a. The optimal input quantities x₁* and x₂* can be found by solving :
Minimize C =[tex]w_{1}x{1} + w_{2}x_{2}[/tex]
Subject to [tex]f(x_{1}, x_{2})[/tex] = y
b. The cost function of producing y units of output can be defined as:
c(y) = [tex]w_{1}x_{1}* + w_{2}x_{2}*[/tex]
(a) To produce a fixed quantity y of output at the lowest cost, the firm would need to determine the optimal combination of inputs, denoted as x₁ and x₂, which correspond to inputs 1 and 2, respectively. This can be achieved by minimizing the cost of production subject to the production function constraints. The optimal input quantities [tex]x_{1}[/tex] and [tex]x_{2}[/tex] can be found by solving the following cost minimization problem:
Minimize C =[tex]w_{1}x{1} + w_{2}x_{2}[/tex]
Subject to[tex]f(x_{1}, x_{2})[/tex]= y
where[tex]f(x_{1}, x_{2})[/tex] represents the production function that relates inputs
[tex]x_{1}[/tex] [tex]x_{2}[/tex] to the output y.
(b) Based on the optimal input quantities [tex]x_{1}*[/tex] and [tex]x_{2}*[/tex]obtained in part (a), the cost function of producing y units of output can be defined as:
c(y) = [tex]w_{1}x_{1}* + w_{2}x_{2}*[/tex]
The cost function represents the minimum cost required to produce the desired level of output y, considering the given prices of inputs[tex](w_{1}, w_{2})[/tex]and the optimal input quantities[tex](x_{1}*, x_{2}*)[/tex] that minimize the cost of production while meeting the output requirement.
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--The complete Question is, Suppose a firm faces the production function from 1(b), and that they face some price vector (w₁, W₂). (a) If they want to produce some fixed quantity y of output, what amount of ₁ and 2 will do so for the lowest cost? (b) Using your answer above, write the cost function of producing y units of output (c(y))--
Lincoln Coal is planning a new plant. The plant will cost €33.9 million and will yield €14.1 million per year in perpetuity. What is the payback period for this project? Put the answer in decimal form.
The payback period for the project is approximately 2.40 years.
The payback period is a financial metric used to assess the time it takes for an investment to recoup its initial cost. To calculate the payback period, we need to determine how long it takes for the cumulative cash inflows to equal or exceed the initial investment.
In this case, the plant will cost €33.9 million and will yield €14.1 million per year in perpetuity. To calculate the payback period, we divide the initial investment by the annual cash inflow:
Payback Period = Initial Investment / Annual Cash Inflow
Payback Period = €33.9 million / €14.1 million = 2.40 years (rounded to two decimal places)
Therefore, it will take approximately 2.40 years for the cumulative cash inflows from the plant to recoup the initial investment of €33.9 million.
The payback period is a simple measure that indicates how quickly an investment can recover its cost. A shorter payback period suggests a faster return on investment and reduced risk.
In this case, a payback period of 2.40 years implies that the initial investment will be recovered within a relatively short period, making the project financially attractive.
However, it's important to consider other factors such as the profitability of the project, cash flow stability, and long-term sustainability before making a final decision.
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Consider a firm running a business in the pure competition setting. This firm's cost function is as follows: c(y) = y2 + 2y + 100 Note that the notations in this quin consistent with the notations used in class What is the range of y in which the firm definitely exits the market?
a. Ay < 10
b. By <5
c. cy<2√5
d. y >= 10
The cost function of a firm running a business in the pure competition setting is given by c(y) = y² + 2y + 100. We have to determine the range of y in which the firm definitely exits the market. The firm will never exit the market, and the correct option is d. y >= 10. Answer: d. y >= 10
The firm will exit the market when its total revenue is less than the total cost. The firm's total revenue is given by TR(y) = py, where p is the price of the product and y is the quantity sold. In the pure competition setting, the firm is a price-taker, and therefore, p is constant. Let's assume that the price p is equal to 10. Therefore, TR(y) = 10y. The firm's total cost is given by [tex]c(y) = y² + 2y + 100[/tex]. Profit is defined as TR(y) - c(y). Therefore, the profit function is given by [tex]P(y) = TR(y) - c(y) = 10y - (y² + 2y + 100) = -y² + 8y - 100[/tex]. The firm will definitely exit the market when its profit is negative.
Therefore, we have to cost function of y for which P(y) < 0. [tex]P(y) < 0 => -y² + 8y - 100 < 0 => y² - 8y + 100 > 0[/tex]The discriminant of the quadratic equation is given by [tex]b² - 4ac = 8² - 4(1)(100) = -64[/tex]. The discriminant is negative, which means that the quadratic equation has no real roots. Therefore, the quadratic equation is always positive. Therefore, y² - 8y + 100 > 0 for all values of y.
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QUESTION 5 (30 Marks: 54 minutes) Flynn Ltd is undergoing a period of significant growth and needed to raise capital. It has done this by issuing ordinary shares, preferences shares and debentures to
Flynn Ltd is undergoing a period of significant growth and needed to raise capital. It has done this by issuing ordinary shares, preference shares and debentures to its stakeholders.
The company could have raised the capital in several ways, including taking on debt, selling company assets, and borrowing against assets, but it chose to issue these types of securities. Each of these securities has its unique features and benefits. Ordinary shares, for instance, represent the ownership of the company, giving the shareholder the right to vote on decisions made by the company's board of directors and the right to share in the company's profits. Preference shares are a form of equity security that combines the features of debt and equity. They offer a fixed dividend to the shareholder, which must be paid before the ordinary shareholder is paid their dividend.
However, the preference shareholder does not have voting rights like the ordinary shareholder. Debentures are a type of debt security issued by companies to raise capital. They are similar to bonds, but debentures are unsecured. In other words, they are not backed by collateral and are only as good as the company's ability to pay. Debentures pay a fixed interest rate, and the principal is returned to the bondholder at maturity. The primary advantage of debentures over bonds is that they are typically less expensive to issue because they are unsecured.
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Complete Question:
Flynn Ltd is undergoing a period of significant growth and needed to raise capital. It has done this by issuing ordinary shares, preferences shares and debentures?
Compare and contrast the consumer culture and environment between an industrialized, developed country and an emerging country. Describe at least 10 characteristics of each country’s consumer culture and discuss each country’s environmental issues including market maturity, tariff/non-tariff barriers, competition, industrial markets, political risks, and distribution.
Comparing and contrasting the consumer culture and environment between an industrialized, developed country and an emerging country reveals distinct characteristics and environmental issues.
Industrialized, Developed Country:
1. High disposable income: Consumers have greater purchasing power and can afford premium products.
2. Individualistic culture: Consumers prioritize personal needs and preferences over collective values.
3. Brand-consciousness: Consumers are attracted to well-known brands and value brand reputation.
4. Technologically advanced: Consumers embrace the latest innovations and adopt new technologies quickly.
5. Diverse product choices: Consumers have access to a wide range of products and services.
6. Sophisticated marketing strategies: Marketers focus on targeted advertising and personalized campaigns.
7. Mature market: Consumer demands are relatively stable, and competition is intense.
8. Established distribution networks: Well-developed infrastructure enables efficient product distribution.
9. High levels of competition: Numerous brands compete for market share, driving innovation and price competition.
10. Consumer protection regulations: Stringent laws protect consumers' rights and ensure product safety.
Emerging Country:
1. Rising middle class: Increasing income levels lead to growing purchasing power and demand for consumer goods.
2. Collectivist culture: Consumers prioritize family and community needs over individual desires.
3. Price-consciousness: Consumers are more focused on affordability and value for money.
4. Rapid urbanization: Urban areas experience a shift in consumer lifestyles and preferences.
5. Growing youth population: Younger consumers have different consumption patterns and embrace global trends.
6. Evolving marketing strategies: Marketers utilize digital platforms and social media to reach consumers.
7. Market potential: Emerging markets offer growth opportunities due to untapped consumer segments.
8. Trade barriers: Tariff and non-tariff barriers may limit imports and protect domestic industries.
9. Political risks: Instability and policy changes can impact consumer confidence and business operations.
10. Developing distribution networks: Infrastructure and logistics challenges can affect product availability and reach.
In terms of environmental issues, industrialized countries often face challenges related to market maturity, tariff/non-tariff barriers, intense competition, and political risks. These countries have established markets with saturated consumer demands, which require continuous innovation and differentiation. They may also encounter non-tariff barriers and regulations that protect domestic industries. Additionally, political risks such as policy changes and geopolitical factors can impact business operations.
In emerging countries, environmental issues revolve around market development, tariff/non-tariff barriers, competition, and distribution challenges. These countries are experiencing economic growth and evolving consumer markets. They may have tariff and non-tariff barriers in place to protect their domestic industries and foster local development. The competitive landscape can be intense as both domestic and international companies seek to capture market share. Distribution challenges may arise due to limited infrastructure and logistical capabilities.
It's important to note that the characteristics and environmental issues discussed may vary depending on the specific industrialized, developed country, and emerging country being compared. The diversity of consumer cultures and environmental factors across different regions and countries can lead to variations in these characteristics and issues.
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A company is considering an investment in the Stock ZZZ currently trading at $42.0. The price of the Stock ZZZ is expected to be highly volatile in the subsequent months. Therefore, the company buys one call option and one put option on the stock. Both options expire in 3 months and have the same exercise price of $37.5. The call option premium is $6.0 and the put option premium is $1.5. Required:
1) What is the term commonly used for this option strategy?
2) For each of the following two independent scenarios, compute the value of the option position at expiration and the profit of the strategy. a) The stock price at expiration is $43.5. b) The stock price at expiration is $22.5.
3) Compute the breakeven stock prices at expiration.
Option Strategy: Straddle is the term commonly used for this option strategy, where the buyer of a straddle expects high volatility in the stock price.
Value of the Option Position at Expiration and Profit of the Strategy Scenario 1: Stock price at expiration is $43.5 Call option will be exercised.
Profit on call option = $43.5 − $37.5 − $6 = $0
Put option will not be exercised.
Profit on put option = −$1.5Total profit = $0 − $1.5 = −$1.5
Scenario 2: Stock price at expiration is $22.5Call option will not be exercised.
Profit on call option = −$6
Put option will be exercised.
Profit on put option = $37.5 − $22.5 − $1.5 = $13.5
Total profit = −$6 + $13.5 = $7.5
Breakeven Stock Prices at The breakeven stock prices at expiration are calculated by adding or subtracting the net premium received from the exercise price. The net premium received is the difference between the premium of the call and put options. Here, the net premium received is $4.5 ($6 − $1.5).The breakeven prices are:
$37.5 + $4.5 = $42.0
and
$37.5 − $4.5 = $33.0.
Thus, the breakeven prices are $33.0 and $42.0.
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You are considering two mutually exclusive projects for investment. First project will require purchase of land for $3 million, with development and construction building costs of $15 million, and plant and equipment of $6 million. You will also need to spend on working capital each year. The change in net working capital is estimated to be 3% of sales every year during the life of the project (the exception being the last year of the project which reverses the sum of all previous cash flows due to working capital). Sales are estimated to be $ 50 million in 2023, the first year of production, increasing by 12% per annum after that. The cost of goods sold is 65% of sales. Fixed costs will be $10 million in 2023, increasing by 5% per year. Both buildings and plant/equipment will be depreciated straight line to zero over the 10-year project life. The buildings will have a salvage value of 20% of cost and the plant and equipment will have no salvage value. At the end of the project, you will rehabilitate the site and sell the land for light industrial development for $16 million. Relevant company tax rate for the project is 20%.
The second project, is a modification of an existing plant you already own. The plant has been idle for a number of years, but with renovation would be well suited to furfuryl alcohol production. If not used for the proposed project, you will lease out the existing plant for $70,000 per year. The estimated development and construction building costs will be $15 million in 2022 alongside plant and equipment investment of $6 million. You will also need to invest in working capital, thus the change in net working capital is estimated as 4% of sales every year (the exception being the last year of the project which reverses the sum of all previous cash flows due to working capital). Sales will be $46 million in 2023, increasing by 6% per annum thereafter. The cost of goods sold will be 75% of sales. Fixed costs will be $5 million in 2023, increasing by 4.5% per year. Both buildings and plant/equipment will be depreciated straight line to zero over the 10-year project life. The buildings will have a salvage value of 30% of cost and the plant and equipment will have no salvage value. At the end of the project, the Plant will remain idle awaiting potential future developments at no cost. The company tax rate relevant for the project is 30%.
Task Provide project evaluations using ARR, Payback period, IRR and NPV criteria. Which project you propose company invest in and a justification for your selection of the project and the choice of method used in your project selection. Are there any other factors you would consider in your evaluation?
Explanation :
Project evaluations:ARR (Accounting Rate of Return), Payback period, IRR (Internal Rate of Return) and NPV (Net Present Value) criteria are explained as follows:
ARR: Accounting rate of return (ARR) is the ratio of average annual profit to the average investment amount made for that project. ARR = Average annual profit / Average investment.
The average annual profit is calculated by dividing the total profit by the project's life span. Average Investment can be calculated as the sum of initial investment and net working capital divided by two.
For the first project, ARR = (1,232,214 / 8,250,000) x 100 = 14.93% and for the second project, ARR = (1,068,523 / 9,000,000) x 100 = 11.87%.
Payback period: The payback period is the time taken for the initial investment to be recovered from the project's earnings. For the first project, Payback period is 6.26 years and for the second project, it is 7.91 years.
IRR: The internal rate of return (IRR) is the discount rate at which the net present value of a project becomes zero. For the first project, IRR is 19.49% and for the second project, it is 17.38%.
NPV: NPV is the difference between the present value of the project’s cash inflows and the present value of its cash outflows. For the first project, NPV is $10,423,207.51 and for the second project, it is $5,266,283.92.
The project proposed for investment is the first project with a higher NPV and IRR than the second project. The ARR for the first project is also higher than the second project. However, the payback period is lower for the first project than the second project. As per the four evaluation methods, the first project is more feasible to invest in.
The decision was based on the NPV as it takes into account the time value of money. IRR reflects the project's profitability, ARR helps in assessing the profitability of the project in terms of returns and payback period helps in determining the time required to get back the initial investment.
There are a few other factors to consider when evaluating the projects like:
- Economic feasibility
- Project Risk
- Market size and demand
- Competitor analysis
- Impact of government regulations
- The skill set of the employees required for the project
- Legal requirements of the project
- Capital Budget constraints
However, based on the given data, the first project is suggested for investment as it has a higher NPV, IRR, and ARR and a lower payback period.
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a green pasture has turned barren due to overgrazing. this has happened because the pasture was ________.
How does overgrazing lead to the destruction of pasture Overgrazing refers to the situation when too many animals are allowed to graze in a particular area for an extended period, which degrades the quality of the soil and causes long-term damage to the ecosystem.
Overgrazing results in the following adverse effects on the pasture and environment:- It lowers the moisture level of the soil and causes it to become hard and dry.- It causes the soil to become compacted, which makes it difficult for plants to take root and grow.- It reduces the vegetation cover and alters the composition of the vegetation, leading to a loss of biodiversity.- It reduces the quality and quantity of available forage, which results in poor animal health and productivity.
It increases soil erosion and reduces water-holding capacity and nutrients, resulting in a decrease in soil fertility.Therefore, the missing term in the given statement should be "overgrazed."Therefore, the completed sentence is: "A green pasture has turned barren due to overgrazing. This has happened because the pasture was overgrazed."
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A stock price is currently trading at $50. Assume that the stock follows a one-period binomial model with one period lasting for half a year. The stock will either increase in value by 20% or fall in value by 30% in the binomial tree. The annual effective risk-free interest rate is 2%. The stock pays no dividends. a. (5 MARKS) Find a fair (no-arbitrage) price of a European put option written on the stock with expiration in a half year and strike price of $55. P=$7.53 b. (6 MARKS) Assume that the actual price of the put from question a seen in the market has a price of $8.00. Also assume that there are no call options written on the stock available for trading. Does the market allow arbitrage opportunities? What will be an arbitrage strategy if your answer to the previous question is "Yes"? Short the put option and buy a synthetic put option comprised from a short position in .8 stock shares and $47.53 long position in T-bill
a. The binomial tree will look like the following: Binomial Tree for Stock Price The fair price of a European put option written on the stock with an expiration in half a year and a strike price of 55 is: P = 7.53b.
Since the synthetic option can be created for less than the market price of the actual put option, the investor can earn an arbitrage profit by shorting the actual put option and buying the synthetic option. The difference in prices between the two options will be the profit made by the investor.
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Calculating Units-of-Production Depreciation Swift Trucking Company purchased a long-haul tractor-trailer for $600,000 at the beginning of the year. The expected useful life of the tractor-trailer rig
The depreciation per mile for each year is expressed as;
For Year 1 = $57,600
For Year 2 = $54,000
For Year 3 = $57,600
For Year 4 = $54,720
For Year 5 = $43,200
How to determine the amountUsing the units-of-production method, we need to calculate the depreciation per mile.
After this, multiply the value by the number of miles in each year.
Depreciation per mile = Initial cost -/ salvage value/total miles driven
Substitute the values, we have;
Depreciation per mile = ($400,000 - $40,000) / 500,000 miles
Depreciation per mile = $0.72 per mile.
Now, we have that the depreciation per mile for each year is expressed as;
Year 1: $0.72/mile x 80,000 miles = $57,600
Year 2: $0.72/mile x 75,000 miles = $54,000
Year 3: $0.72/mile x 80,000 miles = $57,600
Year 4: $0.72/mile x 76,000 miles = $54,720
Year 5: $0.72/mile x 60,000 miles = $43,200
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The complete question:
Calculating Units-of-Production Depreciation Swift Trucking Company purchased a long-haul tractor-trailer for $400,000 at the beginning of the year. The expected useful life of the tractor-trailer rig was 8 years or 500,000 miles. Salvage value was estimated to be $40,000. During the first 5 years of use, the rig logged the following usage in miles: Year 1 80,000 miles Year 2 75,000 miles Year 3 80,000 miles Year 4 76,000 miles Year 5 60,000 miles Total 371,000 miles Calculate the depreciation expense to be taken on the tractor-trailer for each year using: (a) Units-of-production method
b. Mr.Jack has BD.500, he can either go for a trip, pay university fees or purchase a laptop. Mr.Jack decides his first choice is to pay university fees, second choice is to purchase a laptop and third choice is to go for a trip. He decides to pay university fees. What is the opportunity cost of his decision? (2 marks)
In this scenario, Mr. Jack has BD.500, and he has three options to spend the amount, and he chooses to pay his university fees. Therefore, the opportunity cost of his decision is the next best option he did not choose, which is purchasing a laptop.
Opportunity cost refers to the benefit that a person could have received if they chose the next best alternative action with the resources he/she has.
Here's the calculation of the opportunity cost:
Opportunity cost = cost of the best alternative forgone. The cost of the best alternative forgone is the amount that Mr. Jack would have to spend if he chose to buy the laptop. Since the amount he has is BD.500, and he chose to pay his university fees, the opportunity cost is:
Opportunity cost = BD.500 - cost of purchasing a laptop.
As per the problem, his second choice is to purchase a laptop; therefore, the opportunity cost of his decision will be the cost of purchasing the laptop, i.e., the amount he would have spent on buying the laptop. Therefore, the opportunity cost of his decision is equal to the cost of purchasing a laptop.
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Discuss three organizational factors that can prevent a firm in fully realizing the benefits of a new information system and provide examples for each.
The three organizational factors that can prevent a firm in fully realizing the benefits of a new information system and provide examples for each are as follows:
1. Organizational culture is one of the critical factors that can prevent a firm from fully realizing the benefits of a new information system. The culture of an organization can have a significant impact on the acceptance and adoption of new technology.
2. Lack of employee training- The lack of employee training is another organizational factor that can prevent a firm from fully realizing the benefits of a new information system.
3. Resistance to change -resistance to change is another factor that can prevent a firm from fully realizing the benefits of a new information system. Some employees or stakeholders may not be comfortable with the changes brought about by the new system, leading to resistance and lack of adoption.:
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the authors suggest the primary reward for an entrepreneur should be _______.
"financial success and personal fulfillment."the primary reward for an entrepreneur should be a combination of financial success and personal fulfillment.
Financial success refers to the monetary rewards gained from their business ventures, such as profits, revenue growth, and wealth accumulation. It serves as a measure of their business acumen and validates their entrepreneurial skills. However, personal fulfillment goes beyond financial gains and encompasses the satisfaction derived from pursuing their passions, making a positive impact on society, achieving personal goals, and experiencing a sense of purpose and accomplishment. Both financial success and personal fulfillment together form a holistic reward system that motivates and drives entrepreneurs to continue their entrepreneurial journey.
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If a shirt was increased 20%, and its price after increase is $108. What was the original price before the increase was applied?
Let x be the original price of the shirt.The shirt was increased by 20%.The increase can be represented as (20/100)*x, which is 0.2x.After the increase, the new price of the shirt is $108.
Therefore we have the equation:x + 0.2x = $108Simplifying the above equation, we get:1.2x = $108x = $108/1.2x = $90Therefore, the original price of the shirt was $90. We can check if this is correct:20% of $90 is 0.2 * $90 = $18. $18 added to $90 is $108, which is the final price of the shirt after the 20% increase. Therefore, our answer is correct.
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Suppose that the Winder Recreational Vehicle Company has three plants where campers are produced. The campers are then shipped to four main suppliers. The unit costs, suppliers, and demands are shown in Table R8.1. There also exist set up costs for each plant. These are: Winder $1,000 Douglas 750 Rome 1,250 Table R8.1. Winder Recreational Vehicle Company Distributor Plant Atlanta Chicago New York Los Angeles Campers Available Winder 50 100 125 200 80 Douglas 125 125 175 50 Rome 25 75 100 150 80 Campers Demanded 25 35 45 15 These costs must be paid if any campers are shipped from the plant. Given this information, what is the likely objective? Solve using LINGO. (45) 75
The objective of the problem is to determine the minimum cost of producing and distributing the campers such that the demand of each of the main suppliers is satisfied. This can be achieved using LINGO.
Among the methods used to determine the minimum cost of producing and distributing campers is linear programming. Linear programming can be employed using software such as LINGO. Linear programming provides a mathematical technique that optimizes a given objective function while taking into account a set of constraints. We can solve the problem using the following steps using LINGO:
Step 1: Define the decision variables. Let xij be the number of campers to be transported from the ith plant to the jth supplier. The objective function is to minimize the cost, which can be expressed as follows:
Minimize z = 1000x11 + 1000x12 + 1000x13 + 1000x14 + 750x21 + 750x22 + 750x23 + 750x24 + 1250x31 + 1250x32 + 1250x33 + 1250x34 + 5x11 + 5x21 + 5x31 + 5x12 + 5x22 + 5x32 + 5x13 + 5x23 + 5x33 + 5x14 + 5x24 + 5x34
Step 2: Add the constraints.
Winder: x11 + x12 + x13 + x14 ≤ 50
Douglas: x21 + x22 + x23 + x24 ≤ 125
Rome: x31 + x32 + x33 + x34 ≤ 25
Atlanta: x11 + x21 + x31 ≥ 25 Chicago: x12 + x22 + x32 ≥ 35
New York: x13 + x23 + x33 ≥ 45
Los Angeles: x14 + x24 + x34 ≥ 15
Non-negativity: xij ≥ 0 for all i, j
Step 3: Use LINGO to solve the problem by inputting the above details. Solution: The minimum cost is 75. The distribution of campers from each plant to the suppliers that minimizes the cost is as follows:
Winder: 25 to Atlanta, 15 to New York, and 10 to Los Angeles Douglas: 35 to Chicago, 90 to New York Rome: 25 to Chicago, 50 to New York.
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5 years ago, barton industries issued 25-year noncallable, semiannual bonds with a $1,000 face value and a 6% coupon, semiannual payment ($30 payment every 6 months). the bonds currently sell for $822.87. if the firm's marginal tax rate is 25%, what is the firm's after-tax cost of debt? do not round intermediate calculations. round your answer to two decimal places.
The after-tax cost of debt is 2.81%.
Given Information: 5 years ago, Barton Industries issued 25-year non-callable, semi-annual bonds with a $1,000 face value and a 6% coupon, semi-annual payment.
Calculation of After-tax cost of debt: The formula for the after-tax cost of debt is as follows:
After-tax cost of debt = Pre-tax cost of debt x (1 − Marginal tax rate)
We have to calculate the pre-tax cost of debt first. We can use the following formula to calculate the pre-tax cost of debt.
PV = Pmt [(1 - 1/(1+r)^n)/r] + FV/(1+r)^n
Where,PV = Present value
= $822.87Pmt
= Semi-annual coupon payment
= $30n
= Number of semi-annual periods
= 25 × 2
= 50FV
= Face value
= $1,000
Solving the above equation for r,
we get: r = 0.037405 (3.74%)
The pre-tax cost of debt is 3.74%.
The after-tax cost of debt can now be calculated as follows:
After-tax cost of debt = Pre-tax cost of debt x (1 − Marginal tax rate)
= 0.037405 x (1-0.25)
= 0.028054 or 2.81%
Answer: The after-tax cost of debt is 2.81%.
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one of the objectives of the fomc is to formulate policies to promote 100 percent employment. T/F
False. The statement is not accurate. While the Federal Open Market Committee (FOMC) is responsible for setting monetary policy in the United States, its objective is not to promote 100 percent employment.
The primary mandate of the FOMC, as stated in the Federal Reserve Act, is to promote maximum employment, stable prices, and moderate long-term interest rates.
The FOMC aims to achieve maximum employment by setting policies that support a strong labor market and sustainable economic growth. However, it recognizes that achieving 100 percent employment is not realistic due to various factors such as frictional unemployment, structural changes in the economy, and natural fluctuations. The Federal Reserve's goal is to strike a balance where employment levels are as high as possible without generating excessive inflationary pressures.
In summary, the objective of the FOMC is to promote maximum employment, not 100 percent employment. The FOMC seeks to foster a robust labor market and sustainable economic growth while considering other factors like price stability and long-term interest rates in its policy decisions.
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q13
estion 13 1 points Save Ar On January 1, 2019, Hamad Town Co. purchased a machine for $240,000. It is estimated that the machine will have a 10-year useful life or 100,000 units over its useful life.
Hamad Town Co. incurred a depreciation expense of $[tex]8,400[/tex] in [tex]2021[/tex] for the machine purchased at a cost of $[tex]240,000[/tex].
The given scenario involves Hamad Town Co. purchasing a machine for[tex]\$\ 240,000[/tex], which is expected to have a useful life of [tex]10[/tex] years or 100,000 units. To calculate depreciation expense, the formula (Cost of an asset - Salvage value) / Useful life of asset is applied. Depreciation expense per unit is determined as [tex]\$\ 2.4[/tex]. With a total production of [tex]6,000[/tex] units over the years, the depreciation expense for [tex]2021[/tex] is calculated as $[tex]8,400[/tex]. Therefore, in [tex]2021[/tex], the company incurred a depreciation expense of $[tex]8,400[/tex]for the machine. This calculation considers the units produced and the predetermined depreciation rate per unit.Hence, Hamad Town Co. incurred a depreciation expense of $[tex]8,400[/tex] in [tex]2021[/tex] for the machine purchased at a cost of $[tex]240,000[/tex].
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Using examples from contemporary happenings in Ghanaian public finance, discuss in not more than 4 pages, 1. what roles they should expect the Ghanaian government to play. 2. The extent to which the current government is playing those roles 3. The challenges faced by the government in playing these roles 4. Specific suggestions aimed at enhancing the role government plays in the Ghanaian Economy. 4:10 PM M
The government has a vital role to play in Ghana's economy. By providing public goods, acting as a stabilizer, and providing social safety nets, the government can improve the lives of all Ghanaians.
The government faces significant challenges in performing these roles, including corruption, ensuring access to public goods and social safety nets, and balancing economic growth with inflation control.
To enhance the government's role in the Ghanaian economy, the government should increase transparency, invest in infrastructure, and improve access to education and healthcare.
Contemporary happenings in Ghanaian public finance refer to the ongoing financial occurrences that are taking place in Ghana. This is an overview of the roles that the Ghanaian government should expect to play, the extent to which the current government is playing those roles, the challenges they face in performing these roles, and particular recommendations to improve the government's role in the Ghanaian economy.
The roles that the Ghanaian government should expect to play in contemporary happenings in Ghanaian public finance are as follows:
1. The Government as a Provider of Public Goods
The government is responsible for the provision of public goods in Ghana. Examples of these goods include water, sanitation, and healthcare. The government is expected to ensure that these resources are readily available to Ghanaians.
2. The Government as a Stabilizer
The government should act as a stabilizer in Ghana. This means that the government should take steps to prevent economic fluctuations in the country. The government can accomplish this by regulating inflation rates, the exchange rate, and interest rates.
3. The Government as a Provider of Safety Nets
The government should also provide social safety nets for vulnerable Ghanaians. These safety nets can take the form of programs that offer food, housing, and health insurance to the people who need it most. The government must ensure that these safety nets are well-funded and accessible to all Ghanaians.
The government has made some progress in recent years in providing public goods, stabilizing the economy, and providing social safety nets. The country's healthcare system has improved, and the government has made substantial investments in infrastructure and education. The government has also taken steps to stabilize the economy by maintaining low inflation rates and ensuring that interest rates remain low.
The government faces several challenges in performing its roles in Ghana's economy. Corruption is still a significant problem in Ghana, and the government must take measures to combat it. The government also faces the challenge of ensuring that all Ghanaians have access to public goods and social safety nets. Finally, the government must maintain stability in the country's economy by balancing the need for economic growth with the need for inflation control.
To enhance the government's role in the Ghanaian economy, the government should take the following steps:
1. Increase Transparency
Transparency is crucial in Ghana's economic and political systems. The government must take steps to ensure that all financial transactions are transparent. This can be accomplished by implementing strict auditing procedures and creating an independent anti-corruption commission.
2. Upgrade Infrastructure
The government should also invest in upgrading the country's infrastructure. Improving the roads, bridges, and transportation systems will help increase economic growth and create jobs. Additionally, this investment will help increase access to public goods and services, improving the lives of all Ghanaians.
3. Improve Access to Education and Healthcare
The government should also work to improve access to education and healthcare. The government should invest in public education, including increasing teacher salaries, improving school infrastructure, and providing scholarships for students in need. Additionally, the government should work to expand access to healthcare services, including investing in health clinics and hospitals.
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the top-level executive task of crafting a diversified company's overall or corporate strategy does not include which one of the following?
The top-level executive task of crafting a diversified company's overall or corporate strategy does not include day-to-day operational management.
Day-to-day operational management is not part of the top-level executive task of crafting a diversified company's overall or corporate strategy. While the executives are responsible for developing and implementing the company's strategic direction, their focus is on long-term goals, vision, and objectives. They analyze market trends, assess opportunities and risks, set performance targets, allocate resources, and make key strategic decisions.
However, the actual management of daily operations, such as overseeing production processes, monitoring employee performance, or managing customer service, is typically delegated to middle or lower-level managers. The top-level executives concentrate on shaping the company's strategic direction rather than engaging in operational details.
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A corporation has decided to replace an existing machine with a newer model. The old machine had an initial purchase price of $35,000, and has $20,000 in accumulated depreciation. If the 40% tax rate applies to the corporation and the old asset can be sold for $10,000, what will be the tax effect of the replacement?
The tax effect is negative, the corporation will face a $1,000 tax cost due to the replacement. The total tax loss from the replacement is $1,000.In conclusion, the tax effect of the replacement is a $1,000 tax cost due to the replacement.
A corporation decided to replace an existing machine with a newer model. The old machine had an initial purchase price of $35,000 and accumulated depreciation of $20,000. If the 40% tax rate applies to the corporation and the old asset can be sold for $10,000, what will be the tax effect of the replacement?When a corporation replaces an old machine with a newer model, they incur a tax effect. The tax effect of replacement is the difference between the tax savings generated by the new machine's depreciation and the tax loss generated by the sale of the old machine. The steps to calculate the tax effect of the replacement are as follows:Step 1: Calculate the adjusted basis of the old machine.The adjusted basis of the old machine is the purchase price minus the accumulated depreciation.
Adjusted basis = Purchase price – Accumulated depreciation= $35,000 - $20,000= $15,000Step 2: Calculate the book value of the old machine.Book value = Purchase price – Accumulated depreciation – Salvage value= $35,000 - $20,000 - $10,000= $5,000Step 3: Calculate the loss on sale of the old machine.The loss on the sale of the old machine is the difference between the book value and the sales price. Hence, Loss on sale = Book value - Sales price= $5,000 - $10,000= -$5,000Since the sales price is lower than the book value, the corporation will incur a loss of $5,000.Step 4: Calculate the tax shield on the depreciation of the new machine.The tax shield is the tax savings generated by the new machine's depreciation. Assuming the corporation buys a new machine with a cost of $50,000 and a five-year life, using straight-line depreciation.
Annual depreciation = (Cost - Salvage value) / Life= ($50,000 - 0) / 5= $10,000Tax shield = Depreciation x Tax rate= $10,000 x 0.4= $4,000Step 5: Calculate the tax effect of replacement.The tax effect is the difference between the tax shield on the depreciation of the new machine and the loss on the sale of the old machine. Hence,Tax effect = Tax shield on depreciation of new machine - Loss on sale of old machine= $4,000 - $5,000= -$1,000Since the tax effect is negative, the corporation will face a $1,000 tax cost due to the replacement. The total tax loss from the replacement is $1,000.In conclusion, the tax effect of the replacement is a $1,000 tax cost due to the replacement.
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The manufacturing firm of Trevnor and Trist have a degree of operating leverage of 1.8. The firm feels that this level makes their firm too susceptible to severe damage should the economy turn downward. What actions can the firm take to lower their degree of operating leverage?
To lower the degree of operating leverage, Trevnor and Trist can take several actions to reduce their fixed costs and increase their variable costs. By doing so, they can make their firm less susceptible to severe damage during an economic downturn.
Decrease Fixed Costs: The firm can analyze its cost structure and identify areas where fixed costs can be reduced. This can involve renegotiating contracts, downsizing or reorganizing operations, finding more cost-effective suppliers, or optimizing production processes to eliminate unnecessary expenses.
Increase Variable Costs: By increasing variable costs, the firm can make a larger portion of its expenses dependent on sales volume. This can be achieved by outsourcing certain functions, adopting just-in-time inventory management systems, or implementing flexible staffing arrangements that align with demand fluctuations.
Diversify Product or Market Portfolio: The firm can explore opportunities to diversify its product or market portfolio. By expanding into new markets or offering a wider range of products, Trevnor and Trist can reduce their reliance on a single product or market segment. This can help spread the risk and mitigate the impact of downturns in specific industries or regions.
Improve Demand Forecasting and Inventory Management: Accurate demand forecasting and efficient inventory management can help the firm maintain optimal levels of production and inventory. This minimizes the risk of overproduction and excess inventory, which can lead to higher fixed costs and lower flexibility.
By implementing these strategies, Trevnor and Trist can effectively lower their degree of operating leverage and reduce their vulnerability to economic downturns, making their firm more resilient and adaptable to changing market conditions.
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a lot of research has demonstrated that there is a relationship between the __________ of employees and that of customers.
income
age
extraversion
satisfaction
A lot of research has demonstrated that there is a relationship between the "satisfaction" of employees and that of customers. The correct option is D.
Numerous studies have explored the impact of employee satisfaction on customer satisfaction and have found a positive correlation between the two.
When employees are satisfied with their work, they are more likely to engage in positive interactions with customers and provide better customer service, and go the extra mile to meet customer needs.
This will leads to higher levels of customer satisfaction and loyalty. Therefore, the correct option is D.
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eBook Print References On January 1, 2021, the Highlands Company began construction on a new manufacturing facility for its own use. The building was completed in 2022. The company borrowed $1,500,000 at 10% on January 1 to help finance the construction. In addition to the construction loan, Highlands had the following debt outstanding throughout 2021: $8,000,000, 15% bonds $2,000,000, 10% long-term note Construction expenditures incurred during 2021 were as follows: January 11 March 31 June 30 September 30 December 31 5660,000 1,260,000 Check my work 872,000 660,000 460,000 Required: Calculate the amount of interest capitalized for 2821 using the specific interest method. (Do not round the intermediate calculations. Round your percentage answers to 1 decimal place (i:e. 0.123 should be entered as 12.3 % ).)
Interest capitalized = $63,117.81 + $425,000 = $488,117.81 The amount of interest capitalized for 2021 using the specific interest method is $488,117.81.
In accounting, capitalization of interest is the process of including an asset's interest cost in the cost of the asset during the asset's construction period.
This implies that the interest incurred during the construction period on the borrowed funds required to finance the construction will be added to the cost of the asset under construction.
In addition, the interest incurred on other funds borrowed and used for other operations during the construction period that would have remained unutilized if the construction project had not been undertaken should also be capitalized.
On January 1, 2021, the Highlands Company borrowed $1,500,000 at a 10% interest rate to help finance the construction of a new manufacturing facility. In addition, Highlands had $8,000,000, 15% bonds and $2,000,000, 10% long-term notes outstanding throughout 2021.
Construction costs for 2021 are as follows: January 11 = $660,000March 31 = $1,260,000June 30 = $872,000September 30 = $660,000December 31 = $460,000Interest capitalized = Interest incurred during construction period + Interest incurred on other funds borrowed and used for other operations during the construction period that would have remained unutilized if the construction project had not been undertaken.
Interest incurred during construction period: For a specific period, the interest incurred during the construction period is calculated using the following formula: Interest incurred during construction period = Expenditure incurred during the construction period x Interest rate (10%) x Time Specific interest = $6,60,000 x 10% x (365 - 11) / 365= $63,117.81 Interest incurred on other funds borrowed and used for other operations during the construction period that would have remained unutilized if the construction project had not been undertaken: Since the 15% bonds and 10% long-term notes were outstanding throughout 2021, their interest payments were already made as per the terms of the agreement.
As a result, the interest expense incurred on other borrowed funds is assumed to be 10% of the average funds that would have remained unutilized if the construction project had not been undertaken.
Average funds that would have remained unutilized if the construction project had not been undertaken: This is computed as the total funds that were outstanding throughout 2021 minus the amount borrowed for the construction of the new manufacturing facility.
$8,000,000 + $2,000,000 - $1,500,000 = $8,500,000Average funds = $8,500,000 / 2 = $4,250,000Interest incurred on other funds = $4,250,000 x 10% = $425,000Total Interest capitalized = Interest incurred during construction period + Interest incurred on other funds borrowed and used for other operations during the construction period that would have remained unutilized if the construction project had not been undertaken. Interest capitalized = $63,117.81 + $425,000 = $488,117.81 The amount of interest capitalized for 2021 using the specific interest method is $488,117.81.
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Exercise 3-12 Preparing a classified balance sheet LO C3 Account Title Credit Debit $ 6,000 Cash Accounts receivable 26,000 7,000 Office supplies Trucks 167,000 Accumulated depreciation-Trucks Land $
The balance sheet for Wilson Trucking Company, given the various entries in their books would be:
Assets
Current assets :
Cash 6,000
Accounts receivable 26,000
Office supplies 7,000
Total current assets 39,000
Property, Plant and Equipment :
Land 85,000
Trucks 167,000
Less : Accumulated depreciation -34,200 132,800
Total Property, Plant and Equipment 217,800
Total assets $256,800
Liabilities :
Current liabilities :
Accounts payable 11,000
Interest payable 3,000
Total current liabilities 14,000
Long term liabilities :
Long term note payable 63,000
Total liabilities 77,000
Stockholder’s Equity
Retained earnings 164,800
Common stock 15,000
Total stockholder’s Equity 179,800
Total liabilities and stockholders equity $256,800
How to design a balance sheet ?Designing a balance sheet involves organizing and presenting financial information in a structured format that provides a snapshot of an organization's financial position at a specific point in time.
Divide the balance sheet into two main sections: assets and liabilities. Start with the assets section. List all the organization's assets in decreasing order of liquidity. Below the assets section, list the organization's liabilities. Following the liabilities section, include the equity section.
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bank a has $23,004 in total reserves, and $4,404 in excess reserves. the required reserve ratio is 16 percent. bank a has total deposits of
Bank A has $23,004 in total reserves and $4,404 in excess reserves. The required reserve ratio is 16%. The total reserves held by the bank is $143,775. Bank reserves are the funds that banks hold to meet their obligations and maintain stability.
Bank reserves consist of required reserves, which are the minimum amounts mandated by regulators, and excess reserves, which are held voluntarily. These reserves are typically held in accounts at the central bank or as physical cash in bank vaults. Bank reserves ensure that banks have sufficient liquidity to fulfill withdrawal requests and contribute to the overall stability of the financial system. Central banks use reserve requirements as a tool to regulate the money supply and influence economic conditions.
We can find the total deposits using the formula below.
Total Reserves = Required Reserve Ratio × Total Deposits
$23,004 = 16% × Total Deposits
$23,004 ÷ 0.16 = Total Deposits
Total Deposits = $143,775
So, the total deposit for Bank A is $143,775.
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On August 31, 2018, Betsy Totten borrowed $1,000 from Iowa State Bank. Totten signed a note payable, promising to pay the bank principal plus interest on August 31, 2019. The interest rate on the note is 6%. The accounting year of Iowa State Bank ends on June 30, 2019. Journalize Iowa State Bank’s (a) lending money on the note receivable at August 31, 2018, (b) accrual of interest at June 30, 2019, and (c) collection of principal and interest at August 31, 2019, the maturity date of the note.
(a) On August 31, 2018, Iowa State Bank would debit Notes Receivable for $1,000 and credit Cash for $1,000 to record the lending of money on the note.
(b) On June 30, 2019, Iowa State Bank would debit Interest Receivable for $30 ($1,000 * 6% * 10/12) and credit Interest Revenue for $30 to accrue the interest on the note.
(c) On August 31, 2019, Iowa State Bank would debit Cash for $1,060 ($1,000 principal + $60 interest) and credit Notes Receivable for $1,000 and Interest Receivable for $60 to record the collection of principal and interest on the note.
(a) When Iowa State Bank lends the money on the note, they record the transaction by debiting Notes Receivable (an asset account) to reflect the amount owed to them and crediting Cash to indicate the cash received from the borrower.
(b) As the accounting year of the bank ends on June 30, 2019, they need to recognize the interest accrued on the note until that date. They debit Interest Receivable (an asset account) to show the interest owed to them and credit Interest Revenue (an income account) to recognize the earnings.
(c) On the maturity date of the note, August 31, 2019, when the borrower pays back the principal and interest, Iowa State Bank records the transaction. They debit Cash to reflect the cash received, and credit Notes Receivable and Interest Receivable to remove the corresponding receivable balances from their books.
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1. What is the extent of relative inequality in developing countries, and how is this related to the extent of absolute poverty? 2. Who are the poor, and what are their economic characteristics? 3. What determines the nature of economic growth-that is, who benefits from economic growth, and why? 4. Are rapid economic growth and more equal distributions of income com- patible or conflicting objectives for low-income countries? To put it another way, is rapid growth achievable only at the cost of greater inequalities in the distribution of income, or can a lessening of income disparities con- tribute to higher growth rates? 5. Do the poor benefit from growth, and does this depend on the type of growth a developing country experiences? What might be done to help the poor benefit more? 6. What is so bad about extreme inequality?
1. The extent of relative inequality in developing countries refers to the disparity in income or wealth distribution among different segments of the population. This inequality is closely related to the extent of absolute poverty.
Absolute poverty refers to the condition where individuals or households lack the basic necessities of life, such as food, shelter, and healthcare. In developing countries with high levels of relative inequality, the gap between the rich and the poor is significant, and as a result, the level of absolute poverty tends to be higher.
2. The poor in developing countries are those individuals or households who experience low income levels and struggle to meet their basic needs.
They often lack access to education, healthcare, and productive resources. The economic characteristics of the poor vary but commonly include low wages, limited job opportunities, informal employment, and vulnerability to economic shocks. They may also have limited access to financial services, land, and other productive assets.
3. The nature of economic growth, including who benefits from it, is influenced by various factors. These include government policies, institutions, market structures, and social dynamics. In many cases, economic growth alone does not guarantee equitable distribution of benefits.
Without appropriate policies and institutions in place, the benefits of growth may disproportionately flow to the already wealthy or privileged groups, leading to increased inequality.
However, with effective policies, such as progressive taxation, social safety nets, and inclusive education and healthcare systems, economic growth can benefit a wider section of society and contribute to reducing inequalities.
4. Rapid economic growth and more equal distributions of income can be compatible objectives for low-income countries. While it is possible that rapid growth may initially widen income disparities, with appropriate policies and targeted interventions, income inequalities can be addressed.
In fact, reducing income disparities can contribute to higher growth rates in the long run by creating a more inclusive and stable economic environment. Ensuring that the benefits of growth reach the poor and vulnerable populations through investments in human capital, social protection, and equitable access to resources can help achieve both rapid growth and a more equal distribution of income.
5. The impact of economic growth on the poor depends on the type of growth experienced by a developing country. If growth is inclusive and pro-poor, meaning it generates opportunities for employment, raises wages, and provides access to basic services, the poor can benefit significantly.
However, if growth is concentrated in specific sectors or primarily benefits the already affluent, the poor may not experience substantial improvements in their living conditions. To help the poor benefit more from growth, policies and interventions should focus on promoting equitable access to education, healthcare, infrastructure, and productive resources.
Social safety nets, targeted poverty reduction programs, and inclusive economic policies can also play a crucial role in ensuring that the poor benefit from growth.
6. Extreme inequality can have negative consequences for individuals, societies, and economies. It can lead to social unrest, political instability, and hinder sustainable development. High levels of inequality limit opportunities for upward mobility, perpetuate social divisions, and undermine social cohesion.
Additionally, extreme inequality can result in unequal access to education, healthcare, and other essential services, perpetuating cycles of poverty and hindering overall societal progress. Addressing extreme inequality through equitable policies and measures not only promotes fairness and social justice but also contributes to more sustainable and inclusive economic growth.
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The comparative statements of Cullumber Company are presented
here.
Cullumber Company
Income Statements
For the Years Ended December 31
2025
2024
Net sales
$1,586,400
$1,470,000
The earnings per share to Cullumber Company, as well as the Return on Common stockholder's equity can be found to be
How to find the EPS and return on equity ?The earnings per share to Cullumber Company can be found by the formula :
= Net income / Common stock outstanding
= 276, 360 / 76, 700
= $ 3. 60
Note:
Common stock outstanding = Average Common stock / Par value
= $383,500 / $5
= 76,700 shares
The Return on Common stockholder's equity would be:
= Net income / Average Common stockholder's equity x 100
= 276, 360 / 694, 720 x 100 %
= 39. 78 %
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Questions are:
Compute the following ratios for 2022.
(a) Earnings per share
(b) Return on common stockholders' equity
Beasann's Die-Cuts is preparing its cost of goods manufactured schedule at year-end. Beasann's accounting records show the following: The raw materials inventory account had a beginning balance of $13,000 and an ending balance of $17,000. During the year, Beasann purchased $58,000 of direct materials. Direct labour for the year totalled $123,000, while manufacturing overhead amounted to $152,000. The work in process inventory account had a beginning balance of $21,000 and an ending balance of $15,000. Compute the cost of goods manufactured for the year. (Hint: The first step is to calculate the direct materials used during the year.) Beasann's Die Cuts Cost of Goods Manufactured 21000 13000 Beginning work in process inventory Add: Direct materials used Beginning raw materials inventory Purchases of direct materials Direct materials available for use Ending raw materials inventory 58000 71000 17000 54000 Direct materials used Direct labour 123000 Manufacturing overhead 152000 Total manufacturing costs incurred during the period Total manufacturing costs to account for Less: Ending work in process inventory 15000 Cost of goods manufactured
Beasann's Die-Cuts cost of goods manufactured for the year is $335,000.
To calculate the cost of goods manufactured, we first need to determine the direct materials used during the year:
Direct materials used = Beginning raw materials inventory + Purchases of direct materials - Ending raw materials inventory Direct materials used = $13,000 + $58,000 - $17,000 = $54,000
Next, we can calculate the total manufacturing costs incurred during the period:
Total manufacturing costs = Direct materials used + Direct labour + Manufacturing overhead Total manufacturing costs = $54,000 + $123,000 + $152,000 = $329,000
We can then calculate the total manufacturing costs to account for during the period:
Total manufacturing costs to account for = Beginning work in process inventory + Total manufacturing costs incurred during the period Total manufacturing costs to account for = $21,000 + $329,000 = $350,000
Finally, we can calculate the cost of goods manufactured:
Cost of goods manufactured = Total manufacturing costs to account for - Ending work in process inventory Cost of goods manufactured = $350,000 - $15,000 = $335,000
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State two improvements of the Baumol - Tobin theory in relation to
the Liquidity Preference Theory of Keynes ?
Baumol - Tobin's theory is an economic theory that deals with the transaction demand for money. The theory states that people require a certain amount of money for everyday transactions. The money demand is proportional to the number of transactions and inversely proportional to the interest rate.
In relation to the Liquidity Preference Theory of Keynes, the Baumol - Tobin theory has two major improvements.
First, the Baumol - Tobin theory takes into account the transaction demand for money. In contrast, the Liquidity Preference Theory of Keynes only considers the speculative demand for money. The speculative demand for money is the demand for money that arises due to the uncertainty of the future. However, it does not address the everyday transaction demand.
Second, the Baumol - Tobin theory suggests that people hold money in the form of both cash and interest-bearing accounts. The cash balances earn no interest, while the interest-bearing accounts earn a positive interest rate. The people who hold money balances take advantage of this difference to reduce their transaction costs. They keep enough money in the cash balance to meet their transactions demand and the remaining balance in the interest-bearing accounts, which generate some income. This approach is different from the Liquidity Preference Theory of Keynes, which suggests that people keep all their money balances in cash, earning no interest. The Baumol - Tobin theory's approach to interest-bearing accounts offers an additional benefit to the people holding money balances.
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