Question 1 Big Ben Enterprise only makes sales by credit. However, they have decided they need to take advantage of prompt account payment to improve the cash flow to the business. They currently...

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Answered Same DayJun 11, 2021

Answer To: Question 1 Big Ben Enterprise only makes sales by credit. However, they have decided they need to...

Harshit answered on Jun 14 2021
141 Votes
ACCOUNTING
    Serial Number
    Contents
    Page Number
    1.
    Answer to Question 1
    1
    2.
    Answer to Question 2
    2
    3.
    Answer to Question 3
    3
    4.
    Answer to Question 4
    4
    5.
    Answer to Question 5
    5-9
    6.
    Referencing
    10
Answer to Question 1
Assuming the total sales to be
$10,000
Month 1 = $10,000*30% = $3,000
Cash flow = $3,000 * 97% (cash discount) = $2,910 * 1/1.01 = $2,881
Month 2 = $10,000*50% = $5,000
Cash flow = 5000 * 1/(1.01*1.01) = $4,901
Month 3 = $10,000*10% = $1,000
Cash flow = 1000 * 1/(1.01*1.01*1.01) = $971
Month 4 = $10,000*8% = $800
Cash flow = 800 * 1/(1.01*1.01*1.01*1.01) = $769
2% not received.
Total Cash flows = $9,522
Interest Rate that should be charged by the company so that the cash discount and Credit sales will be the same cost
= (10,000 – 9,522)/10,000
= 4.78%
Answer to Question 2
The formula for calculation of Economic Order Quantity is

S = Annual Demand in units
D = Ordering Cost
H = Carrying Cost
EOQ = ((2*400*101.25)/10)^1/2)
= 90 units
The inventory-related costs are as follows:
· Cost of the product being $50 per unit and for 400 units totaling to $20000 annually
· Carrying cost is 10 per unit per annum 400*10/2= $2000 annually
· Ordering cost= 101.25*400/90= $450 annually
· The total annual inventory cost will be $22450
Answer to Question 3
Cost of debt = 19500*100/300000= 6.5%
Post Tax Cost of debt    = 6.5% * (1-30%)
= 4.55%
Cost of Equity Shares= ((Dividend * Growth)/ market price of share) + Growth
= ((8*105%)/2) + 5% = 9.2%
Cost of Preference Shares = Preference Dividend * 100/ Market Value of Preference Shares
= (10% * 2) *100 / 2.2 = 9.09%
Total Capital = 800,000 + 300,000 + 220,000 = 1,320,000
WACC = (Equity*Ke / Total Capital) + (Debt*Kd/Total Capital) + (Preference Shares * Kp/Total Capital)
(800000*9.2%/1320000) + (300000*4.55%/1320000) + (220000*9.09%/1320000)
WACC = 8.125%
The cost of Preference shares can be calculated based on the book value of preference shares.
Answer to Question 4
Imputation Credit = (Dividend Amount/1-Tax) – Dividend Amount
(a) ((3500/1-30%) – 3500)) = $1,500
Total Taxable Income = $3500 + $1500 = $5,000
No tax as below the taxable limit.
(b) ((21000/1-30%)) – 21000 = $9,000
Total Taxable Income = $21,000 + $9,000 = $30,000
Tax amount = $2,242
(c) ((49000/1-30%)) – 49000 = $21,000
Total Taxable Income = $49,000 + $21,000 = $70,000
Tax amount = $14,297
Answer to Question 5
    Sr No.
    Particulars
    2019
    2018
    2017
    
    
    
    
    
    1
    Current Ratio
    Current Assets
    
    
    Current Liabilities
    
    
    
    
    
    
    
    894573
    931007
    816705
    
    
    179224
    169142
    143432
    
    
    
    
    
    
    
    4.99
    5.50
    5.69
The current ratio is the industry average is 3:1 but in the case of George Pty Limited, the current assets in the all the three years, as shown above, is more than the industry average which means that the company is...
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