During the month of February, Swifty Corporation’s employees earned

During the month of February, Swifty Corporation’s employees earned wages of $106,560. Withholdings related to these wages were $8,152 for Social Security (FICA), $10,224 for federal income tax, and $2,736 for state income tax. Costs incurred for unemployment taxes were $158 for federal and $230 for state.

Prepare the February 28 journal entries for

(a) Salaries and wages expense and salaries and wages payable assuming that all February wages will be paid in March
(b) The company’s payroll tax expense.

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On June 1, 2017, Elite Service Co. was started with an initial investment

Prepare an income statement, retained earnings statement and balance sheet; discuss results

On June 1, 2017, Elite Service Co. was started with an initial investment in the company of $22,100 cash. Here are the assets, liabilities, and common stock of the company at June 30, 2017, and the revenues and expenses for the month of June, its first month of operations:

Cash    $4,600        Notes payable    $12,000
Accounts receivable    4,000        Accounts payable    500
Service revenue    7,500        Supplies expense    1,000
Supplies    2,400        Maintenance and repairs expense    600
Advertising expense    400        Utilities expense    300
Equipment    26,000        Salaries and wages expense    1,400
Common Stock    22,100

In June, the company issued no additional stock but paid dividends of $1,400.

Instructions           

(a) Prepare an income statement and retained earnings statement for the month of June and a balance sheet at June 30, 2017.
(b) Briefly discuss whether the company’s first month of operations was a success.
(c ) Discuss the company’s decision to distribute a dividend.

NOTE:  Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .

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MBA 5311 Final Exam

MBA 5311 Final Exam

1) (10 points) Suppose a firm faces the following production function:

a. What is the average product of labor, holding capital fixed? What is the marginal product of labor?
b. What are the APL and MPL when K is fixed at 16?

2) (10 points) To produce a recorded Blu-ray disc, q=1, a firm uses a blanc disc, D=1, and the services of a recording machine, M=1, for one hour. Draw an isoquant for this production process. Explain the reason of its shape.

3) (12 points) If the cost function for John’s Shoe Repair is

a. What is the firm’s marginal cost function? What is the profit maximizing level of output if the market price is p= 25?

b. What is its supply curve? What is the profit/loss?

4) (12 points) If a monopoly’s inverse demand curve is P=13-Q and its total cost function is TC=25+Q+0.5Q2,

a. What Q* maximizes the monopoly’s profit (or minimizes its loss)? At Q*, what is the price and the profit? Should the monopolist operate or shut down?

b. If this would become a perfect competitive market, what would be the Qpc and Ppc?

5) (12 points) If a monopoly faces an inverse demand curve of P=90-Q, has a constant marginal cost and average cost of 30, and can perfectly price discriminate,

a. What is its profit? What are the consumer surplus, welfare, and DWL?

b. How would these results change if the firm were a single-price monopoly?

6) (12 points) A duopoly faces an inverse demand function of P=120-Q. Both firms have a constant marginal cost of 20.

a. Calculate the output of each firm, the market output and price in a collusive equilibrium?

b. Calculate the output of each firm, the market output and price in a Cournot equilibrium?

7) (12 points) Assume a monopolist faces a market demand curve What is the profit-maximizing level of output? What are profits? Graph the marginal revenue, marginal cost, and demand curves, and show the area that represents deadweight loss on the graph.

8) (10 points) In Question 7 above, what would price and output be if the firm priced at socially efficient (competitive) levels? What is the magnitude of the deadweight loss caused by monopoly pricing?

9) (10 points) In a Cournot duopoly, each firm has marginal cost MC = 20, and market demand is Q = 100 – 1/2p. What are the best-response functions of each firm? What is the best output level for each? How does the total output level compare to the cartel output level?

10) (10 points) In the following game, players must move simultaneously. How many Nash equilibria are there? Which will occur without collusion? Which will occur if collusion is allowed?

Firm 2

A B

A 3, 1 7, 0

Firm 1

B 2, 4 5, 3

 

EXTRA CREDIT (12 points)

11) Draw two graphs side by side. In the right graph draw a U-shaped average cost curve, a U-shaped average variable cost curve and the corresponding marginal cost curve. In the left graph, draw a downward sloping market demand curve and an upward sloping supply curve that would generate a negative profit, but that keep the firm operating in the short run. Explain what would happen in the long run?

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FIN 630 Module 5

FIN 630 Module 5

In November 2009, Accel Growth Fund invested $20 million in Groupon by buying 2,932,553 shares of Series E convertible preferred stock. What was the realized IRR of this investment, if  the fund sold at IPO and “each share of Series E preferred stock was converted into 12 shares of Class A common stock on October 31, 2011″ (Amendment No. 8 to form S-1, filed with SEC on November 2, 2011, page II-3)? To find the IPO price, you should download Groupon’s IPO prospectus (form 424B4) from Edgar or other sources.

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The Hybee Company is evaluating an investment to produce a new product

The Hybee Company is evaluating an investment to produce a new product with an expected marketable life of 5 years. The expected annual net cash flow before tax is $120,000. To produce this product the company will have to acquire a new plant. The company can either purchase this plant or leave it. Details of these alternatives are as follows:

Purchase

The purchase price of the plant is $250,000 and it is expected that it will have a zero residual value after 5 years. The allowable annual depreciation charge on the plant is 20% per annum, straight-line.

Lease

The lease requires five annual payments, each of $60,000, payable at the beginning of each year. The company tax rate is 30 cents in the dollar. The required rate of return on the investment is 15% per annum after tax and the after-tax cost of an equivalent loan is 8% per annum.

Should the company undertake the investment? If so, should it purchase or lease the plant?

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Conch Republic Electronics is a midsized electronics manufacturer located

Capital Budgeting

Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelley Couts, who inherited the company. When it was founded over 70 years ago, the company originally repaired radios and other household appliances. Over the years, the company expanded into manufacturing and is now a reputable manufacturer of various electronic items. Jay McCanless, a recent MBA graduate, has been hired by the company’s finance department.

One of the major revenue-producing items manufactured by Conch Republic is a smart phone. Conch Republic currently has one smart phone model on the market, and sales have been excellent. The smart phone is a unique item in that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as with any electronic item, technology changes rapidly, and the current smart phone has limited features in comparison with newer models. Conch Republic spent $750,000 to develop a prototype for a new smart phone that has all the features of the existing smart phone but adds new features such as WiFi tethering. The company has spent a further $200,000 for a marketing study to determine the expected sales figures for the new smart phone.

Conch Republic can manufacture the new smart phones for $185 each in variable costs. Fixed costs for the operation are estimated to run $5.3 million per year. The estimated sales volume is 74,000, 95,000, 125,000, 105,000, and 80,000 per year for the next five years, respectively. The unit price of the new smart phone will be $480. The necessary equipment can be purchased for $38.5 million and will be depreciated on a seven-year MCARS schedule. It is believed the value of the equipment in five years will be $5.4 million.

As previously stated, Conch Republic currently manufactures a smart phone. Production of the existing model is expected to be terminated in two years. If Conch Republic does not introduce the new smart phone, sales will be 80,000 units and 60,000 units for the next two years, respectively. The price of the existing smart phone is $310 per unit, with variable costs of $125 each and fixed cost of $1,800,000 per year. If Conch Republic does introduce the new smart phone, sales of the existing smart phone will fall by 15,000 units per year and the price of the existing units will have to be lowered to $275 each. Net working capital for the smart phones will be 20 percent of sales and will occur with the timing of the cash flows for the year; for example, there is no initial outlay for NWC but changes in NWC will first occur in Year 1 with the first year’s sales. Conch Republic has a 35 percent corporate tax rate and a 12 percent required return.


Shelley has asked Jay to include a report that answers the following questions:

What is the payback period of the project?
What is the profitability index of the project?
What is the IRR of the project?
What is the NPV of the project?

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You have $10,000 to invest in a stock portfolio

4. Portfolio Expected Return. You have $10,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 14 percent and Stock Y with an expected return of 11 percent. If your goal is to create a portfolio with an expected return of 12.4 percent, how much money will you invest in Stock X? In Stock Y?

7. Calculating Returns and Standard Deviations. Based on the following information, calculate the expected return and standard deviation for the two stocks.

17. Using CAPM. A stock has a beta of 1.15 and an expected return of 10.4 percent. A risk-free asset currently earns 3.8 percent.

a. What is the expected return on a portfolio that is equally invested in the two assets?

b. If a portfolio of the two assets has a beta of .7, what are the portfolio weights?

c. If a portfolio of the two assets has an expected return of 9 percent, what is its beta?

d. If a portfolio of the two assets has a beta of 2.3, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Explain.

29. SML Suppose you observe the following situation:

a. Calculate the expected return on each stock.

b. Assuming the capital asset pricing model holds and stock A’s beta is greater than stock B’s beta by .25, what is the expected market risk premium?

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Wilson Corporation (not real) has a targeted capital structure

Scenario: Wilson Corporation (not real) has a targeted capital structure of 40% long term debt and 60% common stock. The debt is yielding 6% and the corporate tax rate is 35%. The common stock is trading at $50 per share and next year’s dividend is $2.50 per share that is growing by 4% per year.

Calculate the company’s weighted average cost of capital. Use the dividend discount model.  Show calculations in Microsoft® Word.
• The company’s CEO has stated if the company increases the amount of long term debt so the capital structure will be 60% debt and 40% equity, this will lower its WACC. Explain and defend why you agree or disagree. Report how would you advise the CEO.

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GrowMaster Products, a rapidly growing distributor of home gardening

GrowMaster Products, a rapidly growing distributor of home gardening equipment, is formulating its plans for the coming year. Carol Jones, the firm’s marketing director, has completed the following sales forecast.

Month        Sales        Month        Sales
January        $909,900        July        $1,507,400
February    $1,007,900        August        $1,507,400
March        $909,900        September    $1,606,300
April        $1,156,800        October        $1,606,300
May        $1,259,900        November    $1,507,400
June        $1,405,100        December    $1,706,700

Phillip Smith, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash flow projection. He has gathered the following information.

● All sales are made on credit.
● GrowMaster’s excellent record in accounts receivable collection is expected to continue, with 60 percent of billings collected in the month after sale and the remaining 40 percent collected two months after the sale.
● Cost of goods sold, GrowMaster’s largest expense, is estimated to equal 40 percent of sales dollars. Seventy percent of inventory is purchased one month prior to sale and 30 percent during the month of sale. For example, in April, 30 percent of April cost of goods sold is purchased and 70 percent of May cost of goods sold is purchased.
● All purchases are made on account. Historically, 75 percent of accounts payable have been paid during the month of purchase, and the remaining 25 percent in the month following purchase.
● Hourly wages and fringe benefits, estimated at 30 percent of the current month’s sales, are paid in the month incurred.
● General and administrative expenses are projected to be $1,567,400 for the year. A breakdown of the expenses follows. All expenditures are paid monthly throughout the year, with the exception of property taxes, which are paid in four equal installments at the end of each quarter.

Salaries and fringe benefits   $320,300
Advertising            378,100
Property taxes            141,100
Insurance            197,600
Utilities            181,200
Depreciation            349,100
Total        $1,567,400

● Operating income for the first quarter of the coming year is projected to be $322,300. GrowMaster is subject to a 40 percent tax rate. The company pays 100 percent of its estimated taxes in the month following the end of each quarter.
● GrowMaster maintains a minimum cash balance of $50,000. If the cash balance is less than $50,000 at the end of the month, the company borrows against its 12 percent line of credit in order to maintain the balance. All borrowings are made at the beginning of the month, and all repayments are made at the end of the month (in increments of $1,000). Accrued interest is paid in full with each principal repayment. The projected cash balance on April 1 is $56,600.

A. Prepare the cash receipts budget for the second quarter. (Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.)

B. Prepare the purchases budget for the second quarter. (Round answers to 0 decimal places, e.g. 5,275. Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.)

C. Prepare the cash payments budget for the second quarter. (Round answers to 0 decimal places, e.g. 5,275. Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.)

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Piscataway Plastics Company manufactures a highly specialized plastic

Piscataway Plastics Company manufactures a highly specialized plastic that is used extensively in the automobile industry. The following data have been compiled for the month of June. Conversion activity occurs uniformly throughout the production process.

Work in process, June 1—50,000 units:

Direct material: 100% complete cost of …………. $120,000

Conversion: 40% complete, cost of ………………..34,400

Balance in work in process, June 1 ………………$154,400

Units started during June …………………….. 200,000

Units completed during June and transferred out to finished-goods inventory ….. 190,000

Work in process, June 30:

Direct material: 100% complete

Conversion: 60% complete

Costs incurred during June:

Direct material ……………………………. $492,500

Conversion costs:

Direct labor ……………………………… $ 87,450

Applied manufacturing overhead ………………. 262,350

Total conversion costs …………………….. $349,800

Required: Prepare schedules to accomplish each of the following process-costing steps for the month of June. Use the weighted-average method of process costing.

1. Analysis of physical flow of units.

2. Calculation of equivalent units.

3. Computation of unit costs.

4. Analysis of total costs.

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