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This week's question focuses on cost allocation. A major manufacturer decided to put one of its divisions up for sale because managerial information showed the components produced by this division is losing money. A group of employees in the division purchased it. Under the new ownership, the division immediately became profitable. A. Why do you think the division was profitable immediately under the new ownership? B. What kind of cost allocation method may have caused the sale of a profitable division, and can you suggest a better method of cost allocation? Explain why? Note the use of the word immediately above!
Suppose you put $100 into a savings account today, the account pays a nominal annual rate of 6%, but compounded semiannually, and you withdraw $100 after 6 months. What would your ending balance be 20 years after the initial $100 deposit was made?
The cost of debt capital to a business is measured by
William's All Night Long DJ, Inc. has outstanding preferred stock that pays an annual dividend of $6.00 per share.Compute the current price of the preferred stock if the investor's required return on the preferred stock is:(a) 8%(b) 10%(c) 12%
You are given the following information: Stockholders' equity = $3.75 billion, price/earnings ratio = 15.5, common shares outstanding = 12 million, and market/book ratio = 2. Calculate the price of a share of the company's common stock. Round your an..
Adams operates his $25000 firm using his own equity. Bob operates his firm with $12500 of his own money plus $12500 of debt at a cost of 12 percent interest. Calculate Adams's and Bob's return on equity if their respective businesses produce earnings..
You must describe how application of the principles of law to the key facts supports your determination of the issues. You need to show the reasoning behind your decision. Oil tankers used by the Atlantic Richfield Company (ARCO) to bring oil into Pu..
What is the standard way to calculate a company’s cost of capital? And what important observations have been offered by finance theory when estimating a firm’s WACC?
Exactly what is the relationship between segmentation, target marketing, and positioning? What damage will be done to a company's target market and positioning efforts if markets are incorrectly segmented?
An investment has an installed cost of $576,382. The cash flows over the four-year life of the investment are projected to be $205,584, $249,318, $197,674, and $165,313. If the discount rate is zero, what is the NPV? If the discount rate is infinite..
Motors Co stock has a required rate of return of 11.50% and it sells for 25$. Dividend is expected to grow at constant rate of 7%. What is the last dividend paid?
Thornton Universal Sales' monthly cost of goods sold (COGS) is $2,000,000, and it keeps inventory equal to 30% of its monthly COGS on hand at all times. Using a 365-day year, what is its inventory conversion period?
With a tax rate of 35%, calculate the WACC for a firm that pays 10% on its debt, requires an 18% rate of return on its equity, and finances 45% of assets with debt.
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