RATIO CALCULATIONS Assume the following relationships for the Caulder Corp.: Sales/Total assets 1.4x Return on assets (ROA) 6% Return on equity (ROE) 9% Calculate Caulder's profit margin assuming the firm uses only debt and common equity, so total assets equal total invested capital. Round your answer to two decimal places. 4.29 % Calculate Caulder's debt-to-capital ratio assuming the firm uses only debt and common equity, so total assets equal total invested capital. Round your answer to two decimal places. %
Answers
Answer:
33.33%
Explanation:
The solution of debt-to-capital ratio is provided below:-
Here, to find out the debt to capital ratio we need to follow some steps which is following below:-
Step 1
Return on equity = Return on assets × (Assets ÷ Equity)
9% = 6% × (Assets ÷ Equity)
(Assets ÷ Equity) = 9% ÷ 6%
= 1.5%
Step 2
Debt ÷ Equity = (Assets ÷ Equity) - 1
= 1.5% - 1
= 0.5%
and finally
Debt-to-capital = 0.5% ÷ (1 + (Debt ÷ Equity)
= 0.5% ÷ (1 + 0.5%)
= 0.5% ÷ 1.5%
= 33.33%
So, we have calculated the debt to capital by using the above formula.
Related Questions
What are the three types of jobs in the U.S. and how does trade affect each type?
Answers
Answer: Thinkers, Builders, Improvers, are all types of jobs and trade effects it because they need resources to do these things
Explanation:
The following information is available for Something Strange Corporation (assuming all transactions affected cash): Sale of land $100,000 Sale of equipment 50,000 Issuance of common stock 70,000 Purchase of equipment 30,000 Payment of cash dividends 60,000 Net cash provided by investing activities is a. $130,000. b. $120,000. c. $190,000. d. $150,000.
Answers
Answer:
$130,000
because: $100,000 + $60,000 - $30,000 = $130,000
Explanation:
Grayson works in an amusement park and is helping decorate it with strands of lights.
This morning, he used a total of 44 strands of lights to decorate 4 bushes and 2 trees.
This afternoon, he strung lights on 2 bushes and 2 trees, using a total of 34 strands.
Assuming that all bushes are decorated one way and all trees are decorated another way how many strands did he use on each tree? Each bush?
Answers
An amusement park or amusement park is a place with attractions made up of rides, such as roller coasters and water rides.
What is the meaning of an Amusement Park?A facility having rides, like roller coasters as well as water rides, is known as a theme park or amusement park. Together with a variety of rides, they frequently provide stores, dining options, and other entertainment options. Many ages can enjoy theme parks, including adults, teenagers, and kids.
The operations of a variety of attractions, including mechanical rides, water rides, games, shows, theme exhibits, and picnic areas, are included in this group of activities performed by a wide range of units that operate facilities or offer services to meet this same varied recreational interests of their patrons.
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____ is a set of focused steps that deal primarily with the safety and state of the people from the organization who are involved in the disaster.
Answers
Emergency response is a set of focused steps that deal primarily with the safety and state of the people from the organization who are involved in the disaster.
What is emergency response?Any plan for disaster management must include emergency response as a key element. It refers to a series of deliberate actions designed to guarantee the security and wellbeing of members of an organization who are involved in a disaster. Depending on the kind and extent of the disaster, the reaction may vary, but it usually entails a well-planned and coordinated effort involving a number of stakeholders, including emergency services, local government, and volunteers. The assessment of the situation, communication channel creation, evacuation of the affected areas, provision of emergency medical services, and other vital services, as well as the start of recovery operations, are important components of emergency response.
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A firm has developed a new kind of knitting needle and they want to know if experienced knitters will see it as an improvement. The firm
should hire a(n).
O standardized marketing firm
O syndicated marketing firm
customized marketing firm
O internal marketing firm
Answers
Answer:
1. This football match is ……..we have ever played.
. Kathy plans to move to Maryland and take a job at McCormick as the Assistant Director of HR. She and her husband Stan plan to buy a house in Garrison, MD and their budget is $500,000. They have $100,000 for the down payment and McCormick will pay for closing costs. They are considering either a 30 year mortgage at 4.5% annual rate or a 15 year mortgage at 4%. Calculate the monthly payment for each. Property taxes and insurance will add $1,000 per month to which ever mortgage they choose. What should Kathy and Stan do
Answers
Answer:
a. For a 30-year mortgage at 4.5% annual rate, we have:
Monthly required fixed loan payment = $2,026.74
Total monthly payment = $3,026.74
Total payments for 360 months = $1,089,626.85
b. For a 15 year mortgage at 4% annual rate, we have:
Monthly required fixed loan payment = $2,958.75
Total monthly payment = $3,958.75
Total payments for 180 months = $712,575.31
c. Kathy and Stan should choose a 15 year mortgage at 4% annual.
Explanation:
a. For a 30-year mortgage at 4.5% annual rate
The monthly required fixed loan payment can be calculated using the formula for calculating loan amortization as follows:
P = (A * (r * (1 + r)^n)) / (((1+r)^n) - 1) .................................... (1)
Where:
P = Monthly required fixed loan payment = ?
A = Loan amount = House budget – Down payment = $500,000 - $100,000 = $400,000
r = monthly interest rate = 4.5% / 12 = 0.045 / 12 = 0.00375
n = number of months = 30 * 12 = 360
Substituting all the figures into equation (1), we have:
P = ($400,000 * (0.00375 * (1 + 0.00375)^360)) / (((1 + 0.00375)^360) - 1) = $2,026.74
Therefore, we have:
Monthly required fixed loan payment = $2,026.74
Total monthly payment = Monthly required fixed loan payment + Property taxes and insurance = $2,026.74 + $1,000 = $3,026.74
Total payments for 360 months = Total monthly payment * 360 = $3,026.74 * 360 = $1,089,626.85
b. For a 15 year mortgage at 4% annual rate
The monthly required fixed loan payment can be calculated using the formula for calculating loan amortization as follows:
P = (A * (r * (1 + r)^n)) / (((1+r)^n) - 1) .................................... (1)
Where:
P = Monthly required fixed loan payment = ?
A = Loan amount = House budget – Down payment = $500,000 - $100,000 = $400,000
r = monthly interest rate = 4% / 12 = 0.04 / 12 = 0.00333333333333333
n = number of months = 15 * 12 = 180
Substituting all the figures into equation (1), we have:
P = ($400,000 * (0.00333333333333333 * (1 + 0.00333333333333333)^180)) / (((1 + 0.00333333333333333)^180) - 1) = $2,958.75
Therefore, we have:
Monthly required fixed loan payment = $2,958.75
Total monthly payment = Monthly required fixed loan payment + Property taxes and insurance = $ 2,958.75 + $1,000 = $3,958.75
Total payments for 180 months = Total monthly payment * 360 = $3,958.75 * 180 = $712,575.31
c. Recommendation
Since the total payment of $712,575.31 for a 15 year mortgage at 4% annual is lower than the total payments of $1,089,626.85 for a 30-year mortgage at 4.5% annual rate, Kathy and Stan should choose a 15 year mortgage at 4% annual.
Sally goes out to lunch with Mike and Fred. Each person orders the
$9 lunch special. Sally agrees to pay the bill. How much will she have to pay ?
Answers
Answer: 27
Explanation: if there are 3 people ordering the same lunch and the lunch is 9 dollars. That’s 9x3 which is $27 and the amount of money sally will have to pay.
A company had beginning assets and liabilities were Rs. 100,000 and Rs. 50,000 respectively.
During the year, the company distributed Rs. 20,000 dividend. At the end of the year, the
company
has doubled its assets and liabilities. Find the net income earned by the company.
Answers
Answer: Rs. 120,000
Explanation:
At the end of the year, both assets and liabilities had doubled. New asset and liability figures are therefore:
Assets = Rs. 200,000
Liabilities = Rs. 100,000
Net income is part of equity and as there is no equity, net income must be the entire equity.
Assets = Equity + Liabilities
200,000 = Equity + 100,000
Equity = 200,000 - 100,000
= Rs. 100,000
From this Net income, dividends were distributed to the tune of Rs. 20,000. This should be added back to see the full figure.
= 100,000 + 20,000
= Rs. 120,000
Which best describes how consumers may benefit from specialization?
Consumers can only purchase high-quality goods.
Consumers have more price options.
O Consumers receive more sale offers.
O Consumers find products at lower prices.
Answers
In specialization a company have produced the product at different price levels. Consumers have more price options.
What is consumer?A consumer is a person who purchases the goods and or services from the business and is also the ultimate user of the products or services. In specialization the company produces a certain product at many different levels by which they have many price options available which vary according to their customization and quality that can be offered to the consumers and hence the customer can purchase different types of a single product from a single company or Brand.
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Paul’s grocery received 1,000 pounds of onion at $0.11 per pound. On the average, 3% of the onions will spoil before selling. Find the selling price per pound to obtain a makeup rate of 180% based on cost.
Answers
The selling price per pound for onions to obtain a makeup rate of 180% based on cost is $2.0350.
What is the selling price per pound for onions?Total Cost = Quantity * Cost per pound
Total Cost = 1,000 pounds * $0.11/pound
Total Cost = $110
Spoilage Quantity = 3% of Quantity
Spoilage Quantity = 3% of 1,000 pounds
Spoilage Quantity = 0.03 * 1,000 pounds
Spoilage Quantity = 30 pounds
Effective Quantity = Quantity - Spoilage Quantity
Effective Quantity = 1,000 pounds - 30 pounds
Effective Quantity = 970 pounds
Makeup Rate = 180%
Selling Price per pound:
= (Total Cost * Makeup Rate) / Effective Quantity
= ($110 * 1.80) / 970 pounds
= $2.03505/pound.
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Cost data for Johnstone Manufacturing Company for the month ended March 31 are as follows:
Inventories March 1 March 31
Materials $217,200 $199,720
Work in process $450,840 $527,900
Finished goods $606,300 $637,020
Direct labor $3,620,000
Materials purchased during March $2,757,610
Factory overhead incurred during March: Indirect labor $330,970
Machinery depreciation $217,200
Heat, light, and power $181,000
Supplies $36,090
Property taxes $31,020
Miscellaneous costs $47,270
a. Prepare a cost of goods manufactured statement for March.
b. Determine the cost of goods sold for March.
Answers
Add direct materials, labor, and other manufacturing overhead costs to get the overall manufacturing costs.
Cost of good Manufactured $6,924,200Cost of Goods sold $6,894,500How to calculate Cost of Goods Sold for manufacturing company?Johnstone Manufacturing Company
Statement of cost of goods manufactured
For the Month ended March 31
work in process inventory, March 1 $435,900
Direct Materials:
Material Inventory, March 1 $210,000
Purchases $2,666,200
Cost of materials available for use$2,876,200
Material Inventory, March 31 $193,100
Cost of Direct materials used $2,683,100
Direct labor $3,500,000
Factory Overhead:
Indirect labor $320,000
Machinery Depreciation $210,000
Heat, Light, and power $175,000
Supplies $34,900
Property taxes $30,000
Miscellenious Costs $45,700
Total Factory Overhead $815,600
Total Manufacturing Costs incured during march $6,998,700
Total Manufacturing Costa $7,434,600
Work in process inventory, March 31 $510,400
Cost of good Manufactured $6,924,200
Johnstone Manufacturing Company
Statement of cost of goods manufactured
For the Month ended March 31
Finished goods inventory, March 1 $586,200
Cost of Goods manufactured $6,924,200
Cost of goods available for sale $7,510,400
Finished goods inventory, March 31 $615,900
Cost of Goods sold $6,894,500
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If you wanted to purchase ownership interests in diversified portfolios of investments which type of financial product provider should you contact
Answers
Answer:
mutual fund
Explanation:
Mutual funds are investment plans that involve investors buy shares in a basket of financial securities. A mutual fund manager pool resources from investors and skillfully invests them in a portfolio comprising stock, bonds, and other short term financial securities. Each unit of a mutual fund is made up of smaller units of equities and financial securities of different companies. The mutual fund manager professionally selects the securities that make up the portfolio.
On December 31, 2021, Interlink Communications issued 5% stated rate bonds with a face amount of $113 million. The bonds mature on December 31, 2051. Interest is payable annually on each December 31, beginning in 2022. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $). Determine the price of the bonds on December 31, 2021, assuming that the market rate of interest for similar bonds was 6%.
Table values are based on:
n = 30
i = 6%
Cash Flow Amount Present Value
Interest $111,300,000 $74,454,240
Principal $100,000,000 $13,137,000
Price of bonds $87,591,240
Answers
Answer:
Bond Price = $97.4457408 million rounded off to $97.45 million
Explanation:
To calculate the price of the bond today, we will use the formula for the price of the bond. We assume that the interest rate provided is stated in annual terms. As the bond is an annual bond, the coupon payment, number of periods and annual YTM will be,
Coupon Payment (C) = 113 million * 0.05 = 5.65 million
Total periods (n) = 30
r or YTM = 0.06 or 6%
The formula to calculate the price of the bonds today is attached.
Bond Price =5.65 * [( 1 - (1+0.06)^-30) / 0.06] + 113 / (1+0.06)^30
Bond Price = $97.4457408 million rounded off to $97.45 million
Which two statements about financial service companies are true?
Answers
Answer:
b. and d.
Explanation:
operations management course concept
Answers
The operations management course concept refers to the systematic design, direction, and control of the processes that transform inputs such as raw materials, energy, and labor into outputs such as goods and services that satisfy customer needs.
This management process includes inventory management, scheduling, supply chain management, quality control, and more. The goal of operations management is to create efficient processes that maximize productivity while minimizing costs.
Students taking an operations management course learn about these concepts and how to apply them to real-world situations in various industries. They also study topics like process design, project management, lean principles, and decision-making models.
The course is usually offered as a part of business administration, engineering, or industrial technology programs. Graduates of the course may go on to careers as operations managers, logistics managers, supply chain analysts, process improvement specialists, or manufacturing engineers, depending on their areas of focus and interests.
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Good communication occurs only when the recipient ________. A) agrees with the sender's message B) does what the speaker asks C) understands the speaker's meaning D) makes eye contact with the speaker
Answers
Good communication occurs only when the recipient understands the speaker's meaning. Option C. This is further explained below.
What is communication?Generally, communication is simply defined as the imparting or conveying of knowledge through speaking, writing, or by any other media
In conclusion, The only time there is successful communication is when the listener gets what the speaker is trying to say.
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Assume that you are the president of your own company and paid a year end bonus according to the amount of net income earned during the year. When prices are rising would you choose a Fifo or weighted average cost flow assumption?
Answers
Answer:
I would choose weighted average because it's more better than FIFO when prices are rising.
Explanation:
Papa PePe's Pizza purchased a used pizza oven for $9785. The company makes a down payment of $1000 and agrees to 36 monthly payments of $278.45 per month. Find the total finance charge.
Answers
Answer:
$1,239.2
Explanation:
finance charge refer the cost of using credit funds. It is the total amount a borrower pays to lender on top of the amount borrowed.
In this case, the total amount the customer paid for the oven
The deposit $1000.00
Monthly installment; $278.45 x 36= $10,024.2
Total amount paid =$278.45 +$10,024.2
=11,024.2
finance charge = total amount paid - cost of the item
= $11,024.2 - $9,785.
=$1,239.2
the circular flow model is only capable of describing how the labor market and the market for goods and services work in the economy.
Answers
Only the labor market and the market for commodities and services can be adequately described by the circular flow model. This statement is false.
The model consists of two main parts: the household sector and the business sector. The household sector includes all the individuals and families that make up the economy, and the business sector includes all the firms and companies that produce goods and services.
The model shows how money and goods flow from the household sector to the business sector and vice versa. The circular flow model is capable of describing how the labor market, the market for goods and services, and the capital market work in the economy. The labor market is where households provide labor to businesses in exchange for wages and salaries.
The market for goods and services is where businesses sell the goods and services that they produce to households. The capital market is where firms and households can borrow and lend money, either in the form of bonds or stocks.
Complete question:
The circular flow model is only capable of describing how the labor market and the market for goods and services work in the economy. True or false.
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Beverly Mills has decided to lease a hybrid car to save on gasoline expenses and to do her part to help keep the environment clean. The car she selected is available from only one dealer in the local area, but that dealer has several leasing options to accom-modate a variety of driving patterns. All the leases are for 3 years and require no money at the time of signing the lease. The first option has a monthly cost of $330, a total mileage allowance of 36,000 miles (an average of 12,000 miles per year), and a cost of $0.35 per mile for any miles over 36,000. The following table summarizes each of the three lease
options:
(See photos below)
Answers
Beverly Mills has three leasing options to choose from. Each of these options differs in terms of the monthly cost, the total mileage allowance, and the cost for any miles over the set mileage allowance. Depending on her driving patterns, Beverly Mills can select the option that suits her the best.
Beverly Mills decided to lease a hybrid car to save on gasoline expenses and to do her part to help keep the environment clean. The car she selected is available from only one dealer in the local area, but that dealer has several leasing options to accommodate a variety of driving patterns.All the leases are for 3 years and require no money at the time of signing the lease.
The three lease options available to Beverly Mills are as follows:
Option 1:Monthly cost: $330Total mileage allowance: 36,000 miles (an average of 12,000 miles per year)Cost for any miles over 36,000: $0.35 per mile
Option 2:Monthly cost: $460Total mileage allowance: 45,000 miles (an average of 15,000 miles per year)Cost for any miles over 45,000: $0.45 per mile
Option 3:Monthly cost: $540Total mileage allowance: 60,000 miles (an average of 20,000 miles per year)Cost for any miles over 60,000: $0.55 per mile
Therefore, Beverly Mills has three leasing options to choose from. Each of these options differs in terms of the monthly cost, the total mileage allowance, and the cost for any miles over the set mileage allowance. Depending on her driving patterns, Beverly Mills can select the option that suits her the best.
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Malcolm Phillips is a sole trader who prepares his accounts annually to 30 April. His summarised balance sheets for the last two years are shown below.
Balance Sheets as at 31 April
20X8 20X9
££ £££ £
Fixed assets 15,500 18,500
Less Provision for depreciation ( 1,500) ( 1,700)
14,000 16,800
Current assets
Stocks 3,100 5,900
Trade debtors 3,900 3,400
Bank 1,500 –
8,500 9,300
Current liabilities
Trade creditors 2,000 2,200
Bank overdraft – 900
(2,000) (3,100)
6,500 6,200
20,500 23,000
Represented by
Capital account:
Balance at 1 May 20,000 20,500
Add Net profit for the year 7,000 8,500
Additional capital introduced – 2,000
27,000 31,000
Less Drawings ( 6,500) ( 8,000)
20,500 23,000
Malcolm is surprised to see that he now has an overdraft, in spite of making a profit and bringing
in additional capital during the year.
Questions:
(a) Draw up a suitable financial statement which will explain to Malcolm how his overdraft has
arisen.
(b) The following further information relates to the year ended 30 April 20X9.
£
Sales (all on credit) 30,000
Cost of sales 22,500
Calculate Malcolm’s
(i) gross profit margin
(ii) rate of stock turnover
Answers
a. Malcolm's gross profit margin is 25%.
b. Malcolm's rate of stock turnover is 5 times.
To calculate Malcolm's gross profit margin and rate of stock turnover:
(i) Gross Profit Margin:
Gross Profit = Sales - Cost of Sales
Gross Profit = £30,000 - £22,500 = £7,500
Gross Profit Margin = (Gross Profit / Sales) * 100
Gross Profit Margin = (£7,500 / £30,000) * 100 = 25%
Malcolm's gross profit margin is 25%.
(ii) Rate of Stock Turnover:
Stock Turnover = Cost of Sales / Average Stock
Average Stock = (Opening Stock + Closing Stock) / 2
Average Stock = (£3,100 + £5,900) / 2 = £4,500
Stock Turnover = £22,500 / £4,500 = 5 times
Malcolm's rate of stock turnover is 5 times.
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which of the following constitutes an implicit cost to company A
A. property taxes
B. Payments of wages to its office workers
C. raw material costs paid by company A to the supplier B
D. value of the land owned by the company A
Answers
Answer:
Implicit cost to company A is:
D. value of the land owned by the company A
Explanation:
Implicit costs to company A will refer to the cost of resources already owned by the firm, which the company could have put to some other use. A good example is the value of the land owned by the company. This land could be put to another use, yielding some rent. It could also be sold outright. Its cost becomes implicit when the company uses it in its business. The land is not being held for sale.
Which of the following is a factor of production for a firm?
A. Natural Resources
B. Customers
C. Company Reputation
D. Legal Consultants
Answers
Answer:
natural resources
Explanation:
natural resources and legal consulatants
Scott cameras produces digital cameras and has decided to switch from a volume based system to an activity based system.Acott produced 100,000 digital cameras in the most recent quarter and has determined that total activity costs were:$3,000,00 materials cost,$500,000 labor costs,$50,000 inspection costs,and $500,000 packaging costs.It takes 30 minutes of labor to produce each camera,inspection are done for 20 percent of all cameras produced,and cameras packaged individually. What are the rates for each of these activities? a
Answers
The rates for each of the activities in Scott Cameras' switch from a volume-based system to an activity-based system are as follows:
- Materials cost rate: $30 per camera
- Labor cost rate: $10 per minute of labor
- Inspection cost rate: $5 per camera
- Packaging cost rate: $5 per camera
1. Calculate the total activity costs for each activity:
- Materials cost: $3,000,000
- Labor cost: $500,000
- Inspection cost: $50,000
- Packaging cost: $500,000
2. Determine the number of cameras produced in the most recent quarter: 100,000 cameras.
3. Calculate the rate for materials cost:
- Divide the total materials cost by the number of cameras produced:
$3,000,000 / 100,000 = $30 per camera
4. Calculate the rate for labor cost:
- Determine the total labor minutes required to produce all the cameras:
30 minutes per camera * 100,000 cameras = 3,000,000 minutes
- Divide the total labor cost by the total labor minutes:
$500,000 / 3,000,000 minutes = $10 per minute of labor
5. Calculate the rate for inspection cost:
- Determine the number of cameras that require inspection (20% of all cameras produced):
20% * 100,000 cameras = 20,000 cameras
- Divide the total inspection cost by the number of cameras requiring inspection:
$50,000 / 20,000 cameras = $5 per camera
6. Calculate the rate for packaging cost:
- Divide the total packaging cost by the number of cameras produced:
$500,000 / 100,000 = $5 per camera
These rates will be used in the activity-based system to allocate costs based on the specific activities involved in producing the digital cameras.
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What is a consumer in business
Answers
Answer:
Consumers are defined as individuals or businesses that consume or use goods and services.
Explanation:
Answer:
consumer is someone who uses, consumes goods and/or services. consumer is also someone who is involved in obtaining, consuming, and disposing of products and services, including the decisions that precede and follow up on those actions.
NEED GUIDANCE ON HOW TO DO THIS PLEASE
I need to prepare cash flow statement and financial performance statement. I have attended the photo
Answers
Answer:
transport and travelling cost
one could use the investment opportunity curve and the indifference curve to calculate optimal consumption and investment.
True or False?
Answers
You work for a company where the HR director has been involved in unethical activities. You know that others are also aware of the situation; however, no one is willing to report the director's behavior to upper management. You do not want to be the whistleblower3; however, you realize that guilt and loss of self-respect can result when you do or do not do things that conflict with what you believe. Discuss this situation with two or three classmates. Identify pros and cons of becoming a whistleblower.
Answers
Answer:
Personal Pros & Cons
Explanation:
To become a whistleblower in this situation, you might want to stay anonymous when reporting the situation. By staying anonymous you can report this situation without being worried that this HR director will know. But, if you don't want to become the whistleblower someone else might report them and you'll be out scot-free. But in the chance, someone doesn't, then you might feel guilty for not reporting this issue.
Under the ________ leadership style, decision-making power is centralized in the leader. Leaders do not entertain any suggestions or initiatives from subordinates. The ______ management is effective for quick decision making but is generally not successful in fostering employee engagement or maintaining worker satisfaction.
Answers
Answer:
Autocratic; autocratic.
Explanation:
A leader can be defined as an individual who is saddled with the responsibility of controlling, managing and maintaining a group of people under him or her.
Some types of power expressed by leaders are referent power, coercive, etc.
An autocratic leadership style accords a centralized decision-making power to the leader. Thus, they do not have to entertain any suggestions or initiatives from their subordinates.
Furthermore, this leadership style is very much effective for making decisions quickly but it's generally not successful in facilitating or enhancing employee engagement with management or maintaining worker satisfaction.
Alfred Home Construction is considering the purchase of five dumpsters and the transport truck to store and transfer construction debris from building sites. The entire rig is estimated to have an initial cost of $125,000, a life of 8 years, a $5000 salvage value, an operating cost of $40 per day, and an annual maintenance cost of $2000. Alternatively, Alfred can obtain the same services from the city as needed at each construction site for an initial delivery cost of $125 per dumpster per site and a daily charge of $20 per day per dumpster. An estimated 45 construction sites will need debris storage throughout the average year. If the minimum attractive rate of return is 12% per year, how many days per year must the equipment be required to justify its purchase?
Answers
Answer:
If the total number of days per year is 1,419 or less, then the company should obtain the services from the city. But if the total number of days per year is 1,420 or more, then the company should purchase the equipment.
Explanation:
alternative 1:
initial outlay = $125,000
useful life 8 years
depreciation per year = ($125,000 - $5,000) / 8 = $15,000
costs:
$40 per day
maintenance $2,000 per year
total annual costs = $40x + $2,000
alternative 2:
$125 x 45 sites = $5,625
$20x
total annual costs = $5,625 + $20x
how large does x need to be in order for alternative 1 to be better using a 12% discount rate
cash flows
year 0 = ($125,000)
year 1 = $40x + $2,000 - $5,625 - $20x = $20x - $3,625
year 2 = $20x - $3,625
year 3 = $20x - $3,625
year 4 = $20x - $3,625
year 5 = $20x - $3,625
year 6 = $20x - $3,625
year 7 = $20x - $3,625
year 8 = $20x - $3,625 + $5,000 = $20x + $1,375
I used the present value of an annuity formula, to determine the value of cash flow:
the PV annuity factor for 12% and 7 periods is 4.5638, so:
24,756.20 x 4.5638 = $112,982
$29,756.20 / (1.12⁸) = $12,018
total = $125,000
$20x - $3,625 = 24,756.20
$20x = $28,381.20
x = $28,381.20 / $20 = 1,419.06 days (including all 45 sites)
That means that if the total number of days per year is 1,419 or less, then the company should obtain the services from the city. But if the total number of days per year is 1,420 or more, then the company should purchase the equipment.