Magnum Ltd has the following capital structure

Magnum Ltd has the following capital structure: Ordinary Equity: 68 000 ordinary shares outstanding at a market price of $35 per share. The shares have just paid a $1.85 annual dividend and have a dividend growth rate of 2.5%. Preference Equity: There are 15 000 preference shares with an 8% dividend rate, outstanding at a market price of $75 a share. The preference shares have a par value of $100. Debts: The outstanding bonds mature in 20 years, have a total face value of $850 000, a face value per bond of $1000 and a market price of $1196.4 each. The bonds have before tax YTM 8%. The marginal tax rate of the firm is 35%. Required: Calculate the current market…

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Your company is considering to choose one of the two projects

Your company is considering to choose one of the two projects: Project Gold and Project Diamond.  Each project will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 9%. The cash flows of two projects are provided below.     Gold Diamond Cost $485 000 $520 000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5     105 850 153 250 225 650 245 000 250 350    117 050 162 400 275 500 255 000 260 000   Required: Identify which project should your company accept based on Net Present Value method? Identify which project should your company accept based on Discounted…

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Long time ago Lisa had put an amount of

Long time ago Lisa had put an amount of $50,000 into an investment in the securities market. Now she has $150,000 in her investment account. Required: If the average rate of return Lisa earned for the investment is 7.6% per year, how many years she has maintained the investment so far? If the Lisa would have wished to obtain the target of $150,000 within 10 years only, how much money should she put into the initial investment given the same rate of return is applied? Assume that Lisa would like to put the amount of $150,000 into another investment and aims for a new saving target of $500,000 to buy a new house in 12 years. How much is the rate…

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Zealandia ltd is the parent company holding 90 percent interest

(a) Zealandia ltd is the parent company holding 90 percent interest in the Oceania ltd. For each of the following independent cases, provide adjusting entries necessary to eliminate the effect of intragroup transaction at 30 June 2020: During the period Oceania Ltd sold inventory to Zealandia Ltd at a price of $240000. The cost of the inventory to Oceania ltd was $168000. Ninety percent (90%) of the inventory has been sold by Zealandia Ltd to outside third parties by the end of the period. During the period, Oceania borrowed $1500000 from Zealandia Ltd which is still unpaid by the end of the period. During the period Oceania Ltd has paid $30000 interest to Zealandia Ltd for the borrowing. At the end…

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On 1 July 2017, Bright Star Ltd was incorporated

On 1 July 2017, Bright Star Ltd was incorporated. The accounting profit and other relevant information of Bright Star for the two years to 2019 are as follows:     2019       2018         Profit before tax $4 500 000 $3 600 000  Warranty expense —       1500 000  Depreciation expense – machinery 60 000           60 000  Gain on sale of machinery for accounting —                   —  Warranty paid 750 000                   —  Tax depreciation – machinery 90 000           90 000  Gain on sale of machinery for tax —                   — Provision for warranty – carrying amount   750 000   1500 000  Provision for warranty – tax base —                   —  Machinery – carrying amount 180…

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Heath Production manufactures chairs

Heath Production manufactures chairs. Several weeks ago, the company received an enquiry from Rose Limited. Rose wants to market a foldable chair similar to one of Heath’s, and has offered to purchase 11 000 units if the offer can be completed in three months. The cost data for Heath’s foldable chair is as follow: Direct material   $16.40 Direct labour (0.125 @ $36 per hour)       4.50 Total manufacturing overhead     20.00 Total   $40.90 The normal selling price of Heath’s foldable chair is $53.00. However, Rose has offered Heath only $31.50 because of the large quantity it is willing to purchase. Rose requires a modification of the design that will allow a $4.20 reduction in direct material cost. The production…

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You are the chief financial analyst of Hercules Manufacturing Limited

You are the chief financial analyst of Hercules Manufacturing Limited. The company manufactures bowls and has been planning to aggressively expand its sales into the Middle Eastern markets. You have been tasked to analyse its reports using CVP and provide explanations to the Director, Tierra Muller. The operating statement relating to the month ended September 30, 2019 of Hercules Manufacturing Limited is as follows:     $’000 $’000 Sales (22,000 units)   3,300 Direct materials 726   Direct labour 374   Production overheads 798   Total   1,898 Gross profit   1,402 Selling overheads   1,042 Net profit   360 The variable production overheads were $9 per unit while the variable selling overheads were $11 per unit. Required: Calculate the contribution…

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Wattle Limited has two divisions: Industry and Consumer

Wattle Limited has two divisions: Industry and Consumer. The Industry Division transfers partially completed components to the Consumer Division at a predetermined transfer price. The Industry Division’s standard variable production cost per unit is $500. This division could sell all its components to outside buyers at $650 per unit in a perfectly competitive market. The Consumer Division has a special offer of $740 for its product. The Consumer Division incurs variable costs of $260 in addition to the transfer price for the Industry Division’s components. Both Industry and Consumer divisions currently have spare production capacity.   Required: Determine a transfer price using the general transfer pricing rule. Assume that the transfer price has been set at $530, is the Consumer Division…

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North-South Pole Company produces two products

North-South Pole Company produces two products, a jacket suitable for adventure-seeking people (Spirit) and a jacket for less-adventurous people (Companion). Production and Sales per year                               20,000 units (Spirit) & 5,000 units (Companion) Direct labour                                                                  3.5 hours per unit (both) Direct labour cost                                                         $32.00 per hour Estimated annual manufacturing overhead           $200,000 Direct materials                                                              $180 per unit (both)   Breakdown of overhead rates Activity Cost Pools Estimated Overhead Expected Use of Cost Drivers per Activity Activity Based Overhead Rates Machine set-up   $  40,000 200 $?  per set-up Sewing $135,000 37,500 machine hours (MH) $?  per MH Inspection   $  25,000 1000 $?  per inspection  …

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Dream Limited manufactures ice cream. The company employs a process

Dream Limited manufactures ice cream. The company employs a process costing system for its manufacturing operations. All direct materials are added at the beginning of the process and conversion costs are incurred uniformly throughout the process. The company’s production quantity schedule for January is as follow: Unit (tubs) Work in process on 1 January (55% complete as to conversion)   8,000 Units started during January 11,000 Total units to account for 19,000     Units from beginning work in process, which were completed and   transferred out during January  8,000 Unit started and completed in January  6,000 Work in process on 31 January (35% complete as to conversion)  5,000 Total units to account for 19,000   Required: Calculate each of the…

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Ola Ltd, which uses a job costing system, had two jobs in process

Ola Ltd, which uses a job costing system, had two jobs in process at the start of the year: Job L1 ($68,000) and Job L2 ($30 000). The following information is available: i. The company applies manufacturing overhead on the basis of machine hours. Budgeted overhead and machine activity for the year were anticipated to be $1,000,000 and 25,000 hours, respectively. ii. The company worked on three jobs during the first quarter (i.e. from 1 January to 31 March). Direct materials used, direct labour incurred and machine hours consumed were as shown in the following table:   Job numbers Direct material Direct labour Machine hours L1 $15,000 $30,000    900 L2      – 33,000 1,600 L3 45,000 65,000 2,000    …

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Following information relate to Hawke Ltd

Following information relate to Hawke Ltd for the financial year ended 2020 Hawke Ltd Statement of Financial position As at 30 June 2020 2020 2019 Assets     Cash at bank 84200 100000 Accounts receivable 208000 172000 Inventory 200000 208000 Prepaid insurance 12000 20000 Interest receivable 400 600 Investments 80000 40000 Plant and equipment 800000 720000 Less: Accumulated depreciation -200000 -180000 Total assets 1184600 1080600 Liabilities     Accounts payable 152000 128000 Provision for employee benefits 24000 16000 Other expenses payable 8000 12000 Equity     Share capital 800000 800000 Retained earnings 200600 124600 Total liabilities and equity 1184600 1080600     Hawke Ltd Statement of Financial performance For the period ended 30 June 2020     2020 2019 Income  …

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