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I JUST WANT THE ANSWER FOR QUESTION 4.Mathis Co. at the end of 2012, its first year of operations, prepared a reconciliation betweenpretax financial income and taxable income as follows:Pretax financial income $ 600,000Estimated litigation expense 1,500,000Installment sales (1,200,000)Taxable income $ 900,000The estimated litigation expense of $1,500,000 will be deductible in 2014 when it is expected tobe paid. The gross profit from the installment sales will be realized in the amount of $600,000 ineach of the next two years. The estimated liability for litigation is classified as noncurrent and theinstallment accounts receivable are classified as $600,000 current and $600,000 noncurrent. Theincome tax rate is 30% for all years.1)The income tax expense is a. $180,000.b. $270,000.c. $300,000.d. $600,000.2)The deferred tax asset to be recognized isa. $0.b. $90,000 current.c. $450,000 current.d. $450,000 noncurrent3)The deferred tax liability—current to be recognized isa. $90,000.b. $270,000.c. $180,000.d. $360,000.4)If the enacted tax rates for 2012,2013 and 2014 are 30%,35% and 40% respectively, what is the amount of deferred tax asset to be recognized?a. $0b. $90,000c. 450,000d. 600,000

 

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1. (10) Imagine a firm has EBIT that varies, with a mean of $20 million.  The firm satisfies the Modigliani and Miller assumptions (for instance, all earnings are paid out as dividends or interest to investors).  Investors’ required rate of return on the unlevered stock of this firm is Reu = 8%, and the required rate of return on bonds is Rd = 2%. 

a.  First assume that the firm is located in a country that has no corporate taxes.  If the firm is unlevered, what is its value?   If it instead chooses to sell $15 million in bonds, and use the proceeds to buy back shares, what will be the new firm value?  What levered rate of return will investors require on the stock?  What is the weighted average cost of capital? 

b.  Repeat part a, but assume the firm is located where there is a tax rate of T=.3

2. (4) In the Modigliani and Miller model without taxes, proposition I states that the value of the firm is unaffected by leverage:  Vu = VL.  Under MM assumptions that the firm pays out all its earnings as dividends or interest to investors, and is a no-growth firm, the firm’s overall value must equal its EBIT/WACC, regardless of the degree of leverage used (since the firm’s cash flow is a perpetuity, except for the random fluctuations in EBIT around its mean).  And since Vu = VL, it must be true that WACCu = WACCL.   Write the formulas for WACCu and WACCL, set them equal, and show that this implies Proposition II.  

3.  (14) This problem illustrates how an investor can use leverage within his/her own portfolio, to achieve the same effect as a firm using leverage (as argued in MM).  We will assume a situation with no corporate taxes. 

a.  Firm  A  has sales of $100,000 in good years, $90,000 in average years, and $80,000 in bad years.  Its variable operating costs are 60% of sales, and its fixed operating costs are $10,000 per year.  It exists in a nation that has no corporate taxes, and pays all its earnings as dividends each year.  The firm is all-equity financed, and its investors require an expected rate of return of Reu=10% .  Find the firm’s EBIT in good, average and bad years, and its average EBIT, assuming the probability of each state of the world is 1/3.  What is the total value of the firm’s stock, Su, based on average EBIT?   If there are 10,000 shares outstanding, what is the price per share?  What is EPS under each state of the world?   If an investor purchases 100 shares of this stock, how much will this investment cost, and what is their average dividend income per year? 

b.  Beth believes the firm would be a more attractive investment if it used leverage.  Suppose there was a Firm B, identical to firm A except it is financed with ½ debt at Rd = 4%.  The other half of its capital consists of 5000 shares of stock, selling at the same price per share as firm A’s stock.  Find this firm’ EPS under each state of the world, and its average EPS.  If an investor purchases 100 shares of this stock, how much will this investment cost, and what is the investor’s average dividend income per year?

c.  Since firm A’s management does not use leverage as Beth prefers, she decides to do it herself.  She purchases 200 shares of firm A’s stock, borrowing half the purchase price at rate Rd = 4%.  Show that her portfolio returns now look like the returns from owning 100 shares of Firm B. 

 

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During May, Arrow purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for May were $42,000, 90 percent of which were for direct labor. Arrow manufactured 19,000 units of product during May using 142,500 pounds of direct material and 5,000 direct labor hours.a. Calculate the direct materials price variance for May.b. Calculate the direct materials quantity variance for May.c. Calculate the direct labor wage rate variance for May.d. Calculate the direct labor efficiency variance for May.HTML Editor9. The Tippa Canoe Company makes fiberglass canoes. The fiberglass resin is initially molded to the shape of a canoe, then sanded and painted. Metal or wooden seats and frames are added for stability. The Tippa Canoe Company was started several years ago in the owner’s garage. The owner, Jeff George, did a lot of the initial manual labor with the help of a few friends. The company has since expanded into a large warehouse and new employees have been hired. Because of the expansion, Jeff is no longer directly involved with production and is concerned about his ability to plan for and control the company. He is considering the implementation of a standard cost system.a. Describe the procedures Jeff should use in setting standards for direct labor and direct materials.b. Describe how Jeff could use standards for planning purposes,c. Describe how Jeff could use standards for motivating employees and problems in using standards as performance measures.d. Why are some of Jeff’s friends who worked with from the beginning not very excited about a change to a standard cost system?HTML Editor10. Derf Company applies overhead on the basis of direct labor hours. Two direct labor hours are required for each product unit. Planned production for the period was set at 9,000 units. Manufacturing overhead for the period is budgeted at $135,000, of which 20 percent is fixed. The 17,200 hours worked during the period resulted in production of 8,500 units. Manufacturing overhead cost incurred was $136,500.Calculate the following three overhead variances:a. Overhead volume variance.b. Overhead efficiency variance.c. Overhead spending variance.a. Overhead volume variance = (fixed overhead budget + variable overhead x standard volume) – overhead rate x standard volume……flexible budget at standard volume – overhead absorbed….unfavorable $1,500b. overhead efficiency variance= (foh + voh x av) – (foh + voh x sv)…..flexible budget at actual volume – flexible budget standard volume….unfavorable $1,200c. overhead spending variance = aoh – (foh + voh x av)….. actual overhead cost incured – flexible budget at actual volume…unfavorable $6,300HTML Editor

 

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The owners of XYZ Construction Inc. realize that they need to modernize their technology and information management systems within the company in order to make the organization more attractive for its IPO. Additionally, the owners see a value in using quantitative techniques to measure customer satisfaction, service quality, Equal Employment Opportunity (EEO) workforce compliance, and new market evaluation. Specifically, the company owners want you to describe and analyze the steps needed to plan, implement, evaluate, and control new technology that will enable them transform from a privately-held regional company to a publicly-owned international company. For this fifth assignment, your requirement is to develop a PowerPoint presentation where you describe and analyze the aforementioned topics identified by the owners of XYZ Construction, Inc. Within the presentation, you must describe and analyze the following information management and quantitative techniques/statistics relative to this horizontal construction company:1. Planning for Technology 2. Implementing a Technology System or Change 3. Technology Evaluation and Control The first slide in the presentation should be the Northcentral assignment coversheet. The final slide(s) should be the list of references you used for the assignment in APA format. For this assignment, you do not need to use outside resources for the PowerPoint presentation. All the information you need for this assignment is included within the textbook. Your Mentor will only grade you on the completeness and accuracy of the assignment: APA format and style will only be assessed for the references (textbook).Incorporate appropriate animations, transitions, and graphics as well as “speaker notes” for each slide. The speaker notes may be comprised of brief paragraphs or bulleted lists.Length: 6-7 slides (with a separate reference slide)Notes Length: 150 words for each slideBe sure to include citations for quotations and paraphrases with references in APA format and style. Save the file as PPT with the correct course code information. Upload the completed assignment in the Activities area of the course

 

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