Answer:
Using the discount cash flow model to value the company, we can say that the company is worth $85 million / 12% = $708.33 million
Each stock should be worth approximately $708.33 million / 100 million = $7.0833 per stock
If the company uses the cash to finance new projects, then future cash flows should be approximately $97.75 million, and the company's value = $97.75 million / 12% = $814.583 million. This represents a 15% increase in value. The stock price should also increase by 15% to $8.1458 per stock.
If the company instead decides to repurchase stocks using all the cash, then it could repurchase 35.29 million stocks. Since we are assuming that the company's future cash flows wouldn't be affected by this decision, then the company's total value will still be $708.33 million, but each stock would be worth much more = $708.33 / 64.71 million stocks = $10.95. This represents a 34.36% increase with respect to the other alternative of investing the cash.
The issue here, is that this situation is not very realistic. It is not normal for a company to use all of its cash to repurchase stocks since it would result in a huge increase in stock prices (stock prices are set by supply and demand). Also, this would also result in a sharp increase in the cost of equity due to higher risks.
Answer:
C) undercapitalization
Explanation:
Clearly, Julia's cake business was undercapitalized, since she failed in the bare start. The undercapitalization issue is often associated with financial beginnings, when having the right sources of capital is crucial. Startups face significant initial costs and therefore need secure capital to cover them.
A cash flow issue is more common with businesses that are already up and running, but face challenges regarding paying debtors.
Answer: d. $45,000 should be debited to Land Improvements.
Explanation:
Land improvements records any moderation to land asset that is expected to add to its value and lasts for more than a year.
The paving and lighting of the parking area will add value to the area and will last longer than a year so both should go to the Land improvement account. As this account is an asset account, it will be debited when increased:
= 30,000 + 15,000
= $45,000
Answer:
It is more convenient to sell the units unfinished by $500.
Explanation:
Giving the following information:
Units= 1,000
Unfinished:
Selling price= $4.00 per unit.
Complete:
Incremental costs= $1.00 per unit for direct materials, $2.00 per unit for direct labor, and $1.50 per unit for overhead
Selling price= $8.00 each.
We need to calculate the gross profit of each option and choose the more convenient:
Unfinished:
Gross profit= 1,000*4= $4,000
Complete:
Gross profit= 1,000*(8 - 4.5)= $3,500
It is more convenient to sell the units unfinished by $500.
Answer: Manufacturing overhead for the month was underapplied by $19,000.
Explanation:
From the question, we are informed that before the closing of the overapplied or underapplied balance to cost of goods sold, the total of the debits to the manufacturing overhead account was $75,000 and the total of the credits to the account was $56,000.
This implies that the manufacturing overhead for the month was underapplied by ($75000 - $56000)= $19000. The manufacturing overhead debit balance shows that manufacturing overhead was simply underapplied in this case.
