax rate is 40%. (3) The risk-free rate is 6.0%, the market risk premium is 5.0%, and the stock’s beta is 1.5. (4) The target capital structure consists of 30% debt and 70% equity. Tapley uses the CAPM to estimate the cost of equity, and it does not expect to have to issue any new common stock. What is its WACC?

a. 9.89%

b. 10.01%

c. 10.35%

d. 10.64%

e. 10.91%

4. Wagner Inc estimates that its average-risk projects have a WACC of 10%, its below-average risk projects have a WACC of 8%, and its above-average risk projects have a WACC of 12%. Which of the following projects (A, B, and C) should the company accept?

a. Project A is of average risk and has a return of 9%.

b. Project B is of below-average risk and has a return of 8.5%.

c. Project C is of above-average risk and has a return of 11%.

d. None of the projects should be accepted.

e. All of the projects should be accepted.

5. The Nunnally Company has equal amounts of low-risk, average-risk, and high-risk projects. Nunnally estimates that its overall WACC is 12%. The CFO believes that this is the correct WACC for the company’s average-risk projects, but that a lower rate should be used for lower risk projects and a higher rate for higher risk projects. However, the CEO argues that, even though the company’s projects have different risks, the WACC used to evaluate each project should be the same because the company obtains capital for all projects from the same sources. If the CEO’s opinion is followed, what is likely to happen over time?

a. The company will take on too many low-risk projects and reject too many high-risk projects.

b. The company will take on too many high-risk projects and reject too many low-risk projects.

c. Things will generally even out over time, and, therefore, the firm’s risk should remain constant over time.

d. The company’s overall WACC should decrease over time because its stock price should be increasing.

e. The CEO’s recommendation would maximize the firm’s intrinsic value.

6. Percy Motors has a target capital structure of 40 percent debt and 60 percent common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 9 percent, and its tax rate is 40 percent. Percy's CFO estimates that the company's WACC is 9.96 percent. What is Percy's cost of common equity? (FILL IN THE BLANK)

7. The earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow at 7 percent per year in the future. Carpetto's common stock sells for $23 per share, its last dividend was $2.00, and it will pay a dividend of $2.14 at the end of the current year. THIS IS A FOUR PART QUESTION, NOT MULTIPLE CHOICE.

(a) Using the DCF approach, what is the cost of common equity? (FILL IN THE BLANK)

(b) If the firm's beta is 1.6, the risk-free rate is 9 percent, and the average return on the market is 13 percent, what will be the firm's cost of common equity using the CAPM approach? (FILL IN THE BLANK)

(c) If the firm's bonds earn a return of 12 percent, what will rs be based on the bond-yield-plus-risk-premium approach, using the midpoint of the risk premium range? (FILL IN THE BLANK)

(d) Assuming you have equal confidence in the inputs used for the three approaches, what is your estimate of Carpetto's cost of common equity? (FILL IN THE BLANK)

8. The earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow at 7 percent per year in the future. Carpetto's common stock sells for $23 per share, its last dividend was $2.00, and it will pay a dividend of $2.14 at the end of the current year. If the firm's beta is 1.6, the risk-free rate is 9 percent, and the average return on the market is 13 percent, what will be the firm's cost of common equity using the CAPM approach?

9. The earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow at 7 percent per year in the future. Carpetto's common stock sells for $23 per share, its last dividend was $2.00, and it will pay a dividend of $2.14 at the end of the current year. If the firm's bonds earn a return of 12 percent, what will rs be based on the bond-yield-plus-risk-premium approach, using the midpoint of the risk premium range?

10 Patton Paints Corporation has a target capital structure of 40 percent debt and 60 percent common equity, with no preferred stock. Its before-tax cost of debt is 12 percent, and its marginal tax rate is 40 percent. The current stock price is P0 = $22.50. The last dividend was D0 = $2.00, and it is expected to grow at a constant rate of 7 percent. What is its cost of common equity and its WACC?

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Unit 6 Assignment Questions Magee Company's stock has a beta of 1.20, the risk-free rate is 4.50%, and

Unit 6 Assignment Questions Magee Company's stock has a beta of 1.20, the risk-free rate is 4.50%, and the market risk premium is 5.00%. What is Magee's required return?

a. 10.25%

b. 10.50%

c. 10.75%

d. 11.00%

e. 11.25%

2. Parr Paper's stock has a beta of 1.40, and its required return is 13.00%. Clover Dairy's stock has a beta of 0.80. If the risk-free rate is 4.00%, what is the required rate of return on Clover's stock? (Hint: First find the market risk premium.)

a. 8.55%

b. 8.71%

c. 8.99%

d. 9.14%

e. 9.33%

3. Suppose you hold a diversified portfolio consisting of $10,000 invested equally in each of 10 different common stocks. The portfolio’s beta is 1.120. Now suppose you decided to sell one of your stocks that has a beta of 1.000 and to use the proceeds to buy a replacement stock with a beta of 1.750. What would the portfolio’s new beta be?

a. 0.982

b. 1.017

c. 1.195

d. 1.246

e. 1.519

4. A mutual fund manager has a $20.0 million portfolio with a beta of 1.50. The risk-free rate is 4.50%, and the market risk premium is 5.50%. The manager expects to receive an additional $5.0 million which she plans to invest in a number of stocks. After investing the additional funds, she wants the fund’s required return to be 13.00%. What must the average beta of the new stocks added to the portfolio be to achieve the desired required rate of return?

a. 1.12

b. 1.26

c. 1.37

d. 1.59

e. 1.73

5. A stock is expected to pay a dividend of $1 at the end of the year. The required rate of return is rs = 11%, and the expected constant growth rate is 5%. What is the current stock price?

a. $16.67

b. $18.83

c. $20.00

d. $21.67

e. $23.33

6. A stock just paid a dividend of $1. The required rate of return is rs = 11%, and the constant growth rate is 5%. What is the current stock price?

a. $15.00

b. $17.50

c. $20.00

d. $22.50

e. $25.00

7. The Lashgari Company is expected to pay a dividend of $1 per share at the end of the year, and that dividend is expected to grow at a constant rate of 5% per year in the future. The company's beta is 1.2, the market risk premium is 5%, and the risk-free rate is 3%. What is the company's current stock price?

a. $15.00

b. $20.00

c. $25.00

d. $30.00

e. $35.00

8. An increase in a firm’s expected growth rate would normally cause its required rate of return to

a. Increase.

b. Decrease.

c. Fluctuate.

d. Remain constant.

e. Possibly increase, decrease, or have no effect.

9. Harrison Clothiers' stock currently sells for $20 a share. It just paid a dividend of $1.00 a share (that is D0 = $1.00). The dividend is expected to grow at a constant rate of 6 percent a year. What stock price is expected 1 year from now? What is the required rate of return? (FILL IN THE BLANK)

10. A stock is expected to pay a dividend of $0.50 at the end of the year (that is, D1 = 0.50), and it should continue to grow at a constant rate of 7 percent a year. If its required return is 12 percent, what is the stock's expected price 4 years from today? (FILL IN THE BLANK)

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A stock is expected to pay a dividend of $1 at the end of the year. The required rate of return is rs = 11%,

A stock is expected to pay a dividend of $1 at the end of the year. The required rate of return is rs = 11%, and the expected constant growth rate is 5%. What is the current stock price?

a. $16.67

b. $18.83

c. $20.00

d. $21.67

e. $23.33

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Parr Paper's stock has a beta of 1.40, and its required return is 13.00%. Clover Dairy's stock has a beta of

Parr Paper's stock has a beta of 1.40, and its required return is 13.00%. Clover Dairy's stock has a beta of 0.80. If the risk-free rate is 4.00%, what is the required rate of return on Clover's stock? (Hint: First find the market risk premium.)

a. 8.55%

b. 8.71%

c. 8.99%

d. 9.14%

e. 9.33%

 

File name: Parr-Papers.doc File type: application/msword Price: $3

Candies Inc. manufactures and sells two products, marshmallow bunnies and jelly beans. The fixed costs are

Candies Inc. manufactures and sells two products, marshmallow bunnies and jelly beans. The fixed costs are $350,000, and the sales mix is 70% marshmallow bunnies and 30% jelly beans. The unit selling price and the unit variable cost for each product are as follows:

Products Unit Selling Price Unit Variable Cost

Marshmallow Bunnies $2.40 $1.00

Jelly Beans $1.80 $0.90

a. Compute the break-even sales (units) for the overall product, E

b. How many units of each product, marshmallow bunnies and jelly beans, would be sold at the break-even point?

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E21-21 Candies Inc. manufactures and sells two products, marshmallow bunnies and jelly beans. The

E21-21 Candies Inc. manufactures and sells two products, marshmallow bunnies and jelly beans. The fixed costs are $350,000, and the sales mix is 70% marshmallow bunnies and 30% jelly beans. The unit selling price and the unit variable cost for each product are as follows:

           Products               Unit Selling Price          Unit Variable Cost

Marshmallow Bunnies      $2.40                           $1.00

Jelly Beans                      $1.80                           $0.90

a. Compute the break-even sales (units) for the overall product, E

b. How many units of each product, marshmallow bunnies and jelly beans, would be sold at the break-even point?

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You hold a $1.3 million portfolio made of the following stocks. Stock A Market Value .2 million and Beta

You hold a $1.3 million portfolio made of the following stocks. Stock A Market Value .2 million and Beta 1.5, Stock B Market value .5 million and Beta 1.2, Stock C Market Value .6 million Beta .8, What is the beta of the portfolio and how did you get the answer?

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Terminator Bug Company bonds have a 14% coupon rate. Interest is paid semi-annually. The bonds have a

Terminator Bug Company bonds have a 14% coupon rate. Interest is paid semi-annually. The bonds have a par value $1,000 and will mature 10 years from now. Compute the value of Terminator bonds if investors required rate of return is 12%, rounded to the nearest dollar.

 

File name: Terminator-Bug-Company.xls File type: application/vnd.ms-excel Price: $3

The Hillman Company sells and services lawn mowers, snow blowers, and other equipment. The service

The Hillman Company sells and services lawn mowers, snow blowers, and other equipment. The service department uses a job order cost system to determine costs of each job, such as oil changes, tune-ups, and repairs. The department assigns conversion costs through a cost driver rate on the basis of direct labor hours. The cost driver rate additionally includes a markup of 25% on the job's conversion costs in order to provide a reasonable profit for Hillman. The customer's invoice itemizes prices for parts and labor, where the stated labor rate is the department's cost driver rate that includes direct labor costs, assigned overhead costs, and the 25% markup on conversion costs. Hillman Company's service department estimated the following information for 2006: Salaries of mechanics $120,000 Fringe benefits $54,000 General and administrative $18000 Depreciation $42000 Billable direct labor hours $4500

a. Determine Hillman Company's service department's cost driver rate to be used to assign conversion costs on the basis of billable direct labor hours.

b. Job 254 required $47.40 of materials and 0.7 direct labor hours. Determine the price charged for job 254

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Fishbone Corp wants to withdraw $120,000 (including principal) from an investment fund at the end of the

Fishbone Corp wants to withdraw $120,000 (including principal) from an investment fund at the end of the each year for 9 years. What should be the required initial investment at the beginning of the first year if the fund earns 11%?

 

File name: Fishbone-corp.xls File type: application/vnd.ms-excel Price: $3

Uyeno Electronic Company manufactures a variety of electronic components. In May 2006, the company

Uyeno Electronic Company manufactures a variety of electronic components. In May 2006, the company received an invitation from Takayama Inc. to bid on an order of 1000 units of component C371 that must be delivered by August 16, 2006. The following are the standard estimated requirements and prices for 1000 units of C371:

Direct material- quantity 2000 units, price $10 per unit

Direct labor- quantity 1000 hours, price $10 per hour

The cost of support resources is assigned to jobs based on direct labor hours (a single cost driver rate system). The estimated support costs for 2006 are 300000 and the estimated direct labor hours are 50000. Uyeno has a policy to add a 20% markup to estimated job costs to arrive at the bid price.

a. Prepare a job bid sheet to determine the bid price for this job.

b. Assume that Takayama, Inc accepted Uyeno's bid. After producing and delivering the 1000 units of C371 to Takayama on August 4, Uyeno's management accountants compiled the following information about this job:

Direct material- actual quantity 2100 units, actual price $9.75 per unit

Direct labor- actual quantity 1000 hours, actually price $11.00 per hour

Prepare a job cost sheet to record the actual costs incurred on this job

File name: Uyeno-Electronic-Company.xls File type: application/vnd.ms-excel Price: $5

A company has 60,000 shares of common stock issued and outstanding on January 1, 2014. On April 1, the

A company has 60,000 shares of common stock issued and outstanding on January 1, 2014. On April 1, the company issues an additional 10,000 shares. On Oct 1 the company repurchases 20,000 shares as treasury stock. What will the company use as it's weighted average number of shares outstanding in the EPS calculation? 

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