Answer:
The correct answer is: 1,000; Negative slope
Explanation:
The aggregate demand curve can be written as [tex]P =\frac{MV}{Y}[/tex]
Here, V = 5 and M = 600, so P will be
P = [tex]\frac{600\times5}{Y}[/tex]
P = [tex]\frac{3,000}{Y}[/tex]
If P = 1,
1 = [tex]\frac{3,000}{Y}[/tex]
Y = 3000
If P = 2,
2 = [tex]\frac{3,000}{Y}[/tex]
2Y = 3,000
Y = 1,500
If P = 3,
3 = [tex]\frac{3,000}{Y}[/tex]
3Y = 3,000
Y = 1,000
We see that as the value of P is increasing, the value of Y is declining. This means that P and Y are negatively related and have a negative slope.
Bonita Industries wishes to issue $6900000 (par value) of its 7%, 10-year bonds. The bonds pay interest annually on January 1. The current yield rate on such bonds is 12%. Using the interest factors below, compute the amount that Bonita will realize from the sale (issuance) of the bonds.
Answer:
The amount that Bonita will realize from the sale is $4,950,673.06
Explanation:
Hi, first, we need to find the amount to be paid by the bond (coupon), that is 7%*$6,900,000=$483,000. Now, we can use the following formula.
[tex]Price=\frac{Coupon((1+YTM)^{n}-1) }{YTM(1+YTM)^{n} } +\frac{FaceValue}{(1+YTM)^{n} }[/tex]
Where:
YTM = 0.12
n = 10
Face Value = $6,900,000
Coupon = $483,000
Price = what Bonita
Therefore:
[tex]Price=\frac{483,000((1+0.12)^{10}-1) }{0.12(1+0.12)^{10} } +\frac{6,900,000}{(1+0.12)^{10} }=4,950,673.06[/tex]
Best of luck.
The responsibility report of Alejandro Garcia, the manager of one of the divisions of an auto parts manufacturing company, includes profits as well as return on investment and residual income. Alejandro is most likely the manager of a(n)_________.A. revenue center B. investment center C. cost center D. profit center
Answer:
B. investment center
Explanation:
Investment center is a business unit which contributes directly to the profitability of company using the capital the company provided.
Therefore, Alejandro is most likely the manager of a investment center.
Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can build one in 30 minutes. He is semi-retired but earns $8 per hour at the local hardware store. He can sell a birdhouse for $20 each.
An Accountant would calculate the total profit for one birdhouse to be
A) $7
B) $12
C) $11
D) $15
Answer:
$15
Explanation:
Accounting profit is calculated as revenue less total cost.
Accounting profit = Revenue - Cost
$20 - $5 = $15
An accountant calculates accounting profit.
The short-run aggregate supply curve is relatively flat to the left of the full-employment
output because resources are difficult to bring into production.
there are shortages of capital.
there are large amounts of unused capacity and idle human resources.
there are shortages of labor.
Answer:
There are large amounts of unused capacity and idle human resources.
Explanation:
The curve is flat because there are large amounts of unused capacity and idle human resources. When the economy is operating to the left of full employment it means that is not utilizing all it's resources and not fulfilling its potential, because of this the economy has lots of idol capacity and resources and they are available for cheap, the reason for this is that the resources are abundant and thus very cheap so this makes the left of the full employment short run aggregate supply curve relatively flat.
Ford Motor Corporation is considering purchasing new technology that will increase productivity by twenty percent. If Ford Motor Corporation decides to make this investment at the going real interest rate, then A. the supply of loanable funds increases. B. saving increases. C. Ford's profits will decline. D. the quantity of loanable funds demanded increases. E. the demand for loanable funds increases.
Answer:
E. The demand for loanable funds increases.
In a garments factory, a part requires 0.10 hours of labor per unit in Work Center B and 1 hour of setup time. The planned order release (order size) for a week is 2000 units.
Which of the following is the capacity requirement for a week at Work Center B?
a. 101b. 151c. 201d. 251
Answer:
201 hours.
Explanation:
Given: Order size of work for a week is 2000 units.
Setup time is 1 hour.
Now, lets calculate the capacity requirement for a week at work centre B.
Formula; Capacity= [tex][set\ up\ time+(labour\ per\ unit \times total\ unit\ of\ work)][/tex]
Substitute the value in the formula.
⇒Capacity= [tex][1+ (0.10 \times 2000)][/tex]
⇒ Capacity= [tex][1+(200)] = 201\ hours[/tex]
∴ 201 hours is the capacity requirement for a week at work centre B.
Dobry Die & Mold, Inc., enters into a contract with Chet's Refitting Service to fix Dobry's precisely engineered molding equipment. If Chet's delays the repair for five days, knowing that Dobry will lose a certain percentage of profit for the delay, Dobry might be awarded consequential damages toa. establish, as a matter of principle, that Chet's acted wrongfully.b. provide Dobry with funds for a foreseeable loss beyond the contract.c. provide Dobry with funds for its loss of the bargain.d. punish Chet's and set an example to deter others from similar acts.
Answer:
I suppose that when Dobry and Chet's entered a contract there was a time set for the reparations to begin, maybe not to end the repairs since that may vary, but at least to start working on them and try to do it fast.
If Chet's delayed their work and did not start repairing Dobry's equipment on time (5 days), then Dobry should be able to sue for consequential damages in order to recover money due to a foreseeable loss beyond the contract. If Dobry cannot operate its equipment then it cannot produce, so it is Chet's fault that their production is halted.
"The correct answer is b. provide Dobry with funds for a foreseeable loss beyond the contract.
In contract law, consequential damages are designed to compensate a party for losses that are a foreseeable consequence of the breach, but not directly caused by the breach itself. In this scenario, Dobry Die Mold, Inc. has suffered a loss due to Chet's Refitting Service's delay in repairing the equipment. This delay has resulted in a loss of profit, which is a foreseeable consequence of the breach of contract by Chet's.
a. Consequential damages are not primarily awarded to establish that a party acted wrongfully; that is more in line with nominal damages or punitive damages. The focus of consequential damages is on compensating the non-breaching party for actual losses.
b. This is the correct rationale for consequential damages. They are meant to compensate the non-breaching party (Dobry) for losses that were foreseeable at the time the contract was made, which in this case includes the loss of profit due to the delay.
C. Providing funds for the loss of the bargain would be compensating Debry for the difference between the value of the promised performance and the value of the performance actually received. This is more in line with expectation damages, not consequential damages.
d. While punitive damages can be awarded to punish a wrongdoer and deter others, consequential damages are not punitive in nature. They are compensatory, aiming to make the non-breaching party whole for losses that were a foreseeable result of the breach.
Therefore, the most appropriate choice is option b, which correctly identifies the purpose of consequential damages as providing funds to Dobry for a foreseeable loss beyond the contract itself, such as the loss of profits due to the delay in repairing the equipment."
On December 31, 2015, Mark Inc. estimates future bad debts to be $6,500. The Allowance for Uncollectible Accounts has a credit balance of $2,500 before any year-end adjustment. What adjustment should Mark Inc. record for the estimated bad debts on December 31, 2015?
Answer:
Dr Bad Debt expense 4,000Cr Allowance for Uncollectible Accounts account 4,000Explanation:
The ending balance of the Allowance for Uncollectible Accounts account should equal $6,500. Currently the account's balance is just $2,500, so you need to credit $4,000 more to that account in order for its ending balance to equal the bad debts expense.
So you should record the following:
Dr Bad Debt expense 4,000Cr Allowance for Uncollectible Accounts account 4,000Since bad debts is an expense, when it increases it should be debited.
Since allowance for uncollectible accounts is a contra asset account, when it increases it should be credited.
The controller of Hartis Corporation estimates the amount of materials handling overhead cost that should be allocated to the company's two products using the data that are given below: Wall Mirrors Specialty Windows Total expected units produced 8,000 7,000 Total expected material moves 300 900 Expected direct labor-hours per unit 5 7The total materials handling cost for the year is expected to be $38,448. If the materials handling cost is allocated on the basis of material moves, the total materials handling cost allocated to the specialty windows is closest to:
a. $28,836
b. $22,428
c. $19,224
d. $18,752
Answer:
a. $28,836
Explanation:
Total Material Moves (300 + 900) 1200
Rate per material move (38488/1200) 32.07333333
Allocated material moves for material handling
wall mirrors (38488/1200*300) 9622
Speciality windows (38488/1200*900) 28866
38488
Therefore, The material handling cost allocated to the speciality windows is closest to $28,836.
The total materials handling cost allocated to the Specialty Windows, based on the material moves, is approximately $28,836.
Explanation:The allocation of material handling costs is a cost accounting problem where costs are split based on the cause-and-effect relationship. In this case, materials handling cost is allocated based on material moves. The total number of material moves is 1200 (300 for Wall Mirrors + 900 for Specialty Windows). So, the cost allocated per material move would be the total materials handling cost divided by total material moves, which is $38,448 / 1200. This gives us $32.04 per material move.
Now, for Specialty Windows, as there are 900 material moves, the total materials handling cost allocated to them would be 900 X $32.04, which approximates to $28,836.
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WILL GIVE BRAINLIEST ANSWER!!!! plus 100 points
Because of the tender meat required, which of these cooking methods are the most expensive?
A. Braising and frying
B. Grilling and sautéing
C. Steaming and broiling
D. Baking and roasting
Incorrect answer: C
Reference: Section 1.2
I'd assume grilling and sautéing.
Answer:
B. Grilling and Sautéing
The Lin household’s annual income is $188000. Based on the U.S. federal tax rates below, what is the average tax rate for the Lin household? (Assume zero tax deductions for solving this problem.)
A. 45%
B. 24.41%
C. 22.22%
D. 33%
Answer:
24%
Explanation:
For the taxes due on April 2020 (current year taxes):
The Lin household falls under the fourth tax bracket for married individuals filing jointly:
tax rate 24%Income between $171,051 to $326,600If no deductions were available, they would owe $188,000 x 24% = $45,120 in taxes.
Mix Recording Studios purchased $7,800 in electronic components from TechCom. Mix Recording Studios signed a 60-day, 10% promissory note for $7,800. If the note is dishonored, what is the amount due on the note?
a. $130
b. $7,800
c. $7,930
d. $8,050
e. $8,130
Answer:
C) $7,930
Explanation:
The amount due on the note should equal the principal and the accrued interest of the note.
The principal (the amount borrowed) of the note is $7,800.
The accrued interest is: $7,800 x (2/12) x 10% = $130.
The total amount of the note = $7,800 + $130 = $7,930
In 2011 modern electronics produce 60,000 calculators, employing 80 workers, each of whom worked 8 hours per day. In 2012, the same firm produce 76,500 calculators, employing 85 workers, each of whom worked 10 hours per day. Productivity at Modern Electronic.
a. decresed by 4%
b. remained constant
c. increased by 8.33%
d. increase by 27.50%
Answer:
The answer is A. Decreased by 4%.
Explanation:
Calculations are as shown below:
In the year of 2011:
Modern Electronics working hour's per day = Number of workers x working time per day = 80 x 8 = 640 hours
Number of calculators Modern Electronics made per one working hour ( that is, productivity) = 60,000 / 640 = 93.75 calculators.
In the year of 2012:
Modern Electronics working hour per day = Number of workers x working time per day = 85 x 10 = 850 hours
Number of calculators made per one working hour ( that is, productivity) = 76,500 / 850 = 90.00 calculators.
Comparision of productivity in the year 2012 over the year 2011 = 90/93.75 -1 = -4%
Thus, productivity decrease 4% in the year 2012 in comparison to the year 2011.
Charlotte and Regina are opening a new business venture to sell gourmet cupcakes. One of the important characteristics in starting a limited liability company is:
a. limited liability for members.
b. the amount of start-up capital required.
c. choosing the name.
d. the number of shareholders.
Answer:
a. limited liability for members.
Explanation:
One of the important if not the most important characteristics in starting a limited liability company is limited liability for members, since the whole company structure revolves around this aspect. This refers to the shareholders being responsible for any debt incurred by the company, but only to the extent of their company shares.
You buy a stock for $30 per share and sell it for $33 after holding it for slightly over a year and collecting a $0.75 per share dividend. Your ordinary income tax rate is 28% and your capital gains tax rate is 20%. Your after-tax rate of return is _________.
Answer:
The answer is: After-tax rate of return = 9.8% .
Explanation:
Please find the calculations which are shown in details as below:
Pre-tax dividend earning is $0.75, Tax rate on ordinary income is 28% => After-tax dividend earning = 0.75 x (1 - 28%) = $0.54;
Pre-tax capitals gain is $3 ( that is, $33 -$30), tax rate on capital gains is 20% => After-tax capital gains = 3 x ( 1 - 20%) = $2.4 ;
=> Total after-tax return = After-tax capital gains + After-tax dividend earning = 2.4 + 0.54 = $2.94 .
Thus, in percentage term, after-tax rate of return is 2.94/30 = 9.8%.
Final answer:
To find the after-tax rate of return, we calculate the after-tax capital gain and the after-tax dividend, sum them up, and divide by the purchase price, yielding a 9.8% return.
Explanation:
To calculate the after-tax rate of return on a stock investment, we must consider both the dividend income and the capital gains, and then adjust for taxes. You purchased the stock at $30 per share and sold it at $33 per share, with a capital gain of $3 per share. Additionally, you received a $0.75 per share dividend. Since the holding period was over a year, the capital gains tax rate of 20% and the ordinary income tax rate of 28% will apply to each component respectively.
Calculating the capital gains tax:
Capital Gain = Selling Price - Purchase Price = $33 - $30 = $3 per share
Capital Gains Tax = Capital Gain x Capital Gains Tax Rate = $3 x 20% = $0.60 per share
Calculating the tax on dividends:
Dividend Tax = Dividend x Ordinary Income Tax Rate = $0.75 x 28% = $0.21 per share
Now, let's calculate the after-tax return:
After-Tax Capital Gain = Capital Gain - Capital Gains Tax = $3 - $0.60 = $2.40 per share
After-Tax Dividend = Dividend - Dividend Tax = $0.75 - $0.21 = $0.54 per share
Total After-Tax Return = After-Tax Capital Gain + After-Tax Dividend = $2.40 + $0.54 = $2.94 per share
The after-tax rate of return is calculated as follows:
After-Tax Rate of Return = (Total After-Tax Return / Purchase Price) x 100
= ($2.94 / $30) x 100 = 9.8%
The production function is f (L, M) = 5L1/2M1/2, where L is the number of units of labor and M is the number of machines. If the amounts of both factors can be varied and if the cost of labor is $9 per unit and the cost of using machines is $64 per machine, then the total cost of producing 12 units of output is________.
a. $438.
b. $108.
c. $576.
d. $115.20.
e. $57.60.
Answer:
The correct answer is option d.
Explanation:
The production function is given as:
f (L, M) =[tex]5L^{1/2} M^{1/2}[/tex]
The total cost will be
= wL + rM
Here, w is the cost of labor or wages and r is the cost of capital or rent.
The cost of labor is given as $9 per unit and the cost of using machine is $64 per machine.
MPl
= [tex]\frac{dQ}{dL}[/tex]
= [tex]\frac{5}{2}\frac{M}{L}^{1/2}[/tex]
MPm
= [tex]\frac{dQ}{dM}[/tex]
= [tex]\frac{5}{2}\frac{L}{M}^{1/2}[/tex]
[tex]\frac{MPl}{MPm} = \frac{9}{64}[/tex]
[tex]\frac{M}{L} = \frac{9}{64}[/tex]
M = [tex]\frac{9}{64}L[/tex]
f (L, M) = [tex]5L^{1/2} M^{1/2}[/tex]
12 = [tex]5L^{1/2} \frac{9}{64}L^{1/2}[/tex]
12 = [tex]\frac{15L}{8}[/tex]
L = [tex]\frac{96}{15}[/tex]
L = 6.4
M = [tex]\frac{9}{64}\times 6.4[/tex]
M = 0.9
Total cost
= wL + rM
= 6.4 [tex]\times[/tex] 9 + 0.9 [tex]\times[/tex] 64
= 57.6 + 57.6
= $115.2
The question requires using a production function to calculate total costs for output production, but more information is needed to specify the amounts of labor and machines to find a unique solution.
Explanation:The question involves the application of a production function to calculate the total cost of producing a certain amount of output given the costs of labor and machines. To find the total cost of producing 12 units of output, we must first determine the combination of labor (L) and machines (M) that can produce this output using the given production function, f(L, M) = 5L1/2M1/2. Once we have the values of L and M, we need to calculate the total cost by multiplying the number of units of each factor by its respective cost and summing these products. Unfortunately, in this case, there isn't enough information to solve the problem because we need either the specific amounts of L and M or additional constraints to find a unique solution. Given the context, however, if we had the values, the formula to be used would be: Total Cost = Cost of Labor × L + Cost of Machines × M.
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Which of the following changes would bring the U.S. capital stock, currently below the Golden Rule level, closer to the steady-state, consumption-maximizing level?
- increasing the population growth rate
- increasing the saving rate
- increasing the rate of capital depreciation
- increasing the rate of technological progress
Answer:
The answer is increasing the saving rate
Explanation:
Increasing the saving rate.
A business practice associated with globalization involves businesses moving manufacturing and service centers to countries where labor is cheap. This practice is commonly known as:
A. Relocation
B. Restructuring
C. Economizing
D. Outsourcing
Answer:
Outsourcing.
Explanation:
Outsourcing is a process to get the work done from a foreign supplier at a cheaper rate without or minimum compromising on the quality of work. Outsourcing is done by companies of those countries, where labour rate is high or scarcity of labour in the national market. It also diverse the culture of companies. Work which are outsourced to other countries are mainly non fundamental and its role is to provide support to the core company.
Tuan bought a new leather jacket after saving for many months for the luxury purchase. On the first day he went out wearing the new garment, he found a $50 bill on the sidewalk outside of his office. He now refers to the jacket as his "lucky jacket" and believes that it has some magical power to give him good fortune. Tuan’s belief in the jacket’s cosmic ability is an example of________
Answer: an illusory correlation
Explanation: In simple words, illusory correlation refers to establishing a relation between two variables even when no such relationship exists in real.
In the given case, Tuan bought a jacket and due to some events, started believing that it has magical power in it. Tuan do not have any kind of quantitative or relative proof that the commodity have such magical powers or are somehow related to the good fortune but still he believes that.
Hence we can conclude that Tuan is trying to make an illusory correlation.
Scottie Adams Bird Supplies issued 10% bonds, dated January 1, with a face amount of $240,000 on January 1, 2018. The bonds mature in 2028 (10 years). For bonds of similar risk and maturity the market yield is 12%. Interest is paid semiannually on June 30 and December 31. What is the price of the bonds at January 1, 2018? Some relevant and irrelevant present value factors: * PV of annuity due of $1: n = 20; i = 6% is 12.15812 * PV of ordinary annuity of $1: n = 20; i = 6% is 11.46992 **PV of $1: n = 20; i = 6% is 0.31180
Which of the following best describes a fundamental assumption when monetary policy is used to influence the economy?
A. Financial markets are efficient.
B. Money is not neutral in the short run.
C. Official rates do not affect exchange rates.
Answer: Option B
Explanation: In simple words, money neutrality refers to the theory that states change in the stock of money will only result in change in nominal variables such as prices, wages etc and will have no impact on real variables such as employment, real GDP etc.
As we know that monetary policy is implemented usually in situation of inflation and deflation. Thus, it will be no use to implement it to position macroeconomic factors such as employment etc if the money is neutral in short run.
Minako works for a large appliance manufacturing company that offers a tax-deferred retirement savings plan to each of its employees. Minako designates 10 percent of her paycheck; her employer matches $.40 for each dollar Minako investments in the plan. This type of plan is known as a(n) ____. a Roth Retirement Plan b 401(k) plan c non-traditional IRA d traditional IRA.
Answer:
The answer is letter B
Explanation:
This type of plan is known as 401(k) plan.
Jon is deciding between a job with Company A that pays $500 a week and a job with Company B that pays $550 a week. He decides to take the job with Company A, whose lower compensation is offset by its _____.
Answer:
Benefits such as health insurance and the stock options.
Explanation:
The company A is paying $500 a week whereas the Company B paying $550 a week. The company A which is paying lower compensation, it is due to that the company might be giving or proving the other benefits to the employee which can be health insurance and the stock options.
Therefore, Jon chooses to take the company A as the lower compensation is offset by the benefits like stock options , health insurance.
Kinsi Corporation manufactures three different products. All five of these products must pass through a stamping machine in its fabrication department. This machine is Kinsi's constrained resource. Kinsi would make the most profit if it produces the product that:
A. uses the lowest number of stamping machine hours.
B. generates the highest contribution margin per unit.
C. uses the highest number of stamping machine hours.
D. generates the highest contribution margin per stamping machine hour.
Answer:
D.
Explanation:
Based on the information provided within the question it can be said that the Kinsi would make the most profit if it produces the product that generates the highest contribution margin per stamping machine hour. In other words producing products that provide higher profits after discounting all the costs associated with production, for every machine hour of stamping.
What event in 2011 caused manufacturers in several industries worldwide to wait 6 months or longer to see their supply chains working normally again?
A. German tornado
B. Chinese flood
C. U.S. hurricane
D. Japanese earthquake and tsunami
Answer:
D) Japanese earthquake and tsunami
Explanation:
On March 11, 2011, a 9.1 magnitude earthquake occurred a couple hundred miles from Tokyo in the ocean. This earthquake caused a huge tsunami (30 feet high) that damaged large coastal areas in Japan, including several nuclear reactors and factory centers for major corporations like Toyota, Honda, Nissan, Toshiba, Sony, Canon, etc.
Anthony is in his senior year of college. He spends time creating a LinkedIn page so recruiters can more easily find him. He also goes to the university sponsored meet the firms" nights to become more acquainted with people in the corporate world. In this scenario, Anthony is investing in his"
Answer:
social capital
Explanation:
Social capital refers to your social relationships and the factors that may affect how you are perceived by your social group and how you interact with them.
In this case, since Anthony is about to graduate he wants to know some potential recruiters and/or fellow coworkers. When you graduate your world changes and the organization that you will work for becomes a very important part of your social environment and people have to learn to deal with the benefits and problems that come with such an important change.
Haley is a corporate certified public accountant (CPA) working on a new budget. When she lists the company’s liabilities, which of the following will she include? Entry field with incorrect answer Computer software Owners’ equity Marketable securities Employees’ wages and salaries
Answer:
None of the listed items would fall under the category of a liability
Explanation:
A liability is a present obligation that entails an outflow of economic resources (e.g cash) to settle. For an item to be classified as a liability it must relate to an event that had happened (i.e in the past) and not the future.
Computer software is likely an asset of a company. The payment for same, if not made already, can then be a liability.
Owners' equity is a contribution by the owner to further the business objectives.
Marketable securities are assets of the company, precisely current assets since it is assumed that they can be convertible to cash in a short while.
Employees' wages and salaries are expenses. It is only when they have not been paid as at when due i.e when the performance obligation has been satisfied (e.g workers have worked for a full month to which the salary relates) that it becomes a liability.
Sandhill Co. sells office equipment on July 31, 2017, for $22,430 cash. The office equipment originally cost $77,870 and as of January 1, 2017, had accumulated depreciation of $36,830. Depreciation for the first 7 months of 2017 is $4,580. Prepare the journal entries to (a) update depreciation to July 31, 2017.
Answer:
Debit Depreciation expense account $4,580
Credit Accumulated depreciation $4,580
Being entries to recognize depreciation for the first 7 months of 2017
Explanation:
Given that depreciation for the first 7 months of 2017 is $4,580, the journals to update depreciation to July 31, 2017 is
Debit Depreciation expense account $4,580
Credit Accumulated depreciation $4,580
Being entries to recognize depreciation for the first 7 months of 2017 before disposal of the office equipment.
A company purchased manufacturing equipment 5 years ago for $50,000. Accumulated depreciation is currently $45,000 and the remaining useful life is 3 years. The equipment incurs annual operating costs of $30,000. The company is considering replacing the equipment. The new equipment will cost $75,000, have a useful life of 3 years, and is more efficient and, therefore, only costs $10,000 to operate each year. The vendor is willing to accept the old equipment with a trade-in allowance of $10,000. The company should
Answer:
The company should keep their old equipment because if they buy the new equipment their cash flow will decrease by $5,000
Explanation:
If the company keeps the old equipment their costs will be:
$30,000 x 3 years = $90,000
total costs = $90,000
If the company buys the new equipment their costs will be:
equipment cost = $75,000 - $10,000 = $65,000
$10,000 x 3 years = $30,000
total costs = $95,000
The Company should not replace the old equipment due to the decrease in net income of the amount of $5,000.
Total decrease in net incomeReduction in costs=(30,000-10,000)×3 years
Reduction in costs= $20,000 x 3 years
Reduction in cost= $60,000.
Total decrease in net income=($75,000) + 10,000 + 60,000
Total decrease in net income= ($5,000)
Based on the above calculation the Company should not replace the old equipment.
Inconclusion the Company should not replace the old equipment due to the decrease in net income of the amount of $5,000.
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Which of the following statements is CORRECT?
a. If Congress lowered corporate tax rates while other things were held constant, and if the Modigliani-Miller tax-adjusted theory of capital structure were correct, this would tend to cause corporations to decrease their use of debt.
b. A change in the personal tax rate should not affect firms' capital structure decisions.
c. "Business risk" is differentiated from "financial risk" by the fact that financial risk reflects only the use of debt, while business risk reflects both the use of debt and such factors as sales variability, cost variability, and operating leverage.
d.The optimal capital structure is the one that simultaneously (i) maximizes the price of the firm's stock, (ii) minimizes its WACC, and (iii) maximizes its EPS.
e. If changes in the bankruptcy code make bankruptcy less costly to corporations, then this would likely reduce the debt ratio of the average corporation.
Final answer:
The correct statement is that if Congress lowered corporate tax rates while other factors remain constant, corporations would likely decrease their use of debt according to the Modigliani-Miller tax-adjusted theory of capital structure.
Explanation:
The correct statement among the options provided is:
a. If Congress lowered corporate tax rates while other things were held constant, and if the Modigliani-Miller tax-adjusted theory of capital structure were correct, this would tend to cause corporations to decrease their use of debt.
The Modigliani-Miller theorem on capital structure suggests that under certain conditions, the value of a firm is not affected by whether it is financed by debt or equity. However, when taxes are introduced, the theorem is adjusted to reflect a tax benefit from interest payments.
Lower corporate taxes would reduce the tax shield benefit of debt financing, making debt less advantageous. This could lead firms to reduce their debt levels. On the other hand, personal taxes, business risks, and the effects of bankruptcy cost changes do not directly impact this specific aspect of capital structure decisions according to the Modigliani-Miller theorem.