Answer:
B. Index number
Explanation:
As a local kayak outfitter was looking over her financial records, she noticed that when the shop down the street increased the price of stand-up paddleboard tours by 10%, her sales increased by 15%. How might her sales be impacted if the paddleboard tour price were lowered by 20%?
Answer:
Her sales would fall by 30%
Explanation:
when the shop down the street increased the price of stand-up paddleboard tours by 10%, her sales increased by 15%. This means for every decrease or increase in the price of stand-up paddleboard tours by 10%, there might be a 15% decrease or increase in sales. Therefore if the paddleboard tour price were lowered by 20%, it will lower her sales by 30%.
Zoco, a restaurant chain, introduced a new version of lemonade that was red in color and had a thick consistency. The company had relied on the fact that its drink was different from other lemonades. However, the consumers did not respond positively. What is the most likely reason for the consumers' negative response?A. ExtinctionB. Selective distortionC. AssimilationD. Contrast
Answer:
D. Contrast
Explanation:
Contrast is the situation whereby consumers are familiar with an idea and are unwilling to change the idea. It is situation whereby a product does not share enough existing or common information with known categories. In this scenario, the lemonade introduces didn't share common information with existing categories in the form of color and consistency, hence why consumers had negative response towards the drink.
American Idle sells hammocks in a perfectly competitive market. This year, the price of hammocks has fallen to $24, and Simon Cowbell, the manager of American Idle, is trying to decide what to do. He discovers that his average variable cost (AVC) is $25, average total cost (ATC) is $30, and marginal cost is $24 and upward sloping. What should he do?
Answer:
Shut down as P < AVC.
Explanation:
Given that,
Selling price = $24
Average variable cost = $25
Average total cost (ATC) = $30
Marginal cost = $24
He should shut down because the price received by him for the product is less than average variable cost. He should shut down its operations because he won't be able cover the average variable cost associated with the production of the product.
Price = $24 which is less than average variable cost of $25.
If he will be able to cover its variable cost then he will continue operating in this market condition.
How does a business determine the markup on a product or service.
Answer and Explanation:
Markup price refers to the amount that is obtained by subtracting the cost of the item from the selling price of the item. Normally the markup price is the amount sold to be added to the cost price with the objective of making a profit.
Computation of markup:
Markup = Selling price - Cost price
Computation of markup percentage:
Markup % = [tex][\frac{Selling price - Cost price}{Cost price}] \times 100[/tex]
Jason is a manager. His colleagues and subordinates look up to him as a man who always does the right things. Along with other skills, his ability to effectively organize and deploy resources like man power, material, and money has been appreciated by his seniors. According to the Level-5 leadership pyramid, which of the following levels would be the immediate next step for Jason?
A. Level 2
B. Level 3
C. Level 4
D. Level 5
Answer: Level 4
Explanation: As and Effective Manager Jason was known to organises people and resources towards achieving set goals and objectives. This drive displayed is what separates true leaders from people who merely occupy leadership positions. haven shown his expertise as a good manager by helping those around him grow. The next step for him to take according to level 5 pyramid would be Level 4 ( Effective Leader)
Peer production refers to:
A. the process of tracking and responding to online mentions of a product, organization, or individual.
B. users collaboratively working to create content, products, and services.
C. content that is more complex than simple text or photos and includes animation, audio, and video.
D. programming hooks, or guidelines published by firms that tell other programs how to get a service to perform a task such as send or receive data.
E. graphical editing tools, such as those found in a wiki, page layout program, or other design tool.
Answer:
b. Users collaborately working to create content, products and services.
Explanation:
Peer production is a system where goods and services are produced by individuals working together. In peer production, the production outcome is as a result of coordinated activities of individuals. It is not created for profit purposes but for the community of users.
Some of the features of peer production is that the cooperation among member is voluntary. The production means is fairly shared. It means that there is no sole control over the usage.
Example of peer production is when people in a community decides to construct a road that leads to their community. The benefit is for their community and not for profit making.
Answer:
The answer is users collaboratively working to create content, products, and services. (option B).
Explanation:
Peer production describes when a community of individuals organize themselves to produce goods or render services. In other words, peer production is the coordination of communal labour towards achieving a common or shared goal.
A good example of peer-production which is also known as mass collaboration is WordPress development (a free content management system which numerous developers around the world help to make better for the purpose of building and maintaining websites).
Joyce was injured by an uninsured drunk driver while she was riding in a friend's car. Joyce and her friend each have a PAP with an uninsured motorists limit of $50,000. How much will be paid by each policy if it is determined that Joyce has $70,000 of bodily injuries
Answer:
Her friend's personal auto policy (PAP) against uninsured motorist will cover the first $50,000 since Joyce was in her car. The remaining $20,000 (= $70,000 - $50,000) will be covered by Joyce's PAP.
Explanation:
Uninsured motorist coverage will pay for any injuries suffered from uninsured drivers, hit and run accidents, drivers with policies that do not cover the full amount of the injury and drivers with insolvent insurance companies.
Cullumber Company incurred research and development costs of $101000 and legal fees of $41000 to acquire a patent. The patent has a legal life of 20 years and a useful life of 10 years. What amount should Cullumber record as Patent Amortization Expense in the first year
Answer:
$14,200
Explanation:
Step 1 Determine the Cost of the Patent
Research and Development costs $101000
Add legal fees $41000
Total $142,000
Step 2 Determine Amortization Expense
Amortization Expense = Cost/ Useful life
= $142,000/10 years
= $14,200
Accounts receivable arising from sales to customers amounted to $40,000 and $55,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $180,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is _________.
Answer:
$165,000
Explanation:
The computation of the cash flows from operating activities is shown below:
Cash flow from operating activities
Net income reported for the year = $180,000
Less: Increase in account receivable -$15,000 ($40,000 - $55,000)
Cash flow provided by operating activities $165,000
Since there is a $15,000 increase in account receivable and the same is deducted from net income so that the correct amount could arrive
A grocery chain is interested in exploring the impact effective supply chain management would have. Suppose that for every $1 of sales, 4% is profit, 50% is spent in the supply chain, and the remaining 46% is evenly divided between fixed and production costs. If the chain can save $1 in the supply chain, it would take how many dollars of increased sales to have the same increase in profit? Assume that fixed costs are fixed so that the portion of increased sales allocated to fixed costs is instead profit (27% profit margin combined now).
Answer:
$3.70
Explanation:
In this question we have to assume the items values
Let say
Sales = $100
So supply chain it spends 50% i.e $50
Profit is 4% i.e $4
Since the 46% is dividend among fixed and production costs
So the fixed cost is $23 and variable cost is $23
Now if the sales increase by $X, the revenue will increase by X.
So it would also increased the cost by X × (0.5+0.23)
And in overall, the profit is also increased
Plus it is given that there is 27% profit margin
So, the equation is
0.27X = 1
Therefore X = $3.70 with additional profit of $1
The board of directors of Chester, Inc. authorizes a $0.10 cash dividend to its 10,000 shares of common stock issued and outstanding. On the date of payment, a journal entry will debit which of the following accounts and for what amount?
A) Common Dividend Expense for $1,000.
B) Cash for $1,000.
C) Common Dividend Payable for $1,000.
Answer:
C
Explanation:
In this question, we are asked to state the appropriate amount that will be debited from which of the accounts in the question.
To answer this appropriately, we need to calculate the dividend payable.
Mathematically that is equal to cash dividend * number of shares
From the question, we can identify the cash dividend as $0.10 and the number of shares as 10,000
The dividend payable is thus 0.1 * 10,000 = $1,000
The journal entry will be:-
Dividend payable $1,000
Cash $1,000
This makes option C the correct answer
Dinosaur Junior Corporation purchased a one-year insurance policy in January 2013 for $60,000. The insurance policy goes into effect April 2013. If the company neglects to make the proper year-end adjustment for the expired insurance:
A. Net income and assets will be understated by $40,000.
B. Net income and assets will be overstated by $40,000.
C. Net income and assets will be understated by $20,000.
D. Net income and assets will be overstated by $20,000.
Answer:
B. Net income and assets will be overstated by $40,000.
Explanation:
given data
purchased 1 year insurance policy = $60,000
solution
we know that here policy have expired in
policy expired = 8 months
so here Expired insurance at year end as
Expired insurance at year end = $60,000 × [tex]\frac{8}{12}[/tex]
Net income and assets overstated = $40,000
it is an expense and when not recognized then these both net income and assets will be overstated
so correct option is B. Net income and assets will be overstated by $40,000.
You want to have $1 million in your savings account when you retire. You plan on investing a single lump sum today to fund this goal. You are planning on investing in an account which will pay 7.5 percent annual interest. Which of the following will reduce the amount that you must deposit today if you are to have your desired $1 million on the day you retire?I. Invest in a different account paying a higher rate of interest.II. Invest in a different account paying a lower rate of interest.III. Retire later.IV. Retire sooner. A. I onlyB. II onlyC.I and III onlyD. I and IV onlyE. II and III only
Answer:
C. I and III only
Explanation:
Base on the scenario been described in the question, since I want to have one million dollars in my savings account when I retire, the best thing to do is to invest in a different account that pays high interest, this would enable me to easily reach my target of having $1million in my savings account quickly, and retiring later will also enable me to have more time for my investment to grow to meet my $1milloin target. So I and III are the best option
Cane company manufactures two products called alpha and beta that sell for $225 and $175, respectively. each product uses only one type of raw material that costs $6 per pound. the company has the capacity to annually produce 130,000 units of each product. its unit costs for each product at this level of activity are given below: alpha beta direct materials $ 42 $ 24 direct labor 42 32 variable manufacturing overhead 26 24 traceable fixed manufacturing overhead 34 37 variable selling expenses 31 27 common fixed expenses 34 29 total cost per unit $ 209 $ 173 the company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are deemed unavoidable and have been allocated to products based on sales dollars.
Final answer:
To calculate total revenue and total cost, multiply the selling price by the number of units sold and add fixed costs and variable costs for each output level. Marginal revenue is the change in total revenue divided by the change in quantity, and marginal cost is the change in total cost divided by the change in quantity. The profit maximizing quantity is where marginal revenue equals marginal cost.
Explanation:
In order to calculate the total revenue and total cost for each output level, we can use the given information. The total revenue is calculated by multiplying the selling price by the number of units sold. The total cost is calculated by adding the fixed costs and the variable costs for each output level.
To find the marginal revenue and marginal cost, we can calculate the change in total revenue and total cost when one unit is produced. The marginal revenue is the change in total revenue divided by the change in quantity, and the marginal cost is the change in total cost divided by the change in quantity.
To find the profit maximizing quantity, we need to find the output level where marginal revenue equals marginal cost. This is the point where the additional revenue from producing one more unit equals the additional cost.
Like-kind property is real property held for investment or use in a trade or business exchanged for real property held for investment or use in a trade or business. Taxpayers must defer gain or loss realized on the exchange of like-kind property.True / False.
Answer:
True
Explanation:
Like-kind property is real property held for investment or use in a trade or business exchanged for real property held for investment or use in a trade or business.
However, Taxpayers must defer gain or loss realized on the exchange of like-kind property.
A favorable direct labor efficiency variance might indicate that A. lower skilled workers were paid a lower wage than expected. B. lower skilled workers were paid a higher wage than expected. C. higher skilled workers were used that performed the task slower than expected. D. higher skilled workers were used that performed the task faster than expected.
Answer:
D. higher skilled workers were used that performed the task faster than expected.
Explanation:
Labor efficiency variance gives the relationship between the number of direct labor hours you budgeted and the actual hours worked for by the staff.
A favorable direct labor efficiency variance might indicate that higher skilled workers were used that performed the task faster than expected and thus resulting in higher profits.
Senior management at LennoCorp wants a better understanding of the relationship between the values of the jobs at the firm, as determined by their job evaluations, and the actual pay rate for each of those positions. The HR team can provide this information graphically by using a___________.
Answer:
wage curve
Explanation:
Based on the scenario being described it can be said that the HR team can provide this information graphically by using the wage curve. This is a graphical curve that illustrates the negative relationship between the levels of unemployment that exist within an economy and the wages that arise. These two terms can be adjusted for this specific situation.
An economist resigns her $100,000/year university teaching position to work fulltime in her own consulting business. In the first year she has total revenue of $250,000 and expenses of $100,000. Which of the following statements is correct?
i. Her accounting profit was $250,000
ii. Her accounting profit was $150,000
iii. Her economic profit was $50,000
iv. Her economic profit was $150,000
Answer:
ii. Her accounting profit was $150,000
iii. Her economic profit was $50,000
Explanation:
The computation is shown below:
For accounting profit, it is
= Total revenues - total expenses i.e explicit cost
= $250,000 - $100,000
= $150,000
And, for economic profit
= Total revenues - total cost i.e explicit and implicit cost
= $250,000 - $100,000 - $100,000
= $50,000
Hence, the second and third options are correct
Assume that Amazon has a stock-option plan for top management. Each stock option represents the right to purchase a share of Amazon $1 par value common stock in the future at a price equal to the fair value of the stock at the date of the grant. Amazon has 5,000 stock options outstanding, which were granted at the beginning of 2017. The following data relate to the option grant. Exercise price for options $40 Market price at grant date (January 1, 2017) $40 Fair value of options at grant date (January 1, 2017) $6 Service period 5 yearsa) Prepare the journal entry(ies) for the first year of the stock-option plan.
b) Prepare the journal entry(ies) for the first year of the plan assuming that, rather than options, 700 shares of restricted stock were granted at the beginning of 2010.
Answer:
The answer is given below;
Explanation:
a.Compensation Cost =Total option * fair value of option at grant date
=5,000*6=$30,000
Service period= 1 year
Vesting period= 3 years
Cumulative expense at end of year 2017=Total compensation cost*Service period/Vesting period=$30,000*1/3=$10,000
Expense for the year =$10,000
Stock Option Compensation Expense Dr.$10,000
Additional paid in capital-stock options Cr.$10,000
b.
Bank (700*$40) Dr.$28,000
Common Stocks 700*$1 Cr.700
Paid in capital in excess of par (28,000-700) Cr.$27,300
On January 1, 2020, Sylvestor, Inc., paid $400,000 for a 20% interest in Happiness Corporation. This investee had assets with a book value of $1,500,000 and liabilities of $700,000. A patent held by Happiness was undervalued by $150,000. The patent had a ten year remaining life. Any goodwill associated with this acquisition is considered to have an indefinite life. During 2020, Happiness reported income of $200,000 and paid dividends of $80,000 while in 2021 it reported income of $230,000 and dividends of $100,000. What is the balance in Equity Investment at December 31, 2021?
Answer:
= $444,000
Explanation:
Fair value of investee's assets = $1,500,000 + $150,000 = $1,650,000
Equity value = $1,650,000 - $700,000 = $950,000
Fair value of equity acquired = $950,000 * 20% = $190,000
Goodwill resulting from the acquisition = $400,000 - $190,000 = $210,000
Barney has to recognize additional amortization on the patent with 10 years remaining life.
Annual amortization expense = $150,000/10 *20% = $3,000
Balance in investment account at the end of 2020 = beginning balance + net income * 20% - dividends paid * 20% - amortization expense
$400,000 + $200,000 * 20% - $80,000 * 20% - $3,000 = $421,000
investment account (2021) = $421,000 + $230,000 * 20% - $100,000 * 20% - $3,000
= $444,000
The balance in Equity Investment at December 31, 2021 for Sylvestor, Inc.'s investment in Happiness Corporation is $450,000. This is calculated by factoring in Sylvestor's initial investment, its share of Happiness Corporation's profits for 2020 and 2021, and dividends received in those years.
Explanation:To find the balance in the Equity Investment at December 31, 2021 for Sylvestor, Inc.'s investment in Happiness Corporation, we first account for the initial investment of $400,000. This is 20 percent of Happiness Corporation's fair value, which includes the book value of assets ($1,500,000) less liabilities ($700,000), and the undervalued patent ($150,000).
Next, we adjust the balance for the share of profit. Since Sylvestor owns 20 percent, we add 20 percent of the reported income of Happiness Corporation for each of the two years (20% of $200,000 in 2020 and 20% of $230,000 in 2021).
Finally, we have to adjust for dividends received. Similar to profits, we subtract 20 percent of dividends paid out in 2020 and 2021 (20% of $80,000 in 2020, and 20% of $100,000 in 2021).
Combining these figures, we get:
Initial investment: $400,000Share of profit: (0.20 * $200,000) + (0.20 * $230,000) = $40,000 + $46,000 = $86,000Dividends received: -[(0.20 * $80,000) + (0.20 * $100,000)] = -$16,000 - $20,000 = -$36,000Therefore, the balance in Equity Investment at December 31, 2021 is $400,000 + $86,000 - $36,000 = $450,000.
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_____ is an approach to setting advertising goals and objectives which states that communication effects are the logical basis for advertising goals and objectives against which success or failure should be measured.
A) The carryover effect
B) The hierarchy of effects model
C) Zero based communications planning
D) Inside-out communications planning
E) DAGMAR
Answer:
E) DAGMAR
Explanation:
DAGMAR (defining advertising goals for measured advertising results) is a marketing approach that is used to measure the success or failure of an advertising campaign goals and objectives . It was first introduced in 1961 bu Russell Coley to the Association of National Advisers. It uses four steps namely:
Awareness: Generating awareness about the goods and services to the customer.Comprehension: Increasing the product benefit and comprehension.Conviction: Making the customer to be convinced about the need for the product.Action: Making the customer buy the product.Answer:
E
Explanation:
According to DAGMAR the basic function of advertising is to communicate.
The model was developed by Russell H. Colley in his report for national advertisers titled Defined Advertising goals for Measured Advertising Results. He believes that effective advertising is based on communication rather than to sell.
The DAGMAR approach highlights these phases:
1. Awareness,
2. comprehension,
3. conviction,
4. action
The approach has two goals.
1. Develop a communication tasks that accomplishes the phases above
2. Make sure that the success of the goals are measurable against a baseline.
IMG World’s products and services are geared toward colleges and students, the students of which may be considered young achievers.
This designation can be best described as which influential factor of consumer buying behavior?
A. Age and life stages
B. Social class
C. Family role
D. Economic situation
E. Occupation
Answer:
A. Age and life stages
Explanation:
IMG World's product focuses on college and students part of the market population. Their market segmentation is based on the age and life stages of the consumer.
The target age of their consumer includes the adolescent and young adult who are in the stage of college education.
IMG World's product believes that college student will buy more of their products than the other age groups of the market population.
Aside the age and life stages segmentation of the market, there are other market segmentation based on
1. Gender
2. Level of income
3. Educational level
4. Occupation
5. Geographical location etc
Market Segmentation is the process of dividing the total market population into groups such as age, gender, income in order for the producer to focus on the satisfaction of a particular segment.
the ford escape uses hybrid fuel technology to deliver more power, convenience, prestige, and fuel economy with the latest in technology than non- hybrid cars. These criteria would be identified in which stage of the consumer purchase decision process for an automobile?
a. problem recognition
b. needs analysis
c. information search
d. post- purchase evaluation
Answer:
C, information search
Explanation:
There are stages in consumer purchase decision process which includes problem recognition, information search, evaluation of alternatives, etc.
Information search is the second stage of consumer purchase decision process. When a consumer has recognized the need for a product, the next thing is getting information on and about the product.
For the ford escape above, in the process of information search, the consumer will find out that the vehicle uses the hybrid fuel technology to deliver more power, prestige, fuel economy, etc; which is not obtainable in non-hybrid cars.
This information will enable a consumer to determine whether or not to purchase the ford escape.
Cheers.
Potatoes cost Janice $1.25 per pound, and she has $5.00 that she could possibly spend on potatoes or other items. Suppose she feels that the first pound of potatoes is worth $1.50, the second pound is worth $1.14, the third pound is worth $1.05, and all subsequent pounds are worth $0.30. How many pounds of potatoes will she purchase? What if she only had $2 to spend?
Answer:
a. 1 pound of potatoes
b. 1 pound of potatoes
Explanation:
It is important to note that Janice will purchase potatoes until the cost of potatoes is more than her value for it or until she exhausts her income.
Having that in mind
a. In this case, since only the value of first pound of potato is worth more than the cost, she'd only buy 1 pound of potatoes. Totalled at $1.25
b. If she has only $2, she'd purchase only 1 pound because the value of the potatoes is worth more than the cost.
a. 1 pound of potatoes
b. 1 pound of potatoes
The following information should be considered:
Janice will purchase potatoes as long as the benefit is more or at least equivalent to the cost she pays.She will purchase the first pound as the benefit is more than the cost for the first pound (1.5>1.25).She won't buy more as the cost is more than the worth of the additional pound.
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Which of the following statements, if any, represent a principal’s duty to an agent who works on a commission basis?
a) The principal is required to maintain pertinent records and pay the agent according to the terms of their agreement.
b) The principal is required to reimburse the agent for all authorized expenses incurred unless the agreement calls for the agent to pay expenses out of the commission.
c) Both a) and b).
d) None of the above.
Answer:
a) The principal is required to maintain pertinent records and pay the agent according to the terms of their agreement.
Explanation:
The relationship between agent and principle is agreement based and differs from other agent-principle relationships.
Commission will be paid to agent as per their agreement.
If the demand curve for tickets to a taping of a television show intersects the supply curve for tickets to that show at a negative price, then in order to put that market in equilibrium the producers would need to pay people to view the show being taped.A. TrueB. False
Answer: A. True
Explanation: A demand curve is the graphical representation of quantity of goods demanded and price. The price is at the left vertical axis and the quantity is at the right horizontal axis.
When demand and supply intersect, there is price equilibrium that is the quantity demanded and the quantity supply are same. The market can move below or about this equilibrium.
As the television show intersect the supply curve at a negative price, an increase in views will put it back to an equilibrium price .
In 2005, Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico which subsequently drove up natural gas, gasoline, and heating oil prices. Three years later, once the refining capacity was restored, these prices came back down. The restoration of refining capacity should:
A) shift the short-run aggregate supply curve to the left.
B) shift the short-run aggregate supply curve to the right.
C) move the economy up along a stationary short-run aggregate supply curve.
D) move the economy down along a stationary short-run aggregate supply curve.
Answer:
In this case,the correct answer would be option B) in the answer choices or shift the short-run aggregate supply curve to the right.Explanation:
The destruction of the oil and natural gas refinery capacity Gulf of Mexico during Hurricane Katrina would reduce the overall supply of oil which would decrease the short run aggregate supply in the economy.This phenomenon can be illustrated by an initial shift of the aggregate supply curve to the left in the goods market in economy. Now, due to reduction in overall oil supply due to destruction of the refineries, the oil prices in the market would increase,everything else held constant.As after three years,the oil refineries are restored properly, the overall oil supply would again increase in the market from its initial position following the refinery destruction after the hurricane,which would consequently lead to a rightward shift of the aggregate supply curve in short run in the goods market.The restoration of refining capacity should shift the short-run aggregate supply curve to the right.
As a result of Hurricane Katrina, there would be a decline in the supply of oil, this would lead to an inward shift of the supply curve. Years later, after the restoration, there would be an increase in the supply of oil. This would lead to an outward shift or rightward shift of the short-run aggregate supply curve.
Only a change in the price of oil would lead to a movement along the short-run aggregate supply curve. Other factors would lead to a shift of the supply curve.
Please find attached a graph showing the rightward shift of the supply curve. A similar question was answered here: https://brainly.com/question/15217886
he price of a non-dividend paying stock is $55 per share. A 6-month, at the money call option is trading for $1.89. If the annual interest rate is 6.7%, what is the price, based on put-call parity, of a European put at the same strike and expiration?
Answer:
$0.135
Explanation:
To solve the following, we should use the following method
For us to be able to determine the price base on put call parity
The formula for put call parity is gives as c + k = f +p, meaning the call price plus the strike price of both options is equal to the futures price plus the put price.
A new robotic welder can be leased for 5 years with annual payments of $300,000 with the first payment occurring at lease inception. the system would cost $1,050,000 to buy and would be depreciated straight-line to a zero salvage value. the actual salvage value is zero. the firm can borrow at 8 percent and has a tax rate of 34 percent. what discount rate should be used for valuing the lease? 2.72% 5.28% 8.00% 12.12% 10.72%
Answer:
Option B. 5.28%
Explanation:
The cost of unquoted debt can be found from the following formula:
Cost of Debt = Interest rate * (1 - Tax rate)
The interest rate here is 8% and tax rate is 34%.
So by putting the values we have:
Cost of Debt = 8% * (1 - 34%) = 5.28%
So the cost of debt to the company is 5.28% and rate of return for appraising this opportunity as well.
Answer:
5.28%
Explanation:
the actual after tax rate paid by the company = interest rate x (1 - tax rate) = 8% x (1 - 34%) = 8% x .66 = 5.28%
When a company borrows money, the principal it pays back is not tax deductible, but the interest paid is tax deductible. Therefore, the real cost of borrowing money for a company is the actual interest times 1 - tax rate, since all interest paid will be deducted.
JNJ just paid a dividend of $1.46 per share on its stock. The dividends are expected to grow at a constant rate of 3.5 percent per year, indefinitely. What will the price of this stock be in 5 years if investors require an annual return of 15 percent?
Answer:
$15.61
Explanation:
The Dividend valuation Model would be used to value the stock which is given as under:
Po = Do * (1 + g) / (r - g)
Here
Po is the value of stock now
Do is the dividend just paid
g is the dividend growth rate
And
r is the required rate of return of the investors.
By putting values, we have:
Po = $1.46 * (1 + 3.5%) / (15% - 3.5%) = $13.14
Now this is the value of stock now, so to find the value of stock after 5 years, we will have to compound this value at the growth rate.
So, mathematically:
Future value of Unit share = Share value Now * (1 + g)^n
Here Future value is at 5 years time which means n = 5 years.
g is 3.5% and share value now is Po which is $13.14 per share.
So by putting values, we have:
Future value of Unit share = $13.14 * (1 + 3.5%)^5 = $15.61 per share