Quiz 1

b. Suppose you discover that Chiptech’s competitor has developed a new chip that will eliminate Chiptech’s current technological advantage in this market. This new product, which will be ready to come to the market in two years, will force Chiptech to reduce the prices of its chips to remain competitive. This will decrease ROE to 19%, and, because of falling demand for its product, Chiptech will decrease the plowback ratio to 0.5. The plowback ratio will be decreased at the end of the second year, at t = 2: The annual year-end dividend for the second year (paid at t = 2) will be 50% of that year’s earnings. What is your estimate of Chiptech’s intrinsic value per share? (Hint: Carefully prepare a table of Chiptech’s earnings and dividends for each of the next three years. Pay close attention to the change in the payout ratio in t = 2.) (Round your answers to 2 decimal places.) At time 2= At time 0= c. No one else in the market perceives the threat to Chiptech’s market. In fact, you are…

What is the value of erosion? General Accounting question

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Problem 4  Pet Hotel, Inc. operates three luxury pet boarding facilities and expects the following results for the coming year.  (picture )   Answer each of the following questions independently.  1. Fixed costs are all allocated and unavoidable. What will happen to profit if Pet Hotel discontinues operations at Pet Spa?  2. Suppose now that $25,000 of the fixed costs shown for Pet Spa is avoidable. What will happen to total profits if Pet Hotel discontinues operations at Pet Spa?

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Kenneth Brown is the principal owner of Brown Oil, Inc. After quitting his university teaching job, Ken has been able to increase his annual salary by a factor of over 100. At the present time, Ken is forced to consider purchasing some more equipment for Brown Oil because of competition. His alternatives are shown in the following table:     Outcomes Alternative Decisions O1: Favorable Market O2: Moderate Market O3: Unfavorable Market Sub 100 $ 300000 $ 150000 $ -200000 Sub 200 $ 350000 $ 200000 $ 200000 Oil J $ 250000 $ 100000 $ -100000 Texan $ 75000 $ 50000 $ 0 Probabilities 0.2 0.5 0.3       For example, if Ken purchases a Sub 100 and if there is a favorable market, he will realize a profit of $300,000. On the other hand, if the market is unfavorable, Ken will suffer a loss of $200,000. But Ken has always been a very pessimistic decision maker.   Questions:   1. What type of decision environment is Ken facing?  2.…

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! Required information [The following information applies to the questions displayed below.] Cane Company manufactures two products called Alpha and Beta that sell for $135 and $95, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 105,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha $ 30 Beta Direct materials Direct labor $18 23 16 Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses 10 8 19 21 15 11 18 13 Total cost per unit $115 $87

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Question 1 XYZ Ltd has spent £100,000 on research and development of a new product, expected to have a short economic life of two years only. The product development manager has recommended this production opportunity for consideration at the company's board. She believes that the new product perfectly fits the firm's strategic plan. The new product has already attracted the strong interest of a rival business, and if XYZ Ltd decides not to go ahead with production, it can sell the patent rights to the competitor for £160,000. The marketing manager has suggested that annual revenues will depend on whether the demand for the new product is weak or strong, forecasting the following levels of annual demand and the independent probability of each level of demand for the two years of the project's life: Year 1 Year 2 Probability Sales (units) 350,000 Probability Sales (units) 450,000 0.2 0.3 350,000 200,000 90,000 0.3 300,000 100,000 90,000 0.3 0.3 0.2 0.2 0.2 Manufacture of the new product…

Current Attempt in Progress David, the owner of a local poster shop, comes to you for help. "We've only been breaking even the past two years, and I'm getting very frustrated! I don't know what to do because I feel like I've already tried to improve our processes as much as possible, but we still haven't been able to generate a profit. Do you have any suggestions as to how we can turn things around? I just don't think we can even consider moving forward with this business unless we can earn $10,000 in operating income next year. Even then, we'll have to think long and hard about what the future holds." David shares the following information with you, as you ponder different scenarios to help your friend. Selling price $7.10 Cost for paper, per unit 0.75 Cost for printing, per unit 0.80 Cost for film, per unit 0.50 Staff salaries 44,000 Other operating costs 21,145 After thinking about it for a while, you suggest the following possibilities to help him turn things around. 1. Lower the…

Troy Engines, Limited, manufactures a variety of engines for use in heavy equipment. The company has always produced all of the necessary parts for its engines, including all of the carburetors. An outside supplier has offered to sell one type of carburetor to Troy Engines, Limited, for a cost of $30 per unit. To evaluate this offer, Troy Engines, Limited, has gathered the following information relating to its own cost of producing the carburetor internally: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost $34 *One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). Required 1 Required 2 Per Unit Required 3 Required: 1. Assuming the company has no alternative use for the facilities that are now being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 13,000 carburetors from the outside supplier? 2.…

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Firm A applied a patent to the government. Investors initially predict that the success rate was 60%. It turns out that the patent is announced to be successful today. If the total value (return) that has been created by this patent is 6%. What's Firm A's abnormal return today? Select one: A. 2.4% B. 6% C. 15% D. 3.6%

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Problem 1 A group of doctors is considering the construction of a private clinic. IF the medical demand is high (favorable market for the clinic), the physicians could realize a profit of P1,000,000. If the market is not favorable they could lose P400,000. If they don’t proceed at all, there is no cost. In the absence of any market research, the best the physician can guess is that there is a 50-50 chance the clinic will be successful.  a firm open to conduct a market research involving the proposed venture and using analytical tools can give an accurate information, thus gave the following info:             Probability of a favorable market given a favorable study is 0.82             Probability of an unfavorable market given a favorable study is 0.18             Probability of a favorable market given an unfavorable study is 0.11             Probability of an unfavorable market given an unfavorable study is 0.89             Probability of a favorable research study is 0.55…

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