Week 3 Problem Set Answer the following questions and solve the following problems in the space provided. When you are done, save the file in the format flastname_Week_3_Problem_Set.docx, where flastname is your first initial and you last name, and submit it to the appropriate dropbox. Chapter 7 (pages 225–228): 1. Your brother wants to borrow $10,000 from you. He has offered to pay you back $12,000 in a year.
The organization should primarily focus on the incremental cash flow because the incremental cash flow holds a marginal benefit from the project. Depreciation is considered to be an expense item which means that the greater the depreciation, the larger the expense will be to the organization. Therefore, if Caledonia was looking at the project from an accounting profit view, the profit would be much lower than that of the free cash flow. 2. What are the incremental cash flows for the project in years 1 through 5 and how do these cash flows differ from accounting profits or earnings?
This choice does, however, affect how individual shareholders’ accounts are reported in the balance sheet. Formally retiring shares restores the balances in both the common stock account and paid-in capital - excess of par to how those balances would have looked if the shares never had been issued. Any net increase in assets produced from the sale and ensuing repurchase is reflected as Paid-in capital—share repurchase. On the other hand, any net decrease in assets resulting from the sale and subsequent repurchase is repeated as a subtraction of retained earnings. Inversely, when a share repurchase is seen as treasury stock, the cost of the treasury stock is naturally disclosed as a decrease in total shareholders’ equity.
This is when the objective of the firm is achieving as high a total revenue as possible and occurs when marginal revenue is equal to zero, as shown on the graph. Another objective of a firm may be profit satisficing, where a firm makes a reasonable level of profit that satisfies its stakeholders without maximising profit. Examples of this in the leisure market may include businesses that have only just set up, as they perhaps do not have the work force to maximise profits yet and instead settle for a satisfying level of profit. The final objective of a business may be utility maximisation. Utility maximisation is the aim of trying to achieve as much satisfaction as possible.
Generally, free cash flow is cash flows provided by operating activities less cash flows used by investing activities for the purchases of plant, property and equipment and the repayment of long-term debt. If there is cash left over, it is “free” to be distributed to the owners of the entity or reinvested in the business. Over time, the entity that generates the highest free cash flow will be the most successfully financial company in terms of return on the owners’ investments. There are generally a number of differences between cash provided by operating activities and net income. The most obvious differences are that net income is presented on an accrual basis and that net income includes non-cash expense and income items.
Health Savings Accounts (HSA) can be beneficial to several individuals. Therefore implementing HSA would be a great idea, although HSA is beneficial it is not for everyone. HSA should be implemented because all contributions to the HSA are tax deductible. “This HSA contribution deduction is great because it is an “above the line” deduction meaning that it is deducted before arriving at your Adjusted Gross Income (AGI) number,” (“HSA’s Are Awesome – 7 Reasons,” 2010). Along with all contributions to the HSA being tax deductible they money in the HSA also grows tax free as long as the money in the account is used for qualified medical expenses or waiting until 65 or older and using it for retirement.
Instructions: Complete the following table: Case A Case B Case C a. Cash inflow on the issuance date b. Total cash outflow through maturity c. Total borrowing cost over the life of the bond issue d. Interest expense for the year ended December 31, 20X1 e. Amortization for the year ended December 31, 20X1 f. Unamortized premium as of December 31, 20X1 g. Unamortized discount as of December 31, 20X1 h. Bond carrying value as of December 31, 20X1 3. Definitions of manufacturing concepts Interstate Manufacturing produces brass fasteners and incurred the following costs for the
In 2003 Jeffrey Immelt received a total of 7403435 in annual compensation as well as 4176576 worth of exercised SAR’s, totaling 11580011 of cash. Out of that, 4.325 million (cash bonus) came as subjective compensation. Both, subjective award and a prespecified performance-based award schemes have their upsides and downsides. But in one particular aspect, a subjective award has an advantage. Imagine a manager, who knows that things are not going to be good this year for the company.
Latam with less than 1% net profit margins has less room for execution failure than AAL with 6,66% profit margins considering small miscalculations or mistakes can be amplified in a way that leads to tremendous losses for shareholders. Once the margins reflect the firm’s production function, if margins are low, some actions such as reduce expenses, review the prices and identify the most profitable items to concentrate on achieving higher sales targets for them, could be done to improve the net profit. Asset turnover: This ratio is calculated indicates how efficiently management is able to drive sales from company assets in other words how effectively a company converts its assets into sales. The asset turnover ratio tends to be inversely related to the net profit margin as shown
b. Most sinking funds require the issuer to provide funds to a trustee, who holds the money so that it will be available to pay off bondholders when the bonds mature. c. A sinking fund provision makes a bond more risky to investors at the time of issuance. d. Sinking fund provisions never require companies to retire their debt; they only establish “targets” for the company to reduce its debt over time. e. If interest rates increase after a company has issued bonds with a sinking fund, the company will be less likely to buy bonds on the open market to meet its sinking fund obligation and more likely to call them in at the sinking fund call price.