Willy should buy(a) no insurance since the cost per dollar of insurance exceeds the probability of a flood
Explanation:
Willy's only source of wealth is his chocolate factory. He has the utility function p(cf)1/2 + (1 − p)(cnf)1/2,, where p is the probability of a flood, 1 - p is the probability of no flood, and cf and in are his wealth contingent on a flood and on no flood, respectively. The probability of a flood is p = 1/6. The value of Willy's factory is $500,000 if there is no flood and $0 if there is a flood. Willy can buy insurance where if he buys $x worth of insurance, he must pay the insurance company $2x/17 whether there is a flood or not but he gets back $x from the company if there is a flood. Willy should buy
The answer for the above statement is option ( A.) no insurance since the cost per dollar of insurance exceeds the probability of a flood .
It is because the probability of flood as given in the question is only 1/6, whereas the chances of no flood are 5/6. So that means that he should not buy the insurance because the probability of the flood is comparatively less than the amount Willy has to pay to the insurance company and the amount paid back to willy by the insurance company is $ x worth of insurance
Final answer:
Willy should opt for enough insurance to equalize his wealth, after insurance collection, whether there is a flood or not. This aligns his wealth with his provided utility function and creates indifference between flood and no flood scenarios.
Explanation:
The student is asking about the optimal level of insurance that Willy should purchase for his chocolate factory given the utility function, the probability of a flood, and the terms of the insurance policy. According to the information provided, the probability of a flood (p) is 1/6 and the value of Willy's factory without flood (cnf) is $500,000. The cost of the insurance is $2x/17 for every $x purchased, and in the event of a flood, the insurance pays back $x.
The optimal insurance choice is c) enough insurance so that if there is a flood, after he collects his insurance, his wealth will be the same whether there was a flood or not. This would fully insure Willy against the risk of a flood, allowing him to reach indifference in terms of utility regardless of the flood occurrence.
Joint ventures are often the chosen form of multinational firm alliances because they ________. Grupo de opciones de respuesta provide greater control of proprietary technology enhance the specific skills of the personnel enhance the rewards of the firm increase the level of competition between partner firms
Answer:
provide greater control of proprietary technology
Explanation:
A joint venture is a business made by two or more parties and has a shared ownership along with the risks. Companies make JV as to access new markets and particulate the emerging markets, gain scale differences in operations, share risks for major projects, to access skills and capabilities. Most of them are incorporated as the oil and gas industry. Combining temporary partnership and some examples include the Dow corning, Sony Ericsson. They can contract its own name, acquire rights as the right to buy new companies.Which of these statements about a business plan is true?
A. Businesses do not need to document a business plan.
B. Established businesses do not create a business plan.
C. A business plan is a business’s roadmap for the future.
D. A business plan guarantees a business’s success.
Answer:
C. A business plan is a business’s roadmap for the future.
Explanation:
We are given 4 statements and we have to chose the correct statement. Let's analyze these statement one by one.
A. Businesses do not need to document a business plan.
Every business whether small or large must create a business plan. In fact, one of the most important thing for a business to be successful is its detailed business plan which must cover all the important aspects of the business e.g. pricing, revenue model, customer demographics etc. Therefore, option A is NOT a correct statement
B. Established businesses do not create a business plan.
It is equally important for an established business to have a business plan as it is for a startup. Business plan is a vision of the future. If a established business has a well defined business plan, chances of their success and chances of them achieving their goals will be significantly more. Therefore, option B is NOT a correct statement
C. A business plan is a business’s roadmap for the future.
This a true statement. Business plan is termed as a blueprint of success for the business. This means, a business plan lists all the ways, methods by which a business will sale its services/products and achieve its goals set for the future. Therefore, option C is a correct statement.
D. A business plan guarantees a business’s success.
It is true that a well formulated business plan increases chances of success, but it does not guarantee success. This is because there are many other factors for determining the success, one of which is execution of the business plan and ideas. If the business plan is not properly executed, it will be of no use. Therefore, option D is NOT a correct statement.
Answer:
C
Explanation:
A.) The first step is documenting a plan for your business when you decide to start a business.
B.) All established business started with a business plan.
C.) A business plan is literally supposed to be a road map for the future so you know what to do in the future with your business.
D.) All businesses had a business plan and some businesses fail. Nothing guarantees success except for good sales.
Both Bond A and Bond B have 9.6 percent coupons and are priced at par value. Bond A has 8 years to maturity, while Bond B has 20 years to maturity. a. If interest rates suddenly rise by 2.2 percent, what is the percentage change in price of Bond A and Bond B? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
Answer:
Change in Bond A price is -11.01%
Change in Bond B price is -16.64%
Explanation:
The starting to solving this question would be to calculate the initial prices of both bonds at 9.6% and their prices when interest rose by 2.2%
When bonds are issued at par of $1000 both yield to maturity and coupon rate are the same.invariably the bonds were issued at $1000 each
However,when yield to maturity increases by 2.2%,the new yield to maturity is 9.6%+2.2%=11.8%,the new prices can determined as follows:
The bond price can be computed by using the pv formula in excel,which is given below:
=-pv(rate,nper,pmt,fv)
Bond A
rate is now 11.8%
nper is the number of times the bond pays coupon interest over the life of the bond,which is 8
pmt is the annual coupon payable by the bond,which is $1000*9.6%=$96
fv is the face value of $1000 at which the bond would be retired.
=-pv(11.8%,8,96,1000)=$ 889.94
Change in Bond A price=($889.94-$1000)/$1000=-11.01%
Bond B
rate is now 11.8%
nper is the number of times the bond pays coupon interest over the life of the bond,which is 20
pmt is the annual coupon payable by the bond,which is $1000*9.6%=$96
fv is the face value of $1000 at which the bond would be retired.
=-pv(11.8%,20,96,1000)=$833.59
Change in Bond B price=($833.59-$1000)/$1000=-16.64%
Bob Hanson emphasizes that sending MBSC employees to seminars on a regular basis is highly motivating. It’s possible that for some employees, having to attend seminars is a burden. However, for an employee like Marco, who was excited when he found out he could major in strength and conditioning in college, having the opportunity to further their professional development is a major source of satisfaction and it motivates him to work hard for MBSC. Professional development is described in different ways by different theories of motivation.
If Bob and Mike were analyzing how they motivate their employees in terms of Maslow’s hierarchy of needs, which of the following would be true?
1. Attending seminars could meet an employee’s need for self-actualization, but this would be motivating only if pay, job security, inclusion, and recognition needs were also met.
2. Learning at seminars could meet an employee’s need for growth, and if the employee were not allowed to attend seminars, then he or she might desire greater participation at work or more pay.
3. The recognition and autonomy offered by attending seminars would result in satisfaction, but employees might also be dissatisfied if pay were poor or their ideas were not valued.
4. Employees with a high need for achievement would find the opportunity to learn advanced skills at seminars very motivating, while those with a high need for affiliation or power would be less motivated by seminars.
Marco says he was an economics major in college until he discovered he could major in strength and conditioning. Then he switched majors. Clearly, learning about this field is important to him. Mike and Bob are addressing (effort to performance expectancy, effort, performance to outcome expectancy, or valance)? when they send Marco to seminars instead of, for example, increasing his salary in exchange for his continued high performance at MBSC.
They could maintain Marco’s high level of motivation by?
1. Sending him on an all-expense-paid Caribbean cruise for two weeks
2. Reassuring him that he has a job with MBSC as long as he performs well
3. Reimbursing his tuition as he seeks a master’s degree in fitness management
4. Setting up an employee discount program at a nearby coffee shop, laundromat, and tanning salon
Mike Boyle says he has read that meeting with employees regularly is important to motivation. Despite the fact that he and Bob hold weekly staff meetings with their employees, Mike believes they should meet more often. He knows that employee meetings should have a purpose, and he asks you for advice.
Which of the following purposes for meeting with a staff member could be motivational? Check all that apply.
1. To correct misperceptions around equity
2. To fulfill the need for belongingness
3. To set specific, challenging goals
4. To use extinction on an undesirable behavio
Answer to Question 1:
Option 3 would be TRUE in this case.
Explanation:
According to Abraham Maslow's hierarchy of needs, Self Esteem Needs are directly below the cadre of Self-Actualization Needs. According to this Abraham Maslows theory, one can only think and appreciate offers relating to Self-Actualization such as training if their self- esteem needs are met.
This makes good sense. If Mike and Bob are narcissistic bosses always treating their workers like garbage then sending them off to training as a way to reward their "hard work", that would be very counterproductive.
Please see the attached diagram for a synopsis of Abraham Maslows Hierarchy of Needs.
Answer to Question 2:
The correct option here is 3)
Explanation.
This next question is based on the Expectancy Theory which states that people will always act in a certain way because of the outcome they expect from that behavior.
One way to keep Marco motivated would be to reimburse his tuition as he seeks a Masters Degree in Fitness Management only on the condition that his increased skill and learning in that field are equally beneficial to the company. If it is beneficial to the company, then it means that increasing his ability to solve such problems will also translate to an increase in MBSC's bottom line. If he is helping the company attain its strategic goals then he ought to be rewarded as well. As this kind of cycle continues, the company grows, employees like Mike will grow and everyone is happy, all other things being equal.
Answer to Question 3
The correct choices are:
1, 3 and 4.
Explanation:
Meetings, if constructively planned can be used to resolve misperceptions relating to equity. This can be very demotivating where an employee feels undervalued in relation to others;Meetings can be used to re-evaluate performance and how one has performed in relation to those goals. Challenges to performance and solutions to the same can be discussed. In many cases, the goals only need to be made more specific to ignite performance.Meetings are also good avenues to constructively address undesirable behaviors.Cheers!
Attending seminars could meet an employee’s need for self-actualization, Bob and Mike motivate Marco by sending him to seminars instead of increasing his salary, and meeting with staff members to fulfill the need for belongingness and to set specific, challenging goals can be motivational.
Explanation:If Bob and Mike were analyzing how they motivate their employees in terms of Maslow’s hierarchy of needs, option 1 would be true. Attending seminars could meet an employee’s need for self-actualization, but this would be motivating only if pay, job security, inclusion, and recognition needs were also met. In terms of motivating Marco, Bob and Mike are addressing the valance aspect when they send him to seminars instead of increasing his salary. They could maintain Marco’s high level of motivation by reimbursing his tuition as he seeks a master’s degree in fitness management. In terms of purposes for meeting with a staff member, options 2 and 3 could be motivational. Meeting to fulfill the need for belongingness and setting specific, challenging goals can both have motivational effects.
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in Louisiana, it was a crime to sell burial caskets without a funeral director's license. This law was a source of _____ for licensed funeral directors and an example of _____. A. monopoly power; a legal barrier to entry B. product differentiation; economies of scale C. monopoly power; a natural barrier to entry D. competition; decreasing average costs
Answer:
The correct option is A,monopoly power,a legal barrier to entry
Explanation:
Monopoly power is the exclusive right granted to a business or a group of professionals in order to produce a particular good or provide a service.
The fact that no one else can give the go-ahead to purchase casket except the funeral directors is a form of monopoly.
However,this arrangement has a knock-on effect ,which is the legal barrier to entry. It is a legal barrier because it was created by law.
Option C is is wrong because the barrier is legal not natural barrier,natural barriers are usually as a result of exclusive ownership of major input of production
Skysong Company issued $468,000 of 10%, 20-year bonds on January 1, 2020, at 102. Interest is payable semiannually on July 1 and January 1. Skysong Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%.
Prepare the journal entries to record the following.
(a) The issuance of the bonds.
(b) The payment of interest and related amortization on July 1, 2020.
(c) The accrual of interest and the related amortization on December 31, 2020.
Answer:
a)1/1/20 Cash $477,360
Bonds payable $468,000
Premium on Bonds payable $9,360
b)7/1/20 Interest expense $23,320
Premium on Bonds payable $80
Cash $23,400
c)12/31/20 Interest expense $23,315
Premium on Bonds payable $85
Interest payable $23,400
Explanation:
In order to prepare the journal entry to record the issuance of the bonds, we first have to calculate the cash, as follows:
Cash=$468,000×1.02=$477,360
Hence, the journal entry to record the issuance of the bonds would be as follows:
1/1/20 Cash $477,360
Bonds payable $468,000
Premium on Bonds payable $9,360
In order to prepare the journal entry to record the payment of interest and related amortization on July 1, 2020, we would have to calculate the interest expense and cash as follows:
Interest expense=$477,360×9.7705%/2=$23,320
Cash=$468,000*10%/2=$23,400
7/1/20 Interest expense $23,320
Premium on Bonds payable $80
Cash $23,400
In order to prepare the journal entry to record the accrual of interest and the related amortization on December 31, 2020. , we would have to calculate the interest expense and interest payable as follows:
Interest expense=($477,360-102)×9.7705%/2 =$23,315
Interest payable=$468,000*10%/2=$23,400
12/31/20 Interest expense $23,315
Premium on Bonds payable $85
Interest payable $23,400
How would a catering sales manager handle a mother and daughter making arrangements for the daughter’s wedding differently from a meeting planner from a major corporation wishing to get a quote on a regional sales meeting, which he or she has already done in five other cities?
Answer: By being more Affable
Explanation:
A wedding is a very personal experience that a lot of people look forward to and don't want to be disappointed. In this light, the Catering Sales Manager would probably be very personal with them. Very good natured and affable to ensure that the experience is a good one for the bride to be.
They'll likely pay more attention to detail and make suggestions that they think would work best to ensure a great day. As earlier mentioned, weddings are deeply personal. And so they require a personal touch.
The Sales Manager however will not be as personal with the meeting planner. Not necessarily out of disrespect but because the person already knows what they are looking for and so they will probably engage in a formal tone. There is also the fact that such people might be remarkably busy and would not like to waste time in personal conversation.
Khaling Company sold 26,900 units last year at $16.50 each. Variable cost was $11.60, and total fixed cost was $136,710. Required: 1. Prepare an income statement for Khaling for last year. 2. Calculate the break-even point in units. 3. Calculate the units that Khaling must sell to earn operating income of $15,680 this year.
Answer:
Instructions are below.
Explanation:
Giving the following information:
Khaling Company sold 26,900 units last year at $16.50 each. The variable cost was $11.60, and the total fixed cost was $136,710.
1) Income statement:
Sales= 26,900*16.5= 443,850
Variable costs= 26,900*11.6= (312,040)
Contribution margin= 131,810
Fixed costs= (136,710)
Net operating income= (4,900)
2) To calculate the break-even point in units, we need to use the following formula:
Break-even point in units= fixed costs/ contribution margin per unit
Break-even point in units= 136,710 / (16.5 - 11.6)
Break-even point in units= 27,900units
3) Now, we need to include the desired profit to the break-even point formula:
Break-even point in units= (136,710 + 15,680) / 4.9
Break-even point in units= 31,100 units
Naples Company produced 650,000 units and sold 500,000 units. Their unit selling price is $10. Cost of goods sold is $6 per unit. Fixed selling expenses are $10,000 and variable selling and administrative expenses are $3 per unit. Compute Naple's net income under absorption costing. $4,990,000 $500,000 $1,990,000 $490,000
Answer:
$490,000
Explanation:
The computation of the net income under absorption costing is shown below:
Sales (500,000 units × $10) $5,000,000
Less: Cost of goods sold (500,000 units × $6) -$3,000,000
Gross profit $2,000,000
Less: variable selling and administrative expenses
(500,000 units × $3) -$1,500,000
Less: Fixed selling expenses -$10,000
Net income $490,000
Under absorption costing we considered the fixed and selling expenses
The human MN blood group is determined by two codominant alleles, M and N. The following data were obtained from various human populations:
Percentages*
Population
Place
MM
MN
NN
Inuit
East Greenland
83.5
15.6
0.9
Navajo Indians
New Mexico
84.5
14.4
1.1
Finns
Karajala
45.7
43.1
11.2
Russians
Moscow
39.9
44.0
16.1
Aborigines
Queensland
2.4
30.4
67.2
a. Calculate the allele frequencies in these five populations. b. Which populations appear to be in Hardy-Weinberg equilibrium? c. Which populations do you think have had significant intermixing due to migration?
Answer:
Explanation:
Note: The table containing the data is attached as a file to this solution.
Also note that the values are given in percentages in the table, the decimal equivalents of those values are used in this calculation.
a)
i) Allele Frequency in the Inuit population
M allele frequency
= 0.835+(0.156/2) = 0.913
N allele frequency
= 0.009 + (0.156/2) = 0.087
ii) Allele frequency in Navojo Indian population
M allele frequency
= 0.845+0.072 = 0.917
N allele frequency
= 0.011+0.072 = 0.083
iii) Allele frequency In Finn population
M allele frequency
= 0.457+0.2155 = 0.6725
N allele frequency
= 0.112+0.2155 = 0.3275
iv)Allele frequency In Russian population
M allele frequency
= 0.399+0.22 = 0.619
N allele frequency
= 0.161+0.22 = 0.381
v) Allele frequency In Aborigines
M allele frequency
= 0.024+0.152 = 0.176
N allele frequency
= 0.672 + 0.152 = 0.824
b)
We can observe that the sum of the frequencies of M and N alleles in each of the populations above is 1. Therefore, all the populations are in Hardy Weinberg's equilibrium.
c)
It can be again observed that the M and N allele frequencies of the Finn and the Russian population are almost the same, then it is safe to say that the Finn and Russian population have had significant intermixing due to migration.
Sandhill Inc. has the following information related to an item in its ending inventory. Packit (Product # 874) has a cost of $76, a replacement cost of $60, a net realizable value of $68, and a normal profit margin of $4. What is the final lower-of-cost-or-market inventory value for Packit? $60. $68. $64. $76.
Answer:
$64
Explanation:
The computation of final lower-of-cost-or-market inventory value is given below:-
Ceiling LCM = Estimated selling price - Cost to disposal or NRV ($68)
Floor LCM = NRV - Normal profit
= $68 - $4
= $64
Conditions: 1)When the cost of replacement is greater than the LCM ceiling then the LCM ceiling is considered the market cost.
2)If the cost of replacement is greater than floor LCM then floor LCM is considered to be the market cost
So, second condition is satisfied.
The market value is $64, cost is $76.
Lower of cost or market rate is $64
Trout Lumber Yard has a current accounts receivable balance of $527,164. Credit sales for the year just ended were $6,787,626. a. What is the receivables turnover? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the days’ sales in receivables? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. How long did it take on average for credit customers to pay off their accounts during the past year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Answer:
a. 12.88 times
b. 28.35 days
c. 28.35 days
Explanation:
a. Receivables turnover
Receivables turnover = Credit sales ÷ Receivables
= $6,787,626 ÷ $527,164
= 12.88 times
b. Days’ sales in receivables
Days' sales in receivables = 365 days ÷ Receivables turnover
= 365 ÷ 12.88
= 28.35 days
c. On average it would take 28.35 days for credit customers to pay off their balances during the last year.
On November 1, 2018, Nada, Inc. declared a dividend of $5.00 per share on common stock. Nada, Inc. has 20,000 shares of common stock outstanding and no preferred stock. The date of record is November 15, and the payment date is November 30, 2018. Which of the following is the journal entry needed on November 30, 2018?
A) Debit Cash Dividends $100,000, and credit Dividends Payable—Common $100,000.
B) Debit Dividends Payable—Common $100,000, and credit Cash $100,000.
C) Debit Cash $100,000, and credit Dividends Payable—Common $100,000.
D) Debit Cash Dividends $100,000, and credit Cash $100,000.
Answer:
The correct answer is Option B.
Explanation:
Dividend is simply synonymous to a profit from stockholder's investment (usually in form of shares). Dividend is usually declared when the company that the stockholder invests in is performing well.
On November 15 when the dividend declared was recorded, the following journals would have been recorded:
Debit Retained earnings ($5 x 20,000) $100,000
Credit Dividend payable $100,000
(To record declaration of dividend)
However, when it became payable on November 30, 2018, the dividend payable account has to be debited as follows:
Debit Dividend payable $100,000
Credit Cash $100,000
(To record dividend paid to stockholders)
Sid purchased an automobile for personal
use on January 18, 2011 for $10,000. On January 1, 2015, Sid starts a small business and
begins to use the automobile exclusively in the business. The automobile’s FMV on this
date is $6,000. MACRS depreciation deductions are based on a 5-year recovery period.
. What is the automobile’s basis for depreciation when converted to business use in 2015?
. Assuming Sid does not elect Sec. 179 expensing, what is Sid’s depreciation deduction
in 2015?
Answer:
Part A. $1200
Part B. $1200
Explanation:
Part A.
Under MACRS rules, the depreciation rate for the 5 year recovery period asset would be:
Year 1 20%
Year 2 32%
Year 3 19.2%
Year 4 11.52%
Year 5 11.52%
Year 6 5.76%
This means that the first year MACRS depreciation deduction would be 20% which is $1200 ($6000 * 20%).
Part B.
If Sid does not elect Section 179 expensing then the depreciation would be calculated using straight line basis.
The depreciation would be:
Depreciaiton Expense = $6000 / 5 Years life = $1200
The automobile's basis for depreciation when converted to business use in 2015 is $6,000, which is its fair market value at that time. Assuming Sid does not elect Sec. 179 expensing, the depreciation deduction in 2015 is $1,200, which is 20% of the basis for depreciation.
Explanation:When the automobile is converted to business use in 2015, its basis for depreciation is its fair market value (FMV) at that time, which is $6,000. This is because the basis for depreciation is the lower of the cost or FMV at the time of conversion. Since the FMV is lower than the cost, the FMV is used as the basis for depreciation.
Assuming Sid does not elect Sec. 179 expensing, the depreciation deduction in 2015 is calculated using the Modified Accelerated Cost Recovery System (MACRS). Since the recovery period for automobiles is 5 years, the depreciation deduction for 2015 is calculated as 20% of the basis for depreciation. Therefore, the depreciation deduction in 2015 is $1,200 (20% of $6,000).
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What is the present value of $2,025 per year, at a discount rate of 7 percent, if the first payment is received 6 years from now and the last payment is received 23 years from now
Final answer:
The present value of a series of future payments is calculated using the present value of annuity formula, which is then discounted back to the present if the payments start in the future. This approach is analogous to calculating the present value of a bond payment stream, involving discounting future cash flows at a given rate.
Explanation:
The present value of an annuity is calculated to determine the value of a series of future payments in today's dollars, adjusted for interest over time. In this case, we want to find the present value of $2,025 received annually, starting 6 years from the present and continuing to be received for 18 years (from year 6 to year 23).
Firstly, it's important to note that the present value of an annuity (PVA) formula is used which is:
PVA = PMT [ (1 - (1 + r)-n) / r ]
Where PMT is the annual payment, r is the discount rate (expressed as a decimal), and n is the number of payments. However, since the payments begin 6 years from now, we must discount this entire annuity back to the present value by five more years (since the first payment received in year 6 is effectively the 'present' for our calculation of the annuity).
The steps involved are as follows:
Calculate the present value of the annuity of $2,025 received from year 6 to year 23 using the PVA formula at a 7 percent discount rate. Adjust the resultant value to present date by discounting it back an additional 5 years at the same 7 percent rate. Add up the two present values to find the total present value of the annuity.
To calculate the present value of a bond as explained in Table C2, you also apply a similar present value formula by adjusting future cash flows to their present value and summing them up.
On December 31, 2021, Larry's Used Cars had balances in Accounts Receivable and Allowance for Uncollectible Accounts of $54,000 and $1,050, respectively. During 2022, Larry's wrote off $1,625 in accounts receivable and determined that there should be an allowance for uncollectible accounts of $5,700 at December 31, 2022. Bad debt expense for 2022 would be:
Answer:
$6,275
Explanation:
Allowance for Uncollectible-opening ($1,050)
Allowance for Uncollectible-closing $5,700
Allowance provided specially $1,625
Bad Debt Expense $6,275
Asonia Co. will pay a dividend of $3.90, $8.05, $10.90, and $12.65 per share for each of the next four years, respectively. The company will then close its doors. If investors require a return of 11 percent on the company's stock, what is the stock price
Answer:
Stock price today $26.34
Explanation:
The stock price today is the sum of the present value of the future cash flows(dividends) payable by the stock to investors using the 11% reuired rate of return as the discount rate:
Years Cash flows Discount factor Present values
1 $3.90 1/(1+11%)^1=0.900900901 $3.51
2 $8.05 1/(1+11%)^2=0.811622433 $6.53
3 $10.90 1/(1+11%)^3=0.731191381 $7.97
4 $12.65 1/(1+11%)^4=0.658730974 $8.33
Total present values =$3.51+$6.53+$7.97+$8.33=$26.34
Answer:
Price of stock = $57.26
Explanation:
According to the dividend valuation model , the current price of a stock is the present value of the expected future dividends discounted at the required rate of return.
So we will discount the steams of dividend using the required rate of 11% as follows:
Year Present Value(PV)
1 $3.90 × 1.11^(-1) = 1.486
2 $8.05× 1.11^(-2) = 1.322
3 $10.90× 1.11^(-3) = 1.2064
Year 4 and beyond
This is annuity of 12.65 for four years. So the steams of constant amount would be discounted as follows:
PV = A × (1- (1+r)^(-n) )/r
A- 12.65, r - 0.11, n - 4
PV = 12.65 × (1- 1.11^(-4))/0.11 = 39.24593797
Total PV= 1.486 + 1.322 + 1.2064 + 39.24= $57.26
Price of stock = $57.26
A bond has a par value of $1,000, a time to maturity of 15 years, and a coupon rate of 7.90% with interest paid annually. If the current market price is $790, what will be the approximate capital gain of this bond over the next year if its yield to maturity remains unchanged? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Answer:
$5.97
Explanation:
In order to determine the capital gain of the bond in a year's time,it is first first of all important to calculate the yield to maturity on the bond which is arrived at by applying the rate formula in excel as follows:
=rate(nper,pmt,-pv,fv)
nper is the number of coupon interest the bond would pay over its entire life of 15 years which is 15
pmt is the annual interest,7.9%*$1000=$79
pv is the current market price of the bond which is $790
fv is the value of $1000
=rate(15,79,-790,1000)=10.79%
Afterwards,the price of the bond in one year' time can then be calculated:
=-pv(rate,nper,pmt,fv)
The variables in the formula are as above except for nper which would reduce by 1 in a year's time
=-pv(10.79%,14,79,1000)
pv=$ 795.97
Hence the capital gain=price now-price one year ago/price one year ago
price now is $795.97
price one year ago was $790
Capital gain=$795.97-$790=$5.97
Capital gain %= ($795.97-$790)/$790=0.76%
The approximate capital gain of this bond over the next year would be $290.
Explanation:The approximate capital gain of this bond over the next year can be calculated by finding the difference between the current market price and the final expected value of the bond. In this case, the current market price is $790 and the final expected value is $1,080. So, the approximate capital gain will be $1,080 - $790 = $290.
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Two investment centers at Marshman Corporation have the following current-year income and asset data:
Investment Center A Investment Center B
Investment center income $540,000 $650,000
Investment center average invested assets $4,900,000 $3,200,000
The return on investment (ROI) for Investment Center A is:
A. 828.30%
B. 29.10%
C. 11.02%
D. 49.20
E. 24.10
Answer:
11.02%
Explanation:
ROI=Net profit on investment/total investment engaged =$540,000/$4,900,000=11.02%
As the invested assets are $4,900,000 and amount earned on such assets is $540,000, therefore we can easily worked out returned earned on investment center A.
Answer:
Option C is correct
ROI = 11.02%
Explanation:
Return on Investment is the proportion of operating assets that an investment centre earned as as net operating income.
It is calculated as follows
ROI = operating income/operating assets
ROI for Investment centre A
= (540,000/4,900,00) × 100
= 11.02%
announced today that it will begin paying annual dividends next year. The first dividend will be $0.10 a share. The following dividends will be $0.15, $0.20, $0.50, and $0.60 a share annually for the following 4 years, respectively. After that, dividends are projected to increase by 5 percent per year. How much are you willing to pay to buy one share of this stock today if your desired rate of return is 9.5 percent
Answer:
The maximum that should be paid for the stock today is $9.99
Explanation:
The price of the stock today can be calculated using the dividend discount model or DDM which values a stock based on the present value of the expected future dividends of the stock. The price of the stock today is,
P0 = 0.10 / (1+0.095) + 0.15 / (1+0.095)^2 + 0.20 / (1+0.095)^3 +
0.50 / (1+0.095)^4 + 0.60 / (1+0.095)^5 + [ (0.60 * (1+0.05) / (0.095 - 0.05)) / (1+0.095)^5 ]
P0 = $9.99
Take It All Away has a cost of equity of 10.54 percent, a pretax cost of debt of 5.27 percent, and a tax rate of 35 percent. The company's capital structure consists of 68 percent debt on a book value basis, but debt is 28 percent of the company's value on a market value basis. What is the company's WACC?
Final answer:
The company's WACC is 7.59% based on the given information.
Explanation:
To calculate the Weighted Average Cost of Capital (WACC) for the company, we need to consider the weights of both debt and equity in the capital structure. First, we need to calculate the weights based on market value:
Debt weight = 28% (Given)Equity weight = 100% - Debt weight = 100% - 28% = 72%Next, we can calculate the cost of capital for both debt and equity:
Cost of equity = 10.54%Cost of debt = 5.27% * (1 - Tax rate) = 5.27% * (1 - 0.35) = 3.42%Finally, we can calculate the WACC using the weighted average of the cost of debt and equity:
WACC = (Equity weight * Cost of equity) + (Debt weight * Cost of debt) = (72% * 10.54%) + (28% * 3.42%) = 7.59%Bed & Bath, a retailing company, has two departments—Hardware and Linens. The company’s most recent monthly contribution format income statement follows: Department Total Hardware Linens Sales $ 4,000,000 $ 3,000,000 $ 1,000,000 Variable expenses 1,300,000 900,000 400,000 Contribution margin 2,700,000 2,100,000 600,000 Fixed expenses 2,200,000 1,400,000 800,000 Net operating income (loss) $ 500,000 $ 700,000 $ (200,000 ) A study indicates that $340,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 10% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department?
Answer:
Total financial disadvantage from closing of Linens Depart. $ (350,000)
Explanation:
Computations for financial impact of discontinuing Linens Department
Positive impact of loss of discontinued Linens Department $ 200,000
Negative impact of sunk costs Linens Department $ (340,000)
Impact of 10 % reduction in sales and contribution margin of
Hardware Department ( $ 2,100,000 * 10 %) $ (210,000
Total financial disadvantage from closing of Linens Depart. $ (350,000)
The financial advantage (disadvantage) of discontinuing the Linens Department is $350,000.
Contribution margin lost if the Linens Department is dropped:
Lost from the Linens Department $600,000
Lost from the Hardware Department $210,000
(10% × $2,100,000)
Total lost contribution margin $810,000
($600,000+$210,000)
Less fixed costs that can be avoided $460,000
($800,000 – $340,000)
Decrease in profits for the company as a whole $350,000
($810,000-$460,000)
Inconclusion the financial advantage (disadvantage) of discontinuing the Linens Department is $350,000.
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Elin wants to retire in 20 years when she turns 60. Elin wants to have enough money to replace 120% of her current income less what she expects to receive from Social Security. She expects to receive $20,000 per year from Social Security in today's dollars. Elin is conservative and wants to assume a 5% annual investment rate of return and assumes that inflation will be 3% per year. Based on her family history, Elin expects that she will live to be 95 years old. If Elin currently earns $100,000 per year and expects her raises to equal the inflation rate, approximately how much does she need at retirement to fulfill her retirement goals
Answer:
She needs :$4,045,303 for her retirement
Explanation.
Total all expenses and earnings
In December 2016, Custom Mfg. established its predetermined overhead rate for jobs produced during 2017 by using the following cost predictions: overhead costs, $680,000, and direct materials costs, $400,000. At year-end 2017, the company’s records show that actual overhead costs for the year are $897,200. Actual direct material cost had been assigned to jobs as follows.
Jobs completed and sold $ 420,000 Jobs in finished goods inventory 76,000 Jobs in work in process inventory 53,000 Total actual direct materials cost $ 549,000 Determine the predetermined overhead rate for 2017.
Answer:
POAR= 170% of the direct material cost.
Explanation:
Explanation:
The predetermined overhead absorption rate (POAR: The overhead absorption is a rate which is used to charge overheads to production units. Note that this rate is computed using estimated figures
The rate is computed as follows:
Predetermined overhead absorption rate
POAR
= (Budgeted overhead for the period/Budgeted direct material cost)× 100
= $680,000/400,00 × 100
= 170% of the direct material cost.
Surreal Corp. has borrowed to invest in a project. The loan calls for a payment of $17,500 every month for three years. The lender quoted Surreal a rate of 8.40 percent with monthly compounding. At what rate would you discount the payments to find amount borrowed by Surreal Corp.
Answer:
The rate at which to discount the payments to find sum borrowed is 12.68%
Explanation:
The discount rate to be used in computing the sum borrowed can e derived from the effective annual rate formula below:
Effective annual rate = (1 + Quoted interest rate/m)^m - 1
quoted interest rate is 8.40
m is the number of months in a year when compounding is done which is 12
effective annual rate=(1+8.40%/12)^12-1
effective annual rate=(1+0.01)^12-1
effective annual rate=(1.01)^12-1
effective annual rate=1.12682503 -1
effective annual rate=0.12682503=12.68%
Final answer:
The discount rate used to calculate the present value of Surreal Corp's loan payments, based on a quoted interest rate of 8.40 percent with monthly compounding, is the monthly equivalent of this annual rate, which is 0.7%.
Explanation:
The question asks at what rate the payments should be discounted to find the amount borrowed by Surreal Corp. Given that the loan has a quoted rate of 8.40 percent with monthly compounding, the discount rate to find the present value of the loan payments is simply this quoted interest rate. The monthly interest rate is central to computing the present value of an annuity, which in this case, is the series of $17,500 payments made every month for three years. Using the formula for the present value of an annuity, we would use the monthly interest rate derived from the annual rate of 8.40%, which is 0.7% (0.084/12).
Javier is retiring from the JKL Partnership. In January of the current year, he has a $100,000 basis in his partnership interest when he receives a $10,000 cash distribution. The partnership plans to distribute $10,000 each month this year, and Javier will cease to be a partner after the December payment. Is the January payment to Javier a current distribution or a liquidating distribution?
Answer:
The payments are all part of a LIQUIDATING DISTRIBUTION
Explanation:
The payments are all part of a LIQUIDATING DISTRIBUTION and not current distribution because a liquidation distribution can said to be a single distribution or one of a planned series of distributions that terminates a partner's entire interest in the partnership while Current distributions can be said to be all other distributions thay include those that reduce or decrease a partner's interest in the partnership.
Therefore in accordance with the liquidation, distribution laws Javier would have to recognize a gain or profit of $20,000 at the end of the year so to the fact that he only had $100,000 basis but is receiving $120,000 (12*10000).
Thus the partnership will not have to recognize a gain or a loss according to the information provided.
Answer: Liquidating distribution
Explanation:
A Liquidating distribution refers to when a company completely terminates the partnership of one of its partners by issuing a distribution that covers the basis of the Partners Capital. In other words, the entire amount of the Shareholders equity is distributed.
Javier was paid the liquidating Distribution knowing that he would leave the company after the last payment.
It is worthy of note that if the Distribution exceeds the amount of the partner's basis which in this case is $100,000, that constitutes a gain on their part. Javier therefore is making a gain.
Consider two single-malt whiskey distillers, Laphroaig and Knockando. If they advertise, they can both sell more whiskey and increase their revenue. However, the cost of advertising more than offsets the increased revenue so that each distiller ends up with a lower profit than if they do not advertise. On the other hand, if only one advertises, that distiller increases its market share and also its profit.
a. Construct a payoff matrix using the following hypothetical information: If neither distiller advertises, each earns a profit of $35 million per year. If both advertise, each earns a profit of $20 million per year. If one advertises and the other does not, the distiller who advertises earns a profit of $50 million and the distiller who does not advertise earns a profit of $9 million.
b. If Laphroaig wants to maximize profit, will it advertise? Briefly explain.
c. If Knockando wants to maximize profit, will it advertise? Briefly explain.
d. Is there a dominant strategy for each distiller? Briefly explain.
Answer:
a) Advertising Not advertising
Advertising $20 million, $20 million $50 million, $9 million
Not Advertising $9 million, $50 million $35 million, $35 million
b) If Laphroaig wants to maximize profit, it will advertise only when Knockando does not advertise.
c) If Knockando wants to maximize profit, it will advertise only when Laphroaig does not advertise.
e) No, there is no dominant strategy for each distiller.
Explanation:
a) A payoff matrix is a visual representation of all the possible strategies and all of the possible outcomes. Below is the payoff matrix for the distillers:
Advertising Not advertising
Advertising $20 million, $20 million $50 million, $9 million
Not Advertising $9 million, $50 million $35 million, $35 million
b) If Knockando does not advertise then Laphroaig gets $50 millions of profit if Laphroaig advertises. If Knockando does not advertise and Laphroaig does not advertise then Laphroaig will get only $35 million. If both do advertise, they both get $20 million. If Knockando does advertise and Laphroaig does not advertise then Laphroaig earns a profit of $9 million. If Laphroaig wants to maximize profit, it will advertise only when Knockando does not advertise.
c) Same conditions as in b) Therefore, If Knockando wants to maximize profit, it will advertise only when Laphroaig does not advertise.
d) No, there is no dominant strategy for each distiller. If the two distillers agree to coordinate their strategy means both of them can decide not to advertise to earn a profit of $35 million per year each which is better than when both advertise.
A payout matrix is a table in which one player's strategies are written in rows and the other player's strategies are listed in columns, and the cell represents payoffs to each player.
a) A payoff matrix is a visual representation of all the possible strategies and all of the possible outcomes. Below is the payoff matrix for the distillers:
Advertising Not advertising
Advertising $20 million, $20 million $50 million, $9 million
Not Advertising $9 million, $50 million $35 million, $35 million
b) If Knockando does not advertise then Laphroaig gets $50 millions of profit if Laphroaig advertises. If Knockando does not advertise and Laphroaig does not advertise then Laphroaig will get only $35 million. If both do advertise, they both get $20 million. If Knockando does advertise and Laphroaig does not advertise then Laphroaig earns a profit of $9 million. If Laphroaig wants to maximize profit, it will advertise only when Knockando does not advertise.
c) Same conditions as in b) Therefore, If Knockando wants to maximize profit, it will advertise only when Laphroaig does not advertise.
d) No, there is no dominant strategy for each distiller. If the two distillers agree to coordinate their strategy means both of them can decide not to advertise to earn a profit of $35 million per year each which is better than when both advertise.r
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Pharoah Co. leased equipment to Union Co. on July 1, 2021, and properly recorded the sales-type lease at $133000, the present value of the lease payments discounted at 9%. The first of eight annual lease payments of $20000 due at the beginning of each year of the lease term was received and recorded on July 3, 2021. Pharoah had purchased the equipment for $114000. What amount of interest revenue from the lease should Pharoah report in its 2021 income statement?
Answer:
$5,085
Explanation:
Assets is leased on 9% per year interest, $20,000 lease payment include the interest income and the principal payment of the leased asset. We have to calculate the interest value first and the remainder is settled for the principal value.
Total Lease Value = $133,000
Advance lease payment on July 1, 2021 = $20,000
Amount Due on December 31, 2021 = $133,000 - $20,000 = $113,000
Only 6 month are passed after asset leased, 6 month of the interest revenue will be recognized on December 2021
Interest revenue recognized = $113,000 x 9% x 6/12 = $5,085
Beridze Manufacturing expects to produce 2900 units in January and 3100 units in February. Beridze budgets $35 per unit for direct materials. The amount of indirect materials needed for production has been determined to be insignificant and will therefore not be considered in the calculation. The balance in the Raw Materials Inventory account (all direct materials) on January 1 is $37,550. Beridze desires the ending balance in Raw Materials Inventory to be 20% of the next month's direct materials needed for production. Desired ending balance for February is $50,400. What is the cost of budgeted purchases of direct materials needed for January
Answer:
The cost of budgeted purchases of direct materials needed for January is $85,650
Explanation:
Direct materials needed to produce in February = 3,100 x $35 = $108,500
Ending balance for February is $50,400
Ending Raw Materials Inventory balance for January = Beginning Raw Materials Inventory balance for February = 20% x $108,500 = $21,700
Direct materials needed to produce in January = 2,900 x $35 = $101,500
The cost of budgeted purchases of direct materials needed for January = Direct materials needed to produce in January + Ending Raw Materials Inventory balance for January - Beginning Raw Materials Inventory balance for January = $101,500 + $21,700 - $37,550 = $85,650
Lockeran Co. has the following projected sales, costs, net investment and free cash flows in millions. The anticipated growth rate in free cash flows after year 6 is 3% per year forever. there are 3 million shares outstanding and investors require a return of 8% on the company's stock. Using the constant growth model to find the terminal value, calculate the price of the company's stock.
Answer:
$278.75 per stock
Explanation:
FCF1 = $31.17 million
FCF2 = $35.54 million
FCF3 = $39.80 million
FCF4 = $43.78 million
FCF5 = $47.27 million
FCF6 = $50.11 million
since the FCF6 will grow at a constant 3% rate forever, then we can use the constant growth model to determine the price of the company at year 6, then we must discount it along with the rest of the cash flows:
company's value = ($50.11 x 1.03) / (8% - 3%) = $1,032.27 million
now we can discount the FCFs:
$31.17/1.08 + $35.54/1.08² + $39.80/1.08³ + $43.78/1.08⁴ + $47.27/1.08⁵ + $50.11/1.08⁶ + $1,032.27/1.08⁶ = $28.86 + $29.37 + $31.59 + $32.18 + $32.17 + $31.58 + $650.51 = $836.26 million
price per stock = $836.26 million / 3 million stocks = $278.75 per stock