Select the correct answer.

Response:

$8,000

Clarification:

                                                    khaki shorts           khaki pants

machine minutes per unit                    15                         24

contribution margin per unit               $16                       $32

CM per machine minute                  $1.067                   $1.33

minimum demand                            3,000                   3,000

machine minutes required              45,000                72,000

total machine minutes available               288,000

total machine minutes remaining               171,000

production                                             0                       7,125

total production                                3,000                   10,125

total contribution margin               $48,000               $324,000

adding 100 more machine hours will elevate production time by 6,000 minutes, enabling the creation of an additional 250 khaki pants. Thus, the contribution margin increases by 250 x $32 = $8,000

I calculated contribution margin per minute; alternatively, contributing margin per hour could also be computed to identify which product yields better profitability.  Contribution margin per hour for shorts = $64, and for pants = $80. The outcome remains unchanged.

Answer:

According to put-call parity, the anticipated share price is $31.95.

Explanation:

Given values:

share price = $31.63

yearly dividend = $1.50 per year

strike price = $27

call price = $6.10

put price = $2.65

expiry duration = 1 year

Solution:

Put-Call Parity expresses the price relationship between a put option, a call option, and the underlying stock.

We will apply the fundamental put-call parity formula, which states:

Po + So = Co + (D + X × ...................1

In this equation, Po is the put option, Co is the call option, X is the strike price, So is the stock price, and D represents dividend, which is 0 in this case.

This means the stock price can be calculated as:

So + Po = Co + D + X

So + $2.65 = $6.10 + $1.5 + $27

So = $31.95

Thus, the predicted share price in accordance with the put-call parity is $31.95.

Answer:

1. Record the journal entry to log the cash received from bond issuance on July 1, Year 1.

Dr Cash 37,282,062

Dr Discount on bonds payable 2,717,938

    Cr Bonds payable 40,000,000

2. Make the following journal entries:

a. Document the first semiannual interest payment on December 31, Year 1, along with the bond discount amortization, utilizing the straight-line approach. Round to the nearest dollar.

discount on bonds payable = 2,717,938 / 20 coupons = $135,896.90

December 31, Year 1, first coupon payment

Dr Interest expense 1,535,896.90

    Cr Cash 1,400,000

    Cr Discount on bonds payable 135,896.90

b. Capture the interest payment on June 30, Year 2, and the bond discount amortization, again utilizing the straight-line method. Round to the nearest dollar.

June 30, Year 2, second coupon payment

Dr Interest expense 1,535,896.90

    Cr Cash 1,400,000

    Cr Discount on bonds payable 135,896.90

3. Calculate the total interest expense for Year 1.

$1,535,896.90

4. When the bond proceeds are consistently lower than the bond face value if the contract rate is lower than the market rate of interest?

yes, if the market rate exceeds the coupon rate, the bonds will be issued at a discount.

5. (Appendix 1) Calculate the receipt price of $37,282,062 for the bonds by referring to the present value tables found in Appendix A at the conclusion of the textbook. Round to the nearest dollar.

bond price = PV of face value + PV of coupon payments

• PV of face value = $40,000,000 x 0.4564 (PV factor, 4%, 20 periods) = $18,256,000
• PV of coupon payments = $1,400,000 x 13.590 (PV annuity factor, 4%, 20 periods) = $19,026,000

bond's market price = $18,256,000 + $19,026,000 = $37,282,000

Complete Question:

James Stilton serves as the CEO of RightLiving, Inc., a corporation that purchases life insurance policies at a reduced price from terminally ill individuals and sells them to investors. RightLiving compensates terminally ill patients with a percentage of the future death benefits (typically 65%) and subsequently sells the policies to investors for 85% of the future benefit amount. The patients receive funds to assist with their medical and other expenses, while the investors are assured a positive return on their investments. The difference between the purchase and retail prices represents RightLiving's profit.

Stilton is aware that some sick patients might acquire insurance policies through deceit (by concealing their illness on the application). If an insurance company uncovers such fraud, it will annul the policy and withhold payment. While Stilton is confident that most of the policies he has acquired are legitimate, he recognizes that a few may not be.

Requirement:

What additional ethical dilemmas might Stilton encounter?

Answer with Explanation:

Stilton's ethical challenges include:

• Should he disclose potential fraud to investors prior to executing sales?
• What policies should be established to ensure that legitimate individuals can easily sell their policies, and how would lack of such policies be unfair for RightLiving, Inc.?
• Stilton also faces ethical issues because the business model benefits from the early deaths of clients, which raises moral questions.