LCD Industries purchased a supply of electronic components from Entel Corporation on November 1, 2016. In payment for the $25.0 million purchase, LCD issued a 1-year installment note to be paid in equal monthly payments at the end of each month. The payments include interest at the rate of 24%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:

1. & 2.

Prepare the journal entries for LCDâs purchase of the components on November 1, 2016 and the first installment payment on November 30, 2016. (Enter your answers in whole dollars. If no journal entry is required for a transaction, select "No journal entry required" in the first account field.)

3.

What is the amount of interest expense that LCD will report in its income statement for the year ended December 31, 2016?. (Enter your answers in whole dollars.)

Answers

Answer 1

Answer:

We will use the following equations for this problem

a. (Initial cost  Estimated output) × Actual yearly output

b. (Depreciable cost  Yearly output) × Estimated output

c. Depreciable cost  Yearly output

d. (Depreciable cost  Estimated output) × Actual yearly output

Answer 2

Journal entries are used to record the purchase and payment transactions of electronic components by LCD Industries. The initial purchase creates a liability, and installment payments include both interest and principal. The annual interest expense is calculated based on monthly installments.

The transaction for purchasing electronic components and issuing an installment note can be recorded through journal entries. On November 1, 2016, when LCD Industries purchases the components, the journal entry would debit Inventory (or the appropriate asset account for the electronic components) and credit Notes Payable for the full purchase amount of $25.0 million, reflecting the liability created by the note. The first installment payment, however, requires a more complex entry because it includes both principal repayment and interest expense.

The amount of the monthly installment can be calculated using the formula for an installment loan:
monthly payment = P x [i(1+i)^n] / [(1+i)^n - 1]. Here, P is the principal amount ($25 million), i is the monthly interest rate (24% annual rate divided by 12 months, or 0.02 monthly), and n is the total number of payments (12). We would calculate the monthly payment and then for the first payment on November 30, 2016, debit Notes Payable and Interest Expense and credit Cash for the total payment amount. As the payment includes both the principal and interest, the specific amounts need to be calculated.

For the interest expense in the income statement, we would calculate the monthly interest component of each installment and then multiply by the number of payments made within the year, to get the annual interest expense for 2016.


Related Questions

Joe and Joanne own JoJo's Jet-Fast Oil-Change and Auto Service. When budgeting for next year's benefit expenses, Joe and Joanne estimate that their unemployment and workers' compensation costs will increase because of a high number of claims during the past year. Which of the following terms refers to this type of cost system for insurance like workers' compensation? a. Mandatory b. Experience-rated c. Defined benefit d. Cost-benefit adjusted

Answers

The correct answer is b

An insured party's loss amount is rated according to how much loss other insured parties with comparable coverage have experienced.

The most typical association of experience rating is with workers' compensation insurance. It is employed in the experience modification factor calculation.

So, choice B is the right one.

What is a good experience rating?

The opposite of community rating is experience rating. It means that when premiums are calculated, the medical history and claims experience of an individual or group is taken into account. Large group plans can still employ experience ratings.

The simple response is that a good rating is one with an experience modification factor of less than 1.00. Any Emod below 1.00 indicates that a business is performing better than average for other businesses in the same industry and state, as 1.00 is average or neutral.

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Today, Stock A is worth $20 and has 1,000 shares outstanding. Stock B costs $30 and has 500 shares outstanding. Stock C is priced at $50 per share and has 1,200 shares outstanding. If, tomorrow, Stock A is priced at $22, Stock B at $35, and Stock C is worth $48, what would the value-weighted index amount equal? (The index has a base period value of 100.)

Answers

Answer:

$102.21

Explanation:

The computation of value-weighted index is shown below:-

Today value

Stock A = $20 × 1000

= $20,000

Stock B = $30 × 500

= $15,000

Stock C = $50 × 1200

= $60,000

Total market value = $60,000 + $15,000 + $20,000

= $95,000

Tomorrow

Stock A = $22 × 1,000

= $22,000

Stock B = $35 × 500

= $17,500

Stock C = $48 × 1,200

= $57,600

Total market value = $57600 + $17,500 + $22,000

= $97,100

Value weighted return = Tomorrow Total market value ÷ Today Total market value × 100

= $97100 ÷ $95000 × 100

= $102.21

Final answer:

Understanding the calculation of a value-weighted index for a group of stocks with different prices and shares.

Explanation:

The value-weighted index calculates the performance of a group of stocks by considering the market capitalization of each stock.

To find the value-weighted index amount, we first calculate the market value of each stock before and after the price change:

Stock A: (1000 shares x $20) + (1000 shares x $22) = $40,000 + $44,000 = $84,000Stock B: (500 shares x $30) + (500 shares x $35) = $15,000 + $17,500 = $32,500Stock C: (1200 shares x $50) + (1200 shares x $48) = $60,000 + $57,600 = $117,600

Then, calculate the index for each day using the base period value of 100:

Base period value: 100Day 1 value: $84,000 + $32,500 + $117,600 = $234,100Day 2 value: $84,000 + $32,500 + $117,600 = $234,100

Therefore, the value-weighted index amount for both days would be 234.1.

Jake and Christina are married and file a joint return for 2019 with taxable income of $100,000 and tax preferences and adjustments of $30,000 for AMT purposes. Their regular tax liability is $13,717. What is the amount of their total tax liability? Group of answer choices $4,758 $13,717 $15,158 $18,475

Answers

Answer:

$13,717

Explanation:

The amount of AMTI is ($100,000+$30,000) $130,000.

AMT base

= $130,000 - $83,400

=$46,600.

TMT is $46,600 × .26 = $12,116.

Their tax liability which is $13,717 is greater of the TMT or regular tax which is $12,116.

Hence , the amount of their total tax liability in this case is $13,717

Which of the following would help explain why the aggregate demand curve slopes downward? Group of answer choices An unexpectedly low price level raises the real wage, which causes firms to hire fewer workers and produce a smaller quantity of goods and services. A lower price level causes domestic interest rates to rise and the real exchange rate to appreciate, which stimulates spending on net exports. A higher price level increases real wealth, which stimulates spending on consumption. A lower price level reduces the interest rate, which encourages greater spending on investment goods.

Answers

Final answer:

The aggregate demand curve slopes downward due to three effects: The wealth effect, the interest-rate effect, and the foreign exchange effect. These cause an increase in consumption, lower interest rates leading to more investment, and a depreciation of the exchange rate resulting in increased net exports when the price level falls.

Explanation:

The aggregate demand curve slopes downward because of three fundamental effects: the wealth effect, the interest rate effect, and the foreign exchange effect.

The wealth effect implies that as price levels decrease, the purchasing power of money increases, leading to an increase in consumption. If, for example, the price of all goods and services fall, consumers can buy more with the same amount of money.

The interest rate effect indicates that as price levels decline, the demand for money reduces leading to lower interest rates. These lower rates encourage more borrowing and hence, lead to increased investment spending.

The foreign exchange effect means a lower price level causes the real exchange rate to depreciate, which stimulates spending on net exports.

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Leadership versus management:
1. As a manager seeks to develop her leadership skills, she should be aware that ______.
A) Leadership is primarily about personal efficiency
B) Many different styles of leadership can be effective
C) There is one best leadership style to which all managers should aspire
D) Leadership is first and foremost about establishing a personal bond with employees

Answers

Answer:

B) Many different styles of leadership can be effective

Explanation:

Leadership refers to guiding, directing and motivating employees in such a manner so as to induce them to act in a desired way which contributes to fulfillment of organizational goals and group objectives.

Management is a more authoritative function in relation to leadership. A manager and leader both have followers, but a manager's following is owed to his authority and control while a leader creates his followers via personal traits such as charisma or sound judgement.

A manager is accountable for his own performance and his subordinates while there is no clear accountability for a leader, who is more concerned with group goals.

Thus, as a manager seeks to develop her leadership skills, she needs to be aware that leadership is more informal and thrives upon the state of interpersonal relationships, a leader builds with the followers.

There is no single leadership style which can be universally applied. Rather, leadership is situational and a leadership style should be based upon various parameters such as group goals, interests, the dynamics of the team, and the state of interpersonal relationships, etc.

Final answer:

The manager should be aware that many different styles of leadership can be effective. Leadership is not primarily about personal efficiency, nor is it mainly about establishing a personal bond with employees. Moreover, there isn’t one best leadership style for all situations.

Explanation:

1. One key aspect of leadership versus management is that the manager seeking to develop her leadership skills should be aware that B) Many different styles of leadership can be effective. This is because different situations, teams, and organizational cultures may require different leadership styles for optimal effectiveness.

2. Contrary to A), leadership is not primarily about personal efficiency, but rather about inspiring and motivating others. Moreover, according to D), while establishing a personal bond with employees can be part of leadership, it is not the primary focus of leadership.

3. Lastly, C) is incorrect as it suggests a one-size-fits-all approach, which doesn't realistically apply to leadership as it should be adaptable based on the circumstances.

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The government wants to help the mohair sweater industry by giving producers a specific subsidy of ​$1.20 per mohair sweater. Suppose that the market demand isgiven​ by: Upper Q Superscript d Baseline equals 1200 minus 22 p and the market supply​ is: Upper Q Superscript s Baseline equals negative 220 plus 40 p. How much will the subsidy cost​ taxpayers?

Answers

Answer:

$855.79

Explanation:

[tex]Q^{d}[/tex] = 1,200 - 22p .................................... (1)

[tex]Q^{s}[/tex] = - 220 + 40p .................................... (2)

When a subsidy of $1.20 is given, it will increase the price of the producers by $1.20 and Qs becomes:

[tex]Q^{s}[/tex] = -220 + 40(p + 1.2) = - 220 + 40p + 48

[tex]Q^{s}[/tex] = -172 + 40p .............................................. (3)

At equilibrium, [tex]Q^{d}[/tex] = [tex]Q^{s}[/tex]. Equating equations (1) and (3) and solve for equilibrium price p, we have:

1,200 - 22p = -172 + 40p

-22p - 40p = -172 - 1,200

-62p = -1,372

p = -1372/-62

p = 22.129

Substitute p into equation (3) to obtain equilibrium quantity, Q, we have:

[tex]Q^{s}[/tex] = -172 + 40(22.129) = -172 + 885.16  = 713.6

Cost of subsidy to taxpayers = [tex]Q^{s}[/tex] * Subsidy per unit = 713.6 * 1.2 = $855.79

Archie Hamilton is 45 years old and single. Archie had wage income of $55,000. He also had gambling winnings of $1,000. He is not sure if he should itemize or take the standard deduction. Archie paid the following: $5,200 qualifying home mortgage interest. $9,507 for real estate taxes. $5,040 for state income taxes withheld in 2019. Unreimbursed doctor and dentist bills in the amount of $7,000. Unreimbursed prescription drugs for $14. Vitamins for $120. A statement received from his church showing donations made throughout the year totaling $1,200. Receipts for donations of furniture and clothing in good, used condition to Goodwill. The total estimated fair market value is $100. Tax preparation fee of $315 for his 2018 tax return. $50 paid in 2019 on his 2018 balance due state income tax return. $45 investment expense $250 in gambling losses 11. What is the total amount of state income and real estate taxes deductible on Archie's Form 1040, Schedule A

Answers

Answer:

$10,000

Explanation:

Given information:

Archie Hamilton

paid $9,507 for real estates taxes.paid $5,040 for state income taxes withheld in 2019

From the information above, it can be referred that;  

deductions are allowed up to $10,000 for a combination of State income taxes and Real estate taxes as imposed by the U.S Internal Revenue Service.

In our scenario, the total amount of State income and Real estate taxes deductible on Archie's Form 1040, Schedule A is $10,000 for the year.

Answer:

$5,000

Explanation:

Even though Archie's state income and real estate property taxes are much higher, $9,507 + $5,040 = $14,547, his deductions are capped to only $5,000 per year (he is single) or $10,000 if he was married filing jointly.

The Tax Cuts and Jobs Act limited the amount that you can deduct from state taxes. Before 2018 the deductions were not limited to a certain amount.

Becker Office Service purchased a new computer system in Year 1 for $35,000. It is expected to have a five-year useful life and a $3,800 salvage value. The company expects to use the system more extensively in the early years of its life. Requireda. Calculate the depreciation expense for each of the five years, assuming the use of straight-line depreciation.

Answers

Answer:

Under straight line depreciation, the depreciation expense per year for every year will be $6240

Explanation:

The straight line depreciation charges a constant depreciation expense per year through out the useful life of the asset regardless of how it is used over the useful life. The formula for straight line depreciation expense per year is,

Depreciation expense per year = (Cost - Salvage Value) / estimated useful life

Depreciation expense per year = (35000 - 3800) / 5  =  $6240

Supplies on hand at October 31 total $620. 2. Expired insurance for the month is $115. 3. Depreciation for the month is $60. 4. As of October 31, services worth $880 related to the previously recorded unearned revenue had been performed. 5. Services performed but unbilled (and no receivable has been recorded) at October 31 are $320. 6. Interest expense accrued at October 31 is $90. 7. Accrued salaries at October 31 are $1,540.

Answers

Answer:

The answer is given below;

Explanation:

It is assumed that supplies in Un-adjusted trial balance were $700

Supplies Expense   Dr.$620

Supplies                  Cr.$620

2.Insurance Expense Dr.$115

Prepaid Insurance       Cr.$115

3. Depreciation Expense  Dr.$60

    Accumulated Depreciation Cr.$60

4. Unearned Service Revenue Dr.$880

     Service Revenue                 Cr.$880

5.  Accounts Receivable  Dr.$320

    Service Revenue         Cr.$320

6. Interest Expense Dr.$90

Interest Payable     Cr.$90

7.Salaries Expense Dr.$1,540

  Salaries Payable    Cr.$1,540

Prestige Pegasus is a multinational firm that specializes in the manufacturing of hardware for high-end technical products and sells its products mostly through business-to-business interactions. Following a good year with soaring profit-margins, Prestige Pegasus is planning to conduct an internal assessment throughout the organization. In a meeting following the decision to conduct the internal assessment, Douglas McCarthy (the Chief Operations Officer) and Tom Castleback (the Chief Marketing Officer) are the prime contributors on the methods that the organization should use to perform these assessments.Douglas: "We should encourage 360-degree feedback, mostly concentrating on subordinates, as they would be the right people to judge their superiors."Tom: "We should definitely use 360-degree feedback, mostly from external customers, as they are the ones who matter in the end."Which of the following, if true, would most strengthen Tom's argument?

a.The salespeople of the company travel extensively and are expected to work independently without supervision.
b.The salespeople of the company do not have any flexibility in the selling price of the product.
c.The company targets a niche market segment with a limited customer base.
d.Previous surveys have revealed that customers are more satisfied with the company's services than the actual products

Answers

Answer:

The correct Choice here is A)

Explanation:

360-degree feedback is a performance evaluation/management technique that provides each worker the opportunity to receive feedback about their performance from senior colleagues and four to eight peers, reporting staff members, co-workers, and customers.    

If it is true that the salespeople of the company travel extensively and are expected to work independently without supervision, then it is important to see from the customers eyes what happens when the Sales People go out.

This information will provide information with respect to what the Sales people are doing right and what they aren't getting done.

Armed with these information, Prestige Pergasus can in the next financial year work it's way into even more profits IF following from the feedback they:

reinforce, expand on and reward what is working;quickly eliminate any loop holes discovered from the feedback by communicating insights to all staff and readjusting performance metrics / system to reward or punish deviation new policies which may have been thought through and stablished in 1 above.

Cheers!

Final answer:

Tom Castleback's argument about using 360-degree feedback with a focus on external customers is strengthened by the fact that previous surveys showed customers are more satisfied with the company's services than the products.

Explanation:

In the scenario where Prestige Pegasus is planning an internal assessment, Tom Castleback argues for a 360-degree feedback approach with a focus on perspectives from external customers. To strengthen Tom's argument that feedback from customers is vital, option (d), which states previous surveys have revealed that customers are more satisfied with the company's services than the actual products would most support his view. This choice suggests that customer feedback is already recognized as valuable and influential in understanding the firm’s performance, and therefore, continuing to value external feedback aligns with seeking concrete areas for improvement and maintaining competitive advantage.

Sushi Corp. purchased and installed electronic payment equipment at its drive-in restaurants in San Marcos, TX, at a cost of $54,000. The equipment has an estimated residual value of $2,700. The equipment is expected to process 271,000 payments over its three-useful Life. Per yea expected payment transactions are 65,040, year 1, 149,050, year 2,56,910, year 3.Required:Complete a depreciation schedule for each of the alternative methods.1. Straight line2. Units-of-production3. Double declining balance

Answers

Answer and Explanation:

The preparation of Straight line method , Units of production method and Double declining method is shown below:-

1. Straight line method

     Income statement                       Balance Sheet

Year           Depreciation     Cost    Accumulated  Book value

                       expense                     depreciation

At acquisition                                                                 $54,000

1                 $17,100    $54,000       $17,100             $36,900

2                 $17,100    $54,000       $34,200           $19,800

3                 $17,100    $54,000       $51,300            $2,700

Working Note

Depreciation expenses

For 1 Year ($54,000 - $2,700) ÷ 3

= $17,100

For 2 year ($54,000 - $2,700) ÷ 3

= $17,100

For 3 year ($54,000 - $2,700) ÷ 3

= $17,100

2. Units of production method

     Income statement                       Balance Sheet

Year           Depreciation     Cost    Accumulated  Book value

                       expense                     depreciation

At acquisition                                                                 $54,000

1                       $12,312    $54,000     $12,312                $41,688

2                      $28,215   $54,000     $40,527               $13,473

3                      $10,773   $54,000      $51,300               $2,700

Working Note

For 1 year ($54,000 - $2,700) ÷ 271,000 × $65,040 = $12,312

For 2 year ($54,000 - $2,700) ÷ 271,000 × $149,050 = $28,215

For 3 year ($54,000 - $2,700) ÷ 271,000 × $56,910 = $10,773

3. Double declining method

     Income statement                       Balance Sheet

Year           Depreciation     Cost    Accumulated  Book value

                       expense                     depreciation

At acquisition                                                                 $54,000

1                     $36,000     $54,000   $36,000              $18,000

2                    $12,000     $54,000    $48,000              $6,000

3                    $3,300     $54,000     $51,300                $2,700

Working Note

For 1 year = $54,000 ÷ 3 × 2 = $36,000

For 2 year = $18,000 ÷ 3 × 2 = $12,000

For 3 year = 6,000 - 2,700 = $3,300

Therefore the preparation of depreciation schedule for each of the alternative methods is prepared above.

The Completion of a Depreciation Schedule in the books of Sushi Corp. for the three Depreciation Methods are as follows:

Straight-line Method:

Year              Cost        Depreciation       Accumulated    Net Book

                                         Expense          Depreciation      Balance

Year 1        $54,000         $17,100                 $17,100         $36,900

Year 2         54,000           17,100                  34,200            19,800

Year 3         54,000           17,100                  51,300              2,700

Units-of-production method:

Year              Cost        Depreciation       Accumulated    Net Book

                                         Expense          Depreciation      Balance

Year 1        $54,000         $12,312                 $12,312          $41,688

Year 2         54,000          28,215                 40,527             13,473

Year 3         54,000          10,773                  51,300              2,700

Double-declining-balance Method:

Year              Cost        Depreciation       Accumulated    Net Book

                                         Expense          Depreciation      Balance

Year 1        $54,000       $36,000               $36,000          $18,000

Year 2         54,000          12,000                 48,000              6,000

Year 3         54,000           3,300                  51,300               2,700

Data and Calculations:

Cost of equipment = $54,000

Estimated residual value = $2,700

Estimated useful life = 3 years

Depreciable amount = $51,300 ($54,000 - $2,700)

Units-of-production method:

Depreciation rate per transaction = $0.1893 ($51,300/271,000)

Number of payments = 271,000    Depreciation Expense

Year 1 transactions = 65,040      = $12,312 ($0.1893 x 65,040)

Year 2 transactions = 149,050   = $28,215 ($0.1893 x 149,050)

Year 3 transactions = 56,910     = $10,773 ($0.1893 x 56,910)

Straight-line Method:

Annual depreciation expense = $17,100 ($51,300/3)

Double-declining-balance Method:

Depreciation rate = 66.67% (100/3 x 2)

First year depreciation expense = $36,000 ($54,000 x 66.67%)

Second year depreciation expense = $12,000 ($18,000 x 66.67%)

Third year depreciation expense = $3,300 ($6,000 - $2,700)

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On November 3, the spot price for cotton was $0.81/lb., and the February futures price was $0.83/lb. On November 3, Levi Strauss sold 200 futures contracts on the commodity exchange at $0.83/lb. for delivery in February. Each contract was for 25,000 lbs. Levi Strauss designated these contracts as a cash flow hedge of 5 million lbs. of current inventory which it expected to sell in February. The average spot of this inventory when purchased was $0.58/lb. Levi Strauss properly documented the hedge and employed hedge accounting. On November 30, the company’s fiscal year end, the February commodity exchange futures price was $0.85/lb.If, on November 30, Levi Strauss concluded that the hedge was 100% effective, it should record the hedged cotton inventory in the November 30 balance sheet atA: $4,350,000B: $4,250,000C: $3,000,000D: $2,900,00

Answers

Answer:

C : $3,000,000

Explanation:

The Levi Strauss has sold futures at the price of $0.83/lb. The spot price for cotton is $0.81/lb. The difference between spot and exchange price is 0.02/lb ($0.83/lb - $0.81/lb). On November 30, The future prices of cotton raised to 0.85/lb. The average spot of the inventory when purchased was 0.58/lb. To record the inventory in balance sheet we will use average spot plus difference of spot and exchange price $0.58/lb + $0.02/lb = $0.60/lb. The total amount which will be reported in balance sheet will be 200 futures contacts * 25,000lbs * $060/lb = $3,000,000.

Final answer:

Levi Strauss should record the hedged inventory at the lower of cost or market, which is the original cost of D. $2,900,000 for the 5 million lbs. of cotton, despite the increase in futures price to $0.85/lb.

Explanation:

To calculate the proper balance sheet value of Levi Strauss's cotton inventory hedged by futures contracts, we need to consider the change in futures price.

On November 3, Levi Strauss sold 200 futures contracts at the price of $0.83/lb. for a total of 5 million lbs., which implies a commitment to sell cotton at a future value of $4,150,000 (5,000,000 lbs. x $0.83/lb.). By November 30, the futures price had risen to $0.85/lb., representing an unrealized gain on the futures contracts of $0.02/lb., or a total of $100,000 for the 5 million lbs. (5,000,000 lbs. x $0.02/lb.).

This unrealized gain would be recognized in other comprehensive income and would increase the value of the hedged inventory on the balance sheet to the lower of cost or market.

Since the original cost of the inventory was $2,900,000 (5,000,000 lbs. x $0.58/lb.) and the market value through the gain on the hedge is $4,250,000 ($4,150,000 from the future contracts plus $100,000 gain), Levi Strauss should record the hedged inventory at $2,900,000 as it is lower than the hedged market value.

Therefore, the correct answer is D: $2,900,000.

A boat, costing $108,000 and uninsured, was wrecked the very first day it was used. It can either be disposed of for $11,000 cash and be replaced with a similar boat costing $110,000, or rebuilt for $98,000 and be brand new as far as operating characteristics and looks are concerned. A relevant cost analysis of the decision to replace the boat shows:

A cost equivalence between the two decision options.

An $11,000 net advantage associated with the decision to fix the old boat.

A $1,000 cost advantage associated with the decision to fix the old boat.

A $21,000 cost advantage associated with the decision to fix the old boat.

A $2,000 cost advantage associated with the decision to purchase a new boat.

Answers

Answer:

A $1,000 cost advantage associated with the decision to fix the old boat.

Explanation:

According to the scenario, the computation of the given data are as follows:

Dispose amount = $11,000

Replacement boat = $110,000

Rebuilt of boat = $98,000

So, we can calculate the cost advantage by using following formula:

Cost of new boat = replacement boat amount - Dispose amount

= $110,000 - $11,000

= $99,000

So, cost advantage = Cost of new boat - Rebuilt of boat

= $99,000 - $98,000

= $1,000

So, this shows that rebuilt the old boat is preferable because it will cost $1000 less.

Hence,  $1,000 cost advantage associated with the decision to fix the old boat.

Suppose the economy exhibits a large, unexpected increase in productivity growth that lasts for a decade. Policymakers are (quite reasonably) slow to learn what has happened to potential output and incorrectly interpret the increase in output as a boom that leads actual output to exceed potential. Suppose they adjust macroeconomic policy so that the mismeasured level of short-run output is zero.

(a) What happens to the true amount of short-run output Y?
(b) What happens to inflation over time?

Answers

Answer:

W

Explanation:

A. What will happen to the true amount of short-run output is that the real output will drop to a new lower level, this implies that recession will be accidentally created by policy markers.

B. There will be a fall in inflation.

Under its executive stock option plan, National Corporation granted 15 million options on January 1, 2021, that permit executives to purchase 15 million of the company’s $1 par common shares within the next six years, but not before December 31, 2023 (the vesting date). The exercise price is the market price of the shares on the date of grant, $32 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. Suppose that unexpected turnover during 2022 caused the forfeiture of 5% of the stock options. Compute the amount of compensation expense for 2022 and 2023

Answers

Answer:

Compensation expense for 2022 and 2023 are $12 million and $16 million respectively.

Explanation:

Total compensation expenses = Number of options × Option fair of value = 15 million × $4 = $60 million

Number of years the option is allowed to be exercised = January 1, 2021 to December 31, 2023 = 3 years

Annual compensation expenses = Total compensation expenses ÷ Number of years the option is allowed to be exercised = $60 million ÷ 3 = $20 million

That shows that $20 million is recognized as compensation expenses in 2021.

As there is a 20% forfeiture of the options due to an unexpected turnover, total compensation expenses reduces to:

New total compensation expenses = $60 million × (100% - 20%) = $48 million

Accumulated expenses in 2022 = ($48 million ÷ 3) × 2 = $32 million

Compensation expenses recognized in 2022 = Accumulated expenses in 2022 - Compensation expenses already recognized in 2021 = $32 million - $20 million = $12 million

Compensation expenses recognized in 2023 = $48 million ÷ 3 = $16 million

Therefore, compensation expense for 2022 and 2023 are $12 million and $16 million respectively.

Final answer:

For 2022, the compensation expense is $0 since the options are not yet vestible. The total value of the options after forfeiture is $57 million. The compensation expense for 2023 needs to be calculated based on the time passed in the vesting period.

Explanation:

Under National Corporation's executive stock option plan, 15 million options were granted initially. However, due to unexpected turnover, 5% of these options were forfeited. This means that only 95% of the original options remained, which amounts to 14.25 million options (15 million * 95%). As the fair value of each option is $4, the total fair value of these options sums up to $57 million (14.25 million options * $4 per option).

For 2022, there is no compensation expense as the options are not yet vestible. The compensation expense for these options is recognized over the vesting period which starts on December 31, 2023. Therefore, the compensation expense for 2022 is $0, and for 2023 will need to be calculated based on the proportion of time passed in the vesting period.

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Sheffield Corp. was organized on January 1, 2021. During its first year, the corporation issued 2,500 shares of $50 par value preferred stock and 150,000 shares of $10 par value common stock. At December 31, the company declared the following cash dividends: 2021, $5,500; 2022, $12,300; and 2023, $27,200.
Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 5% and noncumulative.

Answers

Answer:

                 Preferred stock Dividend               Common stock dividend

2021             $5500                                                       $0

2022            $6250                                                       $6050

2021             $6250                                                       $20950

Explanation:

Th dividends are distributed by the firm from he Net Income and are first paid to the preferred stockholders. The dividends paid to preferred stockholders remain constant and any dividend available after paying the preferred stockholders is paid to the common stockholders.

The  preferred stock is non cumulative which means that if the company fails to pay full dividends or pays no dividends in a particular year to preferred stockholders, those dividends will not accumulate and will not be paid in the next year or whenever the company declares dividends.

The cash dividends that will be paid to Each class of stock for each year will be as follows,

The preferred stock dividends are fixed at = 50 * 0.05 = $2.5 per share

The total dividends on preferred stock is = 2.5 * 2500 = $6250

2021

Total Dividend declared = $5500

Dividend paid to Preferred stockholders = $5500

Dividend paid to Common stockholders = $0

2022

Total Dividend declared = $12300

Dividend paid to Preferred stockholders = $6250

Dividend paid to Common stockholders = 12300 - 6250 = $6050

2023

Total Dividend declared = $27200

Dividend paid to Preferred stockholders = $6250

Dividend paid to Common stockholders = 27200 - 6250 = 20950

Final answer:

To allocate dividends to each class of stock, calculate the preferred stock dividend for each year and allocate any remaining cash dividends to the common stockholders.

Explanation:

To calculate the allocation of dividends to each class of stock, we need to understand the terms and conditions of the preferred stock. In this case, the preferred stock has a par value of $50 and a dividend rate of 5%. However, it is noncumulative, which means that if the corporation skips or fails to pay a dividend in any year, it does not owe any past dividends to preferred stockholders.

Step 1: Calculate the preferred stock dividend for each year.

2021: 2,500 shares x $50 par value x 5% dividend rate = $6,2502022: 2,500 shares x $50 par value x 5% dividend rate = $6,2502023: 2,500 shares x $50 par value x 5% dividend rate = $6,250

Step 2: Allocate any remaining cash dividends to the common stockholders.

2021: $5,500 - $6,250 = -$750 (no cash dividend for common stock)2022: $12,300 - $6,250 = $6,050 (cash dividend for common stock)2023: $27,200 - $6,250 = $20,950 (cash dividend for common stock)

Therefore, the allocation of dividends to each class of stock is as follows:

Preferred Stock:2021: $6,2502022: $6,2502023: $6,250Common Stock:2021: $02022: $6,0502023: $20,950

Wyandotte Chemical Company sells various chemicals to the automobile industry. Wyandotte currently sells 30,000 gallons of polyol per year at an average price of $15 per gallon. Fixed costs of manufacturing polyol are $90,000 per year and total variable costs equal $180,000. The operations research department has estimated that a 15 percent increase in output would not affect fixed costs but would reduce average variable costs by 60 cents per gallon. The marketing department has estimated the arc elasticity of demand for polyol to be -2.0.

a. how much would Wyandotte have to reduce the price of polyol to achieve a 15 percent increase in the quality sold?
b. evaluate the impact of such a price cut on

(i) total revenue.
(ii) total costs, and
(iii) total profits.

Answers

Answer:

a.–7.5% or -0.075

bi.$35,321

bii.$8,271

biii.$27,050

Explanation:

Wyandotte Chemical Company

a.

ED = %ΔQD / %ΔP

–2.0 = 15% / %ΔP. (15% more sales)

%ΔP = 15% / -2.0

%ΔP = –7.5% or -0.075

b.

Using the arc price formula, the new price will be:

%ΔP = P2 – P1/ [(P2+ P1)/2]

–0.075 = (P2– 15.00)/ [(P2+ 15)/2] -0.075P2– 1.125 = 2P2– 30

-2.075P2= -28.875

P2= $13.92

ΔP = $15 –$13.92 = $1.08

Finding new quantity using the arc price formula:

%ΔQ = Q2 – Q1/ [(Q2+ Q1)/2]

0.15 = (Q2– 30,000)/ [(Q2+ 30,000)/2]

Q2= 34,865 gallons (QUANTITY SOLD)

Therefore impact of the price cut on the following are:

i). On Total Revenue:

TR = P · Q

Before cut price: TR1, = 15(30,000) = $450,000

After cut price: TR2= 13.92(34,865)

= $485,321,

Consequently, ΔTR = $35,321 (change in total revenue)

ii). On Total Cost: we first find the FC and VCBefore price cut:

FC1=$90,000

After price cut: FC2= $90,000

VC per unit = $6.00 – 0.60 = $5.40

VC2= $5.40 × 34,865 = $188,271

TC2= FC + VC = 90,000 + 188,271 = $278,271

ΔTC = $8,271 (change in total cost)

iii). On Total Profits (π):

Before price cut: π, = $450,000 – $270,000 = $180,000

After price cut: π2= $485,321 – $278,271 = $207,050

(ΔTR - ΔTC = Δπ: $35,321 - $8,271 = 27,050)

Suppose that the total utility from consuming one unit of good Z is 220 utils, the total utility from consuming two units of good Z is 320 utils, and the total utility from consuming three units of good Z is 400 utils. The marginal utility received from consuming the third unit of good Z is ____________.

Answers

Answer:

80 utils

Explanation:

Marginal utility (MU) is the extra or additional utility received from consuming an additional unit of a good.

From the question, we have:

MU from consuming the third unit of Z = Total utility from consuming three units of good Z - Total utility from consuming two units of good Z = 400 - 320 = 80 utils

Therefore, the marginal utility received from consuming the third unit of good Z is 80 utils.

Black Horse Transportation’s sales budget for the first quarter follows:

January $125,000
February 300,000
March 290,000

All sales are on account (credit) with 50% collected in the month of sale, 30% collected in the following month after sale, and 20% collected in the second month after sale. There are no uncollectable accounts.

The March cash receipts are:

A. $102,500
B. $260,000
C. $250,500
D. $172,500

Answers

Answer:

$260,000

Explanation:

The computation of the march cash receipts is shown below:

= Month credit sales × month collection percentage + February credit sales × following month collection percentage + January credit sales × month of sale collection percentage

= $290,000 ×50% + $300,000 × 30% + $125,000 × 20%

= $145,000 + $90,000 + $25,000

= $260,000

We simply applied the above formula

Final answer:

The March cash receipts for Black Horse Transportation are calculated by adding 50% of March sales, 30% of February sales, and 20% of January sales, resulting in a total of $260,000. Hence, the correct answer is Option B: $260,000.

Explanation:

The student's question is about calculating the March cash receipts for Black Horse Transportation based on the company's sales budget for the first quarter and their collections schedule. To determine this, we need to calculate the amount of cash collected from sales made in January, February, and March, following the given percentages.

For March cash receipts, we have:

50% of March sales = 0.50 * $290,000 = $145,000

30% of February sales = 0.30 * $300,000 = $90,000

20% of January sales = 0.20 * $125,000 = $25,000

Adding these up, we get a total of $145,000 (March) + $90,000 (February) + $25,000 (January) = $260,000 for March cash receipts. Therefore, the answer to the student's question is Option B: $260,000.

Super Saver Groceries purchased store equipment for $40,000. Super Saver estimates that at the end of its 10-year service life, the equipment will be worth $3,000. During the 10-year period, the company expects to use the equipment for a total of 10,000 hours. Super Saver used the equipment for 1,200 hours the first year. Required: Calculate depreciation expense of the equipment for the first year, using each of the following methods. (Do not round your intermediate calculations.) rev: 04_08_2019_QC_CS-164618 1. Straight-line.

Answers

Answer:

Annual depreciation= $3,700

Explanation:

Giving the following information:

Super Saver Groceries purchased store equipment for $40,000. Super Saver estimates that at the end of its 10-year service life, the equipment will be worth $3,000.

To calculate the depreciation expense under the straight-line method, we need to use the following formula:

Annual depreciation= (original cost - salvage value)/estimated life (years)

Annual depreciation= (40,000 - 3,000)/10= $3,700

The net cash flows of Advantage Leasing for the next 3 years are $42,000, $49,000 and $64,000 respectively, after which the growth rate will be a constant 2% with a WACC of 8%. What is the present value of the terminal value

Answers

Answer:

The present value of terminal value is $ 863,689.48  

Explanation:

Terminal value=Cash flows at third year*(1+g)/WACC-g

cash flows at the third year is $64,000

g is the growth rate of net cash flows which is 2% in perpetuity

WACC is 8%

Terminal value=$64,000*(1+2%)/(8%-2%)

                       =$64000*1.02/0.06

                       =$ 1,088,000.00  

The present value of terminal=terminal value*discount factor in year 3

discount factor in year=1/(1+8%)^3=0.793832241

Present value of terminal cash flow=1,088,000.00 *0.79383224

                                                           =$ 863,689.48  

Answer:

​$863​,​689.48

Explanation:

Terminal value means the value of an asset at future date.. The terminal value is the last value after the third year.. The formula goes thus

Terminal Value=( Last cash flow X 1 + Growth rate) / (Required return - growth return)

TV= [640000 X (1+2%) ] / [8% - 2 %]

TV= 64000 X 1.02 / 0.08-0.02

TV=65280 / 0.06

TV=$1,088,000

Terminal value is $1,088,000

To get the present value of Terminal value

Pv= Terminal value (1+i)^n

Pv= 1,088,000(1+0.08)^3

Pv= 1,088,000(1.08)^3

Pv=1,088,000(1.259712)

Pv=863​,​689.48

Therefore, the present value of the terminal value is $863​,​689.48

During its first month of operations, Purrfect Pets purchased 6,100 bags of dog food at a cost of $6 a bag and sold all 6,100 bags of dog food on account with payment terms of 2/10, n/30 for $10 each. A total of 2,400 of these bags were sold to customers who paid within the discount period; the other customers paid after the discount period had ended. Sales allowances totaling $200 were granted to customers whose dogs did not like the dog food. Required: Calculate the gross profit for the month. Calculate the gross profit percentage for the month

Answers

Answer:

Gross Profit     $23720  

Gross profit percentage 39.323%

Explanation:

The discounts allowed are subtracted from the sales .Also the sales allowances are deducted in the income statement.

Purrfect Pets

Sales units 6100

Sales Price $10

Sales                                                                          $ 24000

Less Sales Discounts (2% of 10) *2400                       (480)

Sales                                                                           $ 23520

Add Sales without discount (6100-2400)*10              $37000

Total Sales                                                                   $ 60520

Less Sales Allowances                                                 (200)

Net Sales                                                                      $ 60320

Less Purchases (6100* 6)                                            $ 36600

Gross Profit                                                                     $23720                  

Gross profit percentage= Gross Profit /Sales *100 %

Gross profit percentage= $23720    / $ 60320* 100%= 39.323%

                                         

The SML helps determine the risk-aversion level among investors. The flatter the slope of the SMC, the the level of risk aversion. Which of the following statements best describes a shift in the SML caused by increased risk aversion? O The risk-free rate will increase. O The risk-free rate will decrease. O The risk-free rate will remain constant.

Answers

Final answer:

Increased risk aversion causes a shift in the SML, and the risk-free rate will decrease.

Explanation:

Increased risk aversion leads to a shift in the Security Market Line (SML). The SML represents the relationship between an investment's expected return and its systematic risk (beta). When risk aversion increases, investors become less willing to take on risky investments, which leads to a flatter slope of the SML.

As risk aversion increases, the risk-free rate will typically decrease. The risk-free rate represents the return on a risk-free investment, such as a government bond. When investors are more risk-averse, they prioritize the safety of their investments and are willing to accept a lower return on risk-free assets.

The correct statement is c. The risk-free rate will remain constant.

The Security Market Line (SML) is a representation of the Capital Asset Pricing Model (CAPM) and shows the expected return of an investment as a function of its beta, or systematic risk. The equation for the SML is given by:

[tex]\[ E(R_i) = R_f + \beta_i \times (E(R_m) - R_f) \][/tex]

where:

- [tex]\( E(R_i) \)[/tex] is the expected return on the capital asset.

- [tex]\( R_f \)[/tex] is the risk-free rate of interest.

- [tex]\( \beta_i \)[/tex] is the beta of the investment.

- [tex]\( E(R_m) \)[/tex] is the expected return of the market.

- [tex]\( (E(R_m) - R_f) \)[/tex] is the market premium (the expected market return minus the risk-free rate).

An increase in risk aversion among investors will affect the market premium, not the risk-free rate. The risk-free rate is typically considered to be independent of investor risk preferences because it represents the return on an investment with no risk of financial loss. It is often represented by the yield on short-term government bonds, which are considered to be free of default risk.

When investors become more risk-averse, they demand a higher return for taking on additional risk. This increased risk aversion is reflected in a higher market premium, [tex]\( (E(R_m) - R_f) \)[/tex], because investors require a greater compensation for bearing the risk of the market portfolio. As a result, the SML will become steeper, as the expected return for a given level of beta increases.

To summarize, an increase in risk aversion will:

- Increase the market premium, [tex]\( (E(R_m) - R_f) \)[/tex].

- Make the SML steeper.

- Not affect the risk-free rate, [tex]\( R_f \)[/tex].

Therefore, the risk-free rate will remain constant, and the SML will shift upwards, indicating higher expected returns for all levels of systematic risk (beta).

The complete question is- The SML helps determine the risk-aversion level among investors. The flatter the slope of the SMC, the the level of risk aversion. Which of the following statements best describes a shift in the SML caused by increased risk aversion?

a. The risk-free rate will increase.

b. The risk-free rate will decrease.

c. The risk-free rate will remain constant.

From 1970 to 1998 the U.S. dollar Group of answer choices gained value compared to the Italian lira because inflation was higher in Italy. gained value compared to the Italian lira because inflation was lower in Italy. lost value compared to the Italian lira because inflation was higher in Italy. lost value compared to the Italian lira because inflation was lower in Italy.

Answers

Answer:

A. Gained value compared to the Italian lira because inflation was higher in Italy.

Explanation:

The economies of Technetium and Polonium are identical except that Technetium announces that it will start rewarding entrepreneurs with the right to earn and keep profits. Which economy is likely to experience greater long-term economic growth?

Answers

Answer:

The economies of Technetium and Polonium are identical except that Technetium announces that it will start rewarding entrepreneurs with the right to earn and keep profits. Which economy is likely to experience greater long-term economic growth?

The Technetium economy is likely to experience greater long-term economic growth than the Polonium economy.

Explanation:

The Technetium economy is likely to experience greater long-term economic growth than the Polonium economy, the reason being that since the Technetium economy will compensate entrepreneurs with the right to earn and keep profits, it will encourage entrepreneurs to bring their ideas to market. This will improve the economy by creating more jobs and money sources, thus, Technetium will experience long term economic growth.

One unit of A is made of three units of B, one unit of C and two units of D. B is composed of two units of E and one unit of D. C is made of one unit of B and two units of E. E is made of one unit of F. Items B, C, E and F have one week lead times; A and D have lead times of two weeks. Assume that lot for lot (L4L) lot sizing is used for Items A,B, and F; lots of size 50, 50, and 200 are used for Items C,D, and E, respectively. Items C, E, and F have on hand (beginning) inventories of 10, 50, and 150, respectively; all other items have zero beginning inventory. We are scheduled to receive 10 units of A in week 2, 50 units of E in week 1, and also 50 units of F in week 1. There are no order scheduled receipts. If 30 units of A are required in week 8, use the low level coded bill of materials to find the necessary planned order releases for all components.Note: Simplify data handling to include the receipt of orders that have actually been placed in previous periods, the following six level scheme can be used. (A number of different techniques are used in practice, but the importance issue is to keep track of what is on hand, what is expected to arrive, what is needed, and what size orders should be placed.) One way to calculate the numbers is as follows:Gross requirementsScheduled receiptsProjected available balanceNet requirementsPlanned order receiptPlanned order release

Answers

Answer:

Check the explanation

Explanation:

The following are the given details:

Item  Leadtime   On hand Inventory Lot sizingcriteria Schedulereceipts

A             2                0                                   L4L                  10 in week 2

B             1                 0                                   LAL                       0

C             1                 10                                  50                       0

D             2                0                                   50                       0

E             1                 50                                200               50 in week 1

F             1                150                                L4L               50 in week 1

The Complete MRP schedule can be seen in the attached images below:

Final answer:

To determine the necessary planned order releases for all components, follow the steps of the Materials Requirements Planning (MRP) process.

Explanation:

To determine the necessary planned order releases for all components, we need to follow the steps of the Materials Requirements Planning (MRP) process. Using the low level coded bill of materials, we start with the gross requirements for item A in week 8, which is 30 units. Then, we calculate the net requirements by subtracting the on-hand inventory and scheduled receipts from the gross requirements. Based on this, we can calculate the planned order release for each component by multiplying the net requirements with the lot size for each component and considering the lead time.

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Suppose the U.S. yield curve is flat at 3% and the euro yield curve is flat at 4%. The current exchange rate is $1.35 per euro. What will be the swap rate on an agreement to exchange currency over a 3-year period? The swap will call for the exchange of 2.1 million euros for a given number of dollars in each year. (Do not round intermediate calculations. Enter your answer in millions rounded to 4 decimal places.)

Answers

Answer:

2.7814 millions per year

Explanation:

The rate that is determined by the contracting parties of a swap is known as swap rate.

The swap rate is decided by the receiver and paid by the payer in order to compensate the uncertainty bear by the receiver related to the fluctuations in floating rate.

Amount Delivered = Forward Exchange Rate * Exchange Amount

Year 1  

= $1.35 * ( 1.03 / 1.04 ) * Euro 2.1 million

= $2.8077 millions

Year 2

= $1.35 * ( 1.03 / 1.04 )∧2 * Euro 2.1 million

= $2.7807 millions

Year 3  

= $1.35 * ( 1.03 / 1.04 )∧3 * Euro 2.1 million

= $2.7540 millions

Now Swap per year =

[F/(1+0.3) + F/(1+0.03)∧2 + F/(1+0.03)∧3 ]= [ $2.8077 ( 1+0.03)∧2 + $2.7807 (1+0.03) + $2.7540 ] / ( 1+0.03)∧3

= F [ 2.8286 ] = 7.8674

F = 2.7814 millions per year

Cost of​ equity: SML. Stan is expanding his business and will sell common stock for the needed funds. If the current​ risk-free rate is 4.0​% and the expected market return is 12.0​%, what is the cost of equity for Stan if the beta of the stock is a. 0.75​? b.  0.90​? c.  1.05​? d.  1.20​? a. What is the cost of equity for Stan if the beta of the stock is 0.75​? nothing​% ​ (Round to two decimal​ places.)

Answers

Answer:

a.

The cost of equity is 10% if beta is 0.75

b.

The cost of equity is 11.20% if beta is 0.9

c.

The cost of equity is 12.40% if beta is 1.05

d.

The cost of equity is 13.60% if beta is 1.2

Explanation:

The SML approach is used to calculate the required rate or return (r) which is the minimum return that the investors require to invest in a company's stock. This is also referred to as the cost of equity. The formula for required rate of return under SML is,

r = rRF + Beta * (rM - rRF)

Where,

rRF is the risk free raterM is the return on Market

a.

r = 0.04 + 0.75 * (0.12 - 0.04)

r = 0.10 or 10%

b.

r = 0.04 + 0.9 * (0.12 - 0.04)

r = 0.112 or 11.20%

c.

r = 0.04 + 1.05 * (0.12 - 0.04)

r = 0.124 or 12.40%

d.

r = 0.04 + 1.2 * (0.12 - 0.04)

r = 0.136 or 13.60%

Last year, a toy manufacturer introduced a new toy truck that was a huge success. The company invested $4.50 million in a plastic injection molding machine (which can be sold for $4 million immediately) and $300,000 in plastic injection molds specifically for the toy (not valuable to anyone else). The cost of labor and materials necessary to make each truck runs about $4. This year, a competitor has developed a similar toy, significantly reducing demand for the toy truck. Now, the original manufacturer is deciding whether it should continue production of the toy truck. If the estimated demand is 100,000 trucks, the break-even price is $ per truck.

Answers

Answer:

Break-even price =  $7

Explanation:

The break-even price is the price at which the the total contribution from the sale is equal to the fixed cost of $300,000.

(x- 4)× 100,000 = 300,000

100,000X - 400,000 = 300,000

100,000X = 300,000 +  400,000

x= 700,000/100,000

X = $7

Break-even price =  $7

Final answer:

The break-even price per truck is $48.

Explanation:

In order to determine the break-even price per truck, we need to calculate the total cost of production and divide it by the estimated demand. The total cost of production includes the cost of the plastic injection molding machine, the plastic injection molds, and the cost of labor and materials for each truck.

The total cost of production would be the sum of the initial investment in the machine ($4.5 million) minus the immediate resale value of the machine ($4 million), plus the cost of the molds ($300,000), and the cost of labor and materials for 100,000 trucks ($4 per truck * 100,000 trucks). This gives us a total cost of production of $4.8 million.

Dividing the total cost of production by the estimated demand of 100,000 trucks, we get a break-even price of $48 per truck.

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The S&P 500 Index is one of the most commonly used benchmark indices for the US equity markets. Consisting of 500 companies, it is a market value weighted index. This means that each company's performance is reflected in the index, weighted by the ratio of the company's value to the total value of all the companies.

Description Terms
This type of risk relates to changes in the interest rate Pick one : systematic risk
This can be used to reduce the stand-alone risk of an investment by combining it with other investments in a portfolio Diversification or correlation coefficient
This type of risk is inherent in a firm's operations systematic risk or unsystematic risk
A listing of each possible outcome and the probability of each outcome occurring Probability distribution or risk premium
You invest 100,000 in only one stock. What kind of risk will you primarily be exposed to

A. stand-alone risk

B. Portfolio risk

Generally, investors would prefer to invest in assets that have:

A. A low level of risk and high expected returns

B. A high level of risk and low expected returns

Answers

Answer: Please refer to Explanation

Explanation:

Your question is quite confusing as it has elements of other questions. However I shall try my best.

This type of risk relates to changes in the interest rate. SYSTEMATIC RISK.

This type of risk is inherent in a firm’s operations. UNSYSTEMATIC RISK.

A listing of each possible outcome and the probability of each outcome occurring. PROBABILITY DISTRIBUTION

This can be used to reduce the stand-alone risk of an investment by combining it with other investments in a portfolio. DIVERSIFICATION

You invest 100,000 in only one stock. What kind of risk will you primarily be exposed to?

- STANDALONE RISK

This is involving yourself with only one type of financial instruments. It can lead to massive losses if the value of the instrument goes down.

Generally, investors would prefer to invest in assets that have:

- A. A low level of risk and high expected returns.

Human beings are rationale beings that will always seek to maximise their utility. They do this under certain risk appetites but generally, people prefer that they get high returns for low risk. Essentially, people want money but they don't want to risk losing it to get it.

If you need any clarification do comment.

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