Answer:
Contribution margin 12,500 Fav
Explanation:
Beech Company
Flexible Budget Performance Report
For the Month Ended May 31
Flexible Budget Actual Results Variance
Sales $1,300,000; $1,275,000 25,000 Unfav
Variable costs $750,000: 712,500 37,500 Fav
Fixed costs. $300,000 300,000 -
Contribution margin 250,000 262,500 12,500 Fav
We calculate the Variance by subtracting the actual and the flexible budget amounts. Because actual sales are less the variance is unfavorable and actual costs are also less the variance is favorable.
Exercise 11-1 Compute the Return on Investment (ROI) [LO11-1] Alyeska Services Company, a division of a major oil company, provides various services to the operators of the North Slope oil field in Alaska. Data concerning the most recent year appear below: Sales $ 19,000,000 Net operating income $ 6,100,000 Average operating assets $ 36,500,000 Required: 1. Compute the margin for Alyeska Services Company. (Round your answer to 2 decimal places.) 2. Compute the turnover for Alyeska Services Company. (Round your answer to 2 decimal places.) 3. Compute the return on investment (ROI) for Alyeska Services Company. (Round your intermediate calculations and final answer to 2 decimal places.)
Answer:
1. Margin = 0.32 or 32%
2. Turnover = $19,000,000 or Operating Asset Turnover = 0.52 or 52%
3. Return on Investment = 0.17 or 17%
Explanation:
Firstly, list out the parameters we were given:
Sales = $19,000,000, Net Operating Income = $6,100,000,
Average Operating Assets = $36,500,000
1. Operating Margin = Net Operating Income / Sales
Operating Margin = 6,100,000 ÷ 19,000,000 = 0.32
Operating Margin = 0.32 (to 2 decimal places)
Operating Margin = 32%
2. Turnover refers to sales or revenue made during a particular period. In which case turnover is $19,000,000
However, if the turnover referred to is the Operating Asset Turnover, that is calculated below:
Operating Asset Turnover = Sales / Average Operating Assets
Operating Asset Turnover = 19,000,000 ÷ 36,500,000
Operating Asset Turnover = 0.52 (to 2 decimal places)
Operating Asset Turnover = 52%
3. Return on Investment (ROI) = Net Operating Income / Average Operating Assets
Return on Investment (ROI) = 6,100,000 ÷ 36,500,000
Return on Investment (ROI) = 0.17 (to 2 decimal places)
Return on Investment (ROI) = 17%
Final answer:
To compute the ROI for Alyeska Services Company, the margin is found to be 32.11% and the turnover is 0.52. Using these calculations, the ROI is determined to be 16.70%.
Explanation:
To calculate the Return on Investment (ROI) for Alyeska Services Company, we first need to compute the margin, turnover, and then use these figures to calculate the ROI.
Margin Calculation
The margin is calculated by dividing the Net operating income by the Sales and then multiplying by 100 to get a percentage:
Margin = (Net operating income \/ Sales) * 100
Margin = ($6,100,000 \/ $19,000,000) * 100
Margin = 32.11%
Turnover Calculation
The turnover is calculated by dividing the Sales by the Average operating assets:
Turnover = Sales \/ Average operating assets
Turnover = $19,000,000 \/ $36,500,000
Turnover = 0.52
ROI Calculation
ROI is calculated by multiplying the margin by the turnover:
ROI = Margin * Turnover
ROI = 32.11% * 0.52
ROI = 16.70%
An antique cabinet is being sold by means of an English auction. There are four bidders, Gloria, Elise, Judy, and Arabella. These bidders are unacquainted with each other and do not collude. Gloria values the cabinet at $800, Elise values it at $500, Judy values it at $1,800, and Arabella values it at $600. If the bidders bid in their rational self-interest, the cabinet will be sold to ______ at price ______.
Answer and Explanation:
The English auction is a unique process of selling items, under which the auction starts at a low price and goes up to the maximum price and the item is sold to the highest bidder.
In this situation, Judi makes the highest bid which is worth $1,800, therefore, the cabinet will be sold to Judi at price $1,800 .
The antique cabinet will be sold to Judy, who values it the most at $1,800, for just above the second-highest valuation of $800 (Gloria's valuation), likely at $801 assuming a $1 minimum bid increment.
In an English auction, each bidder bids the maximum amount they value the item, which is based on their private value, and they bid in increments until they reach their maximum value. In this scenario, Judy values the antique cabinet the most at $1,800, followed by Gloria at $800, Arabella at $600, and Elise at $500. Therefore, following the logic of an English auction where each bidder knows their own valuation and bids up to that amount without colluding, Judy should win the auction.
Now, because there is no collusion and each bidder is acting in their rational self-interest, when Gloria, who has the second-highest valuation, drops out of the bidding at $800, Judy will only need to bid one increment higher to win the cabinet. Thus, the cabinet will be sold to Judy at a price just above Gloria's maximum bid, which would be $801 if we assume a minimum increment of $1 in this auction. However, many auctions operate with larger increments, so the exact selling price can vary slightly depending on the rules of the auction.
It's important to note that in a real-world setting, the dynamics of an auction can lead to different bid increments and potentially different outcomes based on bidder behaviour, auction rules, and the strategies employed by the bidders.
Stonehall Inc. recently borrowed $685,000 from its bank at a simple interest rate of 10 percent. The loan is for eight months and, according to the loan agreement, the interest should be added to the amount borrowed and the total amount will be repaid in monthly installments. The loan's annual percentage rate (APR) is:________
a. 20.00%
b.18.25%
c. 15.05%
d. 13.33%
Answer:
a. 20.00%
Explanation:
Monthly loan payment
= (685000*10%*8/12 + 685000)/8
= $91,333.33
PV = -685000
Nper = 8
Using RATE function
= RATE(8,91333.33,-685000,0)*12
= 20%
Therefore, The loan's annual percentage rate (APR) is 20%.
Consider the market for wheat where demand is given by: Upper Q Superscript d Baseline equals 80 minus 2 p and supply is given by: Upper Q Superscript s Baseline equals 40 plus 1 p. Now suppose that, due to a market failure (an artificial shipping constraint), a maximum of 43.34 units of wheat can be supplied by firms in the market. (p = The amount of the deadweight loss caused by the market failure is $ nothing. (Enter your answer rounded to the nearest penny and as a positive number.)
Deadweight loss occurs due to a disparity between supply and demand. In this case, a shipping constraint caused a surplus of demand over supply in the wheat market, leading to a deadweight loss.
Explanation:The question is asking about the deadweight loss that occurs in the market for wheat due to an artificial shipping constraint that limits supply. Deadweight loss occurs when there's a difference between the equilibrium supply and demand and the quantity that is actually traded in the market. In your case, firms can only supply a maximum of 43.34 units of wheat because of this shipping constraint.
First, we should find out what's the equilibrium quantity and price for wheat without any market failure (ship constraints), by equating the demand function Qd=80-2p to the supply function Qs=40+1p. Solving this we get the equilibrium price represented as Pe and quantity as Qe. According to your provided demand and supply equations, we see that demand exceeds supply - indicative of a surplus.
This surplus represents the deadweight loss, which basically says that there are more goods that consumers want to buy at a certain price than what's available or being produced. This is also represented graphically in figure 3.22, as the area between the supply and demand curves from Qd up to the quantity supplied by firms of 43.34 units of wheat.
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The deadweight loss in the market for wheat can be calculated by identifying the equilibrium price without the market failure (the artificial shipping constraint), calculating the surplus difference between the quantities supplied and demanded at this price, and comparing this to the quantity that can be supplied due to the shipping constraint. This difference represents the deadweight loss.
Explanation:Calculating Deadweight LossThe first step to calculate the deadweight loss is to identify the equilibrium price without the artificial shipping constraint. With the demand function Qd = 80 - 2p and the supply function Qs = 40 + 1p, we can find the equilibrium price (p) by setting Qd equal to Qs: 80 - 2p = 40 + 1p. Solving this equation will give us the equilibrium price.
Next, we calculate the quantity supplied and demanded using the equilibrium price obtained. The difference between these two quantities is known as the surplus.
Now, using the shipping constraint- a maximum of 43.34 units, which is lower than the quantity supplied, we can calculate the loss due to this constraint. This lost surplus represents the deadweight loss caused by the market failure (the shipping constraint in this question).
Therefore, to calculate the deadweight loss caused by the market failure, we can use the approach explained above.
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Old Economy Traders opened an account to short sell 1,000 shares of Internet Dreams from the previous problem. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of Internet Dreams has risen from $40 to $50, and the stock has paid a dividend of $2 per share. a. What is the remaining margin in the account
Answer:
a.38%
b. No because the margin is above the requirement at 38%
c.-150%
Explanation:
a.
1000 shares*$40 per share = 40000
margin requirement is 50% so equity = 20000
1 year later price increase to 50
$1000 shares*$50 per share = 50000
dividend = $2*1000 = 2000
margin = 20000/52000 = 38%
b.
No because the margin is above the requirement at 38%
c.
Price of 1000 stock year 1 at 50$/share = 50000
40000 – 50000 = -10000
Rate of return = (-10000 -20000)/20000 = -150%
Nielson Motors has a share price of $25 today. If Nielson Motors is expected to pay a dividend of $0.75 this year, and its stock price is expected to grow to $26.75 at the end of the year, then Nielsen's dividend yield and equity cost of capital are:
Answer:
Dividend Yield = 3%
Equity cost of capital = 10%
Explanation:
Dividend yield is a financial ratio which is used by investors to assess a company's annual dividend payout in comparison of its stock price. The formula for dividend yield ratio is :
Annual dividend / Stock price
$0.75 / $25 = 3%
Equity cost of capital is the rate of return required by the investors of equity. This is the rate which a company must pay to raise funds. The formula for finding equity cost of capital is :
Dividend Yield + (Expected Stock price - Stock price today) / Stock price today
3% + ($26.75 - $25 ) / $25 = 10%
The dividend yield for Nielson Motors is 3%, calculated by dividing the dividend by the current share price. The equity cost of capital is 10%, calculated by adding the dividend yield to the rate of capital gains.
Explanation:The dividend yield and equity cost of capital for Nielson Motors can be calculated simply with the given information. The dividend yield is the dividend divided by the current share price, so that would be $0.75/$25 = 0.03 or 3%. The equity cost of capital, on the other hand, represents the total return expected by investors. It is calculated by adding the dividend yield to the rate of capital gains. The rate of capital gains is the expected price increase divided by the current price, which is ($26.75-$25)/$25 = 0.07 or 7%. Therefore, the equity cost of capital is 3% (dividend yield) + 7% (rate of capital gains) = 10%.
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On January 10, 2017, Perez Co. sold merchandise on account to Robertsen Co. for $24,600, n/30. On February 9, Robertsen Co. gave Perez Co. a 11% promissory note in settlement of this account.Prepare the journal entry to record the sale and the settlement of the account receivable.
Answer:
Two entries are made one for sale and the other for the promissory note.
Perez Co
Date Particulars Debit Credit
January 10, 2017 Accounts Receivable $24,600, Dr
Merchandise $24,600,Cr
Sale of merchandise on account to Robertsen Co. for $24,600, n/30.
February 9, Notes Receivable $ 24600 Dr
Accounts Receivable $24,600 Cr
Robertsen Co. gave Perez Co. a 11% promissory note in settlement of this account.
As this note is given within the 30 days no cash has been paid in settlement of the accounts receivable. If any cash had been paid the entry would have been different.
James Company began the month of October with inventory of $20,000. The following inventory transactions occurred during the month: The company purchased merchandise on account for $29,500 on October 12, 2018. Terms of the purchase were 2/10, n/30. James uses the net method to record purchases. The merchandise was shipped f.o.b. shipping point and freight charges of $550 were paid in cash. On October 31, James paid for the merchandise purchased on October 12. During October, merchandise costing $18,750 was sold on account for $29,000. It was determined that inventory on hand at the end of October cost $30,710. Required: 1. Assuming that the James Company uses a periodic inventory system, prepare journal entries for the above transactions including the adjusting entry at the end of October to record cost of goods sold. 2. Assuming that the James Company uses a perpetual inventory system, prepare journal entries for the above transactions.
Answer and Explanation:
1. Periodic inventory system
a.Purchase Dr, $28,910
To Accounts payable $28,910
(Being purchase of inventory is recorded)
Working note
Purchase discount = Gross purchase × Purchase discount rate
= $29,500 × 2%
= $590
Net purchase = Gross purchase - Purchase discount
= $29,500 - $590
= $28,910
Freight-in Dr, $550
To Cash $550
(Being freight cost is recorded)
b. Accounts payable Dr, $28,910
Interest expense Dr, $590
To Cash $29,500
(Being the payment made to suppliers is recorded)
c. Accounts receivable Dr, $29,000
To Sales revenue $29,000
(Being the sale on account is recorded)
For cost of goods sold no Journal entry is required under periodic method
Adjusting entry of year end
Ending Merchandise inventory Dr,$30,710
Cost of goods sold Dr, $18,750
To Beginning inventory $20,000
To Purchases $28,910
To Freight-in $550
(Being cost of goods sold is recorded)
Perpetual inventory system
Merchandise inventory Dr, $28,910
To accounts payable $28,910
(Being purchase of inventory is recorded)
Freight
Merchandise inventory Dr, $550
To cash $550
b. Payment of accounts payable
Accounts payable Dr, $28,910
Interest expenses Dr, $590
To Cash $29,500
(Being payment made to supplier is recorded)
Sales
Accounts payable Dr, $29,000
To Service revenue $29,000
(Being Sales is recorded)
Cost of goods sold
Cost of goods sold Dr,$18,750
To merchandise inventory $18,750
(Being Cost of goods sold is recorded)
d. Adjusting entry of year end
No Journal entry is required
Johnson Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its computer with a faster model that would eliminate all of the overtime processing.
Current Machine New Machine
Original purchase cost $15,230 $25,080
Accumulated depreciation $ 6,800 _
Estimated annual operating costs $24,950 $19,560
Useful life 5 years 5 years
If sold now, the current machine would have a salvage value of $8,490. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after 5 years.
Prepare an incremental analysis. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Retain
Machine Replace
Machine Net Income
Increase
(Decrease)
Operating costs $Johnson Enterprises uses a computer to handle its $Johnson Enterprises uses a computer to handle its $Johnson Enterprises uses a computer to handle its
New machine cost Johnson Enterprises uses a computer to handle its Johnson Enterprises uses a computer to handle its Johnson Enterprises uses a computer to handle its
Salvage value (old) Johnson Enterprises uses a computer to handle its Johnson Enterprises uses a computer to handle its Johnson Enterprises uses a computer to handle its
Total $Johnson Enterprises uses a computer to handle its $Johnson Enterprises uses a computer to handle its $Johnson Enterprises uses a computer to handle its
Should the current machine be replaced?
The current machine should be Johnson Enterprises uses a computer to handle its replacedretained.
Answer:
By the the new machine would incur $6.620 more in costs.
The decision appropriate would be to stick to using the current machine
Explanation:
Incremental analysis for new and old machines
Old Machine New Machine Difference
Purchase cost - $25,080 ($25,080)
Annual operating costs:
($24,950*5)($19,560*5) $124,750 $97,800 $26,950
Salvage value ($8,490) - ($8490)
total costs $116,260 $122,880 ($6,620)
By buying the new machine,Johnson Enterprises would incur $6,620 more in costs,which implies that sticking to the current machine is preferable from an incremental benefit analysis point of view.
Wilson was an agent of Noland. Peterson did not know Wilson was Noland's agent; Peterson did not know Wilson was anyone's agent. (Noland did not want anyone except Wilson to know of the agency). Wilson caused Peterson to suffer significant damages. Noland did not breach a duty of care either with respect to hiring or retaining Wilson. Within the time set by the applicable statute of limitations, Peterson sues Noland, seeking compensation for her damages. Peterson cannot show that Wilson owed her a duty of care. Will Peterson prevail?
Answer:
No Peterson will not prevail.
Explanation:
In this scenario as at the time of the injury Peterson did not know that Wilson was an agent of Noland.
Duty of care is the obligation that one has to ensure the safety of another person. For example an employer that has a duty of care to protect his employee.
Noland did not have a duty of care to Wilson, and Wilson in turn did not have a duty of care to Peterson.
So Peterson will not be able to prove a breach of duty of care. She cannot sue Noland for compensation for her damages
Marin Corporation manufactures drones. On December 31, 2016, it leased to Althaus Company a drone that had cost $118,900 to manufacture. The lease agreement covers the 5-year useful life of the drone and requires 5 equal annual rentals of $41,800 payable each December 31, beginning December 31, 2016. An interest rate of 10% is implicit in the lease agreement. Collectibility of the rentals is probable. Prepare Marin's December 31, 2016, journal entries. (Credit account titles are automatically indented when amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O decimal places e.g. 5,275.) Click here to view the factor table. Date Account Titles and Explanation Debit Credit December 31, 2016 Lease Receivable Cost of Goods Sold Sales Revenue Inventory (To record the lease) December 31, 2016 Cash Lease Receivable (To record receipt of lease payment)
Answer and Explanation:
The journal entries are shown below:
1. Lease receivable ($41,800 × 4.1699) $174,302
Cost of goods sold $118,900
To Sales revenue $174,302
To Inventory $118,900
(Being the lease receivable is recorded)
Kindly refer to the present value of an annuity due table for 5 years at 10% i.e 4.1699
2. Cash $41,800
To Lease receivable $41,800
(Being receipt of lease payment is recorded)
Roman Company is preparing its cash budget for the upcoming month. The budgeted beginning cash balance is expected to be $37,000. Budgeted cash receipts are $101,000, while budgeted cash disbursements are $129,000. Roman Company wants to have an ending cash balance of $40,000. How much would Roman Company need to borrow to achieve its desired ending cash balance?
Answer:
Roman Company need to borrow of $31,000 to achieve its desired ending cash balance.
Explanation:
In Roman Company:
Budgeted Ending cash balance = Budgeted Beginning cash balance + Budgeted cash receipts - Budgeted cash disbursements = $37,000 + $101,000 - $129,000 = $9,000
Roman Company wants to have an ending cash balance of $40,000,
The company need to borrow: $40,000 - $9,000 = $31,000 to achieve its desired ending cash balance.
The process of recruiting and retaining capable employees is more important during periods of rapid growth than during periods of crisis and attempted turnarounds. is an essential element of developing a distinctive competence. is always an essential ingredient of successful strategy execution. is more important than having a good situational fit between the company's strategy and its external environment. is closely tied to developing strong information capital capabilities.
Answer:
Is always an essential ingredient of successful strategy execution.
Explanation:
The process of recruiting and retaining capable employees is an essential process for a company that wants to achieve its objectives and goals.
Recruiting and retaining employees is a task that must be well planned and performed in an organization, it is necessary to find qualified personnel that meet the company's profile and values and also retain competent employees. The human capital in an organization must be selected and committed to the creation of an organizational culture focused on ethics, values and innovation, essential factors to increase productivity and motivation in the work environment, becoming this then a strategy for organizational excellence in the internal and external environment.
Talent management is crucial for organizational success, involving recruitment, development, and retention of employees. Succession planning and employee development are fundamental aspects is always an essential ingredient of successful strategy execution.
The Significance of Talent Management in Organizations
As human resource professionals, it is essential to recognize talent management as a critical component of organizational success. The recruitment, development, and retention of capable employees are significant factors contributing to a company's competitive advantage. Echoing the sentiment that 'a company is only as good as the people it keeps', effective talent management practices ensure that an organization has the right people in the right positions, capable of driving the company forward and adapting to changes and challenges in the business environment.
Succession planning is a key element of talent management, allowing for continuity and sustainable high performance. Leadership development programs, like those at Starbucks, emphasize the importance of preparing the next generation of management. This proactive approach to preparing leaders is critical in upholding an organization's culture and strategic direction even as transitions in leadership occur.
Coupled with this is the need for ongoing employee development, including training and enhancing job satisfaction. A well-informed and skilled workforce that is aligned with organizational goals can significantly contribute to robust organizational behavior and effective strategy execution, which are crucial during all business phases, be it rapid growth or crisis management.
Question:
The process of recruiting and retaining capable employees is more important during periods of rapid growth than during periods of crisis and attempted turnarounds.
is an essential element of developing a distinctive competence.
is always an essential ingredient of successful strategy execution.
is more important than having a good situational fit between the company's strategy and its external environment.
is closely tied to developing strong information capital capabilities.
Cinnamon Buns Co. (CBC) started 2021 with $61,500 of merchandise on hand. During 2021, $299,000 in merchandise was purchased on account with credit terms of 2/10, n/30. All discounts were taken. Purchases were all made f.o.b. shipping point. CBC paid freight charges of $18,500. Merchandise with an invoice amount of $7,800 was returned for credit. Cost of goods sold for the year was $335,000. CBC uses a perpetual inventory system.
Assuming CBC uses the gross method to record purchases, ending inventory would be:
Answer:
$30,220
Explanation:
Inventory purchased $299,000
Discount (299,000*2%) ($5,980)
Freight Charges $18,500
Inventory returned ($7,800)
Net purchases $303,720
Cost of goods sold=opening inventory+purchases-ending inventory
$335,000=$61,500+$303,720-ending inventory
Ending inventory=61,500+303,720-335,000
Ending inventory=$30,220
Entitlement culture is the idea that __________________________. a. basic salaries are extra pay for sales performance rather than deferred bonuses b. basic salaries are deferred bonuses rather than extra pay for extra sales performance c. bonuses are extra pay for sales performance rather than deferred salary d. bonuses are deferred salary rather than extra pay for extra sales performance
Answer:
The correct answer is letter "D": bonuses are deferred salary rather than extra pay for extra sales performance.
Explanation:
In the corporate world, entitlement culture refers to the workers' beliefs that they deserve a series of privileges. This tends to happen during growth periods. Employees assume that the optimal situation of the firm has to do with their performances then, the organization owes them.
An idea that is commonly spread under such a scenario is that bonuses and commissions are deferred salaries and not extra payment for outstanding performance.
Problem 10-171 The following labor standards have been ... The following labor standards have been established for a particular product: Standard labor hours per unit of output 4.5 hours Standard labor rate $19.70 per hours The following data pertain to operations concerning the product for the last month: Actual hours worked 6,500 hours Actual total labor cost $130,975 Actual output 1,400 units Required: a. What is the labor rate variance for the month
Answer:
Labour rate variance $2,925 unfavorable
Explanation:
The labour rate variance is the difference between the standard labour cost allowed for the actual hours worked and the actual labor cost for the same hours
$
Standard labour cost ($19.70× 6500) 128,050
Actual labour cost 130,975
Labour rate variance 2,925 unfavorable
Bass Boss Manufacturing Company manufactures two types of bass boats. Bass Boss provides the following data, pertinent to allocating its annual overhead cost of $435,000: Bass Boss Product Boss Boss Hog Bear Units per year 15,000 20,000 Machine hours/unit 3.0 5.0 Materials cost/unit $1,500 $2,000 Labor cost/unit $ 800 $1,000 Determine the allocation rate assuming the cost driver is machine hours/unit.
Answer:
the allocation rate is $3 per machine hour
Explanation:
Step 1 Find the to total Machine hours
Total Machine Hours
3.0×15,000 = 45,000
5.0×20,000 = 100,000
Total = 145,000
Step 2 Determine the Overhead allocation rate
Overhead allocation rate = Budgeted Overheads / Total Machine Hours
= $435,000/145,000
=$3 per machine hour
Answer:
Allocation rate = $3 per machine hour
Explanation:
Activity-based costing is a form of absorption costing where overheads are charged to product using cost drivers. Under this method, overheads are first analyzed and categorized by the activities responsible for them and then charged to product based on the amount of benefits enjoyed using cost drivers.
Activity rate is calculated as:
Activity overhead for the period / Total cost drivers for the period
Total machine hours = (15,000 ×3hrs) +( 20,000 × 5 hrs)
= 145,000 hours
Overhead rate per machine her
= $435,000/145000 hours
= $3 per hour
Suppose you observe the following situation:
Security Beta Expected Return
Pete Corp. 1.25 . 1323
Repete Co. .87 .0967
a. Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
b. What is the risk-free rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Answer:
a. The expected return on the market is 10.89%
b. The risk-free rate is 1.52%
Explanation:
In order to calcuate the expected return on the market and the he risk-free rate we would have to use the following formulas:
Expected return=risk-free rate +Beta*(market rate- risk-free rate )
13.23=Rf+1.25*(Rm-Rf)
13.23=1.25Rm-0.25Rf
Rm=(13.23+0.25Rf)/1.25
To calculate the risk free rate, we use the following:
9.67=Rf+0.87*(Rm-Rf)
9.67=0.13Rf+0.87Rm
9.67=0.13Rf+0.87*(13.23+0.25Rf)/1.25
9.67=0.13Rf+9.20808+0.174Rf
Rf=(9.67-9.20808)/(0.13+0.174)
=1.52%(Approx)=risk free rate
Rm=(13.23+0.25Rf)/1.25
=10.89%(Approx)=market rate
Final answer:
The expected return on the market and the risk-free rate can be calculated using the CAPM formula and the provided beta and expected return of two securities. Comparing betas helps determine the relative risk of investments. Bond pricing involves discounting the expected payments by the current market interest rate.
Explanation:
Calculating Expected Market Return and Risk-Free Rate Using CAPM
To derive the expected return on the market (E(Rm)) using the Capital Asset Pricing Model (CAPM), we make use of the provided beta (ß) and expected return (E(Ri)) of each security. For Pete Corp., the formula based on CAPM is E(Ri) = Rf + ß(E(Rm) - Rf), and plugging in the values gives us 0.1323 = Rf + 1.25(E(Rm) - Rf). For Repete Co., plugging in the values gives us 0.0967 = Rf + 0.87(E(Rm) - Rf). By solving the set of these two linear equations, we can find both the expected return on the market and the risk-free rate (Rf).
To identify which investment is the safest or riskiest, we compare their betas. A lower beta indicates an investment is less volatile compared to the market and, thus safer. The highest expected return is reflected in the investment with the higher beta, however, this also comes with higher risk.
Estimating the Bond's Price
When a bond's interest rate is less than the current market interest rate, the bond's price will be discounted. For example, if a bond will pay $1,080 in one year, and the current market interest rate is 12%, the present value of the bond's payment is calculated using the formula PV = Expected Payment / (1 + Market Interest Rate). Therefore, the bond price would be calculated as $964.
For the month of July, the unpaid balance on Sue’s credit card statement was $1,131.63 at the beginning of the billing cycle. She made purchases of $512.58. She also made a payment of $750.00 during the month. If the interest rate was 1.75% per month on the unpaid balance, determine the finance charge and the new balance on the first day of the August billing cycle.
Answer:
The finance charge is $19.80 and The new balance on the first day of the August billing cycle is $914.01
Explanation:
According to the given data, we have the following:
Sue’s credit card statement was $1,131.63 at the beginning of the billing cycle
purchases= $512.58
interest rate=1.75%
Hence, to determine the finance charge we use the equation I=Ptr,
so=($1,131.63)(1)(0.0175)
=$19.80.
The finance charge is $19.80
Then, She also made a payment of $750.00 during the month, so In order to calculate the new balance on the first day of the August billing cycle we would have to make the following calculation
new balance=old unpaid balance+finance charge+purchases-payment
=$1,131.63+$19.80+$512.58-$750.00
=$914.01
The new balance on the first day of the August billing cycle is $914.01
The following data represent the beginning inventory and, in order of occurrence, the purchases and sales of Delacour, Inc. for an operating period. Units Unit Cost Total Cost Units Sold Beginning Inventory 30 $28 $ 840 Sale No. 1 20 Purchase No. 1 50 40 2,000 Sale No. 2 40 Purchase No. 2 20 44 880 __ Totals 100 $3,720 60 Assuming Delacour, Inc. uses FIFO perpetual inventory procedures, it records sale no. 2 as an entry to Cost of Goods Sold for:
Under the FIFO method, the Cost of Goods Sold (COGS) for Sale No. 2 amounts to $1480. This is calculated considering 10 units from the beginning inventory and 30 units from the first purchase.
Explanation:Delacour, Inc. uses the FIFO (First-In-First-Out) perpetual inventory procedure. So, to calculate the entry to Cost of Goods Sold (COGS) for Sale No. 2, we need to consider the costs of the earliest goods that were bought and are still available in the inventory. For Sale No. 2, 40 units were sold. The first 10 units come from the Beginning Inventory at $28/unit(total $280) and the next 30 units from Purchase No. 1 at $40/unit (total $1200). Therefore, the total COGS for Sale No. 2 is $280 (from beginning inventory) + $1200 (from Purchase No. 1), which equates to $1480.
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Cat Co. forecasts merchandise purchases of $11,600 in January, $11,800 in February, and $15,400 in March; 40% of purchases are paid in the month of purchase and 60% are paid in the following month. At December 31 of the prior year, the balance of Accounts Payable (for December purchases) is $8,000. What is the cash disbursements for merchandise for the month of February
Answer:
The cash disbursements for merchandise in February is $11680
Explanation:
The cash disbursements for merchandise in February will include the payment for 60% of merchandise purchases for January and 40% of merchandise purchases for February.
The amount of January purchases to be paid in February = 0.6 * 11600 = 6960
The amount of February purchases to be paid in February = 0.4 * 11800 = 4720
The total amount of cash disbursements in February fro merchandise is,
6960 + 4720 = $11680
You have $ 10 comma 000 to invest. You decide to invest $ 20 comma 000 in Google and short sell $ 10 comma 000 worth of Yahoo! Google's expected return is 15 % with a volatility of 30 % and Yahoo!'s expected return is 12 % with a volatility of 25 %. The stocks have a correlation of 0.90. What is the expected return and volatility of the portfolio? The expected return is
Answer:
expected return is 18%
volatility of the portfolio 13.23 %
Explanation:
Your Investment: $ 10,000
Invest $ 20,000 in Google, Google's expected return is 15 %
Sell $ 10,000 worth of Yahoo! Yahoo! Yahoo!'s expected return is 12 %
=> The weight of your portfolio is 2 for the Google stock, and -1 for the Yahoo stock. The negative sign for the Yahoo stock indicates a short position in the stock. The expected return is the weighted average of the returns on the two stocks:
2 * 15% + (-1) * 12% = 18%The volatility of the portfolio is:
[tex]\sqrt{2^{2}*0.15^{2} + -1^{2}*0.25^{2} +2*2*(-1)*0.9*0.15*0.25 }[/tex] = 13.23 %
The expected return of the portfolio is 18%, and the portfolio's volatility is approximately 13.22%.
To find the expected return and volatility of the portfolio, we can use the concept of portfolio theory. The expected return of the portfolio is a weighted average of the expected returns of the individual assets, and the portfolio volatility is determined by the weights, volatilities, and the correlation between the assets.
First, let's calculate the expected return of the portfolio:
1. Calculate the total investment amount:
Total Investment = Investment + Short Sale
Total Investment = $20,000 - $10,000 = $10,000
2. Calculate the weighted returns of two companies:
Weighted Return of G = (Investment / Total Investment) * Expected Return
Weighted Return of Y = (Short Sale Amount in Y / Total Investment) * Expected Return of Y
Weighted Return of G = ($20,000 / $10,000) * 15% = 30%
Weighted Return of Y = ($10,000 / $10,000) * (-12%) = -12%
3. Calculate the expected return of the portfolio:
Expected Return of Portfolio = Weighted Return + Weighted Return of Y
Expected Return of Portfolio = 30% - 12% = 18%
So, the expected return of the portfolio is 18%.
Now, let's calculate the portfolio's volatility:
The formula for portfolio volatility in a two-asset portfolio is:
Portfolio Volatility = √[ (Weight)^2 * (Volatility)^2 + (Weight )^2 * (Volatility)^2 + 2 * Weight of G * Weight of Y * Volatility of G * Volatility of Y * Correlation ]
Plugging in the values:
Portfolio Volatility = √[ (1)^2 * (0.30)^2 + (-1)^2 * (0.25)^2 + 2 * 1 * (-1) * 0.30 * 0.25 * 0.90 ]
Portfolio Volatility ≈ √[0.090 + 0.0625 - 0.135]
Portfolio Volatility ≈ √[0.0175] ≈ 0.1322 or 13.22%
So, the expected return of the portfolio is 18%, and the portfolio's volatility is approximately 13.22%.
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Kennywood Inc., a manufacturing firm, is able to produce 1 comma 200 pairs of pants per hour, at maximum efficiency. There are three eightminushour shifts each day. Due to unavoidable operating interruptions, production averages 900 units per hour. The plant actually operates only 27 days per month. Based on the current budget, Kennywood estimates that it will be able to sell only 501 comma 000 units due to the entry of a competitor with aggressive marketing capabilities. But the demand is unlikely to be affected in future and will be around 517 comma 000. Assume the month has 30 days. What is the practical capacity for the month?
Answer:
583,200 units
Explanation:
Practical capacity per unit = 900 units per hour
Hours per shift = 8 hours
Number of hours worked each day = 3 shifts * 8 hours = 24 hours
Number of days of operation in a month = 27 days
Practical capacity for the month = 900 * 24 * 27 = 583,200 units
Units to be Assigned Costs Eve Cosmetics Company consists of two departments, Blending and Filling. The Filling Department received 78,700 ounces from the Blending Department. During the period, the Filling Department completed 89,700 ounces, including 15,700 ounces of work in process at the beginning of the period. The ending work in process inventory was 4,700 ounces. How many ounces were started and completed during the period
Answer:
74,000 ounces
Explanation:
Eve cosmetics is using cost accounting methods to identify the ounces it produces during a period. Work in process are the units which are partially completed during the period. Completed units include the finished goods units. To calculate ounces started and completed during the period we minus beginning work in process from the ounces completed by Filling department.
89,700 ounces - 15,700 ounces = 74,000 ounces.
Three years ago, Joe bought a 5-year, 10% coupon paid semiannually bond for $1000. Currently, with interest rates having risen sharply, the bond is selling for $800 and you decide to sell it off. If you had re-invested the semi-annual coupons as you received them, what would your realized yield be over the 3-year holding period? Round to two decimal places.
Answer:
3.63%
Explanation:
Semiannual coupon payment
= $100 ÷ 2 = $50[($1,000 × 10%) ÷ 2]
The total number of compounding period = 2periods per year × 3 years = 6 periods.
By entering the following data on a financial calculator, rate is calculated as 1.81%.
Semiannual yield = 1.81%
Annual yield = 1.81% ×2 = 3.63%
Final answer:
To find the realized yield over a 3-year period, take into account both the capital loss and the reinvestment of semi-annual coupon payments. The future value of reinvested coupons is added to the proceeds from the sale, and this total return is compared to the initial investment to calculate the annualized realized yield.
Explanation:
Total coupon payments:
Coupons per year = 10%
Coupons per semester = 10% / 2 = 5%
Coupon payment per semester = $1000 * 5% = $50
Total coupon payments (3 years, 6 semesters) = $50/semester * 6 semesters = $300
Capital gain or loss:
Purchase price = $1000
Selling price = $800
Capital loss = $1000 - $800 = $200
The Fox TV network is considering replacing one of its prime-time crime investigation shows with a new family-oriented comedy show. Before a final decision is made, network executives commission a sample of 400 viewers. After viewing the comedy, 250 indicated they would watch the new show and suggested it replace the crime investigation show a. Estimate the value of the population proportion.b. Develop a 99 percent confidence interval for the population proportion.c. Interpret your findings.
Answer:
a. 0.625
b. [tex]0.5625\leq p\leq 0.6875[/tex]
Explanation:
The estimate value of the population proportion p' is calculated using the data from the sample, so it is equal to:
[tex]p'=\frac{250}{400} =0.625[/tex]
Because the sample have 400 viewers and 250 indicated that they would watch the new show and suggested.
It mean that 0.625 is an estimation of the population proportion.
On the other hand, the confidence interval for the population proportion p is calculated as:
[tex]p'-z_{\alpha /2}\sqrt{\frac{p'(1-p')}{n} } \leq p\leq p'+z_{\alpha /2}\sqrt{\frac{p'(1-p')}{n} }[/tex]
Where [tex]p'[/tex] is the sample proportion, [tex]1-\alpha[/tex] is the confidence level, and n is the size of the sample.
Now, we need to replace p' by 0.625, n by 400 and [tex]1-\alpha[/tex] by 0.99.
If [tex]1-\alpha[/tex] is equal to 0.99, [tex]\alpha[/tex] is equal to 0.01 and, using the standard normal distribution table, [tex]z_{\alpha /2}[/tex] is equal to: [tex]z_{\alpha /2}=z_{0.005}=2.58[/tex]
Then, the 99 percent confidence interval for the population proportion is calculated as:
[tex]0.625-(2.58)\sqrt{\frac{0.625(1-0.625)}{400} } \leq p\leq 0.625+(2.58)\sqrt{\frac{0.625(1-0.625)}{400} }\\0.625-0.0625\leq p\leq 0.625+0.0625\\0.5625\leq p\leq 0.6875[/tex]
It means that with a 99% of confidence level, the value of population proportion of people that would watch the new show and suggested is between 0.5625 and 0.6875
Your grandparents would like to establish a trust fund that will pay you and your heirs $130,000 per year forever with the first payment 11 years from today. If the trust fund earns an annual return of 2.5 percent, how much must your grandparents deposit today?
Answer:
$5,200,000
Explanation:
Amount that grandparents must deposit today = Regular amount / Rate of interest
= $130,000 / 2.5%
=$130,000/0.025
= $ 5,200,000
Therefore the amount that grandparents must deposit today is $5,200,000
Answer:
If the trust fund earns an annual return of 2.5 percent, Your grandparents must deposit today $4,062,231
Explanation:
In order to calculate how much must your grandparents deposit today, first we would have to calculate according to the information given the Value of fund required at end of year 10.
Hence, Value of fund required at end of year 10 = $130,000 / 2.5% = =$5,200,000
Therefore, the Value of fund required today at 2.5% and N = 10 = $5,200,000 / (1 + 2.5%)^10
= $4,062,231
If the trust fund earns an annual return of 2.5 percent, Your grandparents must deposit today $4,062,231
Item12 10 points eBookPrintReferences Check my work Check My Work button is now enabledItem 12Item 12 10 points Problem 4-19 Loaded-Up Fund charges a 12b-1 fee of 0.75% and maintains an expense ratio of 0.75%. Economy Fund charges a front-end load of 2.5%, but has no 12b-1 fee and an expense ratio of 0.25%. Assume the rate of return on both funds’ portfolios (before any fees) is 7% per year. How much will an investment of $1,000 in each fund grow to after:
a. 1 year
b. 3 years
c. 10 years
Answer:
Loaded-up fund:
1-year: 1,055
3-year: 1.174,24
10-year: 1,708.14
Economy Fund:
1-year: 1,040.81
3-year: 1,186.06
10-year: 1,873.63
Explanation:
Loaded-up fund:
0.75% + 0.75% = 1.5%
7% return - 1.5% = 5.5%
after a year:
1,000 x 1.055 = 1,055
after three years:
1,000 x 1.055^3 = 1.174,24
after ten years:
1,000 x 1.055^10 =1,708.14
Economic Fund:
discounting the front-end load
1,000 x (1 - 0.025) = 975
then:
7% - 0.25% = 6.75%
after a year:
975 x 1.0675 = 1.040,81
after three years:
975 x 1.0675^3 = 1.186,06
after ten years:
975 x 1.0675^10 =1,873.63
MG corporation has a target capital structure of 45 percent common stock, 10 percent preferred stock, and 45 percent debt. Its cost of equity is 17 percent, the cost of preferred stock is 6.5 percent, and the cost of debt is 9 percent (before taxes). The relevant tax rate is 35 percent. What is MGís WACC?
Answer:
The WACC is 10.93%
Explanation:
The WACC or weighted average cost of capital is the cost to firm of its capital structure. The capital structure of the firm consists of debt, preferred stock and common stock. The WACC is calculated by taking the sum of the weighted average cost of each component of the capital structure.
WACC = wD * rD * (1-tax rate) + wP * rP + wE * rE
Where,
w represents the weight of each component as a proportion of total assetsr represents the cost of each componentWe take the after tax cost of debt. So, rD is multiplied by (1-tax rate)WACC = 0.45 * 0.09 * (1-0.35) + 0.1 * 0.065 + 0.45 * 0.17
WACC = 0.109325 or 10.9325% rounded off to 10.93%
Embassy Club Condominium, located on the west coast of Florida, is undertaking a summer renovation of its main building. The project is scheduled to begin May 1, and a September 1 (17-week) completion date is desired. The condominium manager identified the following renovation activities and their estimated times:
Activity Immediate Predessor Time
A - 3
B - 1
C - 2
D A,B,C 4
E C,D 5
F A 3
G D,F 6
H E 4
a. Draw a project network.
b. What are the critical activities?
c. What activity has the most slack time?
Find the pictures in attachment