Answer:
Therefore the gain or loss to the current shareholders of Goodday if the merger provides no synergy is -$10
Explanation:
Given:
The Total debt remains same after merger at Pre-merger value = $80 + $40 = $120
The Value of entities together in Economic state 1 = $160 + $20 = $180
Net equity in economic state 1 = Value of entities – total debt
= $180 - $120 = $60
Then,
The Value of entities in Economic state 2 = $40 + $80 = $120
Net equity in economic state 2 =
= $120 - $120 = $0
The Both states are equally possible.
Expected value of combined entity = ($60 + $0)/2 = $30
Market value of Goodday equity before merger = $40
Synergy effect = Expected value of combined entity - Market value of Goodday equity before merger= $30 - $40 = -$10
A stock price is currently $40. The risk-free interest rate is 12% per annum with continuous compounding. Annual continuously compounded volatility is 10%. Construct a binomial tree for two periods and calculate the value of the options by working back through the binomial tree. a) What is your replicating portfolio today for a 6-month European put option with a strike price of $42?
Answer:
The replicating portfolio today for a 6-month European put option with a strike price of $42 is 0.2044
Explanation:
Since the strike price and maturity of the options and is was not explained, I am taking these equal to that mentioned in part (a)
Kindly find an attached image showing he two step binomial tree for valuing a 1 year European put with strike, K = $42
The first step to take is to find the replicating portfolio.
Part (a): Replicating portfolio
Thus,
we calculate the delta of the put option.
We see that as the stock price changes from $40 to $44.2068, the option price changes from $0.86 to $0.00
Thus, the delta of the put option is (0-0.86)/(44.2068-40) = - 0.2044
Therefore, replicating portfolio for the 6 month European put option with K=$42 is selling short 0.2044 shares for each contract and lending cash for 6 months at the risk free rate.
To construct a binomial tree for two periods, calculate the up and down factors. Use the up and down factors to determine the possible stock prices at each node. Calculate the option values at each node and discount them using the risk-free interest rate. The replicating portfolio for a 6-month European put option with a strike price of $42 at t=0 can be constructed by determining the number of shares to buy or sell and the amount to invest in the risk-free asset.
Explanation:To construct a binomial tree for two periods, we need to calculate the values for the up and down factors. The up factor, representing the stock price increasing, is calculated as e^(annual volatility * √(time period)). The down factor, representing the stock price decreasing, is calculated as 1/up factor. For a two-period binomial tree, we have one up move and one down move. So, the possible stock prices at each node can be calculated by multiplying the previous stock price by the up and down factors.
Using the given information, the up factor is e^(0.1 * √(0.5)) ≈ 1.049, and the down factor is 1/up factor ≈ 0.953. Starting from the current stock price of $40, we can construct the binomial tree with the possible stock prices at each node:
$40
/ \
$41.96 $37.89
/ \ / \
$44.02 $39.98 $37.89 $34.40
To calculate the value of the options by working back through the binomial tree, we need to find the option value at each node. For a put option, the value at a node is the maximum of the strike price minus the stock price or 0. Starting from the last period and moving backward, we can calculate the option values at each node and discount them using the risk-free interest rate. At the current time (t=0), the replicating portfolio for a 6-month European put option with a strike price of $42 can be constructed by determining the number of shares to buy (positive value) or sell (negative value) and the amount to invest in the risk-free asset. The replicating portfolio will have the same payout as the put option at expiration.
In this case, all the possible stock prices at t=0 are lower than the strike price of $42, so the put option will be in-the-money and have a value equal to the strike price minus the stock price. To construct a replicating portfolio, we would need to calculate the number of shares needed to replicate the put option at each node by dividing the change in option value by the change in stock price, and then discount those values back to t=0 using the risk-free interest rate. The final replicating portfolio will involve buying a certain number of shares and investing in the risk-free asset such that the payout at expiration matches the put option's value at each node.
On December 31, 2013, Stable Company sold a piece of equipment that was purchased on January 1, 2008. The equipment originally cost $910,000 and has an estimated useful life of eight years. Stable uses the straight-line method of depreciation. What is the gain/loss on the sale of equipment that Stable will recognize if the equipment was sold for $257,000?
Answer:
The company should recognize a gain on disposal of $29500
Explanation:
The straight line depreciation method charges a constant depreciation expense per year through out the estimated useful life of the asset.
The straight line depreciation expense per year is,
(Cost - salvage value) / estimated useful life
Depreciation expense = (910000 - 0) / 8 = $113750
The number of years till 31 December 2013 = 6 years
The accumulated depreciation till December 31, 2013 = 113750 * 6 = $682500
The carrying value of the asset at 31 December 2013 = 910000 - 682500 = $227500
The gain/loss on sale = 257000 - 227500 = $29500 gain
David and Cecilia Stanford, owners of Prairie Herb vinegars, decided to offer the product in 5-ounce and 13-ounce sizes as well as in a 16-ounce European glass bottle. They also decided to price the smaller bottles at $4.45 and the largest bottles at $13.25. They were determining some of Prairie Herb's: Group of answer choices
A. tactics.
B. missions.
C. visions.
D. strategies.
E. operational procedures.
Answer:
The correct answer is letter "A": tactics.
Explanation:
A company's tactics refer to the different strategies the firm implements to maximize its revenue. Tactics are constantly changing due to market fluctuations which implies that companies must look for ways to keep the pace of current trends. Tactics are typically implemented after a study of the target population to satisfy their needs better.
Honk, Inc. a U.S. corporation, purchases weight-lifting equipment for resale from HiDisu, a Japanese corporation, for 60 million yen. On the date of purchase, 110 yen is equal to $1 U.S. (¥110:$1). The purchase is made on December 15, 2018, with payment due in 90 days. Honk is a calendar year taxpayer. On December 31, 2018, the foreign exchange rate is ¥112:$1. On February 2, 2019, the invoice is paid when the exchange rate is ¥115:$1. What amount of foreign currency gain or loss, if any, mus
Answer:
2018 Foreign currency gain $9,740.26 million
2019 Foreign currency gain $13,975.16 million
Explanation:
Calculation of foreign currency gain or loss for 2018
Total amount payable as at 15th Dec $545,454.55 million ($60 million/110)
Total amount payable as at 31st Dec $535,714.29 million ($60 million/112)
Foreign currency gain $9,740.26 million ($545,454.55-$535,714.29)
The amount payable based on 31st December year end exchange rate is lesser than on date of purchase which result in a gain for the company
Calculation of foreign currency gain or loss for 2019
Total amount payable as at 31st Dec $535,714.29 million ($60 million/112)
Total amount actually paid on 02nd Feb $521,739.13 million ($60 million/115)
Foreign currency gain $13,975.16 million ($535,714.29-$521,739.13)
Han Products manufactures 21,000 units of part S-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is:
Direct materials $ 3.50
Direct labor 9.00
Variable manufacturing overhead 2.50
Fixed manufacturing overhead 9.00
Total cost per part $ 24.00
An outside supplier has offered to sell 21,000 units of part S-6 each year to Han Products for $20 per part. If Han Products accepts this offer, the facilities now being used to manufacture part S-6 could be rented to another company at an annual rental of $71,000. However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier.
Required:
What is the financial advantage (disadvantage) of accepting the outside supplier’s offer?
Answer:
Net savings of buying from outside supplier $ 29,000
Explanation:
Computations from buying S 6 from outside supplier.
Costs to produce in house - $ 24 per unit
Units produced 21,000 units
Total costs to produce in house ( 21,000 units * $ 24) $ 504,000
Total costs to buy from outside ( 21,000 units * $ 20) $ 420,000
Savings on buying from outside $ 84,000
Adjustments of costs
Continuing Fixed manufacturing overhead
( $ 9 * 21,000 units) * 2/3 $ 126,000
Rental Income of manufacturing facilities $ 71,000
Continuing costs $ 55,000
Net savings of buying from outside supplier $ 29,000
Accepting the supplier's offer will result in a financial advantage of $50,000 for Han Products, due to savings on production costs and rental income potential.
Explanation:To figure out the financial advantage or disadvantage of accepting the supplier's offer, we start with calculating the current cost of production and compare it to the proposed cost, considering renting out the manufacturing space:
Current cost of production = $24 (cost per part) x 21,000 (number of units) = $504,000. Proposed cost to purchase from outside supplier = $20 (new cost per part) x 21,000 (number of units) = $420,000.
Then, we consider the fixed manufacturing overhead. As stated, two-thirds of it would continue, meaning only one-third, or $3 per unit can be saved. Hence,
Savings on overhead = $3 (savings per part) x 21,000 (number of units) = $63,000.
Lastly, the potential rental income is also considered:
Potential rental income = $71,000.
The combined savings from buying externally, reducing overhead, and rental income equals to $420,000 + $63,000 + $71,000 = $554,000. Thus, the firm would save $554,000 - $504,000 = $50,000 by accepting the offer.
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Suppose that the economy enters a recession and real GDP falls we would expect * the money demand curve to shift to the left. the money demand curve to shift to the right. an upward movement along a fixed money demand curve. a downward movement along a fixed money demand curve. no impact on the money demand curve.
Answer:
the money demand curve to shift to the right
Explanation:
A recession is defined as a significant reduction in economic activities that can last for months. An economy is usually said to be in recession when for two consecutive quartets there is general economic decline.
Demand for money increases (shift to the right) when the level of output decreases. In recession people earn less so there is increased demand for money to meet their needs.
Supply of money is low. Demand for goods goes down because there is not enough money in circulation to buy them.
During a recession, as real GDP falls, the money demand curve is expected to shift to the left due to decreased economic activity and hence reduced demand for transactions and money.
If an economy enters a recession and real GDP falls, we would generally expect the money demand curve to shift to the left. This is because, during a recession, the overall economic activity is lower, and businesses and consumers typically need less money for transactions. As a result, the demand for money decreases, and thus, the money demand curve shifts to the left. A shift to the left indicates that at each interest rate, the quantity of money demanded is lower.
Conversely, an increase in money demand due to changes in expectations, preferences, or transactions costs that make people want to hold more money at each interest rate would actually shift the money demand curve to the right. In such a scenario, if everything else remains unchanged, the increase in money demand would lead to higher interest rates, depressing investment and net exports, which could then cause the aggregate demand curve to shift to the left, leading to a decrease in real GDP and the price level.
The accident caused $2,700 worth of damage to your car. You have liability coverage of 60/125/45 which costs you $286 per year. The book value of your car is $2,000. The annual cost for collision coverage is $226 with a $1500 deductible. 10. What is the cost per $1,000 per liability coverage?
Final answer:
To calculate the cost per $1,000 for liability auto insurance coverage with a premium of $286 per year and liability limits of 60/125/45, we focus on one limit, such as the $60,000 for bodily injury per person. We determine the number of thousands that represents, which in this case is 60, and then divide the annual premium by this figure, resulting in a cost per $1,000 of $4.77.
Explanation:
The question asks about the cost per $1,000 of liability coverage for auto insurance. The student has a liability coverage policy with a premium of $286 per year. To calculate this, we need to determine how much insurance is actually being provided by the liability limits and then divide the annual cost by that amount.
The liability coverage of 60/125/45 represents thousands of dollars and usually means:
$60,000 for bodily injury per person$125,000 for bodily injury per accident$45,000 for property damage per accidentHowever, for the cost per $1,000 calculation, we only need to look at one of these figures. Let's use the per-person bodily injury limit of $60,000. Now we find how many thousands that represents: $60,000/$1,000 = 60. Finally, we divide the annual premium by this number: $286/60 = $4.77. Therefore, the cost per $1,000 of liability coverage is $4.77.
The cost per $1,000 of liability coverage for each limit is approximately:
- Bodily injury liability per person: $4.77
- Bodily injury liability per accident: $2.29
- Property damage liability: $6.36
To find the cost per $1,000 of liability coverage, we need to divide the annual cost of liability coverage by the coverage limits expressed in thousands of dollars.
Given:
- Liability coverage: 60/125/45 (in thousands of dollars)
- Cost of liability coverage: $286 per year
First, let's convert the liability coverage limits into thousands of dollars:
- Bodily injury liability limit per person: $60,000
- Bodily injury liability limit per accident: $125,000
- Property damage liability limit: $45,000
Now, let's calculate the cost per $1,000 of liability coverage for each limit:
1. Bodily injury liability per person: [tex]\( \frac{286}{60} = \$4.77 \)[/tex] per $1,000 of coverage.
2. Bodily injury liability per accident: [tex]\( \frac{286}{125} = \$2.29 \)[/tex] per $1,000 of coverage.
3. Property damage liability: [tex]\( \frac{286}{45} = \$6.36 \)[/tex] per $1,000 of coverage.
So, the cost per $1,000 of liability coverage for each limit is approximately:
- Bodily injury liability per person: $4.77
- Bodily injury liability per accident: $2.29
- Property damage liability: $6.36
Gibson Company paid $12,000 on June 1, 2014 for a two-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 2014 adjusting entry is A. Debit Prepaid Insurance and credit Insurance Expense, $3,500 B. Debit Prepaid Insurance and credit Insurance Expense, $8,500 C. Debit Insurance Expense and credit Prepaid Insurance, $3,500 D. Debit Insurance Expense and credit Prepaid Insurance, $8,500
Answer:
None of the options is correct, given the facts in the question.
The appropriate answer is:
Debit Prepaid insurance $12,000
Credit Insurance expenses $12,000
(Reversal of erroneous posting to insurance expenses)
Debit Insurance expenses $3,000
Credit Prepaid insurance $3,000
(To record 6 months prepaid insurance amortization)
Explanation:
Prepaid insurance is a payment for insurance policy premium in advance, whose service has not been fully enjoyed.
Gibson Company paid $12,000 for a two-year insurance policy. This was erroneously recorded as an expense. This wrong posting has to be reversed for the purpose of audit trail, as provided by the first journal.
To determine the monthly amortization, simply divide $12,000 by 24 months to arrive $500 amortization monthly. Since we are adjusting for December 31, 2014 (6 months from June 1, 2014), the 2014 amortization will be $500 x 6 months = $3,000. This has to be adjusted for by applying the second journals above.
A local bank pays 100% of its earnings out in dividends. If earnings continue to grow at 2% per year and the most recent annual dividend is $0.88. How much would you be willing to pay for this stock if you expect the return on the market portfolio to be 10%, the risk-free rate to be 3%, and the company’s beta to be 0.7?
Answer:
The maximum price per share that should be paid today is $15.21
Explanation:
We first need to calculate the required rate of return (r) on this stock. The required rate of return can be calculated using the CAPM approach.
r = rRF + Beta * (rM - rRF)
Where,
rRF is the risk free raterM is return on marketr = 0.03 + 0.7 * (0.1 - 0.03) = 0.079 or 7.9%
The fair price per share of this stock can be calculated using the constant growth model of DDM as the earnings, which will all be paid out as dividend, are expected to grow at a constant rate of 2%. The formula for price per share today under this model is,
P0 = D0 * (1+g) / (r - g)
P0 = 0.88 * (1+0.02) / (0.079 - 0.02)
P0 = $15.21
Use the following data: Purchase Costs Leasing Costs Down payment: $2,400 Security deposit: $800 Loan payment: $720 for 48 months Lease payment: $720 for 48 months Estimated value at end of loan: $4,300 End-of-lease charges: $645 Opportunity cost interest rate: 2 percent Calculate the costs of buying versus leasing a motor vehicle.
Answer:
Cost of buying option is $32,852
Cost of leasing option is $35,424
Explanation:
Buy option Lease option
down-payment $2,400 $800
monthly repayment($720*48)($720*48) $34,560 $34,560
residual value at end of loan ($4,300) -
end of lease charges - $645
Opportunity of down-payment($2400 or$800)*2%*4)) $192 $64
Total costs of buying/leasing a motor vehicle $32,852 $35,424
By buying the overall of cost of the motor vehicle is reduced by $2,572 ( $32,852 -$35,424)
Conclusively ,the buying is preferable to leasing option since the business would want to save costs in order to improve bottom-line
Final answer:
Calculating the total costs, buying costs $32,660 considering down, loan payments, and final value, while leasing costs $36,005 with security deposit, payments, and end-of-lease charges. Interest rates and depreciation affect the real-world comparison.
Explanation:
To calculate the costs of buying versus leasing a motor vehicle, we need to consider both the initial and ongoing expenditures, as well as the opportunity cost of using the finances for these purposes. Buying involves a down payment and loan payments over 48 months, with an estimated vehicle value at the end of the loan, while leasing includes a security deposit, lease payments for the same duration, as well as end-of-lease charges. Here, we will not take into account the varying depreciation rates of different vehicle models or the opportunity cost interest rate as provided by the student.
Here is the breakdown of costs when buying:
Down payment: $2,400Total loan payment: $720 x 48 months = $34,560Estimated value at end of loan: - $4,300Total cost of buying: $2,400 (down payment) + $34,560 (loan payments) - $4,300 (value at end of loan) = $32,660
Total cost of leasing: $800 (security deposit) + $34,560 (lease payments) + $645 (end-of-lease charges) = $36,005
In this example, without considering the opportunity cost of capital or varying interest rates, the total cost of buying the car is lower than leasing the car. However, in real-world scenarios, the interest rates on automobile purchases or leases should be taken into account, which often follow the 5-year U.S. Treasury Bill rate, and the vehicle's depreciation should also be factored in for a more accurate assessment.
The efficient frontier of risky assets is A. the portion of the investment opportunity set that lies above the global minimum variance portfolio. B. the portion of the investment opportunity set that represents the highest standard deviations. C. the portion of the investment opportunity set which includes the portfolios with the lowest standard deviation. D. the set of portfolios that
Answer:
C. The portion of the investment opportunity set which includes the portfolios with the lowest standard deviation.
Explanation:
Standard deviation is the criterion used in measuring risky assets. Harry Markowitz proposed the Efficient Frontier in the year 1952. Through a graph, portfolios which have the highest potential for returns can be depicted.
For securities to be considered worthy, their standard deviation ought to be lower than the standard deviation of individual securities. When a portfolio measures up to this criterion, then it can be represented on the efficient frontier.
DJFats Company determined that the 2019 ending inventory had been overstated by $11,200 AND that the 2019 beginning inventory was overstated by $6,600. Before the effect of these errors, 2019 pretax income had been computed as $108,000. What should be reported as the correct 2019 pretax income before taxes? 5 points: a. 103,400 b. 125,800 c. 114,600 d. 90,200 e. None of the above, the correct answer is:
Answer:
a. $103,400
Explanation:
As we know that
Cost of goods sold = Beginning inventory + purchases - ending inventory
And,
Gross profit = Sales revenue - cost of goods sold
Since in the question it is given that
The ending inventory and beginning inventory had been overstated by $11,200 and $6,600 respectively
Since overstatement in the initial inventory raises the cost of the goods sold and decreases by that amount the gross profit & net income
And, overstatement in ending inventory reduced cost of goods sold and raised gross profit & net income by that amount.
So for overstated ending inventory the amount should be deducted and for overstated beginning inventory the condition would be reverse
So, the correct amount is
= incorrect pretax net income + overstatement in beginning inventory - overstatement in ending inventory
= $108,000 + $6,600 - $11,200
= $103,400
4. True, False or Uncertain. For each of the following statements determine if the statement is TRUE, FALSE, or UNCERTAIN. You must justify your answer either graphically or in words. No credit will be given without an explanation. a. "An increase in the nominal exchange rate (e) will cause the IS* curve to shift to the right." b. "If the value of the currency is reduced via a devaluation in a fixed exchange rate regime, then income will rise, but net exports will remain unchanged." c. "A raising of credit card transaction fees (which causes an increase in the demand for money) will lead to a recession according to the IS-LM model." d. "If Congress cuts government spending in order to reduce the budget deficit, the Federal Reserve can keep the economy from falling into a recession by conducting an open market sale
Question:
4. True, False or Uncertain. For each of the following statements determine if the statement is TRUE, FALSE, or UNCERTAIN. You must justify your answer either graphically or in words. No credit will be given without an explanation.
A. "An increase in the nominal exchange rate (e) will cause the IS* curve to shift to the right."
B. "If the value of the currency is reduced via a devaluation in a fixed exchange rate regime, then income will rise, but net exports will remain unchanged."
C. "A raising of credit card transaction fees (which causes an increase in the demand for money) will lead to a recession according to the IS-LM model."
D. "If Congress cuts government spending in order to reduce the budget deficit, the Federal Reserve can keep the economy from falling into a recession by conducting an open market sale
Answer to A is True
This explanation will require the following model which has the following components:
This model uses the following variables:
Y is real GDP
G is real government spending (an exogenous variable)
T is real taxes levied
NX is real net exports
M is the exogenous nominal money supply
P is the exogenous price level
i is the nominal interest rate
L is liquidity preference (real money demand)
C is real consumption
I is real physical investment, including intended inventory investment
Explanation:
Higher disposable income or a lower real interest rate (nominal interest rate minus expected inflation) leads to higher consumption spending.
Higher disposable income is created when there is an increase in salaries.
Lower interest rate happens when intentionally the Central Bank decides to resuscitate the economy or prevent the economy from sliding into a recession. Either way, the IS curve which comprises Consumption and Investment spending shifts to the right.
The components of the IS* Curve are given below:
[tex]C=C(Y-T(Y),i-E(\pi ))\,[/tex]
[tex]{\displaystyle I=I(i-E(\pi ),Y_{t-1})\,}[/tex]
Where E(π) equals the inflation rate expected.
Answer to B is False
The Mundell – Fleming model was used to demonstrate that an economy can not sustain a fixed exchange rate, free movement of capital and an independent monetary policy at the same time. Only two of the three can be maintained by an economy at the same time. This concept is also called the "impossible trinity."
Devaluation is a method used by monetary authorities to improve the balance of trade in the country by improving exports at moments when the trade deficit can become an economic issue.
Answer to C is False
Increase in card transaction fees will does not decrease the demand for money or it decreases the demand for credit. It has no way of creating a recession since demand for money is not affected directly.
Answer to D is True
When expenses surpass revenue and suggest a country's financial safety, a budget deficit occurs. This form of spending is usually characterised by heavy importation especially by the government. So on one hand, the government can truly can cut back on expenses to reduce the deficit.
On another hand, the government can conduction an open market sale to prevent the economy from falling into recession. An Open Market refers to the buying and selling of government bonds by the Federal reserve.
If a bank buys a government bond from the Federal Reserve, the bank acquires capital that it can lend out. The supply of money is expected to increase. Buying on an free market brings money into the economy.
This increase can be balanced by slamming high tax rates on importation or outrightly prohibiting them. That way, money is circulated internally and there is a push pressure on exports which gradually, along with a shift in the Investment and Consumption curves bring about a turn around in the economy.
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A truck costs $ 52 comma 000 when new and has accumulated depreciation of $ 40 comma 000. Suppose John Towing exchanges the truck for a new truck. The new truck has a market value of $ 70 comma 000, and John pays cash of $ 44 comma 000. Assume the exchange has commercial substance. What is the result of this exchange? A. No gain or loss B. Gain of $ 14 comma 000 C. Gain of $ 58 comma 000 D. Loss of $ 14 comma 000
Answer:
B.Gain of $14,000
Explanation:
Truck Old-Cost $52,000
Accumulated Depreciation ($40,000)
Written Down Value $12,000
New Truck $70,000
Less: Cash paid (44,000)
Sale Proceeds of old truck 26,000
Gain on disposal of old truck=26,000-12,000=$14,000
Suppose the market price is $5. The buyer who buys the first unit of output has a willingness-to-buy equal to $10; the buyer who buys the second unit of output has a willingness-to-buy equal to $9; and the buyer who buys the third unit of output has a willingness-to-buy equal to $8. Total consumer surplus is: $10. $5. $27. $12.
Answer:
Option D is correct one.
$12
Explanation:
Consumer surplus is the difference between willingness to pay and market price.
Consumer surplus= (10-5) + (9-5) + (8-5)
= 5+4+3= 12
Final answer:
The total consumer surplus for the three units sold, with market price at $5 and each buyer's willingness to pay at $10, $9, and $8 respectively, is $12.
Explanation:
Consumer surplus is the difference between what consumers are willing to pay for a good or service and what they actually pay. In the scenario provided, the market price is $5. The consumer surplus for each buyer can be calculated as the difference between their willingness to pay and the market price.
First buyer: $10 (willingness to pay) - $5 (market price) = $5 surplusSecond buyer: $9 (willingness to pay) - $5 (market price) = $4 surplusThird buyer: $8 (willingness to pay) - $5 (market price) = $3 surplusAdding these surpluses together gives us the total consumer surplus for the three units sold:
$5 (first buyer) + $4 (second buyer) + $3 (third buyer) = $12 total consumer surplus.
Sun Inc. factors $6,000,000 of its accounts receivables without recourse for a finance charge of 3%. The finance company retains an amount equal to 10% of the accounts receivable for possible adjustments. If it were a transaction with recourse, Sun would have estimated the fair value of the recourse liability at $300,000. What would be recorded as a gain (loss) on the transfer of receivables
Answer:
Loss $180,000
Explanation:
Accounts Receivable $6,000,000
Factor fees 3%*6,000,000 $180,000
Loss of $180,000 will be recorded for transfer of receivable without recourse to the factor.
Galaxy Sports Inc. manufactures and sells two styles of All Terrain Vehicles (ATVs), the Conquistador and Hurricane, from a single manufacturing facility. The manufacturing facility operates at 100% of capacity. The following per-unit information is available for the two products:
Conquistador Hurricane
Sales price............................................. $6,000 $11,500
Variable cost of goods sold................. (3600) (5750)
Manufacturing margin.......................... $2400 $5750
Variable selling expenses..................... (900) (1150)
Contribution margin............................. $1500 $4600
Fixed...................................................... (750) (1000)
Operating income................................. $750 $3600
In addition, the following sales unit volume information for the period is as follows:
Conquistador Hurricane
Sales unit volume 10,000 4,000
Requried:
a. Prepare a contribution margin by product report. Compute the contribution margin ratio for each.
b. What advice would you give to the management of Galaxy Sports Inc. regarding the profitability of the two products?
The Conquistador has a contribution margin of 25% while the Hurricane has a contribution margin of 40%. Despite the greater volume of Conquistadors sold, the Hurricane would return more profit per dollar of sales if resources were limited to only producing one type.
Explanation:The contribution margin ratio is calculated by dividing the contribution margin by the sales price. Therefore, the contribution margin ratio for Conquistador is $1500 / $6000 = 0.25 or 25%, and for Hurricane, it's $4600 / $11500 = 0.40 or 40%.
Conquistador ATV:
Selling Price per unit: $6,000
Variable Cost per unit: $3,600
Contribution Margin per unit: $1,500 (25%)
Total Contribution Margin: $1,500 * 10,000 = $15,000,000
Hurricane ATV:
Selling Price per unit: $11,500
Variable Cost per unit: $5,750
Contribution Margin per unit: $4,600 (40%)
Total Contribution Margin: $4,600 * 4,000 = $18,400,000
Advice: Although the Hurricane makes a higher contribution margin per unit and has a higher contribution margin ratio, the Conquistador sells more volume. However, if resources are limited to only producing one type, the company should produce the Hurricane model as it has a higher contribution margin ratio and thus will generate more profits per dollar of sales.
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The Conquistador has a contribution margin of $1,500 and ratio of 25%, whereas the Hurricane has a margin of $4,600 and a ratio of 40%. Management is advised to focus on the Hurricane for higher profitability, although other factors like demand and capacity should be considered.
Explanation:Contribution Margin Report and Advice
The contribution margin for a product is calculated by subtracting the variable costs from the sales price. The contribution margin ratio is the contribution margin divided by the sales price. For the Conquistador and Hurricane ATVs, the contribution margin and ratio can be calculated as follows:
Conquistador: Contribution Margin = $6,000 - $3,600 - $900 = $1,500 Contribution Margin Ratio = $1,500 / $6,000 = 0.25 or 25%
Hurricane: Contribution Margin = $11,500 - $5,750 - $1,150 = $4,600 Contribution Margin Ratio = $4,600 / $11,500 = 0.4 or 40%
Advice to management: Based on the provided data, the Hurricane has a higher contribution margin and contribution margin ratio compared to the Conquistador. Hence, focusing on the production and sales of the Hurricane may lead to higher profitability. It is also essential to consider the demand, production capacity, and any potential changes in fixed costs when making this decision.
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Suppose that the U.S. government decides to charge wine consumers a tax. Before the tax, 45,000 bottles of wine were sold every week at a price of $4 per bottle. After the tax, 39,000 bottles of wine are sold every week; consumers pay $7 per bottle (including the tax), and producers receive $1 per bottle.
(a) The amount of the tax on a bottle of wine is $----- per bottle.
(b) Of this amount, the burden that falls on consumers is $------ per bottle, and the burden that falls on producers is $---- per bottle.
(c) True or False: The effect of the tax on the quantity sold would have been larger if the tax had been levied on producers. True or False?
Answer: a) $6
b) Of this amount, the burden that falls on consumers is $3 per bottle, and the burden that falls on producers is $3 per bottle.
c) False
Explanation:
a) The amount of tax paid on a bottle can be calculated as,
Amount of tax = Price paid by consumers - Price received by producers
Amount of tax = 7 - 1
Amount of tax = $6
b) The tax burden on the consumer is given by,
Tax burden of consumers = Price paid by consumers - Pre-tax Price
Tax burden of consumers = 7 - 4
Tax burden of consumers = $3
Tax burden of producers = Pre-tax price - Price received by producers
Tax burden of producers
Tax burden of producers = 4 - 1
Tax burden of producers = $3
c) False
Quantity sold does not change depending on who is taxed between the producer and the supplier.
The tax on a bottle of wine is $3, with $2 burden falling on consumers and $1 burden falling on producers. The effect of the tax on the quantity sold would not have been larger if the tax had been levied on producers.
(a) The amount of the tax on a bottle of wine is $3 per bottle.
(b) Of this amount, the burden that falls on consumers is $2 per bottle, and the burden that falls on producers is $1 per bottle.
(c) False: The effect of the tax on the quantity sold would have been larger if the tax had been levied on producers.
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A copy machine cost $ 45 comma 000 when new and has accumulated depreciation of $ 44 comma 000. Suppose Print and Photo Center sold the machine for $ 1 comma 000. What is the result of this disposal transaction? A. Loss of $ 1 comma 000 B. Gain of $ 1 comma 000 C. Loss of $ 44 comma 000 D. No gain or loss
Answer:
The disposal resulted was at D. No gain or loss
Explanation:
The gain or loss on disposal on a fixed asset is calculated by comparing the sales proceeds from disposing off the asset and the carrying value of the asset.
The carrying value of the asset is its net book value which is calculated as follows,
Carrying value = Cost - Accumulated depreciation
If the carrying value is equal to the sales proceeds from disposal, there is no gain or loss.
The carrying value of copy machine was = 45000 - 44000 = $1000
The sales proceeds were also $1000
Thus, gain/loss on disposal = 1000 - 1000 = $0
Thus, there was no gain or loss on disposal.
It may be argued that Japan's explicit promotion of its microchip industry was an excellent example of successful industrial policy. What criteria would you apply to determine whether such a policy is or is not successful? Judging from your own stated criteria, was Japan's exercise successful? Why or why not? What information
Answer:
Countries by and large use export appropriations to build up their specific industry particularly the one where they believe they have a similar favourable position. The instance of Japan is the same since it likewise utilized appropriations to its recently created microchip industry which was not being grown anyplace else on the planet. A specific mechanical approach is a fruitful when the modern development is expanded and the business generally turns into a develop one because of exchange and rivalry.
Another important condition for the mechanical arrangement to be effective is that the business can create benefits in the territory in which the nation has a relative bit of leeway. Japan experienced development of its microchip industry so the primary condition was satisfied however the last condition was not on the grounds that different nations on the planet began utilizing microchip as a ware that drastically marked down its cost and expanded rivalry so the endeavour stayed a low benefit one. This suggests the legislature must have adequate data about the Industry that it will build the benefit of the segment wherein the nation has a relative favourable position.
Answer:
Countries by and large use export appropriations to build up their specific industry particularly the one where they believe they have a similar favourable position. The instance of Japan is the same since it likewise utilized appropriations to its recently created microchip industry which was not being grown anyplace else on the planet. A specific mechanical approach is a fruitful when the modern development is expanded and the business generally turns into a develop one because of exchange and rivalry.
Another important condition for the mechanical arrangement to be effective is that the business can create benefits in the territory in which the nation has a relative bit of leeway. Japan experienced development of its microchip industry so the primary condition was satisfied however the last condition was not on the grounds that different nations on the planet began utilizing microchip as a ware that drastically marked down its cost and expanded rivalry so the endeavour stayed a low benefit one. This suggests the legislature must have adequate data about the Industry that it will build the benefit of the segment wherein the nation has a relative favourable position.
Explanation:
Your job is to determine if your company should invest in a private warehouse or public warehouse depending on the business situation. In market 2, you have fluctuating demand and your customers in this market have low service requirements. Do you recommend a private or public warehouse?
Answer:
Public warehouse
Explanation:
Public warehousing becomes more effective than than private warehousing when there is low volume with high variability in demand and significant seasonality which is the case here as there is fluctuating demand.
For a company with fluctuating demand and low customer service requirements, a public warehouse is generally more suitable than a private warehouse due to its flexibility and cost-effectiveness.
In market situations where a company is facing fluctuating demand and the customers have low service requirements, it is generally more appropriate to recommend the use of a public warehouse. Public warehouses offer greater flexibility and are cost-effective for handling variable storage needs, making them a prudent choice when the quantity of goods required to be stored changes frequently or unpredictably. Additionally, since the customers have low service requirements, the specialized services and potential added costs associated with a private warehouse may not be justified in this scenario.
Which of the following is deductible as interest on Schedule A? a.Interest on a loan for a 90-foot yacht (a qualified residence) with a kitchen, 3 baths and 5 bedrooms. b.Interest on loans to finance tax-exempt bonds. c.Loan fees that are not "points". d.Fees for having a new home inspected prior to purchase. e.None of these choices are deductible as interest.
Answer:
Correct option is A.
Interest on a loan for a 90-foot yacht (a qualified residence) with a kitchen, 3 baths and 5 bedrooms
Explanation:
Assesses are permitted a conclusion for unmistakable intrigue paid or collected during the expense year. Sum and sort of derivation is reliant intentionally for which cash is obtained. Enthusiasm on credit for lease, business and eminence exercises is deducted for balanced gross pay. Enthusiasm on credit if there should be an occurrence of individual utilise like speculation intrigue, qualified home intrigue, contract intrigue prepayment punishments, intrigue identified with aloof action. Enthusiasm on credit used for buying resources producing charge excluded salary isn't deductible.
Following interest is not deductible as an itemised deduction:
1. Credit investigation fees
2. Service charges
3. Premium on convertible bonds
4. Interest paid to carry single premium life insurance
Special interest group Q receives a 1/10,000th slice of the economic pie. Its net benefit from either an economic growth policy or a transfer policy is $50,000. In order for group Q to be indifferent between the two policies, the economic growth policy would have to make the size of the economic pie (Real GDP) growth by _________________. This type of analysis is used to show that special interest groups tend press government for _____________ instead of ________________.
Answer:
(A) $500 million
(B) This type of analysis is used to show that Special Interest Groups tend to press the government for TRANSFERS instead of ECONOMIC GROWTH.
Explanation:
1/10,000 of the real GDP is = $50,000
RGDP = 50,000 ÷ 1/10,000
RGDP = 50,000 × 10,000 = $500,000,000
If special interest group Q would have to be indifferent (not care which policy is applied at the given time) between the 2 policies, then the economic growth policy would have to increase the size of the RGDP (the economic pie) by an amount sufficient enough for them to get their net benefit of $50,000.
The RGDP figure above ($500 million) is the amount by which RGDP (real gross domestic product) should grow, if Group Q will still get their net benefit when only the economic growth policy (EGP) is applied.
In this case, the EGP applied in place of the TP (transfer policy) would still fetch Group Q the minimum net benefit of $50,000
(B) This type of analysis is used to show that Special Interest Groups tend to press the government (policy makers and enforcers) for TRANSFERS instead of ECONOMIC GROWTH.
Stevenson Company purchased equipment for $250,000 on January 1, 2010. The estimated salvage value is $50,000, and the estimated useful life is 5 years. The straight-line method is used for depreciation. On July 1, 2013 Stevenson sold the equipment for $100,000. Calculate the gain or loss on the sale of the equipment
Answer:
The answer is loss of $10,000 on the sale of the equipment
Explanation:
The formula for straight-line depreciation is:
(Cost of asset - salvage value) ÷ number of useful life.
Cost of asset is $250,000
Salvage value is $50,000
Useful life is 5 years
So depreciation for the year is:
($250,000 - $50,000) ÷ 5 years
$200,000 ÷ 5 years
=$40,000
January 1 2010 through June 30 2013 is 3 years and 6months
Accumulated depreciation will be:
3.5 years( 3 years + 6months/12 months) x $40,000
$140,000
Carrying value or net book value at this date is $250,000 - $140,000
=$110,000.
The equipment was sold for $100,000.
Selling price - carrying value
=$100,000 - $110,000
= - $10,000
We have a loss of $10,000 on the sale of equipment
Given the acquisition cost of product ALPHA is $24, the net realizable value for product ALPHA is $23, the normal profit for product ALPHA is $1.00, and the market value (replacement cost) for product ALPHA is $21, what is the proper per unit inventory value for product ALPHA applying LCM? $23.00. $24.00. $21.00. $22.00.
Answer:
$22
Explanation:
Given that,
Acquisition cost of product ALPHA = $24
Net realizable value for product ALPHA = $23
Normal profit for product ALPHA = $1.00
Market value (replacement cost) for product ALPHA = $21
By applying LCM, the per unit inventory value is determined by deducting the normal profit from the Net realizable value for product.
Per unit inventory value:
= Net Realizable Value - Normal Profit
= $23 - $1.00
= $22
Therefore, the proper per unit inventory value for product ALPHA applying LCM is $22.00.
Savanna Company is considering two capital investment proposals. Relevant data on each project are as follows: Project Red Project BlueCapital investment $440,000 $640,000Annual net income $25,000 $60,000Estimated useful life 8 years 8 yearsDepreciation is computed by the straight-line method with no salvage value. Savanna requires an 8% rate of return on all new investments. The present value of 1 for 8 periods at 8% is .540 and the present value of an annuity of 1 for 8 periods is 5.747.(a) Compute the cash payback period for each project.(b) Compute the net present value for each project.(c) Compute the annual rate of return for each project.(d) Which project should Savanna select?
Answer:
(a) Cash payback period:
Project Red = 5.5 years
Project blue = 4.6 years
(b) Net present value for project Red = $19,760
Net present value for project Blue =$164,580
(c) Annual rate of return:
Project Red =11.36%
Project Blue =18.75%
(d) Project Blue
Explanation:
Given Data;
Project Blue Capital investment = $640,000
Project Red Capital investment = $440,000
Project Red Annual Net income = $ 25,000.
Project Blue Annual Net income = $ 60,000
Annual depreciation Project Red = (440000/8)
= 55,000
Annual depreciation Project Blue = (640000/8)
= 80,000
Annual cash inflow project A = $ 80,000
Annual cash inflow project B = $140,000
(a)
Cash payback period = Initial investment/cash flow per period
Project Red = 440000 /80000
= 5.5 years
Project blue = 640000/ 140000
= 4.6 years
(b)
Project Red Present value of cash inflows = 80000 ×5.747
= $459,760
Project Blue Present value of cash inflows =140000×5.747
= 804580
Net present value for project Red = $459,760 - $440,000
= $19,760
Net present value for project Blue = 804580 - $640,000
=$164,580
(c) Annual rate of return:
Project Red = $25,000 / ($440000)/2
=11.36%
Project Blue = $60000/(640000/2)
=18.75%
(d) Savanna should select Project Blue because it has a higher positive NPV and a higher annual rate of return. AND Project Blue has early cash back period also
(a) The cash payback period for project red and project blue is 5.5 years and 4.6 years.
(b) The net present value for project red and project blue is $19,760 and $164,580
(c) The annual rate of return for project red and project blue is 11.36% and 18.75%.
d. The project blue should be selected.
Calculation of cash payback period, net present value, the annual rate of return:For Project Blue
Capital investment = $640,000
Annual Net income = $ 60,000
So, Annual depreciation = (640000/8) = $80,000
Annual cash inflow = $140,000
For Project Red
Capital investment = $440,000
Annual Net income = $ 25,000
So, Annual depreciation = (440000/8) = $55,000
Annual cash inflow = $80,000
(a) The cash payback period is
= Initial investment/cash flow per period
For Project Red
= 440000 /80000
= 5.5 years
And,
Project blue
= 640000/ 140000
= 4.6 years
(b)
The net present value
For Project red
Present value of cash inflows = 80000 ×5.747
= $459,760
So,
Net present value
= $459,760 - $440,000
= $19,760
For Project Blue
Present value of cash inflows =140000×5.747
= 804580
So,
Net present value
= 804580 - $640,000
=$164,580
(c) The annual rate of return is
Project Red = $25,000 / ($440000)/2
=11.36%
Project Blue = $60000/(640000/2)
=18.75%
(d) Savanna should select Project Blue since it contains a higher positive NPV and a greater annual rate of return also a good payback period.
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Sunland Company purchased a delivery truck for $44,000 on July 1, 2022. The truck has an expected salvage value of $6,000, and is expected to be driven 100,000 miles over its estimated useful life of 8 years. Actual miles driven were 15,000 in 2022 and 12,000 in 2023. Sunland uses the straight-line method of depreciation.(a)Compute depreciation expense for 2022 and 2023.
Answer:
2022: $2375
2023: $4750
Explanation:
2022: ((44,000-6,000)/8) * 6/12 = $2375
2023: (44,000-6,000)/8 = $4750
The depreciation expense for Sunland Company's delivery truck for 2022 is $2,375, which accounts for half a year of depreciation since it was purchased mid-year. For 2023, the full year's depreciation expense is $4,750.
Explanation:To compute the depreciation expense for Sunland Company's delivery truck for the years 2022 and 2023 using the straight-line method, we need to apply the formula: Annual Depreciation Expense = (Cost of the asset - Salvage value) / Useful life of the asset.
Firstly, let's find the annual depreciation expense:
Total depreciable amount = $44,000 - $6,000 = $38,000.Annual depreciation = $38,000 / 8 years = $4,750 per year.For 2022, since the truck was purchased on July 1, only half of the year's depreciation should be recorded:
Depreciation expense for 2022 = $4,750 / 2 = $2,375.For 2023, the truck is depreciated for the full year:
Depreciation expense for 2023 = $4,750.Therefore, the depreciation expense for Sunland Company's delivery truck is $2,375 for the year 2022 and $4,750 for the year 2023.
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Audrina'sFleet Feet, Inc., produces dance shoes for stores all over the world. While the pairs of shoes are boxed individually, they are crated and shipped in batches. The shipping department records both variable direct batch-level costs and fixed batch-level overhead costs. The following information pertains to shipping costs for2014.1.2.What is the flexible budget number of crates for2014?3.What is the actual number of crates shipped in2014?4.Assuming fixed overhead is allocated using crate-packing hours, what is the predetermined fixed overhead allocation rate?5.For variable direct batch-level costs, compute the price and efficiency variances.6.Static-Budget Amounts Actual ResultsPairs of shoes shipped 240,000 180,000 Average number of pairs of shoes per crate 12 10 Packing hours per crate 1.2 hours 1.1 hours Variable direct cost per hour $20 $21 Fixed overhead cost $60,000 $62,500 For fixed overhead costs, compute the spending and theproduction-volume variances.
Explanation:
1-
Static budget number of crates = Budgeted pairs shipped / Budgeted pairs per crate
Static budget number of crates = 240,000 Pairs / 12 Pairs
Static budget number of crates = 20,000 Crates
2-
Flexible budget number of crates = Actual pairs shipped / Budgeted pairs per crate
Flexible budget number of crates = 180,000 Pairs / 12 Pairs
Flexible budget number of crates = 15,000 Crates
3-
Actual number of crates shipped = Actual pairs shipped / Actual pairs per box
Actual number of crates shipped = 180,000 Pairs / 10 Pairs
Actual number of crates shipped = 18,000 Crates
4-
Static budget number of hours = Static budget number of crates × budgeted hours per box
Static budget number of hours = 20,000 Crates X 1.10 hours
Static budget number of hours = 22,000 hours
Fixed overhead rate = Static budget fixed overhead / static budget number of hours
Fixed overhead rate = $60,000 / 22,000 hrs
Fixed overhead rate = $2.73 per hour (Approx.)
5 - 6
For Explanation of Question 5 and 6 find the attachment
Reebok International Ltd. is a global company that designs and markets sports and fitness products, including footwear, apparel, and accessories. Some of the items included in its recent annual consolidated statement of cash flows presented using the indirect method are listed here. Indicate whether each item is disclosed in the Operating Activities (O), Investing Activities (I), or Financing Activities (F) section of the statement or (NA) if the item does not appear on the statement. (Note: This is the exact wording used on the actual statement.)
Answer:
Dividends paid ⇒ Financing Activities (F)
Repayments of long term debt ⇒ Financing Activities (F)
Depreciation and amortization ⇒ (NA)
Proceeds from issuance of common stock to employees ⇒ (NA)
Change in accounts payable and accrued expenses ⇒ Operating Activities (O)
Cash collections from customers ⇒ Operating Activities (O)
Net repayments of notes payable to banks ⇒ Financing Activities (F)
Net income ⇒ Operating Activities (O)
Payments to acquire property and equipment ⇒ Investing Activities (I)
Change in inventory ⇒ Operating Activities (O)
Production Budget Healthy Measures Inc. produces a Bath and Gym version of its popular electronic scale. The anticipated unit sales for the scales by sales region are as follows: Bath Scale Gym Scale Northern Region unit sales 40,000 25,000 Southern Region unit sales 75,000 35,000 Total 115,000 60,000 The finished goods inventory estimated for March 1, for the Bath and Gym scale models is 11,800 and 8,100 units, respectively. The desired finished goods inventory for March 31 for the Bath and Gym scale models is 15,000 and 7,500 units, respectively. Prepare a production budget for the Bath and Gym scales for the month ended March 31. For those boxes in which you must enter subtracted or negative numbers use a minus sign. Healthy Measures Inc. Production Budget For the Month Ending March 31 Units Bath Scale Units Gym Scale Total units available Total units to be produced
Answer:
Total units to be produced Bath Scale Units 118,200
Total units to be produced Gym Scale Units 59,400
Explanation:
Given
Sales
Bath Scale Gym Scale
Northern Region 40,000 25,000
Southern Region 75,000 35,000
Total 115,000 60,000
Finished goods inventory March 1,
Bath scale models 11,800
Gym scale models 8,100
Desired finished goods inventory March 31
Bath scale models 15,000
Gym scale models 7,500 units,
We add ending inventory to sales and subtract beginninginventory to get Production units.
Healthy Measures Inc.
Production Budget
For the Month Ending March 31
Units Bath Scale Units Gym Scale
Sales 115,000 60,000
+ Ending Inventory 15,000 7,500
-Opening Inventory 11,800 8,100
Total units to be produced 118,200 59,400