### Net profit of Harper Holding Ltd in the current year

Net profit of Harper Holding Ltd in the current year is \$3,546,000. The company is planning to launch a project that will requires an investment of \$1,045,000 next year. Today the company’s stock has market value of \$72/share. Harper Holding Ltd has the current capital structure of 65% in equity and 35% in debt. Required: How much dividend can Harper Holding Ltd pay its shareholders this year and what is dividend payout ratio of the company. Assume the Residual Dividend Payout Policy applies. The company is paying a cash dividend of \$5.50/share plus an extra-cash dividend of \$2.5/share. Tomorrow the stock will go ex-dividend. Calculate the ex-dividend price tomorrow morning. Assuming the tax on dividend is 15%? M&T Ltd. is a…

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### Leon has in his investment a portfolio

Leon has in his investment a portfolio that paid him the rate of returns of 14 %, -13%, 15.6%, 17% and 19.5% over the past five years. Required: Calculate the arithmetic average return (AAR) and geometric average return (GAR) of the portfolio? If someone asks you what is the actual compounding rate of return of Leon’s portfolio over the past five year, which one (AAR or GAR) will be a better answer? Following is forecast for economic situation and Leon’s portfolio returns next year, calculate the expected return, variance and standard deviation of the portfolio. State of economy Probability Rate of returns Mild Recession 0.25 -2.5% Normal 0.45 13.5% Growth 0.30 20%   c)  Assume that expected return of the stock…

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### On January 1, 20X1, Popular Creek Corporation

On January 1, 20X1, Popular Creek Corporation organized RoadTime Company as a subsidiary in Switzerland with an initial investment cost of Swiss francs (SFr) 60,000. RoadTime’s December 31, 20X1, Trial balance in SFr is as follows:     Debit (SFr)   Credit (SFr) Cash 7000     Accounts Receivable 20000     Receivable from Popular Creek 5000     Inventory 25000     Plant and Equipment 100000     Accumulated Depreciation     10000 Accounts Payable     12000 Bonds Payable     50000 Common Stock     60000 Sales     150000 Cost of goods sold 70000     Depreciation Expense 10000     Operating Expense 30000     Dividend paid 15000     Total SFr282,000   SFr 282,000  …

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### 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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