Accounting Answers

You are the manager of a Fortune 500 hotel chain and must decide where to locate a new hotel. Based on tax considerations, your accounting department suggests that Atlantic City is the best choice, followed closely by Las Vegas. In particular, your current-year tax savings from locating in Atlantic City are $4 million but only $3 million in Las Vegas. Your marketing department, on the other hand, has provided you with sales estimates that suggest that the present value of the gross (of taxes) operating profits from locating in Atlantic City are only $10 million but are $14 million for Las Vegas. It will cost $14 million to build the hotel in either location. Ignoring all other considerations, where should you build the hotel? What are your firm's economic profits if you locate the hotel in Atlantic City?

3.Consider the following information to answer questions

of 10% and to issue new preferred stock with a $4.00 pershare dvidend at $25 a share. The common

X Company is evaluating its cost of capita under alternative financing arrangements. In consultation

1 20% 30% 50%

2 50% 30% 20%

$2.50 per share next year. Market anaysts foresee a growth in dividends in Invest stock at a rate of

5% per year.nvest does not expect its cost of debt, preferred stock or common stock, to be different

Hint:coupon rate of the bond is the same as the beforetax cost of debt.

Percentage of New Capital

with nvestment bankers, X Company expects to be abe to issue new debt at par with a coupon rate

arrangement?

A.What s the weighted average cost of capital to X Company under the first financing arrangement?

stock of X Company is currenty seling for $20.00 a share. X Company expects to pay a dividend of

under the two possible financing arrangements. X Company margina tax rate is 40%.

4.Consider the following information:

Evauate the foowing three projects, using the profitability index. Assume a cost of capita of 15 

Cash Flows Liquidate Recondition Replace

Project

A.Based on the given information, what would be the profitability index of each project respectivey?

Initial Cash Out fow –$100,000 –$500,000–$1,000,000

Year 3 cash inflow 75,000 250,000500,000

Year 2 cash inflow 60,000 200,000 500,000

Year 1 cash nfow 50,000 100,000 500,000

percent.

(Round your answer to the nearest four decimal points or use table value)

2.Based on the following information answer questions

Holyproducts corporations have the folowing capital structure, which it considers optimal:

Retained earnings 300,000

Bonds, 7% (at par) Br 300,000

 Preferred stock, Br.5 240,000

Common stock 360,000

 1,200,000

Additiona Informaton:

Dividends on common stock are currently Br 3 per share and are expected to grow at constant 

A.Based on the above information, what woud be the cost of the bond?

rate of 6%.

Market price of common stock is Br 40 and the preferred stock is selling at Br50.

Flotation cost on new issues of common stock is 10%.

The interest on bonds is paid annualy and the company’s tax rate is 40%.

B.What would be the cost of common stock for Hoy Products Corporation?

QUESTION 1 (44 marks) SumOne Limited is a retail store with a 30 June year-end. The company recorded the following: 2021 (Rands) Sales – May 220 000 Sales – June 360 000 Refunds paid out in current year (relating to the prior year provision) 53 880 Refunds provision balance on 30 June 2020 55 850 You can assume all sales are on credit and that SumOne Limited applies a 25% markup on the cost price of all goods. The company’s refund policy states that customers can return goods within 60 days (two months) of purchase if they can provide proof of purchase. Experience shows that 8% of sales are returned in the first month following the sale, and 5% are returned in the second month. 4 REQUIRED: 1.1) Briefly discuss the general recognition and measurement principles that SumOne Limited will apply to their revenue transactions in terms of the requirements of IFRS 15. (4 marks)

A manufacturer has two products p1 and p2 both of which are produced in two steps by machines m1 and m2 . the process times per hundred for the products on the machines using simplex method

. Blue Enterprises paid a Birr 2.50 per share dividend on 100,000 shares of common stock and Birr 4 per share dividend on 25,000 shares of preferred stock. Net income for the year was Birr 850,000. The current market price of the common stock is Birr 52.50 a) Calculate the earnings per share of common stock. c) Calculate the dividend payout ratio of common stock d) Calculate the dividend yield of common stock

6. Complete the following financial statements of Omega Company on the basis of the ratios given below. Omega Company Profit and loss account For the year ended June 30 2001 Sales 2,000,000 Cost of Goods Sold 600,000 Gross Profit 1,400,000 Operating Expenses 1,190,000 Earnings Before Interest and Tax A Debenture Interest 10,000 Income Tax B Net Profit C Omega Company Balance sheet For the year ended June 30 2001 Assets Liabilities Cash D Sundry creditors 60,000 Stocks E 10% Debentures I Debtors 35,000 Total liabilities J Total Current Assets F Reserve and Surplus K Fixed Assets G Share Capital L Total Assets H Total Liability and Equity M Additional Information: A. Net Profit to Sale 5%     D. Inventory Turnover 15 times B. Current Ratio  1.5     E. Share Capital to Reserve 4:1 C. Return on Net Worth  20 %   F. Tax Rate  50 %  

 1. Use the following information to answer questions Lite Products, Inc. is considering investing in either of two competing projects that will allow the firm engineering department narrowed the alternatives down to two- Status Quo (SQ) and High Tech estimates of the cash flows for SQ and HT over the relevant six-year time horizon. The firm has an 11 percent required return and views these projects as equally risky. Project SQ     Project HT Initial Outflow (CFo)   $670,000  $940,000 Year (t)                             Cash Inflows (CFt)   1    $250,000  $170,000   2   200,000  180,000   3    170,000  200,000 4    150,000  250,000 5    130,000  300,000 6    130,000  550,000 A. Based on the information given above, calculate the net present value (NPV) for each asset respectively. (Round to the nearest four decimal points or use table value).B. Which asset is best, using the NPV? 

products corporations have the following capital structure, which it considers optimal: Bonds, 7% (at par)                    Br 300,000   Preferred stock, Br.5                    240,000 Common stock                        360,000 Retained earnings                      300,000                                                   1,200,000