Answer:
Price of bond=$ 1,129.847
Explanation:
The value of the bond is the present value(PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV).
Value of Bond = PV of interest + PV of RV
Step 1
PV of interest payments
annul interest payment
= 13% × 1000 = 130
PV = A × ( (1- (1+r)^(-n))/r
Annual yield - r= 11% per annum
Total period to maturity- n = 12 years
PV of interest
=130× (1- 1.11^(-12) )/0.11
= 844.00
Step 2
PV of Redemption Value
= 1,000 × (1.11)^(-12)
= 285.84
Step 3
Total PV = 844.00 + 285.84 = 1129.847123
Price of bond=$ 1,129.8471
Patriot Co. manufactures and sells three products: red, white, and blue. Their unit selling prices are red, $64; white, $94; and blue, $119. The per unit variable costs to manufacture and sell these products are red, $49; white, $69; and blue, $89. Their sales mix is reflected in a ratio of 5:4:2 (red:white:blue). Annual fixed costs shared by all three products are $159,000. One type of raw material has been used to manufacture all three products. The company has developed a new material of equal quality for less cost. The new material would reduce variable costs per unit as follows: red, by $6; white, by $16; and blue, by $6. However, the new material requires new equipment, which will increase annual fixed costs by $29,000. Required: 1. Assume if the company continues to use the old material, determine its break-even point in both sales units and sales dollars of each individual product. 2. Assume if the company uses the new material, determine its new break-even point in both sales units and sales dollars of each individual product.
Answer:
1. PATRIOT CO.
Red White Blue
Selling price $64 $94 $119
varaible cost $49 $69 $89
Contribution 15 29 30
ratio 5 4 2
weighted average contribution = (15*5) + ( 29*4) + (30*2)
5+ 4+2
= 75 + 116 +60
11
= 251/11 = $22.82
Weighted average contribution ratio = (15*5) + ( 29*4) + (30*2)
5*64+ 4*94+2*119
= 251/934 = 26.87%
Break-even unit = fixed cost / weighted average contribution
= $159,000/$22.82 = 6,968unit
Red = 5/11* 6,968 = 3,167
White = 4/11* 6,968 = 2,534
Blue = 2/11 * 6,968 = 1,267
Break-even in sales dollar = fixed cost / weighted average contribution ratio
= $159,000/26.87% = $591,738
Red = 5/11* $591,738 = $268,972
White = 4/11* $591,738 = $215,177
Blue = 2/11 * $591,738 = $107,589
2.
Red White Blue
Selling price $64 $94 $119
variable cost $43 $53 $83
Contribution 21 45 36
ratio 5 4 2
weighted average contribution = (21*5) + ( 45*4) + (36*2)
5+ 4+2
= 105 + 180 +72
11
= 357/11 = $32.54
Weighted average contribution ratio = (21*5) + ( 45*4) + (36*2)
5*64+ 4*94+2*119
= 357/934 = 38.22%
Break-even unit = fixed cost / weighted average contribution
= $188,000/$32.45= 5,794unit
Red = 5/11* 5,794 = 2,634
White = 4/11* 5,794 = 2,107
Blue = 2/11 * 5,794 = 1,53
Break-even in sales dollar = fixed cost / weighted average contribution ratio
= $188,000/38.22% = $491,889
Red = 5/11* $491,889 = $223,586
White = 4/11* $491,889 = $178,869
Blue = 2/11 * $491,889 = $89,434
Explanation:
Again, please consider the closed economy of Economia, which has the following information:
$6500 consumption
$7500 government spending (NOT including transfer payments)
$10,000 overall taxes
$2000 transfer payments
$18,000 total income (output)
Carefully following all instructions, calculate (total) national savings for this economy.
Answer:
$4,000
Explanation:
The computation of the total national saving is shown below:
As we know that
National savings = Total income - consumption - government spending
= $18,000 - $6,500 - $7,500
= $4,000
By deducting the consumption and the government spending from the total income we can get the national savings and the same is applied
Ramirez Corporation sells two types of computer hard drives. The sales mix in terms of units is 30% (Q-Drive) and 70% (Q-Drive Plus). Q-Drive has variable costs per unit of $90 and a selling price of $150. Q-Drive Plus has variable costs per unit of $105 and a selling price of $195. The weighted-average unit contribution margin for Ramirez is
Answer:
The weighted average unit contribution is $81 per unit.
Explanation:
The contribution per unit is the amount each unit contributes to covering the fixed costs. It is calculated by deducting the variable cost per unit from the selling price per unit.
The weighted average unit contribution is used when there are more than one product that a company produces and is used in calculating the overall or composite break even point. The weighted average unit contribution is the overall unit contribution for all of the products of the company according to their weights in the sales mix.
For a company that produces two products,
Weighted average unit contribution = Contribution per unit of Product A * Weight of Product A in sales mix + Contribution per unit of Product B * Weight of Product B is sales mix
Weighted average unit contribution = (150 - 90) * 0.3 + (195 - 105) * 0.7
Weighted average unit contribution = $81 per unit
john Hayes and Lynn Magosian, auditors for a public accounting firm, went to lunch at the Bay View Restaurant in San Francisco. John left his raincoat with a coatroom attendant, but Lynn took her new raincoat with her to the dining room, where she hung it on a coat hook near her booth. When leaving the restaurant, Lynn discovered that someone had taken her raincoat. When John sought to claim his raincoat at the coatroom, it could not be found. The attendant advised that it might have been taken while he was on his break. John and Lynn sued the restaurant, claiming that the restaurant was a bailee of the raincoats and had a duty to return them. Are both John and Lynn correct
Answer:
John is correct but Lynn isn't
Explanation:
John is correct because he left his coat with the coatroom attendant under the premise that it would be properly looked after and returned to him when he was done having lunch at the restaurant. However, Lynn just left her coat lying around under no ones care or supervision, there wasn't a predetermined agreement that anyone would be responsible for watching it on her behalf, therefore I don't think she is has the right to sue.
Nina has a part-time job as she finishes her degree in fashion design. After obtaining her degree she decides to quit her part-time job to search for a job that better fits her now-improved skill set. Nina has a few interviews, but it is taking time to find the job that suits her best. Nina would be considered cyclically unemployed. a discouraged worker tructura uneoveremployed. frictionally unemployed.
Answer:
The correct answer is letter "D": frictionally unemployed.
Explanation:
Frictional unemployment is one component of what economists call natural unemployment triggered by factors other than a poorly performing economy. Temporary job transfers caution frictional unemployment. This involves cases such as new employees joining the workforce, people moving to another city in search of a job, or people quitting to look for a better one.
Sylvia's annual salary increases from $102,300 to $109,500. Sylvia decides to increase the number of vacations she takes from three to four. Use the midpoint method to calculate her income elasticity of demand for vacations. Round your answer to two decimal places.income elasticity of demand:Units This good isa normal good.an inferior good.a luxury good.
Answer:
4.20 and normal good
Explanation:
The computation of the income elasticity of demand is shown below:
= (change in quantity demanded ÷ average of quantity demanded) ÷ (percentage change in income ÷ average of quantity income)
where,
Change in income would be
= Q2 - Q1
= 109,500 - 102,300
= 7,200
And, average of income would be
= (109,500 + 102,300) ÷ 2
= 105,900
Change in quantity demanded would be
= 4 - 3
= 1
And, average of quantity demanded would be
= ($4 + 3) ÷ 2
= 3.5
So, after solving this, the income elasticity of demand is 4.20
Since the elasticity comes in positive which means the good is a normal goods
The income elasticity of demand for vacations is approximately 2.25. It can be considered a normal good and income-elastic. The correct option is (a). The calculation is shown in the attached image below.
Income elasticity of demand is a measure of the responsiveness of the quantity demanded of a product or service to changes in income. It quantifies the relationship between changes in income and changes in the quantity demanded.
By calculating the income elasticity of demand, we can gain insights into how changes in income affect the demand for a particular product or service and categorize it as a normal good, inferior good, or necessity.
Thus, the ideal selection is option (a).
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Sylvia's annual salary increases from $102,750 to $109,500. Sylvia decides to increase the number of vacation she takes from 3 to 4. Use the midpoint method to calculate her income elasticity of demand for vacations.
Round your answer to two decimal places
This good is:
a. a normal good and income-elastic.
b. a normal good and income-inelastic.
c. an inferior good.
Harry, Hermione, and Ron formed an S corporation called Dumbledore. Harry and Hermione both contributed cash of $25,000 to get things started. Ron was a bit short on cash but had a parcel of land valued at $60,000 (basis of $50,000) that he decided to contribute. The land was encumbered by a $35,000 mortgage. What tax bases will each of the three have in his or her or his stock of Bumblebee
Answer:
Harry's basis = $25,000
Hermione's basis = $25,000
Ron's basis = $15,000
Explanation:
Data provided
Basis = $50,000
Land Encumbered = $35,000
The computation of Ron's basis is shown below:-
Harry's basis is equal to cash contributed = $25,000
Hermione's basis is equal to cash contributed = $25,000
Ron's basis = Basis - Land encumbered
= $50,000 - $35,000
= $15,000
Therefore for computing Ron's basis we simply deduct the land from land encumbered.
Bethany incurred $20,000 in research and experimental costs for developing a specialized product during July of year 1. Bethany went through a lot of trouble and spent $10,000 in legal fees to receive a patent for the product in August of year 3. Bethany expects the patent to have a remaining useful life of 10 years. (Do not round intermediate calculations.) a. What amount of research and experimental expenses for year 1, year 2, and year 3 may Bethany deduct if she elects to amortize the expenses over 60 months? (Round your final an
Final answer:
Bethany can deduct $3,999.96 for research and experimental expenses for year 1, year 2, and year 3 if she elects to amortize the expenses over 60 months.
Explanation:
To amortize the research and experimental costs over 60 months, we need to determine the annual amortization expense by dividing the total cost by the number of months. In this case, we divide $20,000 by 60 to get $333.33 per month. Multiplying this by 12, we find that the annual amortization expense for year 1 is $3,999.96 (rounded to the nearest cent).
For year 2, the remaining balance is $20,000 - $3,999.96 = $16,000. We divide this by 48 months (60 months - 12 months) to get a monthly amortization expense of $333.33. Multiplying this by 12, we find that the annual amortization expense for year 2 is $3,999.96 (rounded to the nearest cent).
For year 3, the remaining balance is $16,000 - $3,999.96 = $12,000. We divide this by 36 months (60 months - 24 months) to get a monthly amortization expense of $333.33. Multiplying this by 12, we find that the annual amortization expense for year 3 is $3,999.96 (rounded to the nearest cent).
Leona bought two different brands of wine from vineyards in Australia. When asked for her opinion about the wines, she said that one brand of wine tasted like alcoholic grape juice, but the other had a crisp taste that she really enjoyed.
1. These statements were most likely made during the ___________stage of the purchase decision.a. information searchb. alternative evaluationc. postpurchase behaviord. purchase decisione. situational analysis
Answer:
C. Post purchase behavior
Explanation:
Whenever a consumer buys a product, he/she undergoes various stages between the creation of need/want and the ultimate purchase decision.
5 stages have been stated under Consumer buying decision, namely,
Need recognition : the foremost stage wherein a need or desire arises.Information search: Here, the consumer searches for information w.r.t how the need or want can be satisfied. Evaluation of alternatives: The stage wherein a consumer weighs pros and cons of all available alternatives which can satisfy the need.Purchase: The stage wherein a consumer finally purchases a product.Post purchase behavior : Here, the consumer evaluates his purchase and reviews his purchase decision.In the given case, the customer already bought both the wines. Her opinion regarding superiority of quality and taste between the two, represents her post buying stage of purchase decision and her review of the viability of purchase decision.
A manufacturer of lawn care equipment has introduced a new product. The anticipated demand is normally distributed with a mean of μ = 100 and a standard deviation of σ= 50. Each unit costs $75 to manufacture and the introductory price is to be $125 to achieve this level of sales. Any unsold units at the end of the season are unlikely to be very valuable and will be disposed of in a fire sale for $25 each. It costs $10 to hold a unit in inventory for the entire season.
A.) What is the cost of overstocking (Co)?
B.)What is the cost of understocking (Cu)?
C.)What is the optimal cycle service level?
D.) How many units should be manufactured for sale?
Answer:Expected profit = $2657a
Explanation:
Based on the figures given, we can calculate the:
Cost of overstocking to be $60Cost of understocking to be $50Optimal service level to be 0.455Units to be produced to be 94Cost of overstocking is:
= Manufacturing cost + Holding costs - Disposal value
= 75 + 10 - 25
= $60
Cost of understocking:
= Selling price - Manufacturing cost
= 125 - 75
= $50
Optimal service level:
= Cost of understocking / (Cost of understocking + Cost of overstocking)
= 50 / (50 + 60)
= 0.455
Optimal units to be produced:
= Mean - Standard deviation x Z-value for optimal service level
= 100 - 50 x 0.1142
= 94
In conclusion, it is best to hold the optimal level of stock.
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The management of Madeira Computing is considering the introduction of a wearable electronic device with the functionality of a laptop computer and phone. The fixed cost to launch this new product is $300,000. The variable cost for the product is expected to be between $160 and $240, with a most likely value of $200 per unit. The product will sell for $300 per unit. Demand for the product is expected to range from 0 to approximately 20,000 units, with 4,000 units the most likely.
Model the variable cost as a uniform random variable with a minimum of $160 and a maximum of $240. Model product demand as 1,000 times the value of a gamma random variable with an alpha parameter of 3 and a beta parameter of 2. Construct a simulation model to estimate the average profit and the probability that the project will result in a loss.
Answer:
Explanation:
Find attached the solution and the relevant formulas
A simulation model for Madeira Computing's potential new product estimates average profit and loss risk by modeling variable cost as a uniform random variable and demand via a gamma distribution, calculating per-unit profit, and then running simulations.
The simulation model for Madeira Computing's new product involves estimating the average profit and the probability of incurring a loss. This involves modeling variable cost and product demand as random variables. Given that the fixed cost for the launch is $300,000, variable costs are uniformly distributed between $160 and $240, and the selling price is $300 per unit, the profit for each unit can be calculated as the difference between the selling price and the variable cost. Demand is modeled as 1,000 times a gamma random variable with parameters alpha = 3 and beta = 2. A simulation would need to be run, typically using computational software, to generate random draws for the variable cost and demand, and then calculate the profit for each simulation to estimate the average profit and assess the risk of loss.
Last year, Arbor Corporation reported the following: Balance Sheet Total Assets $ 1,280,000; Total Liabilities 820,000; Total Shareholders' Equity $ 460,000This year, Arbor is considering whether to issue more debt to fund a $100,000 project or to issue additional shares of common stock. Both options will bring in exactly $100,000. Arbor's current debt contracts contain a debt covenant that requires it to maintain a debt-to-equity ratio of 2.00 or less.1. Calculate Arbor's current debt-to-equity ratio2. Calculate Arbor's debt-to-equity ratio assuming it funds the project using additional debt.3. Calculate Arbor's debt-to-equity ratio assuming it funds the project by issuing common stock
Answer:
a) Debt to equity ratio = Total liabilities/Total equity
= 820000/460000 = 1.78 Times
b) Debt to equity ratio = Total liabilities/Total equity
= 920000/460000 = 2.00 Times
c) Debt to equity ratio = Total liabilities/Total equity
= 820000/560000 = 1.46 Times
Norris Co. has developed an improved version of its most popular product. To get this improvement to the market will cost $48 million but the project will return an additional $13.5 million for 5 years in net cash flows. The firm's debt-equity ratio is .25, the cost of equity is 13 percent, the pretax cost of debt is 9 percent, and the tax rate is 21 percent. All interest is tax deductible. What is the net present value of this proposed project
Answer:
$0.88 million
Explanation:
For computing the net present value first we have to determine the after cost of debt, cost of capital which is shown below:
After tax cost of debt is
= 9% × (1 - 0.21)
= 7.11%
As we know that
Cost of capital = (Weight of debt × after tax cost of debt) + (Weight of equity × cost of equity)
= (0.25 ÷ 1.25 × 7.11%) + (1 ÷ 1.25 × 13%)
= 1.422% + 10.4%
= 11.82%
Now the net present value is
Year Cash flows Discount rate 11.82% PV of cash inflows (in millions)
0 -$48 million 1 -$48.00 (B)
1 $13.5 million 0.8942944017 $12.07
2 $13.5 million 0.7997624769 $10.80
3 $13.5 million 0.7152231058 $9.66
4 $13.5 million 0.6396200195 $8.63
5 $13.5 million 0.5720086027 $7.72
Total present value $48.88 (A)
Net present value $0.88 million (A - B)
The discount rate is computed by
= 1 ÷ (1 + interest rate)^years
On January 2, 2015, Pharoah Corporation issued $1,700,000 of 10% bonds at 97 due December 31, 2024. Interest on the bonds is payable annually each December 31. The discount on the bonds is also being amortized on a straight-line basis over the 10 years. (Straight-line is not materially different in effect from the preferable "interest method.") The bonds are callable at 102 (i.e., at 102% of face amount), and on January 2, 2020, Pharoah called $1,020,000 face amount of the bonds and redeemed them. Ignoring income taxes, compute the amount of loss, if any, to be recognized by Pharoah as a result of retiring the $1,020,000 of bonds in 2020. (Round answer to 0 decimal places, e.g. 38,548.)
Answer:
The loss on redemption will be for 35,700
Explanation:
bonds value at issuance:
1,700,000 x 97% = 1,649,000
discount: 51,000
amortized over straight line: 5,100 per year
5,100 x 5 = 25,500
discount at Jan 2020 51,000 - 25,500 = 25,500
book value at Jan 2020:
1,700,000 - 25,500 = 1,674,500
1,020,000/1,700,000 = 0.6
$1,674,500 x 60% = $1,004,700
redemption cost:
1,020,000 x 102/100 = 1,040,400
Loss (difference between book value and redemption) 35,700
The Charade Corporation is preparing its Manufacturing Overhead budget for the fourth quarter of the year. The budgeted variable manufacturing overhead is $6 per direct labor-hour; the budgeted fixed manufacturing overhead is $91,000 per month, of which $16,600 is factory depreciation. If the budgeted direct labor time for November is 8,600 hours, then the total budgeted manufacturing overhead for November is:
Answer:
the total budgeted manufacturing overhead for November is: $142,600
Explanation:
Consider BOTH the variable and fixed manufacturing overheads
Calculation of total budgeted manufacturing overhead for November
variable manufacturing overhead ($6 × 8,600 hours) $51,600
fixed manufacturing overhead is $91,000
total $142,600
A statement of basic principles and positions on various public policy issues put forth by a national political party, worked on at every national party convention level which is adopted by its candidates in the election campaign, is known as the party Group of answer choices
A) plank.
B) political action committee.
C) platform.
D) proposal.
E) policy contract.
Answer:
The correct answer is letter "C": platform.
Explanation:
A political party platform represents the set of ideas supported by a group of people united by a political purpose. This set of ideas is usually related to controversial topics that catch the attention of voters during election campaigns. The political party platform aims to satisfy the voters' needs without necessarily implying to have a well-structured and feasible plan to develop the plans alleged in the platform.
A firm is considering purchasing two assets. Asset L will have a useful life of 15 years and cost $4 million; it will have installation costs of $750,000 but no salvage or residual value. Asset S will have a useful life of 5 years and cost $2 million; it will have installation costs of $500,000 and a salvage or residual value of $400,000. Which asset will have a greater annual straightminusline depreciation?
Answer:
D. Asset S has $103,333 more in depreciation per year.
Explanation:
For computing the greater annual straight minus line depreciation first we have to determine the each assets depreciation expense which is shown below:
For Asset L
= (Original cost + installation cost - salvage value) ÷ (useful life)
= ($4,000,000 million + $750,000 - $0) ÷ (15 years)
= $316,666.67
For Asset S
= (Original cost + installation cost - salvage value) ÷ (useful life)
= ($2,000,000 million + $500,000 - $400,000) ÷ (5 years)
= $420,000
As we can see that the Asset S has high annual straight-line depreciation
And, the amount exceed is $103,333.33
Final answer:
After calculating the straight-line depreciation for both assets, it was determined that Asset S has a higher annual depreciation amount of $420,000 compared to Asset L's $316,666.67.
Explanation:
To determine which asset will have a greater annual straight-line depreciation, we need to calculate the depreciation for both assets, Asset L and Asset S.
Asset L:
Cost: $4,000,000
Installation Costs: $750,000
Salvage Value: $0
Useful Life: 15 years
Depreciation for Asset L per year = (Cost + Installation Costs - Salvage Value) / Useful Life
= ($4,000,000 + $750,000 - $0) / 15
= $4,750,000 / 15
= $316,666.67 per year
Asset S:
Cost: $2,000,000
Installation Costs: $500,000
Salvage Value: $400,000
Useful Life: 5 years
Depreciation for Asset S per year = (Cost + Installation Costs - Salvage Value) / Useful Life
= ($2,000,000 + $500,000 - $400,000) / 5
= $2,100,000 / 5
= $420,000 per year
Comparing the two, Asset S has a higher annual depreciation amount of $420,000 compared to Asset L's $316,666.67.
On January 1, 2021, Warren Corporation had 1,000,000 shares of common stock outstanding. On March 1, the corporation issued 200,000 new shares to raise additional capital. On July 1, the corporation declared and issued a 2-for-1 stock split. On October 1, the corporation purchased on the market 600,000 of its own outstanding shares and retired them. Compute the weighted average number of shares to be used in computing earnings per share for 2021.
Answer:
1,616,667
Explanation:
January-February 28 1,000,000*2/12=166,667
March-June 30 1,200,000*4/12= 400,000
July-September 30 1,200,000*2*3/12=600,000
October-December 31 (2,400,000-600,000)*3/12=450,000
Weighted Average Shares for EPS for 2021=1,616,667
Final answer:
The weighted average number of shares for Warren Corporation for 2021 is calculated based on different periods during which the number of shares outstanding changed. The final weighted average for the year is 1,616,667 shares.
Explanation:
To compute the weighted average number of shares for Warren Corporation in the year 2021, we consider the shares outstanding throughout the year and any changes that occur due to issuance of new shares, stock splits, and retirement of shares. Here is the breakdown:
From January 1 to February 28 (2 months), there were 1,000,000 shares outstanding.
On March 1, 200,000 new shares were issued, making it 1,200,000 shares outstanding from March 1 to June 30 (4 months).
On July 1, a 2-for-1 stock split occurred, doubling the number of shares to 2,400,000 outstanding from July 1 to September 30 (3 months).
On October 1, 600,000 shares were retired, leaving 1,800,000 shares outstanding from October 1 to December 31 (3 months).
We calculate the weighted average by multiplying the number of shares outstanding by the time period they were outstanding and then sum those amounts:
(1,000,000 shares x 2/12) = 166,667 shares for Jan-Feb
(1,200,000 shares x 4/12) = 400,000 shares for Mar-Jun
(2,400,000 shares x 3/12) = 600,000 shares for Jul-Sep
(1,800,000 shares x 3/12) = 450,000 shares for Oct-Dec
The sum of these weighted shares is:
166,667 + 400,000 + 600,000 + 450,000 = 1,616,667 shares.
Therefore, the weighted average number of shares for Warren Corporation in the year 2021 is 1,616,667 shares.
At the beginning of the tax year, Barnaby's basis in the BBB Partnership was $151,800, including his $15,180 share of partnership debt. At the end of the tax year, his share of debt was $22,770. His share of the partnership's income for the year was $60,720, and he received cash distributions totaling $37,950. In addition, his share of the partnership's nontaxable income was $3,036. How much is Barnaby's basis at the end of the tax year
Answer: $185,196
Explanation:
To calculate Barnaby's basis at the end of the tax year, we do the following.
First we find out the Initial basis after excluding debt in this manner,
= Initial basis including debt - debt
= $151,800 - $15,180
= $136,620
Now that we have done that we then add the following,
= Initial basis after excluding debt + share of the partnership's income + share of debt + share of the partnership's nontaxable income
= $136,620 + $60,720 + $22,770 + $3,036
= $223,146
From this figure we will then subtract cash distributions received to find out his tax basis for the year.
= $223,146 - $37,950
= $185,196
Barnaby's basis at the end of the tax year is $185,196
On October 1, 2021, Oberley Corporation loans one of its employees $36,000 and accepts a 12-month, 9% note receivable. Calculate the amount of interest revenue Oberley will recognize in 2021 and 2022.
Answer:
=810+2430 => $3240.
Explanation:
For the year 2021, the employee will only have to pay the remaining 3-month interest i.e, October, November and December (36000 * 9% * (3/12)), which becomes 810.
For the year 2022, the employee has to pay the remaining 9-month interest (36000 * 9% * (9/12)), which becomes 2430.
So the total interest revenue becomes = 810+2430 = 3240.
Hope this helps.
Goodluck.
Having just returned from the war in Afghanistan, David has $25,000 in his savings account. His girlfriend suggests that he talk with an investment advisor and let his money "make more money." David has his eye on a new Ford truck, but realistically he knows that his old Jeep Cherokee will probably last another four years, at which time he will definitely need this money as a down payment on the purchase of something new. He knows he may have other needs as well. David should buy high-growth stock with his funds because even though they are risky, they also have the greatest potential of bringing in a better return on his investment. True False
Answer:
The correct answer is FALSE.
First it's not sound investment advice to put all his savings into an investment because as the narrative rightly points out, he may have other needs.Second, high growth stock are also high riskthey only pay in the long term only if the company is successful because dividends are re-invested which is one of the reasons the companies grow quickly.Although they are high risk, they also have great advantages such as:
High growth rate: this means if all goes well David will enjoy a good return on his investment;It's also a way to protect his money from erosion by inflationWhat can David do?
Subject to the advise of a professional investment professional
David needs to take into consideration his immediate needs, set aside some funds to take care of that.Invest the balance into a mix of high growth rate stock which are high yielding but risky and low growth rate but secure investment like government bonds.Start a small business by the side or get a job in the interim as he continues with his new life.Cheers!
Wolverine World Wide, Inc., manufactures military, work, sport, and casual footwear and leather accessories under a variety of brand names, such as Hush Puppies, Wolverine, Merrell, Stride Rite, and Bates, to a global market. The following transactions occurred during a recent year. Dollars are in thousands.
A. Issued common stock to investors for $14,084 cash (example).
B. Purchased $872,418 of additional inventory on account.
C. Borrowed $11,700.
D. Sold $1,346,068 of products to customers on account; cost of the products sold was $750,547.
E. Paid cash dividends of $21,258.
F. Purchased for cash $25,726 in additional property, plant, and equipment.
G. Incurred $345,584 in selling expenses, paying three-fourths in cash and owing the rest on account.
H. Earned $1,772 interest on investments, receiving 90 percent in cash.
I. Incurred $2,990 in interest expense to be paid at the beginning of next year.
Required:
For each of the transactions, complete the tabulation, indicating the effect (positive value for increase, negative value for decrease, and leave blank if no effect) of each transaction. (Remember that A = L + SE, R – E = NI, and NI affects SE through Retained Earnings). The first transaction is provided as an example.("Enter the revenue side and the cost of goods sold side of the transaction on separate lines in the table. Do not net the effects on Stockholders' Equity or Net Income.)
Answer:
A. Issued common stock to investors for $14,084 cash (example).
increased ASSETS (cash) and SE by $14,084 (common stock)B. Purchased $872,418 of additional inventory on account.
increased ASSETS (inventory) and LIABILITIES by $872,138 (accounts payable)C. Borrowed $11,700.
increased ASSETS (cash) and LIABILITIES by $11,700 (notes payable)D. Sold $1,346,068 of products to customers on account; cost of the products sold was $750,547.
increased REVENUE by $1,346,068 and COGS by $750,547increased ASSETS (accounts receivable) by $1,346,068 and decreased inventory by $750,547, net increase of assets is $595,521. Increased EQUITY by increasing retained earnings.E. Paid cash dividends of $21,258.
decreased ASSETS and EQUITY (retained earnings) by $21,258F. Purchased for cash $25,726 in additional property, plant, and equipment.
increased ASSETS (P, P & E) but also decreased ASSETS (cash) by the same amount, so no change at all.G. Incurred $345,584 in selling expenses, paying three-fourths in cash and owing the rest on account.
increased COGS by $345,584reduces ASSETS (cash) by $259,188, increases LIABILITIES (accounts payable) by $86,396, reduces EQUITYH. Earned $1,772 interest on investments, receiving 90 percent in cash.
increases ASSETS by $1,772 (cash $1,594.80 + investments $177.20) and increases EQUITY by $1,772increases REVENUE by $1,772I. Incurred $2,990 in interest expense to be paid at the beginning of next year.
increases COGS by $2,990increases LIABILITIES by $2,990 and reduces EQUITY by $2,990This question requires an understanding of business transactions related to assets, liabilities and stockholder's equity, such as issuing common stock, purchasing inventory, borrowing money, selling products, paying dividends, purchasing property, incurring selling expenses, earning interest, and incurring interest expenses. By analyzing each transaction, we can determine how it impacts the company's financial position.
Explanation:The question is basically asking for an analysis of Wolverine World Wide, Inc.'s financial transactions for a year. Let's go through these transactions one by one:
A: The company issued common stock and received $14,084 in cash. This results in an increase in Assets (Cash) and Stockholder's Equity.
B: The company purchased additional inventory amounting to $872,418 on account. This increases Assets (Inventory) and Liabilities.
C: The company borrowed $11,700. This raises Assets (Cash) and Liabilities.
D: The company sold products worth $1,346,068 to customers. This raises Assets (Accounts Receivable) and Stockholder's Equity (Revenue). The cost of the products sold was $750,547 which causes a decrease in Inventory and an increase in Expenses.
E: The company paid cash dividends of $21,258. This reduces Assets (Cash) and reduces Stockholder's Equity (Dividends).
F: The company purchased additional property, plant, and equipment for $25,726, paid in cash. This increases Assets (Property, Plant and Equipment) and decreases Assets (Cash).
G: Selling expenses were $345,584, with three-fourths being paid in cash. This raises Expenses and lowers Assets (Cash). The balance is a liability (Accounts Payable).
H: The company earned $1,772 in interest on its investments, with 90% received in cash. This raises both Assets (Cash) and Stockholder's Equity (Revenue).
I: The company incurred $2,990 in interest expense. This raises Expenses and Liabilities.
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Gianpiero and Zach have pooled their money together to buy real estate but have filed no formal papers to form a business. Gianpiero, a lawyer, handles all the legal matters and Zach, a real estate broker, finds buyers for the property they have subdivided. Gianpiero and Zach are engaged in a:
Answer: Partnership
Explanation:
Partnership is an arrangement whereby two or more people oversee a business operations and then share the profits and liabilities made. Gianpiero and Zach pooling their money together shows that they are into partnership.
Advantages of partnership include easy formation, large resources, balanced judgement and combined skill, risk sharing and prompt decisions.
g You want to create a portfolio equally as risky as the market, and you have $500,000 to invest. Information about the possible investments is given below: Asset Investment Beta Stock A $ 147,000 .92 Stock B $ 133,000 1.37 Stock C 1.52 Risk-free asset How much will you invest in Stock C
Answer:
I will invest $220,000
Explanation:
Let the Investment in Stock C x
Weightage of Investment C x / 500,000
Weightage beta of Investment C x (1.52) / 500,000
Total Weightage =
Total Weightage of Beta
Stocks Investment Weightage Beta Weighted beta
A $147,000 (147000/500,000) = 0.294 0.92 0.27
B $133,000 (133000/500,000) = 0.266 1.37 0.36
B $220,000 (220000/500,000) = 0.44 1.52 0.67
Total Beta 1.30
Assume that a hypothetical economy with an MPC of 0.8 is experiencing severe recession. Instructions: In part a, round your answers to 2 decimal places. Enter your answers as positive numbers. In part b, enter your answers as whole numbers. a. By how much would government spending have to rise to shift the aggregate demand curve rightward by $25 billion? How large a tax cut would be needed to achieve the same increase in aggregate demand? b. Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt.
Answer:
a)Tax cut = $6.25 billion.
The amount by which government spending would rise to shift the aggregate demand curve rightward by $25 billion? "" Is $5 BILLIONS"""
b)INCREASE GOVERNMENT SPENDING by $25 billion.
INCREASE TAXES by $25 billion.
Explanation:
a.)To calculate the value of spending value, the formula below is used.
multiplier spending=1/1-MPC
multiplier spending==1/1-0.8=5
Tax cut Multiplier = MPC/1-MPC
Tax cut Multiplier = 0.8/1 -0.8
Tax cut Multiplier = 4
The required government spending = 25/3 =5
Tax cut = $6.25
The answer is increase in spending=25 billion, increase in taxes= 25$billion.The spending will increase income=25x5=$125billion.The tax increase will reduce income=25x4=$100billion.In sum the income will increase=125-100=$25billion.
b) The one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt is to
INCREASE GOVERNMENT SPENDING by $25 billion.
INCREASE TAXES by $25 billion.
a) The Tax cut is = $6.25 billion Then, Income increase is = $25billion.
b) Now, INCREASE GOVERNMENT SPENDING by $25 billion and INCREASE TAXES by $25 billion.
Computation Spending Value
a.)To Calculate the value of spending value, the procedure downward:
Then, multiplier spending is =1/1-MPC
After that, multiplier spending is =1/1-0.8 =5
Then, Tax cut Multiplier is = MPC/1-MPC
Now, Tax cut Multiplier is = 0.8/1 -0.8
Then, Tax cut Multiplier is = 4
After that, The required government spending is = 25/3 =5
Tax cut is = $6.25
Now, The solution is to increase spending is = by 25 billion, and increase taxes is = 25$billion. When The spending will increase income is =25x5=$125billion. Then, The tax increase will reduce income = by 25x4=$100billion. In aggregate the income will increase is =125-100= $25billion.
b) When The one achievable combination of government spending increases and also tax increases that would execute the same goal without transforming the amount of outstanding debt is to
Then, INCREASE GOVERNMENT SPENDING by $25 billion.
Therefore, INCREASE TAXES by $25 billion.
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Average Annual Rates Standard Deviation
T-Bills Inflation Real T-Bill T-Bills Inflation Real T-Bill
All months 3.46 2.35 0.56 3.12 4.07 3.81
First half 1.04 1.68 − 0.29 1.29 5.95 6.27
Recent half 4.45 3.53 0.90 3.11 2.89 2.13
(1926-2016) Market Index Big Growth Big Value Small Growth Small Value
Mean excess return (annualized) 0.83 7.98 11.67 8.79 15.56
Standard deviation (annualized) 18.64 18.50 24.62 26.21 28.36
Required:
1. Suppose that the inflation rate is expected to be 2.35% in the near future using the data provided above, what would be your predictions for the following? (Round your answers to 2 decimal places.).
a. The T-bill rate? _________%
b. The expected rate of return on the Big/Value portfolio? __________%
c. The risk premium on th stock market?
Answer:
1. 2.92%
2. 14.59%
3. The risk premium on the stock market does not change.
Explanation:
1. The T-bill rate: real rate + inflation = 0.56% real rate + 2.36 % inflation = 2.92%
The T-bill rate is 2.92%
2. Expected return on Big/Value: T-bill rate + historical risk premium
Expected return on Big/Value: 2.92% T-bill rate + 11.67% historical risk premium = 14.59%
The expected rate of return on the Big/Value portfolio is 14.59%
3. A risk premium is a return on investment above the risk-free rate that an investor needs to be compensated for investing in higher-risk investments. Since the systematic risk i.e the market risk, is expected to remain the same, the risk premium on the stock market is also not expected to experience any change.
To predict the T-bill rate, use the historical average rate. Predict the rate of return on the Big/Value portfolio by subtracting inflation from the mean excess return. Calculate the risk premium on the stock market by subtracting the T-bill rate from the mean excess return for the Market Index.
Explanation:To predict the T-bill rate, we can use the historical average rate of 3.46% annually. So, the predicted T-bill rate would be 3.46%.<\/p>
To predict the expected rate of return on the Big/Value portfolio, we can subtract the inflation rate from the mean excess return for Big Value, giving us a predicted rate of return of 11.67% - 2.35% = 9.32%.<\/p>
The risk premium on the stock market can be calculated by subtracting the T-bill rate from the mean excess return for the Market Index. Therefore, the risk premium on the stock market would be 0.83% - 3.46% = -2.63%.<\/p>
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Anne-Marie and Yancy calculate their current living expenditures to be ?$64,000 a year. During retirement they plan to take one cruise a year that will cost ?$5,000 in? today's dollars.? Anne-Marie estimated that their average tax rate in retirement would be 11 percent. Yancy estimated their Social Security income to be about ?$18,236 and their retirement benefits are approximately ?$28,044. Use this information to answer the following? questions: a. How much? income, in? today's dollars, will? Anne-Marie and Yancy need in retirement assuming 70 percent replacement and an additional ?$5,000 for the? cruise? b. Calculate their projected annual income shortfall in? today's dollars. c.? Determine, in? dollars, the future value of the shortfall 29 years from? now, assuming an inflation rate of 3 percent. d. Assuming a nominal rate of return of 8 percent and 22 years in?
Answer:
a. $49,800.00
b. $9,675.06
c. $8,545.65
Explanation:
a. Net need = (current living expenses x replacement ratio) + additional annual needs
Net need = ($64,000 x 0.70) + $5,000 = $ 44,800 + $5,000
Net need = $49,800.00
Gross need = net need / (1 – average tax rate)= $49,800.00 / (1 – 0.11)= $49,800.00/ 0.89= $55,955.06
b.
Present value shortfall = projected income need – projected income available
Present value short fall =$55,955.06 – ( $18,236 + $28,044 )
= $9,675.06
c
Calculator solutionPV-$1,977.27PMT$0I/YR5%N30CPT FV$8,545.65
Final answer:
a. Anne-Marie and Yancy will need $49,800 in today's dollars for retirement, taking into account a 70% replacement rate and an additional $5,000 for an annual cruise. b. Their projected annual income shortfall is $3,520. c. The future value of the shortfall 29 years from now, with a 3% inflation rate, is $9,314.4. d. Assuming an 8% nominal rate of return and 22 years in retirement, the future value of their accumulated retirement savings would be $27,564.36.
Explanation:
a. To calculate the income needed in today's dollars for retirement, we can use the concept of replacement rate. The replacement rate is the percentage of pre-retirement income that is needed in retirement. In this case, Anne-Marie and Yancy need 70% replacement rate. If their current living expenditures are $64,000 a year, then their needed income in retirement would be 70% of $64,000, which is $44,800.
Additionally, they want an additional $5,000 a year for the cruise. Therefore, their total income needed in retirement would be $44,800 + $5,000 = $49,800.
b. Calculating the projected annual income shortfall involves subtracting the expected retirement income from the needed income. The retirement income consists of Social Security income and retirement benefits, which is $18,236 + $28,044 = $46,280. The projected annual income shortfall would be $49,800 - $46,280 = $3,520.
c. To determine the future value of the shortfall 29 years from now, we can use the formula for compound interest. Assuming an inflation rate of 3%, the future value would be $3,520 multiplied by (1 + 0.03)^29 = $3,520 multiplied by 2.645 = $9,314.4.
d. Assuming a nominal rate of return of 8% and 22 years in retirement, we can calculate the future value of the accumulated retirement savings. Using the formula for compound interest, the future value would be ($49,800 - $46,280) multiplied by (1 + 0.08)^22 = $3,520 multiplied by 7.823 = $27,564.36.
A polisher costs $10,000 and will cost $20,000 a year to operate and maintain. If the discount rate is 10 percent and the polisher will last for 5 years, what is the equivalent annual cost of the tool?
Answer:
EAC $22,638
Explanation:
0 1 2 3 4 5
Cost (10,000)
Cashflows 20,000 20,000 20,000 20,000 20,000
PV factor 1/1.1 1/1.1^2 1/1.1^3 1/1.1^4 1/1.1^5
NPV=Cashflow*PV Factor 18,182 16,529 15,026 13,660 12,418
NPV=10,000+18,182+16529+15,026+13,660+12,418)=85,815
EAC=NPV*r/1-(1+r)^-n=85,815*.1/(1-(1+.1)^-5=$22,638
Final answer:
To find the equivalent annual cost of the polisher, calculate the present value of the annual operating costs over 5 years using a 10% discount rate, convert it to an annuity, and add the annual depreciation of the initial purchase cost.
Explanation:
To calculate the equivalent annual cost of the polisher, we need to take into account the initial purchase cost, the annual operating and maintenance costs, and the discount rate over the lifespan of the polisher. The given discount rate is 10 percent. Firstly, we calculate the present value of the operating and maintenance costs for each year and then convert this into an annuity equivalent over the 5-year lifespan using the formula for the present value of an annuity. Let's denote the annual operating cost as AOC, which is $20,000. The initial purchase cost is PC, which is $10,000. Using the discount rate of 10% or 0.10, we can calculate the present value (PV) of these AOC over the 5-year period and then determine the equivalent annual annuity (EAA). Once we've determined the EAA, we can add this to the annual depreciation of the initial purchase cost (which is simply PC divided by the number of years, in this case, $10,000/5 years). The sum of the EAA and the annual depreciation of PC will give us the equivalent annual cost of the polisher.
The controller of Sunland Industries has collected the following monthly expense data for use in analyzing the cost behavior of maintenance costs. Month Total Maintenance Costs Total Machine Hours January $2,590 330 February 2,890 380 March 3,490 530 April 4,390 660 May 3,090 530 June 5,470 730 (a1) Determine the variable cost components using the high-low method. (Round answer to 2 decimal places e.g. 2.25.) Variable cost per machine hour $
Answer:
Variable cost per unit= $7.2 per unit
Explanation:
Giving the following information:
Month Total Maintenance Costs Total Machine Hours
January: $2,590 - 330
February: $2,890 - 380
March: $3,490 - 530
April: $4,390 - 660
May: $3,090 - 530
June: $5,470 - 730
To calculate the variable cost under the high-low method, we need to use the following formula:
Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)
Variable cost per unit= (5,470 - 2,590) / (730 - 330)
Variable cost per unit= $7.2 per unit
The SML helps determine the level of risk aversion among investors. The higher the level of risk aversion, the the slope of the SML. Which kind of stock is most affected by changes in risk aversion? (In other words, which stocks see the biggest change in their required returns?)
Answer: High-beta stocks.
Explanation:
Higher beta stocks are judged to be more volatile than lower beta stock. Essentially, they see the highest change in required returns as a result of risk aversion.
A beta that is greater than 1 shoes that the asset is more volatile than the market which has a beta of 1. If a stock has a beta of 3 for instance. That means it is 200% more volatile than the market.
This is why they are more affected by risk aversion.
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