User Account

All Pages

What is hobbiton break-even point

Assignment Help Accounting Basics
Reference no: EM132225373

Question - Hobbiton Farm grows corn, which it sells for $4per bushel. Variable costs are $1 per bushel; fixed costs are $4.8 million. All costs and revenues are in cash. The only asset on Hobbiton's balance sheet is land, which has both a book value and market value of $15 million. Hobbiton has no debt and a cost of equity capital of 12%. This represents a 4% risk-free interest rate plus an 8% premium that investors expect in exchange for bearing the risk of the investment. All earnings are distributed to the owners in the form of dividends. There are no income taxes.

Part I:

a. What is Hobbiton's break-even point?

b. Suppose Hobbiton's produces and sells 2.5 million bushels of corn. Find Hobbiton's accounting income, return on equity (ROE), and residual income. Is Hobbiton's doing better, worse, or about the same as expected?

Part II:

Hobbiton is considering buying a wheat field. The land would cost $5 million and generate annual cash flow and accounting income of $700,000.

a. Given Hobbiton still produces and sells 2.5 million bushels of corn on its existing farm, what happens to Hobbiton's ROE and residual income if it purchases the wheat field?

b. Is the investment a good idea? Why or why not?

Reference no: EM132225373

Questions Cloud

Prepare plan of action for the supervisor : Prepare a plan of action for the supervisor using the steps of progressive discipline process
What is the return on equity : Isolation Company has a debt-equity ratio of 0.5. Return on assets is 6 percent, and total equity is $573730. What is the return on equity (in percent)
Optimizing or satisficing over maximizing decision : When would you choose optimizing or satisficing over maximizing a decision?
What interest rate is it profitable : Given a 10-year planning horizon, for what interest rate is it profitable to create the French version of the software
What is hobbiton break-even point : Hobbiton Farm grows corn, which it sells for $4per bushel. Variable costs are $1 per bushel; What is Hobbiton's break-even point
Big five dimensions of personality traits : Identify which of the Big Five dimensions of personality traits is most strongly correlated to job performance, and explain why.
What amount should bridgeport report as a liability : Total face amount of coupons issued $721,600. What amount should Bridgeport report as a liability for unredeemed coupons at December 31, 2017
Healthcare organization and what are potential benefits : Discuss whether or not the unions are beneficial for healthcare organization and what are the potential benefits?
Explain how it differs from the traditional view : Describe the positive view of conflict, and explain how it differs from the traditional view.

Reviews

Write a Review

Accounting Basics Questions & Answers

  What is the target cost per unit

Nutty Co. Gourmet Snacks currently sells their Gourmet Deluxe Gift Basket for 53% each. What is the target cost per unit

  Compute depreciation for the machine

A machine costing $213,400 with a four-year life, Compute depreciation for the machine under each depreciation method

  Interpret the october direct labor variances

After evaluating Zero Company's manufacturing process, management decides to establish standards of 1.5 hours of direct labor per unit of product.

  Prepare dated journal entries for fleming

Prepare dated journal entries for Fleming to reflect the above transactions using the current method. Do not use hedge accounting

  Negative effect on the profession when a cpa firm agrees

negative effect on the profession when a CPA firm agrees to settlements even though it believes that the firm is not liable to the plaintiffs

  Journal entries and conversion of bonds

Prepare the journal entries for the June 30, 2013, interest payment by Madison and the conversion of the bonds (book value method).

  Compute the standard hours allowed for actual deliveries

Rostand employs a standard costing system. During the year, a variable overhead rate of $5.10 per hour was used.

  What is the impact on goodwill

If instead the non-controlling interest shares of Devine had traded for $5.46 surrounding Holtz's acquisition date, what is the impact on goodwill

  Brief description of principle

Brief Description of Principle

  Underlying rationale for alimony rules problem

What is the underlying rationale for Alimony Rules: A. The income should be taxed to the person with a claim of right to the income B. The income should be taxed to the person who enjoys the benefits of the income

  Fixed selling and administrative

Fixed manufacturing overhead $106,800 Fixed selling and administrative $68,000 The total gross margin for the month under the absorption costing approach is:

  At the beginning of april warren corporations assets

at the beginning of april warren corporations assets totaled 247000 and liabilities totaled 67000. during april the

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd