Anton, Inc., just paid a dividend of $2.40 per share on its stock. The dividends are expected to grow at

Anton, Inc., just paid a dividend of $2.40 per share on its stock. The dividends are expected to grow at a constant rate of 6.25 percent per year, indefinitely. Assume investors require a return of 12 percent on this stock.

Requirement 1:

What is the current price? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Current price

$

Requirement 2:

What will the price be in four years and in sixteen years? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

Four years	$
Sixteen years	$

Explanation: 1:

The constant dividend growth model is:

Pt = Dt × (1 + g) / (R – g)

So, the price of the stock today is:

P0 = D0 (1 + g) / (R – g)

P0 = $2.40 (1.0625) / (0.12 – 0.0625)

P0 = $44.35

2:

The dividend at year 5 is the dividend today times the FVIF for the growth rate in dividends and five years, so:

P4 = D4 (1 + g) / (R – g)

P4 = D0 (1 + g)5 / (R – g)

P4 = $2.40 (1.0625)5 / (0.12 – 0.0625)

P4 = $56.52

We can do the same thing to find the dividend in Year 17, which gives us the price in Year 16, so:

P16 = D16 (1 + g) / (R – g)

P16 = D0 (1 + g)17 / (R – g)

P16 = $2.40 (1.0625)17 / (0.12 – 0.0625)

P16 = $116.99

There is another feature of the constant dividend growth model: The stock price grows at the dividend growth rate. So, if we know the stock price today, we can find the future value for any time in the future we want to calculate the stock price. In this problem, we want to know the stock price in Year four, and we have already calculated the stock price today. The stock price in Year four will be:

P4 = P0(1 + g)4

P4 = $44.35(1 + 0.0625)4

P4 = $56.52

And the stock price in Year 16 will be:

P16 = P0(1 + g)16

P16 = $44.35(1 + 0.0625)16

P16 = $116.99

Wiengot Antennas, Inc., produces and sells a unique type of TV antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been provided for the first month of the plant’s operation.

Wiengot Antennas, Inc., produces and sells a unique type of TV antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been provided for the first month of the plant’s operation.

Beginning inventory		0
Units produced		40,000
Units sold		35,000
Selling price per unit		$60
Selling and administrative expenses:
Variable per unit		$2
Fixed (total)	$	560,000
Manufacturing costs
Direct materials cost per unit		$15
Direct labor cost per unit		$7
Variable manufacturing overhead cost per unit		$2
Fixed manufacturing overhead cost (total)	$	640,000

Because the new antenna is unique in design, management is anxious to see how profitable it will be and has asked that an income statement be prepared for the month.

   

Required:

1.	Assume that the company uses absorption costing.

  

a.	Determine the unit product cost. (Omit the "$" sign in your response.)

Unit product cost

$

b.	Prepare an income statement for the month. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

Absorption Costing Income Statement
Sales	$
Cost of goods sold
Gross margin
Selling and administrative expenses
Net operating income (loss)	$

    

2.	Assume that the company uses variable costing.

   

a.	Determine the unit product cost. (Omit the "$" sign in your response.)

Unit product cost

$

b.	Prepare a contribution format income statement for the month. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

    

Variable Costing Income Statement
Sales		$
Variable expenses:
Variable cost of goods sold	$
Variable selling and administrative expenses
Contribution margin
Fixed expenses:
Fixed manufacturing overhead
Fixed selling and administrative expenses
Net operating income (loss)		$

Explanation: 1.
a.
The unit product cost under absorption costing is:
 

Direct materials	$	15
Direct labor		7
Variable manufacturing overhead		2
Fixed manufacturing overhead (640,000 ÷ 40,000 units)		16
Absorption costing unit product cost	$	40

b.

Sales (35,000 units × $60 per unit) = $2,100,000

Cost of goods sold (35,000 units × $40 per unit) = $1,400,000

Selling and administrative expenses (35,000 units × $2 per unit) + $560,000 = $630,000

2.
a.
The unit product cost under variable costing is:
 

Direct materials	$	15
Direct labor		7
Variable manufacturing overhead		2
Variable costing unit product cost	$	24

b.

Sales (35,000 units × $60 per unit) = $2,100,000

Variable cost of goods sold (35,000 units × $24 per unit) = $840,000

Variable selling and administrative expense (35,000 units × $2 per unit) = $70,000

Hammett, Inc., has sales of $19,630, costs of $9,400, depreciation expense of $2,070, and interest

Hammett, Inc., has sales of $19,630, costs of $9,400, depreciation expense of $2,070, and interest expense of $1,560. Assume the tax rate is 30 percent.  

Required:

What is the operating cash flow? (Do not include the dollar sign ($).)

 

Operating cash flow

$

 

Explanation:

To calculate the OCF, we first need to construct an income statement. The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get:

Income statement
Sales	$	19,630
Costs		9,400
Depreciation		2,070
EBIT	$	8,160
Interest		1,560
Taxable income	$	6,600
Taxes (30%)		1,980
Net income	$	4,620

Now we can calculate the OCF, which is:

OCF = EBIT + Depreciation – Taxes

OCF = $8,160 + 2,070 – 1,980

OCF = $8,250

Lifeline, Inc., has sales of $590,000, costs of $268,000, depreciation expense of $68,500, interest

Lifeline, Inc., has sales of $590,000, costs of $268,000, depreciation expense of $68,500, interest expense of $35,500, and a tax rate of 40 percent.

Required:

What is the net income for this firm? (Do not include the dollar sign ($).)

Net income

$

 

Explanation:

The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get:

 

Income statement
Sales	$	590,000
Costs		268,000
Depreciation		68,500
EBIT	$	253,500
Interest		35,500
Taxable income	$	218,000
Taxes		87,200
Net income	$	130,800

Arredondo, Inc., has current assets of $2,360, net fixed assets of $11,200, current liabilities of $1,445,

Arredondo, Inc., has current assets of $2,360, net fixed assets of $11,200, current liabilities of $1,445, and long-term debt of $4,170.

Requirement 1:

What is the value of the shareholders’ equity account for this firm? (Do not include the dollar sign ($).)

 

Shareholder's equity

$

Requirement 2:

How much is net working capital? (Do not include the dollar sign ($).)

 

Net working capital

$

 

Explanation:

The balance sheet for the company will look like this:

 

Balance sheet
Current assets	$	2,360	Current liabilities	$	1,445
Net fixed assets		11,200	Long-term debt		4,170
			Owner's equity		7,945
Total assets	$	13,560	Total liabilities & Equity	$	13,560

The owner's equity is a plug variable. We know that total assets must equal total liabilities & owner's equity. Total liabilities and equity is the sum of all debt and equity, so if we subtract debt from total liabilities and owner's equity, the remainder must be the equity balance, so:

 

Owner’s equity = Total liabilities & equity – Current liabilities – Long-term debt

Owner’s equity = $13,560 – 1,445 – 4,170

Owner’s equity = $7,945

 

Net working capital is current assets minus current liabilities, so:

 

NWC = Current assets – Current liabilities

NWC = $2,360 – 1,445

NWC = $915

Below are certain events that took place at Hazzard, Inc., last year: Indicate whether the transaction

Below are certain events that took place at Hazzard, Inc., last year: Indicate whether the transaction would be classified as Operating, Investing or Financing.

	Transaction	Activity
a.	Paid bills to insurers and utility providers.	Operating
b.	Purchased equipment with cash.	Investing
c.	Paid wages and salaries to employees.	Operating
d.	Paid taxes to the government.	Operating
e.	Loaned money to another entity.	Investing
f.	Sold common stock.	Financing
g.	Paid a cash dividend to stockholders.	Financing
h.	Paid interest to lenders.	Operating
i.	Repaid the principal amount of a debt.	Financing
J.	Paid suppliers for inventory purchases.	Operating
k.	Borrowed money from a creditor.	Financing
l.	Paid cash to repurchase its own stock.	Financing
m.	Collected cash from customers.	Operating

Micro Products, Inc., has developed a very powerful electronic calculator. Each calculator requires

Micro Products, Inc., has developed a very powerful electronic calculator. Each calculator requires three small “chips” that cost $2 each and are purchased from an overseas supplier. Micro Products has prepared a production budget for the calculator by quarters for Year 2 and for the first quarter of Year 3, as shown below:

  

	Year 2					Year 3
	First	Second	Third	Fourth		First
Budgeted production, in calculators	60,000	90,000	150,000	100,000		80,000

  

The chip used in production of the calculator is sometimes hard to get, so it is necessary to carry large inventories as a precaution against stockouts. For this reason, the inventory of chips at the end of a quarter must equal 20% of the following quarter’s production needs. A total of 36,000 chips will be on hand to start the first quarter of Year 2.

   

Required:

Prepare a direct materials budget for chips, by quarter and in total, for Year 2. (Do not round intermediate calculations. Input all amounts as positive values. Omit the "$" sign in your response.)

   

Micro Products, Inc. Direct Materials Budget - Year 2
	Quarter
	First	Second	Third	Fourth	Year
Required production in calculators	60,000	90,000	150,000	100,000	400,000
Number of chips per calculator	×  3	×  3	×  3	×  3	×  3
Production needs—chips	180,000	270,000	450,000	300,000	1,200,000
Add : Ending inventory	54,000	90,000	60,000	48,000	48,000
Total needs	234,000	360,000	510,000	348,000	1,248,000
Deduct : Beginning inventory	36,000	54,000	90,000	60,000	36,000
Required purchases—chips	198,000	306,000	420,000	288,000	1,212,000
Total cost of purchases	$ 396,000	$ 612,000	$ 840,000	$ 576,000	$ 2,424,000