Chapter 7, Problem 11P

At the beginning of the year, manufacturing overhead for the year was estimated to be $800,000. At the end of the year, actual labor hours for the year were 40,000 hours, the actual manufacturing overhead for the year was $775,000, and the manufacturing overhead for the year was overapplied by $25,000. If the predetermined overhead rate is based on direct labor hours, then the estimated labor hours at the beginning of the year used in the predetermined overhead rate must have been ___ Hours.

Mason Corporation issued its own $15,000, 120-day, non-interest-bearing note to a bank. The only payment Mason will ever make to the bank will be for $15,000 at the maturity date of the loan, as the bank discounts the note at 8%. The proceeds to Mason are: Ans.

The future earnings, dividends, and common stock price of Square Technologies Inc. are expected to grow at a rate of 5% per year. The company’s common stock is currently selling for $30 per share and its last dividend was $4.   What is the company’s cost of common equity? If the firm’s beta is 1.25, the risk-free rate is 6%, and the market rate of return is 14%, what will be the cost of common equity using the CAPM approach? If you have equal confidence in the inputs used for the two approaches, what is your estimate of the company’s cost of common equity?   Berger Paints Corporation has a target capital structure of 35% debt and 65% common equity. Its before tax cost of debt is 9% and the marginal tax rate is 30%. The company’s stock is currently selling at $23 per share and the last dividend was $3. If dividends are expected to grow at a constant rate of 5%, what is the company’s cost of common equity and WACC?