Answer:
Internal rate of return method
Explanation:
Internal rate of return is the discount rate that equates the after-tax cash flows from an investment to the amount invested
Accounting rate of return = Average net income / Average book value
Average book value = (cost of equipment - salvage value) / 2
Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash.
1.Enrique runs a flower stall in the local shopping mall. The stall rents for $1,600 a month. Enrique buys the flowers at $2 a bunch and sells them for $3 a bunch. He'll be open seven days a week, eight hours a day, and plans to sell 100 bunches of flowers a day. He's hired Rosita to work three hours each of the five school days and eight hours each day on Saturday and Sunday. Enrique pays Rosita $6 an hour. He works at the stall whenever Rosita is not working. If Enrique didn't work at the flower stall, he'd make $10 an hour as a cook. How much accounting profit and how much economic profit does Enrique make a week
Answer:
Enrique
a) Accounting profit = $114
b) Economic profit (loss) = ($136)
Explanation:
a) Data and Calculations:
Monthly Rent = $1,600
Cost price of flowers = $2 per bunch
Selling price of flowers = $3 per bunch
Operations are for 7 days (8 hours daily) = 56 hours
Quantity of flowers sold per day = 100 bunches
Quantity of flowers sold per week = 700 (100 * 7)
Employee hours = 5 * 3 + 2 * 8 = 31 hours
Hours worked by Enrique = 25 (56 - 31)
Employee wages = $186 ($6 * 31)
Opportunity cost: Enrique = 25 * $10 = $250 per week
Accounting profit:
Sales revenue ($3 * 700) = $2,100
Cost of sales ($2 * 700) = 1,400
Gross profit $700
Expenses:
Rent ($1,600/4) = 400
Employee wages = 186 586
Accounting profit = $114
Economic profit:
Accounting profit $114
Opportunity cost 250
Economic loss = $136
Novak Corp.'s trial balance reported the following balances at the end of its first year: Cash $17080 Prepaid insurance 850 Accounts receivable 4270 Accounts payable 3420 Notes payable 5120 Common stock 6590 Dividends 850 Revenues 35380 Expenses 21350 What amount did Novak Corp.'s trial balance show as total credits
Answer:
Explanation:
Novak Corp.'s
Trail Balance
Debit ($) Credit ($)
Cash $17,080
Prepaid insurance $850
Accounts receivable $4,270
Accounts payable $3,420
Notes payable $5,120
Common stock $6,590
Dividends $850
Revenues $35,380
Expenses $21,350
Credit Total $50,510
Serendipity Inc. is re-evaluating its debt level. Its current capital structure consists of 80% debt and 20% common equity, its beta is 1.60, and its tax rate is 25%. However, the CFO thinks the company has too much debt, and he is considering moving to a capital structure with 40% debt and 60% equity. The risk-free rate is 5.0% and the market risk premium is 6.0%. By how much would the capital structure shift change the firm's cost of equity
Answer:
-6.00%
Explanation:
The computation of the change in the capital structure is as follows;
Current Capital Structure:
Given that
Weight of Debt = 80%
Weight of Equity = 20%
Levered Beta = 1.60
Now
Debt-Equity Ratio = Weight of Debt ÷ Weight of Equity
= 0.80 ÷ 0.20
= 4.00
Unlevered Beta = Levered Beta ÷ [1 + (1 - Tax Rate) × Debt-Equity Ratio]
= 1.60 ÷ [1 + (1 - 0.25) × 4.00]
= 1.60 ÷ 4.00
= 0.40
Now
Cost of Equity = Risk-free Rate + Levered Beta × Market Risk Premium
= 5.00% + 1.60 × 6.00%
= 14.60%
New Capital Structure:
Weight of Debt = 40%
Weight of Equity = 60%
Now
Debt-Equity Ratio = Weight of Debt ÷ Weight of Equity
= 0.40 ÷ 0.60
= 0.6667
Unlevered Beta = 0.40
Levered Beta = Unlevered Beta × [1 + (1 - Tax Rate) × Debt-Equity Ratio]
= 0.40 × [1 + (1 - 0.25) × 0.6667]
= 0.40 × 1.50
= 0.60
Cost of Equity = Risk-free Rate + Levered Beta × Market Risk Premium
= 5.00% + 0.60 × 6.00%
= 8.60%
Now
Change in Cost of Equity = Cost of Equity under New Capital Structure - Cost of Equity under Current Capital Structure
= 8.60% - 14.60%
= -6.00%
During periods of bad weather, as compared with periods of clear weather, how many additional gallons of fuel on average should FreeEx expect its planes to consume because of airport congestion?
Answer:
the question is incomplete:
arrival rate = 20 per hourlanding rate with good weather = 60 per hourlanding rate with bad weather = 30 per hourλ = 20
μ₀ = 30
μ₁ = 60
Ls for good weather = 20 / (60 - 20) = 20/40 = 0.5
Ls for bad weather = 20 / (30 - 20) = 20/10 = 2
Ws for good weather = 60 / 40 = 1.5
Ws for bad weather = 60 / 10 = 6
Wg for good weather = 1.5 - (60 / 60) = 1.5 - 1 = 0.5
Wg for bad weather = 6 - (60 / 30) = 6 - 2 = 4
Fuel consumed due to slack:
good weather = Ws x λ = 1.5 x 20 = 30 gallons
bad weather = Ws x λ = 6 x 20 = 120 gallons
So each plane should expect to consume 120 - 30 = 90 additional gallons of fuel due to bad weather
The next two questions pertain to the problem below: You researched Jersey Kids Corp on Yahoo Finance and you found the following 2020 financial information: Annual dividends per share paid in 2020 - $3.00 Earnings per share - $2.50 Net Income - $2,500,000 Dividend growth rate for 2021 - 2% Investor's required rate of return - 10% 8. Approximately how much would you expect the current stock price of Jersey Kids Corp to be in 2021
Answer:
The current stock price of Jersey Kids Corp in 2021 is expected to be $39.02.
Explanation:
The current stock price of Jersey Kids Corp in 2021 can be calculated using the formula for the dividend discount model as follows:
P2021 = D2022 / (r - g) ............................ (1)
Where,
P2021 = current stock price in 2021 = ?
D2020 = Annual dividends per share paid in 2020 = $3.00
D2021 = Annual dividends per share paid in 2021 = D2020 * (1 + g) = $3 * (1 + 0.02) = $3.06
D2022 = Annual dividends per share paid in 2022 = D2021 * (1 + g) = $3.06 * (1 + 0.02) = $3.1212
r = required return = 10%. or 0.10
g = growth rate = 2% = 0.02
Substituting the values into equation (2), we have:
P2021 = $3.1212 / (0.10 - 0.02)
P2021 = $3.1212 / 0.08
P2021 = $39.02
Therefore, the current stock price of Jersey Kids Corp in 2021 is expected to be $39.02.
As a result of a decrease in the demand for U.S. dollars, there has been depreciation in the value of the U.S. dollar relative to Peruvian neuvo sol. The depreciation in the U.S. dollar has benefitted some groups but harmed others. Indicate which of the groups are winners and which are losers from the standpoint of the depreciation of the U.S. dollar. A. Todd, an American, goes to visit Peru for spring break. B. An investment bank in Peru is interested in purchasing U.S. government bonds. C. Goodyear, a firm based in the United States, sells car tires in Peru. D. A family from Peru visits relatives in the United States. E. A firm from Peru sells handbags in the United States. F. An electronics manufacturer based in the United States, purchases a high tech company in Peru.
Answer: See explanation
Explanation:
A. Todd, an American, goes to visit Peru for spring break.
Todd is a loser. This is because more expenses will be incurred on the trip.
B. An investment bank in Peru is interested in purchasing U.S. government bonds.
The investment banker is a winner. This is because there's an appreciation of the currency on the part of the investment banker and therefore will be able to purchase more bonds.
C. Goodyear, a firm based in the United States, sells car tires in Peru.
Goodwill is a winner. This is because as an exporter, the company will make more profit as there'll be a rise in the export.
D. A family from Peru visits relatives in the United States.
They are winners as they'll get more dollars now.
E. A firm from Peru sells handbags in the United States.
This is a loser as less revenue will be made due to depreciation.
F. An electronics manufacturer based in the United States, purchases a high tech company in Peru.
This is a loser as well.
When you see an advertisement for a store and decide to shop there, which element of the marketing mix has succeeded?
O Presentation
O Product
O Place
O Promotion
Answer:
Promotion
Explanation:
Because it is telling people that the product is ready for them to buy it
Emily Smith files her tax return on the basis of a fiscal year. Her records show that she received income in November 2018 and February 2019 from which there was backup withholding ($100 and $50, respectively). Emily takes credit for what amount of backup withholding on her tax return for the fiscal year ending September 30, 2019
Answer:
$150
Explanation:
Calculation for what amount of backup withholding on her tax return for the fiscal year ending September 30, 2019 will Emily takes credit for
Using this formula
Credit amount of backup withholding on her tax return for the fiscal year ending September 30, 2019= November 2018 backup withholding+February 2019 backup withholding
Let plug in the formula
Credit amount of backup withholding on her tax return for the fiscal year ending September 30, 2019=$100 + $50
Credit amount of backup withholding on her tax return for the fiscal year ending September 30, 2019 = $150
Therefore the amount of backup withholding on her tax return for the fiscal year ending September 30, 2019 will Emily takes credit for will be $150
The Lechwe Company's December 31 pre-reconciliation cash balance on its books was $93,000. As of December 31, outstanding checks total $45,200 and deposits in transit total $30,600. Assuming there are no other reconciling items, what was the December 31 cash balance on Lechwe's bank statement
Answer:
$107,600
Explanation:
The cash balance on Lechwe' bank would be calculated as;
Cash balance = Corrected cash book balance + Outstanding cheques - Deposit in transit
Given that;
Corrected cash book balance = $93,000
Outstanding cheques = $45,200
Deposit in transit = $30,600
= $93,000 + $45,200 - $30,600
= $107,600
Therefore, the December 31 cash balance on Lechwe's bank statement is $107,600
Real per capita gross domestic product (GDP) is higher in the United States than in Bangladesh. Based on that, we could predict the United States to have a higher rate of ________ and a lower rate of ________.
Answer:
b. adult literacy; infant mortality
Explanation:
Multiple choice "life expectancy; internet usage ; adult literacy; infant mortality ; infant mortality; adult literacy ; access to clean water; life expectancy"
Higher real GDP per capita would imply higher literacy rate and at the same time lower infant mortality as citizens would invest more in health and education. All the other options are wrong as higher real GDP per capita cannot lead to lower life expectancy or literacy rate.
When Finance Director Debenditti states that she tries to draw group members out and force participation, this might cause some conflict with some of the strong personalities in the group. Allowing for some disagreement is helpful and is associated with which stage of team development?
a. Performing
b. Storming
c. Norming
d. Forming
e. Adjourning
The act of allowing for some disagreement is helpful and is associated with which stage of team development is the Storming stage.
At the Storming stage, team members are quite open to sharing of ideas and an individual can therefore use the opportunity to stand out and be accepted by their team members.Team leaders is known to aid teams through having a plan in place to manage competition among team members, make communication easier etc.
There are five stages of team development. They are forming, storming, norming, performing, and adjourning.
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For a real interest rate of 12% per year and an inflation rate of 7% per year, the market interest rate per year is closest to:______
a. 4.7%
b. 7%
c. 12%
d. 19.8%
Answer: 19.8%
Explanation:
Interest rate = 12%
Inflation rate = 7%
Market Interest rate will be:
= 12% + 7% + 12%(7%)
= 0.12 + 0.07 + 0.12(0.07)
= 0.12 + 0.07 + 0.0084
= 0.1984
= 19.84%
Therefore, the market interest rate per year is closest to 19.8%
Merger Gains. Acquiring Corp. is considering a takeover of Takeover Target Inc. Acquiring has 10 million shares outstanding, which sell for $40 each. Takeover Target has 5 million shares outstanding, which sell for $20 each. If the merger gains are estimated at $25 million, what is the highest price per share that Acquiring should be willing to pay to Takeover Target shareholders
Answer: $25 per share
Explanation:
Find the extra amount that would have to be paid on Takeover Target stock to enable a gain of $25 million.
= 25,000,000/ 5,000,000 shares
= $5 per share
Takeover Target is currently selling at $20 so the price it can be sold at for a gain of $25 million is;
= 20 + 5
= $25 per share
Fallow Corporation has two separate profit centers. The following information is available for the most recent year: West Division East Division Sales (net) $270,000 $420,000 Salary expense 33,000 47,000 Cost of goods sold 101,000 203,000 The West Division occupies 6,750 square feet in the plant. The East Division occupies 4,050 square feet. Rent, which was $ 54,000 for the year, is an indirect expense and is allocated based on square footage. Compute operating income for the West Division.
Answer:
$102,250
Explanation:
Sales $270,000
Less: Cost of goods sold $101,000
Gross profit $169,000
Less: Salary Expenses $33,000
Profit before New exp $138,000
Less: Rent expenses $33,750
Net profit $102,250
Workings
Rent expenses = $54,000 * 6750/6750+4050
Rent expenses = $54,000 * 6750/10800
Rent expenses = $54,000 * 0.625
Rent expenses = $33,750
Fontaine and Monroe are forming a partnership. Fontaine invests a building that has a market value of $356,000; the partnership assumes responsibility for a $128,000 note secured by a mortgage on the property. Monroe invests $103,000 in cash and equipment that has a market value of $78,000. For the partnership, the amounts recorded for the building and for Fontaine's Capital account are:_______.
a. Building $356,000; Fontaine, Capital $309,000.
b. Building $356,000; Fontaine, Capital $356,000.
c. Building $228,000; Fontaine, Capital $128,000.
d. Building $228,000; Fontaine, Capital $228,000.
e. Building $356,000; Fontaine, Capital $228,000.
Answer: e. Building $356,000; Fontaine, Capital $228,000.
Explanation:
The company would record the building which Fontaine brought in at its Market value which is $356,000.
However, because the partnership assumes responsibility for a $128,000 note secured by a mortgage on the property, this cannot be counted as a capital contribution from Fontaine so this will be removed from their capital contribution;
= 356,000 - 128,000
= $228,000
Impa Inc. applies overhead based upon machine hours. At the beginning of 2018, Impa estimated overhead to be $400,000, machine hours to be 25,000, and direct labor hours to be 40,000. During April, Impa has 3,000 direct labor hours and 4,500 machine hours. What is the amount of overhead applied for April?
Solution :
It is given that,
Impa Inc. estimated an overhead of $ 400,00 machine hours to be 25,000 and that of direct labor hours of 40,000.
During the month of April, Impa Inc. has a 3000 direct labor hours as well as 4500 machine hours.
Therefore, the overhead applied for the month of April is
[tex]$\frac{400,000}{25,000} $[/tex] machine hours = $ 16 per machine hour
The actual machine hours in April = 4500 machine hours
Therefore the overhead applied = 4500 x 16
= $ 72,000
PURCHASING POWER PARITY In the spot market, 19.1 Mexican pesos can be exchanged for 1 U.S. dollar. A compact disc costs $15 in the United States. If purchasing power parity (PPP) holds, what should be the price of the same disc in Mexico
Answer: $286.50
Explanation:
Purchasing Power Parity (PPP) posits that prices are the same across countries given the rate of exchange between the currencies of the countries in question.
1 USD = 19.1 Mexican pesos.
Compact disc in Mexico would cost;
= 19.1 * 15
= $286.50
Pollution of water and soil from activities such as oil and gas drilling is primarily related to: Select one: a. sustainability issue b. consumer relations c. community relations d. relations with stockholders e. employee relations
Answer:
a. sustainability issue
Explanation:
Sustainability refer to activities that are conducted in order to provide the well being for the long term with respect to the natural environment that also involved the all types of biological entities
Since in the question it is mentioned that the water pollution and the soil from activities is mainly related to the sustainability issue and hence, the same is to be considered
Therefore the correct option is a.
Machinery acquired new on January 1 at a cost of $80,000 was estimated to have a useful life of 10 years and a residual salvage value of $20,000. Straight-line depreciation was used. On January 1, following six full years of use of the machinery, management decided that the estimate of useful life had been too long and that the machinery would have to be retired after three years, that is, at the end of the ninth year of service. Under this revised estimate, the depreciation expense for the seventh year of use would be:
Answer:
$8,000
Explanation:
Calculation for what the depreciation expense for the seventh year of use would be
First step is to calculate the Book value at the end of Year 6
Machinery cost $80,000
Less: Salvage value ($20,000)
Depreciable cost $60,000
($80,000-$20,000)
Divide by useful life 10 years
Annual Depreciation $6,000
($60,000÷10 years)
Accumulated Depreciation for 6 years $36,000
($6,000*6 years)
Book value at the end of Year 6 $44,000 ($80,000-$36,000)
Now let calculate the Depreciation expense for the seventh year of use
Book value at the end of Year 6 $44,000
Less: Salvage value ($20,000)
Remaining Depreciable cost $24,000
($44,000-$24,000)
Divide by Remaining useful life 3 years
Depreciation expense for the seventh year of use $8,000
($24,000/3 years)
Therefore Under this revised estimate, the depreciation expense for the seventh year of use would be: $8,000
(LO 7) The Gardner Company expects sales for October of $238,000. Experience suggests that 45% of sales are for cash and 55% are on credit. The company collects 50% of its credit sales in the month of sale and 50% in the month following sale. Budgeted Accounts Receivable on September 30 is $62,000. What is the amount of Accounted Receivables on the October 31 budgeted balance sheet?
Answer:
$65,450
Explanation:
Calculation for the amount of Accounted Receivables on the October 31 budgeted balance sheet
Using this formula
Accounted Receivables on the October 31 budgeted balance sheet=Credit sales*October sales*Credit sales
Let plug in the formula
Accounted Receivables on the October 31 budgeted balance sheet=(55% * 238,000 *50%)
Accounted Receivables on the October 31 budgeted balance sheet=$65,450
Therefore the amount of Accounted Receivables on the October 31 budgeted balance sheet will be $65,450
Assume that the risk-free rate of interest is 6% and the expected rate of return on the market is 16%. A share of stock sells for $50 today. It will pay a dividend of $6 per share at the end of the year. Its beta is 1.2. What do investors expect the stock to sell for at the end of the year
Answer: Price of stock at year end =$53
Explanation:
we first compute the Expected rate of return using the CAPM FORMULAE that
Expected return =risk-free rate + Beta ( Market return - risk free rate)
Expected return=6% + 1.2 ( 16%-6%)
Expected return= 0.06 + 1.2 (10%)
Expected return=0.06+ 0.12
Expected return=0.18
Using the formulae Po= D1 / R-g to find the growth rate
Where Po= current price of stock at $50
D1= Dividend at $6 at end of year
R = Expected return = 0.18
50= 6/ 0.18-g
50(0.18-g) =6
9-50g=6
50g=9-6
g= 3/50
g=0.06 = 6%
Now that we have gotten the growth rate and expected return, we can now determine the price the investors are expected to sell the stock at the end of year.
Price of stock = D( 1-g) / R-g
= 6( 1+0.06)/ 0.18 -0.06
=6+0.36/0.12
=6.36/0.12= $53
You bought a 1000 par value callable bond right after a coupon payment and paid 918 for it. You held it until it was called for 1100 (prior to maturity). The bond had a coupon rate of 9% payable semi-annually. The nominal yield rate convertible semi-annually was 10%. For how many years did you hold the bond
Answer:
25 years
Explanation:
We first set BA II Plus calculator : C/Y = 2, P/Y = 2
Then, I/Y = 10, PMT= -45(1000*9%/2), FV= -1100, PV=918
CPT No of years = N(I/Y, PMT, -FV, PV) (Semi annual period)
CPT No of years = 49.35 (Semi annual period)
CPT No of years = 49.35/2
CPT No of years = 24.68
CPT No of years = 25 years
Pharoah Company started the year with total assets of $304000 and total liabilities of $244000. During the year the business recorded $633000 in revenues, $326000 in expenses, and dividends of $62000. The net income reported by Pharoah Company for the year was
Answer:
Net Income = $307,000
Explanation:
Given:
Total revenue = $633,000
Total expenses = $326,000
Find:
Net income
Computation:
Net Income = Total revenue - Total expenses
Net Income = $633,000 - $326,000
Net Income = $307,000
what does sales manager do?
Answer:
A sales manager is the person responsible for leading and coaching a team of salespeople. A sales manager's tasks often include assigning sales territories, setting quotas, mentoring the members of her sales team, assigning sales training, building a sales plan, and hiring and firing salespeople.
Steve has converted his garage into a separate living space and listed the property for short-term rental on an online platform. Steve spends an average of 15 hours each week performing activities related to the rental property. Which activity is considered a substantial service.
Answer:
B). Changing sheets and towels between rentals.
Multiple-choice
A). Administrative activities, including paying bills and advertising the rental.
B). Changing sheets and towels between rentals.
C). Re paring carpet damaged by quests
D). Transporting quests to and from the airport and sightseeing trips.
Explanation:
According to IRS regulations, a person is said to have performed substantial services if they dedicate at least 45 hours per month to the business. Steve works an average of 15 hours of performing activities. In a month, he works for an average of 60 hours in the rental property.
The IRS defines substantial services to be activities like regular cleaning, maid services, and changing linens. For Steve, substantial service will be option B: Changing sheets and towels between rentals.
ABC Company filed suit against Lowland, Inc., seeking damages for copyright violations. Lowland' legal counsel believes it is probable that Lowland will settle the lawsuit for an estimated amount in the range of $180,000 to $280,000, with all amounts in the range considered equally likely. How should Lowland report this litigation
Answer:
Lowland should recognize a contingent liability of:
$230,000 in the current period.
Explanation:
a) Data and Calculations:
Estimated amount for lawsuit settlement:
$180,000 * 50% = $90,000
$280,000 * 50% = $140,000
$230,000
b) Lowland's contingent liability to ABC Company is the liability that may occur depending on the outcome of the lawsuit, which is in itself an uncertain future event. A contingent liability is recorded if the contingency is likely or probable, already established by Lowland's legal counsel, and the amount of the liability can be reasonably estimated.
Use the following data to determine the total dollar amount of assets to be classified as property, plant, and equipment. Sheffield Corp. Balance Sheet December 31, 2022 Cash and cash equivalents $71500 Accounts payable $127500 Accounts receivable 93500 Salaries and wages payable 10000 Inventory 146000 Bonds payable 177500 Prepaid insurance 83000 Total liabilities $315000 Stock Investments 176000 Land 191500 Buildings $226500 Common stock $216500 Less: Accumulated depreciation (52500) 174000 Retained earnings 516000 Trademarks 112000 Total stockholders' equity $732500 Total assets $1047500 Total liabilities and stockholders' equity $1047500
Answer:
The total dollar amount of assets to be classified as property, plant, and equipment is $365,500.
Explanation:
In accounting, property, plant, and equipment are simply the fixed assets of an organization.
From the question, only Land and Buildings can be classified as property, plant, and equipment and their total dollar amount can be calculated based on the information from the question as follows:
Land = $191500
Buildings = $226500
Accumulated depreciation on Buildings = $52500
Buildings net book value = Buildings - Accumulated depreciation on Buildings = $226500 - $52500 = $174000
Therefore, we have:
Total dollar amount of property, plant, and equipment = Land + Buildings net book value = $191500 + $174000 = $365,500
Therefore, the total dollar amount of assets to be classified as property, plant, and equipment is $365,500.
23) The creation of a successful new product depends on a company's understanding of its ________ and its ability to deliver ________ to customers. A) customers, competitors, and markets; superior value B) product, marketing mix, and marketing strategy; functional features C) product life cycle, legal responsibilities, and social responsibilities; innovations D) customers, brands, products; product images E) competitors, distributors, and employees; new styles
Answer:
A) A) customers, competitors, and markets; superior value
Explanation:
For a company to create a successful product, First, this company must create a great product that has a clear, well defined also large consumer market where the product that is being created offers a solution to existing consumer issues as well as having the ability to outperform it's competitors. This can be achievable through offering a product that has superior value.
Secondly, this new product has to be properly defined across the final consumer, technology and business before the company starts execution.
explain different ways a company is applying management
Explanation:
Organizational management is extremely important for conducting business. Managing is the process of measuring, monitoring, organizing, controlling and administering, through these variables it is possible for a company to know its strengths and weaknesses and coordinate them so that it has a greater chance of being competitive and profitable in the market.
Each organization can manage the business in different ways, this will depend on its objectives and organizational structure, the most important is that the management is aligned with a strategic planning that understands the objectives and goals of the organization so that it remains well positioned in the competitive market .
Miller Fruit wants to expand its citrus grove operations. The firm estimates that it needs $8.6 million to buy land and establish its operations. Currently, the firm has 540,000 shares of stock outstanding at a market price per share of $47.50. If the firm decides to raise the needed capital through a rights offering, one right will be issued for each share of stock. The subscription price will be set at $40 a share. How many rights will a shareholder need to purchase one new share of stock in this offering
Answer: 2.51
Explanation:
First, we calculate the number of shares that will be issued in order to raise $8.6 million at $40 a share. This will be:
= $8.6 million / $40
= 215,000
Since the firm currently has 540,000 shares of stock outstanding, the number of rights that a shareholder will need to purchase one new share of stock in this offering will be:
= 540,000 / 215,000
= 2.51