Question: Tellington Inc. recently discussed issuing a 10-

> Goldstein Corporation manufactures a children’s bicycle, model CT 8. Goldstein currently manufactures the bicycle frame. During 2012, Goldstein made 32,000frames at a total cost of $1,056,000. Ryan Corporation has offered to supply as m

> Terry Lawler, managing director of the Chicago Reviewers Group, is examining how overhead costs behave with changes in monthly professional labor-hours billed to clients. Assume the following historical data: Required: 1. Compute the linear cost functi

> Laurie Daley is examining customer-service costs in the southern region of Capitol Products. Capitol Products has more than 200 separate electrical products that are sold with a six-month guarantee of full repair or replacement with a new product. When a

> Gower, Inc., a manufacturer of plastic products, reports the following manufacturing costs and account analysis classification for the year ended December 31, 2012. Gower, Inc., produced 75,000 units of product in 2012. Gower’s manage

> Java Joe Coffees wants to find an equation to estimate monthly utility costs. Java Joe’s has been in business for one year and has collected the following cost data for utilities: Required: 1. Which of the preceding costs is variable?

> Lorenzo operates a car wash. Incoming cars are put on an automatic conveyor belt. Cars are washed as the conveyor belt carries them from the start station to the finish station. After a car moves off the conveyor belt, it is dried manually. Workers then

> Compaq Computer incurs the following costs: a. Electricity costs for the plant assembling the Presario computer line of products b. Transportation costs for shipping the Presario line of products to a retail chain c. Payment to David Kelley Designs for d

> The Pacific Corporation operates car rental agencies at more than 20 airports. Customers can choose from one of three contracts for car rentals of one day or less: Contract 1: $50 for the day Contract 2: $30 for the day plus $0.20 per mile traveled Contr

> Mega-Air, Inc., manufactures a specialized snowboard made for the advanced snowboarder. Mega-Air began 2011 with an inventory of 240 snowboards. During the year, it produced 900 boards and sold 995 for $750 each. Fixed production costs were $280,000 and

> Thunder Bolt, Inc., is a manufacturer of the very popular G36 motorcycles. The management at Thunder Bolt has recently adopted absorption costing and is debating which denominator-level concept to use. The G36 motorcycles sell for an average price of $8,

> Helmetsmart, a three year-old company, has been producing and selling a single type of bicycle helmet. Helmetsmart uses standard costing. After reviewing the income statements for the first three years, Stuart Weil, president of Helmetsmart, commented, &

> The Rehe Company sells its razors at $3 per unit. The company uses a first-in, first-out actual costing system. A fixed manufacturing cost rate is computed at the end of each year by dividing the actual fixed manufacturing costs by the actual production

> Grunewald Company manufacturers a professional grade vacuum cleaner and began operations in 2011. For 2011, Grunewald budgeted to produce and sell 20,000units. The company had no price, spending, or efficiency variances, and writes off production-volume

> Osawa, Inc., planned and actually manufactured 200,000units of its single product in 2012, its first year of operation. Variable manufacturing cost was $20 per unit produced. Variable operating (nonmanufacturing) cost was $10 per unit sold. Planned and a

> The Zwatch Company manufactures trendy, high-quality moderately priced watches. As Zwatch’s senior financial analyst, you are asked to recommend a method of inventory costing. The CFO will use your recommendation to prepare Zwatch&acirc

> The variable manufacturing costs per unit of BigScreen Corporation are as follows: Required: 1. Prepare income statements for BigScreen in January, February, and March of 2012 under throughput costing. 2. Contrast the results in requirement 1 with thos

> BigScreen Corporation manufactures and sells 50-inch television sets and uses standard costing. Actual data relating to January, February, and March of 2012 are as follows: The selling price per unit is $2,500. The budgeted level of production used to

> Benchmarking against other companies enables a company to identify the lowest-cost producer. This amount should become the performance measure for next year.” Do you agree?

> The variable manufacturing costs per unit of Nascar Motors are as follows: Required: 1. Prepare income statements for Nascar Motors in April and May of 2011 under throughput costing. 2. Contrast the results in requirement 1 with those in requirement 1

> Nascar Motors assembles and sells motor vehicles and uses standard costing. Actual data relating to April and May 2011 are as follows: The selling price per vehicle is $24,000. The budgeted level of production used to calculate the budgeted fixed manuf

> David James is a cost accountant and business analyst for Doorknob Design Company (DDC), which manufactures expensive brass doorknobs. DDC uses two direct cost categories: direct materials and direct manufacturing labor. James feels that manufacturing ov

> Purdue, Inc., manufactures tires for large auto companies. It uses standard costing and allocates variable and fixed manufacturing overhead based on machine-hours. For each independent scenario given, indicate whether each of the manufacturing variances

> Dvent budgets 18,000 machine-hours for the production of computer chips in August 2011. The budgeted variable overhead rate is $6 per machine hour. At the end of August, there is a $375 favorable spending variance for variable overhead and a $1,575 unfav

> Furniture, Inc., specializes in the production of futons. It uses standard costing and flexible budgets to account for the production of a new line of futons. For 2011, budgeted variable overhead at a level of 3,600 standard monthly direct labor-hours wa

> Meals on Wheels (MOW) operates a meal home-delivery service. It has agreements with 20 restaurants to pick up and deliver meals to customers who phone or fax orders to MOW. MOW allocates variable and fixed overhead costs on the basis of delivery time. MO

> The Singapore division of a Canadian telecommunications company uses standard costing for its machine-paced production of telephone equipment. Data regarding production during June are as follows: Required: 1. Prepare an analysis of all manufacturing o

> Rozema, Inc., produces chemicals for large biotech companies. It has the following data for manufacturing overhead costs during August 2013: Use F for favorable and U for unfavorable: Variable Fixed $31,000 Actual costs incurred Costs allocated to

> The Solutions Corporation is a manufacturer of centrifuges. Fixed and variable manufacturing overheads are allocated to each centrifuge using budgeted assembly-hours. Budgeted assembly time is two hours per unit. The following table shows the budgeted am

> Increasing the number of indirect-cost pools is guaranteed to sizably increase the accuracy of product or service costs.” Do you agree? Why?

> Explain the term “supply chain” and its importance to cost management.

> Solarpower Systems expects to earn $20 per share this year and intends to pay out $8 in dividends to shareholders and retain $12 to invest in new projects with an expected return on equity of 20 percent. In the future, Solarpower expects to maintain the

> Temple-Midland, Inc., is issuing a $1,000 par value bond that pays 8 percent annual interest and matures in 15 years. Investors are willing to pay $950 for the bond, and Temple faces a tax rate of 35 percent. What is Temple’s after-tax cost of debt on th

> Falon Corporation is issuing new common stock at a market price of $28. Dividends last year were $1.30 and are expected to grow at an annual rate of 7 percent forever. What is Falon’s cost of common equity capital?

> The Boston Brewery Corporation is a craft brewer of premium beers. The firm is planning on issuing common stock at a market price of $13 a share. Last year the firm paid an annual dividend of $1.45, and analysts expect the firm’s future dividends will gr

> Compute the cost of capital for the firm for the following: a. Currently, new bond issues with a credit rating and maturity similar to those of the firm’s outstanding debt are selling to yield 8 percent, while the borrowing firm’s corporate tax rate is 3

> You have just been hired to compute the cost of capital for debt, preferred stock, and common stock for the Mindflex Corporation. a. Cost of debt: Because Mindflex’s bonds do not trade very frequently, you have decided to use 7 percent as your cost of de

> Your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital. To help in this, compute the cost of capital for the firm for the following: a. A bond that has a $1,000 par value (face value) and a con

> Two-Foot Tools, Inc., sells and distributes work footwear and other clothing for people who work under extreme cold conditions such as in the Arctic or Antarctica. The company recently borrowed $10 million net of issuance costs equal to 1.5 percent of th

> The Pandora Internet Radio Company was started in 2000 to provide a personalized radio listening experience over your computer or iPhone and is privately owned. However, its success could easily lead its owners to take the company public with the sale of

> Compute the cost of capital for each of the following sources of financing: a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 11 percent. Interest payments are $55.00 and are paid semiannually. The bond has a cu

> The Faraway Moving Company is involved in a major plant expansion that requires the expenditure of $200 million in the coming year. The firm plans on financing the expansion by retaining $150 million in firm earnings and borrowing the remaining $50 milli

> The Callaway Cattle Company is considering the construction of a new feed-handling system for its feedlot in Abilene, Kansas. The new system will provide annual labor savings and reduced waste totaling $200,000, and the initial investment will be only $5

> You are working as a consultant to the Lulu Athletic Clothing Company, and you have been asked to compute the appropriate discount rate to use in the evaluation of the purchase of a new warehouse facility. You have determined the market value of the fi

> You are working in the Finance Department of Ranch Manufacturing, and your supervisor has asked you to compute the appropriate discount rate to use when evaluating the purchase of new packaging equipment for the plant. Under the assumption that the firm&

> Bane Industries has a capital structure consisting of 60 percent common stock and 40 percent debt. The firm’s investment banker has advised the firm that debt issued with a $1,000 par value, an 8 percent coupon (with interest paid semiannually), and a 20

> The target capital structure for J&J Manufacturing is 50 percent common stock, 15 percent preferred stock, and 35 percent debt. If the cost of common equity for the firm is 15 percent, the cost of preferred stock is 9 percent, and the before-tax cost of

> Crypton Electronics has a capital structure consisting of 40 percent common stock and 60 percent debt. A debt issue of $1,000 par value, 6 percent bonds that mature in 15 years and pay annual interest will sell for $975. Common stock of the firm is curre

> In the spring of last year, the management of the Silver Steel Company learned that the firm would need to reevaluate the company’s weighted average cost of capital following a significant issue of debt. The firm now has financed 40 percent of its assets

> The target capital structure for QM Industries is 40 percent common stock, 10 percent preferred stock, and 50 percent debt. If the cost of common equity for the firm is 18 percent, the cost of preferred stock is 10 percent, the before-tax cost of debt is

> Waygone Industries is planning on issuing 30-year bonds that will be rated AA. Use Figure 14.3 to estimate the yield to maturity on the bond issue. What is the spread to Treasury for the debt issue in basis points? Figure 14.3: Rating 1 year 2 year

> In August 2015 the capital structure of the Emerson Electric Corporation (EMR) (measured in book and market values) was as follows: What weights should Emerson use when computing the firm’s weighted average cost of capital? ($ Mil

> Carson Trucking is considering whether to expand its regional service center in Moab, Utah. The expansion will require the expenditure of $10,000,000 on new service equipment and will generate annual net cash inflows by reducing operating costs $2,500,00

> Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with a 10 percent annual coupon rate (with interest paid semiannually) and a 10-year maturity. The investors requir

> Gillian Stationery Corporation needs to raise $600,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an 8 percent annual coupon rate (with interest paid semiannually) and a 10-year maturity. Investors require a

> The common stock of the M&M Corporation currently sells for $60, and the dividend paid last year was $2.25. Five years ago the firm paid $2.10 per share, and dividends are expected to grow at the same annual rate in the future as they did over the past f

> The common stock for the Kingsford Corporation sells for $58 a share. Last year the firm paid a $4 dividend, which is expected to continue to grow 4 percent per year into the indefinite future. If the firm’s tax rate is 22 percent, what is the firm’s cos

> The common stock for Oxford, Inc., is currently selling for $22.50, and the firm paid a dividend last year of $1.80. The dividends and earnings per share are projected to have an annual growth rate of 4 percent into the foreseeable future. What is the co

> In the spring of 2017 the Marrion Metal Shaping Company was planning on issuing preferred stock to help finance a major plant expansion. The stock is expected to sell for $98 a share and will have a $100 par value on which the firm will pay a 10 percent

> The Shiloh Corporation is contemplating a new investment that it plans to finance using one-third debt. The firm can sell new $1,000 par value bonds with a 15-year maturity and a coupon interest rate of 13 percent (with interest paid semiannually) at a p

> The preferred stock of Gator Industries sells for $35 and pays $2.75 per year in dividends. What is the cost of preferred stock financing? If Gator were to issue 500,000 more preferred shares just like the ones it currently has outstanding, it could sell

> The preferred stock of Walter Industries Inc. currently sells for $36 a share and pays a 10 percent dividend on the $25 par value of the shares annually. What is the firm’s cost of capital for the preferred stock?

> Belton Distribution Company is issuing a $1,000 par value bond that pays 7 percent annual interest (with interest paid semiannually) and matures in 15 years. Investors are willing to pay $958 for the bond. The company is in the 18 percent marginal tax br

> Fijisawa, Inc., is considering a major expansion of its top-selling product line and has estimated the following cash flows associated with the expansion. The initial outlay will be $10,800,000, and the project will generate cash flows of $1,250,000 per

> Templeton Extended Care Facilities, Inc., is considering the acquisition of a chain of cemeteries owned by the Rosewood Corporation for $400 million. Because the primary asset of this business is real estate, Templeton’s managers have determined that the

> a. Calculate the missing information for each of the above projects. b. Note that Projects C and D share the same accounting break-even. If sales are above the break-even point, which project do you prefer? Explain why. c. Calculate the cash break-even f

> The Marvel Manufacturing Company is considering whether to construct a new robotic production facility. The cost of this new facility is $600,000, and it will have a six-year life with annual depreciation expense of $100,000 and no salvage value. Expecte

> Blindfold Technologies Inc. (BTI) is considering whether to introduce a new line of hand scanners that can be used to copy material and then download it into a computer. These scanners are expected to sell for an average price of $100 each, and the compa

> Family Security is considering introducing a tiny GPS tracker that is inserted in the sole of a child’s shoe, which would then allow for the tracking of that child if he or she was ever lost. You have prepared the following estimates fo

> Managers at the Physicians’ Bone and Joint (PB&J) Clinic are considering whether to purchase a newly developed MRI machine that the manufacturer tells them will provide the basis for better diagnoses of foot and knee problems. The n

> Floating Homes, Inc., is a manufacturer of luxury pontoon and houseboats that sell for $40,000 to $100,000. To estimate its revenues for the following year, Floating Homes divides its boat sales into three categories based on selling price (high, medium

> Rao Roofing of Stillwater, Oklahoma, is also considering the acquisition of Simpkins Storage Company. Rao’s management team has analyzed the annual cash flows for Simpkins and come up with these estimates for the three states of the eco

> Koch Transportation is contemplating the acquisition of LH Transport, a competing trucking firm. Koch’s CFO estimates that during the next year LH Transport’s flows from the acquisition will vary depending on the state

> Go-Power Batteries has developed a high-voltage nickel–metal hydride battery that can be used to power hybrid automobiles, and it can sell the technology immediately to Toyota for $10 million. Alternatively, Go-Power Batteries can invest $50 million in a

> Star Industries owns and operates landfills for several municipalities throughout the U.S. Midwest. Star typically contracts with the municipality to provide landfill services for a period of 20 years. The firm then constructs a lined landfill (required

> You are considering introducing a new Tex-Mex–Thai fusion restaurant. The initial outlay for this new restaurant is $6 million, and the present value of the free cash flows (excluding the initial outlay) is $5 million, so the project, as it is now envisi

> B&L, Inc.’s CFO anticipates that if the firm experiences a 10 percent increase in sales, its net operating profits will increase by 60 percent. If B&L’s NOI is $15 million, what level of fixed costs does the firm have?

> Last year Baker-Huggy, Inc. had sales of $500,000, fixed costs of $100,000 and net operating income (NOI) of $30,000. If sales increase by 20 percent, by how much will the firm’s NOI increase? What would happen to the firm’s NOI if sales decreased by 20

> Niece Equipment Rentals of Del Valle, Texas, has recently been approached about the prospect of purchasing a large construction crane. Owner Al Niece estimates that the crane will rent for $500 an hour, but operator, fuel, insurance, and miscellaneous e

> May born Enterprises, LLC runs a number of sporting goods businesses and is currently analyzing whether to start a new T-shirt printing business. Specifically, the company is evaluating the feasibility of this business based on its estimates of the unit

> The cash flows for three independent projects are as follows: a. Calculate the IRR for each of the projects. b. If the discount rate for all three projects is 10 percent, which project or projects would you want to undertake? c. What is the NPV of each

> Your investment advisor has offered you an investment that will provide you with a single cash flow of $10,000 at the end of 20 years if you pay premiums of $200 per year in the interim period. Specifically, the annual premiums will begin immediately and

> Jella Cosmetics is considering a project that will cost $800,000 and is expected to last for 10 years and produce future cash flows of $175,000 per year. If the appropriate discount rate for this project is 12 percent, what is the project’s IRR?

> Dowling Sportswear is considering building a new factory to produce aluminum baseball bats. This project will require an initial cash outlay of $8,000,000 and will generate annual net cash inflows of $2,000,000 per year for six years. Calculate the proje

> Walter White, Inc.’s return on equity is 13 percent, and management has plans to retain 20 percent of earnings for investment in the company. a. What will be the company’s growth rate? b. How would the growth rate change if management (i) increased retai

> Wayne, Inc.’s outstanding common stock is currently selling in the market for $33. Dividends of $2.30 per share were paid last year, return on equity is 20 percent, and its retention rate is 25 percent. a. What is the value of the stock to you, given a 1

> Given that a firm’s return on equity is 18 percent and management plans to retain 40 percent of earnings for investment purposes, what will be the firm’s growth rate? If the firm decides to increase its retention rate, what will happen to the value of it

> The common stock of NCP paid $1.32 in dividends last year. Dividends are expected to grow at an 8 percent annual rate for an indefinite number of years. a. If your required rate of return is 10.5 percent, what is the value of the stock to you? b. Should

> J. Pinkman Motors, Inc., paid a $3.75 dividend last year. If J. Pinkman’s return on equity is 24 percent and its retention rate is 25 percent, what is the value of the common stock if the investors require a 20 percent rate of return?

> The owner of the Petreno Pharmaceuticals Company is evaluating the expected annual sales for a new line of facial care products and estimates that there is a 60 percent chance that the product line will be extremely successful, in which case it will gene

> Header Motor, Inc., paid a $3.50 dividend last year. At a constant growth rate of 5 percent, what is the value of the common stock if the investors require a 20 percent rate of return?

> If the Stanford Corporation’s net income is $200 million, its common equity is $833 million, and management plans to retain 70 percent of the firm’s earnings to finance new investments, what will be the firm’s growth rate?

> Kendra Corporation’s preferred shares are trading for $25 in the market and pay a $4.50 annual dividend. Assume that the market’s required yield is 14 percent. a. What is the stock’s value to you, the investor? b. Should you purchase the stock?

> You own 200 shares of Somner Resources preferred stock, which currently sells for $40 per share and pays annual dividends of $3.40 per share. If the market’s required yield on similar shares is 10 percent, should you sell your shares or buy more?

> What is the value of a preferred stock where the dividend rate is 14 percent on a $100 par value and the market’s required yield on similar shares is 12 percent?

> Pioneer’s preferred stock is selling for $33 in the market and pays a $3.60 annual dividend. a. If the market’s required yield is 10 percent, what is the value of the stock to investors? b. Should investors acquire the stock?

> Assume the following: • The investor’s required rate of return is 15 percent. • The expected level of earnings at the end of this year (E1) is $5.00. • The retention ratio is 50 percent. • The return on equity (ROE) is 20 percent (that is, it can earn 20

> Assume the following: • The investor’s required rate of return is 13.5 percent. • The expected level of earnings at the end of this year (E1) is $6.00. • The retention ratio is 50 percent. • The return on equity (ROE) is 15 percent (that is, it can earn

> Using the P/E ratio approach to valuation, calculate the value of a share of stock under the following conditions: • The investor’s required rate of return is 12 percent. • The expected level of earnings at the end of this year (E1) is $4.00. • The firm

> Dubai Metro’s stock price was at $100 per share when it announced that it would cut its dividends for next year from $10 per share to $6 per share, with the additional funds to be used for expansion. Prior to the dividend cut, Dubai Metro expected its di

> Duncan Motors is introducing a new product that it expects will increase its net operating income by $300,000. The company has a 34 percent marginal tax rate. This project will also produce $50,000 of depreciation per year. In addition, it will cause the