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# Basic Concepts in Accounting Problems

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Need help with the following 6 problems for a final review:

4) What is the NPV for the following project if its cost of capital is 12 percent and its initial after tax cost is \$5,000,000 and it is expected to provide after-tax operating cash flows of \$1,800,000 in year 1, \$1,900,000 in year 2, \$1,700,000 in year 3 and (\$1,300,000) in year 4?
A) \$(1,494,336)
B) \$1,494,336
C) \$158,011
D) Two of the above

10) A firm has a beta of 1.8. The market return equals 16 percent and the risk free rate of return equals 6 percent. The estimated cost of common stock equity is:

17) Tangshan Mining has common stock at par of \$200,000, paid in capital in excess of par of \$400,000, and retained earnings of \$280,000. In states where the firm's legal capital is defined as the total of par value and paid-in-capital of common stock, the firm could pay out ________ in cash dividends without impairing its capital.
A) \$280,000
B) \$400,000
C) \$480,000
D) \$600,000

26) A firm has a cash conversion cycle of 60 days. Annual outlays are \$12 million and the cost of negotiated financing is 12 percent. If the firm reduces its average age of inventory by 10 days, what is the annual savings? (use a 360 day year and remember that first, you have to calculate the daily expenditure.)
(a) \$104,000
(b) \$144,000
(c) \$28,800
(d) \$40,000

28) The cost of giving up a cash discount under the terms of sale 2/10 net 90 (assume a 360 day year) is
A. 9.2 percent.
B. 8.3 percent.
C. 10.7 percent.
D. 6.0 percent.

32) A firm has an outstanding bond with a \$1,000 par value that is convertible at \$40 per share of common stock. If the current market value of common stock per share is \$45, the conversion value of the bond is
A. \$ 880.
B. \$1,000.
C. \$1,125.
D. \$1,200.

#### Solution Preview

4) What is the NPV for the following project if its cost of capital is 12 percent and its initial after tax cost is \$5,000,000 and it is expected to provide after-tax operating cash flows of \$1,800,000 in year 1, \$1,900,000 in year 2, \$1,700,000 in year 3 and (\$1,300,000) in year 4?

NPV=-5000000+1800000/(1+12%)^1+1900000/(1+12%)^2+1700000/(1+12%)^3-1300000/(1+12%)^4
NPV=-1494335.86
Option A is correct
A) \$(1,494,336)

10) A firm has a beta of 1.8. The market return equals 16 percent and the risk free rate of return equals 6 percent. The estimated cost of common stock equity is:
Risk Free rate=rf=6%
Market return=rm=16%
Beta=1.8
Cost ...

#### Solution Summary

Solutions select the correct options with suitable working.

\$2.19

## Ethics and the Conceptual Framework - Since the scandals of the late '90s, a discussion has taken place about principles-based and rules-based systems for accounting.

Since the scandals of the late '90s, a discussion has taken place about principles-based and rules-based systems for accounting. Many of the scandals involved issues where the organization technically may have met the rule while clearly violating the principle involved.