The best entity/structure suited for the family-owned business, considering their needs of involvement, minimal risk, and future control transfer, is a company.
Why is a company the best entity/structure for this family business, ensuring involvement, minimal risk, and future control transfer?A company, specifically a private limited company, offers several advantages for a family-owned business. Firstly, it provides a clear separation between the business and its owners, allowing for multiple family members to be actively involved in managing the business. The company structure allows for the appointment of directors and shareholders, enabling family members to hold specific roles based on their skills and interests.
Additionally, a company provides limited liability protection, reducing the personal risk faced by family members. In the event of financial difficulties or legal issues, the personal assets of the family members are generally shielded from business-related liabilities. This safeguard allows the family to protect their personal wealth and assets, ensuring their financial security.
Furthermore, a company offers greater flexibility in terms of future control transfer. Through the issuance of shares, ownership can be divided among family members and transferred easily to the next generation when the time is right. This allows for succession planning and ensures a smooth transition of control while maintaining the business's continuity.
In summary, a company structure is the best entity suited for this family business due to its ability to accommodate family involvement, provide limited liability protection, and facilitate future control transfer. By establishing a private limited company, the family can achieve their goals of running a successful business together, minimizing risk, and passing control to the next generation when the time is appropriate.
Sole Trader: A sole trader is a business structure where an individual operates a business as the sole owner. While it offers simplicity and autonomy, it lacks the benefits of limited liability and the potential for easy transfer of ownership.
Partnership: A partnership involves two or more individuals joining together to run a business. While it allows for shared responsibilities and resources, it still poses risks to the personal assets of the partners, and control transfer can be more challenging compared to a company structure.
Company: A company is a separate legal entity that offers limited liability protection and flexibility in terms of ownership and control. It provides a suitable framework for family businesses looking to involve multiple family members, protect personal assets, and plan for succession.
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Use the following information for this question: Rating Credit Spread AAA 0.50% AA 0.75% BBB 2.00% 10 year treasury bonds ($100 Par value) with semi-annual coupons and a 6% coupon rate have a price of $95.00. If your company is issuing new semi-annual 10 year bonds at par, what coupon rate must they have if they are rated BBB? Can you please also include the number of FV, N, PV, YTM in the solution?
To calculate the required coupon rate for the BBB-rated bonds, we need to determine the yield to maturity (YTM) for the existing 10-year treasury bonds and then add the credit spread for the BBB rating.
Given information:
10-year treasury bond price = $95.00
10-year treasury bond coupon rate = 6%
10-year treasury bond par value = $100
First, let's calculate the YTM of the existing 10-year treasury bond using the given information.
FV (Future Value) = $100 (par value)
N (Number of periods) = 10 years (10 x 2 = 20 semi-annual periods)
PV (Present Value) = -$95.00 (negative sign because it represents the cost)
Coupon rate = 6% (per year)
Using the financial calculator or spreadsheet, we can calculate the YTM (yield to maturity) of the treasury bond.
YTM = ?
PV = -$95.00
FV = $100
N = 20
Coupon rate = 6% (per year)
Solving for YTM, we find:
YTM = 3.88% (approx.)
Now, we need to determine the credit spread for the BBB rating, which is 2.00%.
The required coupon rate for the BBB-rated bonds would be:
Coupon rate = Treasury bond YTM + Credit spread
Coupon rate = 3.88% + 2.00% = 5.88%
Therefore, your company must issue new semi-annual 10-year bonds with a coupon rate of 5.88% if they are rated BBB.
The parameters used in the calculations are as follows:
FV (Future Value) = $100
N (Number of periods) = 10 years (10 x 2 = 20 semi-annual periods)
PV (Present Value) = -$95.00
YTM (Yield to Maturity) = 3.88%
Credit spread (for BBB rating) = 2.00%
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You will further your studies on postgraduate degree in Fintech. Your parents need to pay $550,000, $600,000 and $650,000 at the end of next 3 years respectively.
1(a) If the market interest rate is 4% per annum, what will be the duration of the payment obligation?
1(b) Your parents are planning to fully fund the obligation using both 6-month zero coupon bonds and perpetuities. Determine how much each of these bonds (in market value) they will hold in the portfolio.
1(a) The duration of a payment obligation is the weighted average time to maturity of the individual payments. The weights are the present values of the payments.
In this case, the payments are $550,000, $600,000, and $650,000, and the market interest rate is 4%. The present values of the payments are:
$550,000 / (1 + 0.04)^0.5 = $500,000
$600,000 / (1 + 0.04)^1 = $546,875
$650,000 / (1 + 0.04)^2 = $506,250
The weighted average time to maturity is:
(500,000 * 0.5 + 546,875 * 1 + 506,250 * 1.5) / 1,653,125 = 1.2 years
Therefore, the duration of the payment obligation is 1.2 years.
1(b) Your parents can fund the obligation using a portfolio of 6-month zero coupon bonds and perpetuities. The market value of the 6-month zero coupon bonds will be equal to the present value of the first payment, $500,000. The market value of the perpetuities will be equal to the present value of the remaining payments, $546,875 + $506,250 = $1,053,125.
The market value of the 6-month zero coupon bonds is:
$500,000 / (1 + 0.04)^0.5 = $500,000
The market value of the perpetuities is:
$1,053,125 / (0.04)^0.5 = $2,632,813
Therefore, your parents will need to hold $500,000 worth of 6-month zero coupon bonds and $2,632,813 worth of perpetuities in their portfolio.
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There are 10 producers each with a cost curve C(q) = q2. The demand curve is given by D 2000 – 10p. Each producer creates a MEC (marginal external cost) of $100 per unit produced. = a) What is the competitive equilibrium quantity produced and consumed? b) What is the efficient quantity?
a) The supply curve can be obtained by summing up the individual cost curves of all producers. At equilibrium, the quantity supplied by the producers will equal the quantity demanded by the consumers. b) The efficient quantity is determined when the sum of the marginal private cost (MPC) and the MEC is equal to the marginal social cost (MSC).
a) The competitive equilibrium quantity produced and consumed is determined at the intersection of the demand and supply curves. In this case, the demand curve is represented by D = 2000 - 10p, and the cost curve for each producer is given by C(q) = q^2. To find the competitive equilibrium quantity, we equate the quantity demanded and the quantity supplied. The quantity demanded is given by D = 2000 - 10p, and the supply curve is obtained by summing up the individual cost curves, resulting in a total cost of TC(q) = 10q^2. Equating D and TC(q), we have 2000 - 10p = 10q^2. Solving this equation will yield the equilibrium quantity produced and consumed.
b) The efficient quantity, also known as the socially optimal quantity, takes into account both the private costs incurred by the producers and the external costs imposed on society. In this scenario, each producer creates a Marginal External Cost (MEC) of $100 per unit produced.The efficient quantity is determined by considering the external costs associated with production. In this case, the MEC is given as $100 per unit produced. The efficient quantity occurs when the sum of the MPC and the MEC equals the MSC. The MPC is the private cost of production, which is represented by the cost curve C(q) = q^2. Therefore, the MSC is given by MSC = MPC + MEC = q^2 + 100. To find the efficient quantity, we equate the MSC with the demand curve D = 2000 - 10p, and solve for q. This quantity represents the socially optimal level of production, considering both the private costs and the external costs imposed on society. The MSC accounts for both the private costs and the external costs, providing a more comprehensive measure of the societal impact of production.
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Listen Should a company's business strategy always be regarded as a work in progress? Do explain your answer clearly and fully Dararanh A .. R < U + V
Yes, a company's business strategy should always be regarded as a work in progress.
A company operates in a dynamic and constantly evolving business environment. Market conditions, customer preferences, technological advancements, and competitive landscape are subject to change over time. Therefore, a business strategy that was effective in the past may not yield the same results in the future.
By considering the business strategy as a work in progress, companies can adapt and respond to changes and challenges in their industry. This approach allows for continuous evaluation, learning, and improvement of the strategy to align with new opportunities and market realities.
Regularly reviewing and adjusting the business strategy enables companies to stay competitive, identify emerging trends, and seize new opportunities. It promotes innovation, agility, and the ability to navigate uncertain circumstances. A static strategy, on the other hand, can lead to stagnation, missed opportunities, and loss of market relevance.
In conclusion, treating a company's business strategy as a work in progress acknowledges the need for flexibility and adaptation in a dynamic business environment, fostering long-term success and growth.
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Complete question:
Should a company's business strategy always be regarded as a work in progress? Do explain your answer clearly and fully
3. Are All Effective Organizations Also Efficient? Discuss. If You Had To Choose Between Effectiveness And Efficiency, Which One Would You Choose And Why? Which One Is More Important? Justify Your Choice
Effectiveness and efficiency are both vital for organizational success, but they are not always present simultaneously. An organization can be effective, achieving its goals, without being efficient, or utilizing resources optimally.
If a choice had to be made, I would lean towards effectiveness. While efficiency is important, the ultimate goal of any organization is to achieve its objectives. If a business is effective, it means it's accomplishing its goals, which is paramount. However, it is crucial to aim for efficiency in the long run, as inefficiency can limit sustainability. In terms of importance, effectiveness can be seen as slightly more crucial, since achieving organizational goals is the ultimate measure of success. Yet, effectiveness without efficiency may lead to wasted resources, underscoring the necessity of balance.
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What is the main source of profit for financial institutions - difference between interest paid on deposits and interest received on loans. The early bankers were the goldsmiths. RRR and who sets it, if you are given some amount of deposits and the RRR, you should be able to determine the required reserves for this bank and how much loan this bank might be able to create and how much loan the entire banking system might be able to create.
The main source of profit for financial institutions, including banks, is the difference between
the interest paid on deposits and the interest received on loans. This is commonly referred to as the net interest margin or the spread between the lending rate and the borrowing rate. Banks take in deposits from individuals and businesses, paying them an interest rate, and then lend out those funds to borrowers at a higher interest rate, generating profit from the interest rate differential.Historically, early bankers were often goldsmiths. They would keep people's gold and valuables in secure storage and issue receipts that could be exchanged for the stored assets.
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Healthy Choice Inc. manufactures vegetable oil and uses three processes - grinding, refining, and canning. It has provided the following production data for the grinding department.
Beginning work-in-process inventory: 5,000 fl. oz., which are 60% complete. Units started during the period: 50,000 fl. oz. Units completed and transferred to the refining process: 48,000 fl. oz.
All direct materials are added at the beginning of the production process in the grinding department. The ending work-in-process inventory is 70% complete with respect to conversion costs at the end of the period.
Compute the equivalent units of production (EU) with respect to conversion costs under the weighted average method.
O 52,900 EU
O52,000 EU
O 50,000 EU
55,000 EU
The equivalent units of production (EU) with respect to conversion costs under the weighted average method is 51,500 EU.
To compute the equivalent units of production (EU) with respect to conversion costs under the weighted average method, we need to consider the units completed and transferred out as well as the units in the ending work-in-process inventory.
Units completed and transferred out: 48,000 fl. oz.
Ending work-in-process inventory: 70% complete with respect to conversion costs.
70% of 5,000 fl. oz. = 3,500 fl. oz. (equivalent units)
Total equivalent units of production = Units completed and transferred out + Equivalent units in ending inventory
Total EU = 48,000 fl. oz. + 3,500 fl. oz. = 51,500 fl. oz.
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What would be the selling price of the product for the plant to be at its break even point, if the fixed cost was $500,000, the variable cost was $50, the maximum to be sold was 40,000.
To determine the selling price at the break-even point, considering a fixed cost of $500,000, a variable cost of $50 per unit, and a maximum quantity of 40,000 units that can be sold.
The break-even point is reached when the total revenue equals the total cost. The total cost consists of the fixed cost and the variable cost per unit multiplied by the quantity sold. In this case, the fixed cost is $500,000, and the variable cost is $50 per unit. The maximum quantity that can be sold is 40,000 units.
To find the selling price at the break-even point, we need to calculate the total cost at different price levels until it matches the total revenue. We can start by assuming a selling price (let's call it "P") and calculate the total revenue by multiplying the price per unit by the quantity sold. If the total revenue equals the total cost, the company breaks even.
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Company Pogba acquired 100% of the 100 000 £1 shares in Company Drogba for £1 250 000 when the retained earnings were £650 000, the revaluation reserve was £275 000 and the general reserve was £75 000. The building which is carried at £425 000 was shown to have a fair value of £375 000 at the date of acquisition.
What is the goodwill arising on acquisition?
A £100 000
B £150 000
C £200 000
D £275 000
Company Pogba acquired all 100,000 shares of Company Drogba for £1,250,000. At the time of acquisition, Company Drogba had retained earnings of £650,000, a revaluation reserve of £275,000, and a general reserve of £75,000.The answer is D.
The fair value of the building, which was previously carried at £425,000, was determined to be £375,000 at the date of acquisition. From this, we can calculate that the net assets of Company Drogba were valued at £1,000,000 (£650,000 + £275,000 + £75,000) and that Company Pogba paid a premium of £250,000 for the acquisition.
This premium can be attributed to the difference between the fair value of the building and its carrying amount on Company Drogba's books.The answer is d.
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Grameen Bank encourages MFIs to set interest rates by calculating its cost plus 10%. This is an example of which client protection principle? O a. Privacy of client data The privacy of individual client data will be respected in accordance with the laws and regulations of individual jurisdictions. Such data will only be used for the purposes specified at the time the information is collected or as permitted by law, unless otherwise agreed with the client. O b. Mechanisms for complaint resolution Providers will have place timely and responsive mechanisms for complaints and problem resolution for their clients and will use these mechanisms both to resolve individual problems and to improve their products and services O c. Responsible pricing Pricing, terms and conditions will be set in a way that is affordable to clients while allowing for financial institutions to be sustainable. Providers will strive to provide positive real returns on deposits. O d. Appropriate product design and delivery Providers will take adequate care to design products and delivery channels in such a way that they do not cause clients harm. Products and delivery channels will be designed with client characteristics taken into account.
The practice of Grameen Bank encouraging MFIs to set interest rates by calculating their cost plus 10% aligns with the principle of responsible pricing
How can this be explained?This principle emphasizes that pricing, terms, and conditions should be set in a manner that is affordable for clients while ensuring the sustainability of financial institutions.
By factoring in expenses and applying a reasonable markup, microfinance institutions can offer financial services to their customers at just and equitable rates. The concept of responsible pricing endeavors to find a middle ground between satisfying the monetary demands of customers and safeguarding the institution's sustainable existence.
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Suppose as given is a ctmc with state space as
described. Solve the required
4. Suppose {X(t):t E (0,0)} is a CTMC, with state space {1,2,3,4,.. }, the transition probabilities are given by - = - - = b;At + (At) j = 1 Pi+j,i = Prob{X(t + At) - X(t) = j|X(t) = i} = 1 - bịAt +
The given problem describes a continuous-time Markov chain (CTMC) with a state space {1, 2, 3, 4, ...} and transition probabilities defined by the equation Pi+j,i = Prob{X(t + At) - X(t) = j|X(t) = i} = 1 - bịAt +.
In the CTMC, the transition probabilities represent the probability of moving from state i to state i+j within a small time interval At. The equation 1 - bịAt + indicates that the transition probability depends on the parameter b and the time interval At.
To solve the problem, further information or specific requirements are needed. The given equation provides a general expression for the transition probabilities, but without specific values or constraints, it is not possible to determine the exact solution or analyze the behavior of the CTMC in detail.
In summary, the problem presents a CTMC with a defined state space and transition probabilities governed by the equation 1 - bịAt +. However, without additional information, it is not possible to provide a specific solution or interpretation of the CTMC's dynamics.
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factor endowments refer to the extent to which free trade impacts the wealth of a country.
T/F
False. Factor endowments do not refer to the extent to which free trade impacts the wealth of a country. Factor endowments refer to the available and inherent resources within a country, such as land, labor, capital, and natural resources. These endowments are the factors of production that a country possesses.
Free trade, on the other hand, refers to the exchange of goods and services between countries without restrictions or barriers such as tariffs or quotas. It promotes international trade and can have various effects on a country's economy, including its wealth.
The impact of free trade on the wealth of a country is influenced by several factors, such as the efficiency of production, competitiveness, specialization, comparative advantage, and market access. Free trade can lead to economic growth, increased productivity, expanded markets, and access to a wider range of goods and services. However, its effects can vary depending on the specific circumstances and policies implemented by a country.
In summary, factor endowments and the impact of free trade on a country's wealth are separate concepts. Factor endowments refer to the available resources within a country, while free trade refers to the unrestricted exchange of goods and services between countries. The impact of free trade on a country's wealth depends on various factors and cannot be solely attributed to factor endowments.
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Question 1
ChocoStorm produces two types of chocolate: ChocoA and ChocoB. They are mainly made from milk and cocoa. The supply and demand of these two raw materials are shown in the table below. ChocoA and ChocoB's profits per kilogram are $6 and $8, respectively. ChocoStorm wants to maximise profits.
Kgs of raw material needed to make one
ChocoA
Milk Cocoa
1
1
kg of
ChocoB
2
1
Maximal daily raw material
supply (kgs)
3
2
(a) Develop a linear programming model for the problem. Assume that the chocolate produced every day can be sold out on the same day.
(b)
If you have a Solver sensitivity report for the model you developed in Part (a), explain how to use the relevant information in the report to answer the following questions.
(i)
(ii)
How does a 0.5 kg increase in milk supply affect maximum profit?
If ChocoA's profit per kilogram becomes $7, will the original solution remain optimal?
Question 2
(25 marks)
The linear programming model is developed to maximize profits for ChocoStorm by producing ChocoA and ChocoB. The sensitivity report from Solver can be used to determine the effect of a 0.5 kg increase in milk supply on maximum profit and whether the original solution remains optimal if ChocoA's profit per kilogram becomes $7.
(a) Linear Programming Model:
Let x represent the number of kilograms of ChocoA produced, and y represent the number of kilograms of ChocoB produced.
Objective function:
Maximize profit: Z = 6x + 8y
Constraints:
1x + 2y ≤ 3 (Milk constraint)
1x + 1y ≤ 2 (Cocoa constraint)
x, y ≥ 0 (Non-negativity constraint)
(b) Solver Sensitivity Report:
To answer the questions using the Solver sensitivity report:
(i) The sensitivity report provides information about the shadow price (also known as the dual value) of each constraint. For the milk supply constraint, a positive shadow price indicates that the maximum profit will increase by the shadow price value for each additional kilogram of milk supplied. Therefore, a 0.5 kg increase in milk supply would result in an increase of 0.5 times the shadow price in the maximum profit.
(ii) The sensitivity report also provides information about the range of optimality for each objective function coefficient. If ChocoA's profit per kilogram becomes $7, you need to check the range of optimality for its coefficient. If the shadow price of the milk supply constraint is positive for the entire range of optimality of the ChocoA profit coefficient, then the original solution will remain optimal. Otherwise, further analysis is needed to determine the impact on optimality.
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Suppose the Bank of England (the UK's Central Bank) determines the reserve rate (rr) to be 15% and all banks should follow this rate when lending. (a) Using the fractional-reserve banking theory, calculate how much credit can be created in the UK economy if the initial loan is £300,000 and all created loans are deposited in another bank account and the number of banks involved in this process goes to infinity. (Show all your calculations) (b) Heterodox economists believe that while the theory of fractional-reserve banking brings the creation of credit by banks into the discussion of money supply, the theory suffers from the fact that the money supply is still exogenous. Explain this view through the relation between money supply (M) and the monetary base (H) discussed in the lecture.
(a) To calculate the amount of credit that can be created in the UK economy using the fractional-reserve banking theory, we need to determine the maximum amount that can be lent out based on the reserve rate.
Given:
Initial loan (L) = £300,000
Reserve rate (rr) = 15% or 0.15
Calculate the total reserves held by banks:
Total reserves = L * rr = £300,000 * 0.15 = £45,000
Calculate the total amount that can be lent out:
Total loans = L / rr = £300,000 / 0.15 = £2,000,000
Repeat the process with the new loans created:
New reserves = Total loans * rr = £2,000,000 * 0.15 = £300,000
New loans = Total loans / rr = £2,000,000 / 0.15 = £13,333,333.33
Continue the process infinitely:
Reserves: £45,000, £300,000, £2,000,000, £300,000, ...
Loans: £300,000, £2,000,000, £13,333,333.33, £88,888,888.89, ...
Therefore, the total amount of credit that can be created in the UK economy, with the initial loan of £300,000 and infinite iterations, is the sum of all loans:
£300,000 + £2,000,000 + £13,333,333.33 + £88,888,888.89 + ...
(b) Heterodox economists argue that while the fractional-reserve banking theory includes the creation of credit by banks, it does not address the issue of the money supply being exogenous. The relation between the money supply (M) and the monetary base (H) can help explain this view.
According to the lecture, the relation between M and H is expressed as:
M = m * H
where M is the money supply, H is the monetary base, and m is the money multiplier.
The money multiplier (m) represents the multiple by which the monetary base expands to create the money supply. In the fractional-reserve banking system, the money multiplier is determined by the reserve ratio (rr). It is calculated as:
m = 1 / rr
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Ringler Corporation changes o plant set for a ser p exchange. The exchange st exped to cos A. either entity. If again on the disposal of the dat be credited directly to the owner's capitali B. effectively increase the amount to be recorded a C. be reported in the Other Revenues and Gains section D. effectively reduce the amount to be recorded as the cont of the new
In the given scenario of Ringler Corporation changing its plant through a swap, the correct statement is that the exchange cost should be reported in the Other Revenues and Gains section. This means option C is the accurate statement.
When an exchange occurs, any costs incurred should be recognized and reported in the financial statements. In this case, the exchange cost related to the plant swap should be treated as an expense and reported in the financial statements. Option C correctly states that the exchange cost should be reported in the Other Revenues and Gains section.
Options A, B, and D are incorrect. The exchange cost should not be credited directly to the owner's capital (option A) or increase the amount to be recorded as the cost of the new plant (option B). Instead, it should be recognized as a separate expense. Additionally, option D suggests that the exchange cost would effectively reduce the amount to be recorded as the cost of the new plant, which is not accurate.
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What is process theory and how can it be used to accumulate project
management knowledge?
Process theory is concerned with how actions are performed in succession, how long they last, and how long there are gaps between them. Process theory therefore has a special relevance to the representation and accumulation of project management knowledge.
Accumulating information that is conceptually sound and practical in application is the main objective of research in practice-oriented domains like project management. In response to this issue, the development and spread of project management expertise has long promised a variety of encouraging advantages:
(1) a greater capacity to forecast whether the use of certain therapies would provide positive results.
(2) a greater assurance that the chosen interventions will be more appropriate given the current situation.
(3) guaranteeing that lessons from experience are learnt and applied, with the implementation of such lessons producing an upward cycle of progressively favorable results.
In many areas, process theory has grown to be a key mechanism for knowledge acquisition.
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YYY Berhad has a debt-equity ratio of 1.5. Its WACC is 12%, and its cost of debt is 12 %. The corporate tax is 35%. Answer the following questions:
i Calculate the YYY Berhad’s cost of equity capital. (6 marks)
ii Calculate the YYY Berhad’s unlevered cost of equity capital. (4 marks)
iii Calculate the cost of equity if the debt-equity ratio were 2 and calculate the cost of equity if the debt-equity ratio changes to 1 and 0 respectively. (9 marks)
b Explain TWO (2) weaknesses of the Modigliani-Miller theorem (M&M) theory. (6 mark
a) i) Based on the debt-equity ration above, YYY Berhad's cost of equity is 13%.
ii)YYY Berhad's unlevered cost of equity is 7.8%.
iii)The cost of equity increases with debt-equity ratio.
b)The M&M theory assumes no taxes or bankruptcy costs.
What is the explanation for this?i) Cost of equity = Rf + β(Rm - Rf)
Where -
Rf is the risk-free rateβ is the beta of the stockRm is the market risk premiumCost of equity = 4% + 1.5(6%) =0.13
= 13%
ii)
Unlevered cost of equity = WACC * (1 - t)
Where -
WACC is the weighted average cost of capitalt is the corporate tax rateUnlevered cost of equity = 12% * (1 - 35%)
= 7.8%
iii)
Cost of equity = Rf + β(Rm - Rf) + t(D/E)
Where -
D/E is the debt-to-equity ratio
Cost of equity = 4% + 1.5(6%) + 35%(2)
= 11.3%
If the debt-equity ratio changes to 1, the cost of equity would be -
Cost of equity = 4% + 1.5(6%) = 13%
b)
The Modigliani-Miller theorem (M&M) theory of corporate finance asserts that a firm's value is independent of its capital structure.
The first flaw is that the M&M hypothesis assumes no taxes exist. There are taxes in the real world, and these taxes can alter the value of a firm's capital structure.
The M&M theory's second flaw is that it implies there are no expenses associated with bankruptcy.
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Advantages of direct and digital marketing for sellers include all of the following EXCEPT ________.
A) low cost
B) efficiency
C) speed
D) need for sales training
E) flexibility
The advantages of direct and digital marketing for sellers include low cost, efficiency, speed, and flexibility. Sales training is not a direct advantage of direct and digital marketing for sellers.
Direct and digital marketing offer numerous advantages for sellers. Firstly, it provides a low-cost method of reaching and targeting a specific audience. Compared to traditional marketing channels, direct and digital marketing often require lower financial investments. Secondly, it offers efficiency by allowing sellers to directly communicate with their target audience, eliminating intermediaries and streamlining the marketing process. Thirdly, digital marketing enables speed in terms of delivering marketing messages, reaching customers quickly, and facilitating immediate responses. Another advantage is the flexibility provided by direct and digital marketing. Sellers have the flexibility to personalize their marketing messages and tailor them to specific customer segments. They can also easily adapt and modify their marketing strategies based on real-time data and feedback. However, the need for sales training is not an advantage of direct and digital marketing. Direct and digital marketing focus more on direct communication with customers through various digital channels, such as email, social media, and websites. While sales training may still be valuable for salespeople involved in direct selling, it is not specifically related to the advantages of direct and digital marketing itself.
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Your client is looking for a full floor and your hunt has brought you to two buildings. Building 1 has 1 million sf total with 215,000 of buidling common areas. The load factor is 28%. The rent being chargesd is $45 per NRA. Building 2 is 1.2 million sf it also has a loss to building commons of 215,000 sf and has a load factor of 25%. This landlord is looking for $6 per square foot. All else being equal, which building is the better deal
Based on the information provided, it seems like Building 2 is the better deal. Although it has a larger total square footage, the loss to building commons is the same as Building 1, and the load factor is actually lower at 25%. Additionally, the landlord is charging a lower rent rate at $6 per square foot compared to Building 1's $45 per NRA.
To compare the two options more accurately, we can calculate the total rent for each building. For Building 1, we would need to multiply the rent rate of $45 by the NRA (net rentable area) which is calculated by subtracting the building common areas from the total square footage:
NRA = 1,000,000 - 215,000 = 785,000
Total Rent for Building 1 = NRA x Rent Rate = 785,000 x $45 = $35,325,000
For Building 2, we would simply multiply the total square footage by the rent rate:
Total Rent for Building 2 = Total SF x Rent Rate = 1,200,000 x $6 = $7,200,000
As we can see, Building 2 has a significantly lower total rent compared to Building 1. Therefore, if all else is equal, Building 2 would be the better deal for the client.
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The value chain portrays a mixture of primary and support activities utilized by an organization to design, produce, market, deliver, and support its products. T/F
The statement is true. Michael Porter established the value chain to analyze how companies produce consumer value. It has primary and support activities.
Primary activities encompass product conception, manufacture, and distribution to customers. Inbound logistics, operations, outbound logistics, marketing and sales, and service (after-sales support) are these activities. However, support activities help primary activities work. Procurement, technological development, human resource management, and business infrastructure (financial, legal, and administrative operations) are examples. These primary and support operations create the value chain, which shows how an organization adds value to its products or services. Analyzing and optimizing value chain activities can boost performance and competitiveness.
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Company X has office buildings with a historic cost of $300,000 and accumulated depreciation of 150.000. They use the straight line method of depreciation. The building have an expected life of 20 years and a scrap value of $200,000 if the buildings are sold for $600.000. Which of the following statements is true? A. There has been a profit on sale of $150.000
B> There has not been a profit or loss on sale C. There has been a loss on sale of $50,000 D. There has been a loss on sale of $200,000
Company X has office buildings with a historic cost of $300,000 and accumulated depreciation of 150.000. They use the straight line method of depreciation. The building have an expected life of 20 years and a scrap value of $200,000 if the buildings are sold for $600.000. The correct statement is D. There has been a loss on sale of $200,000.
To determine whether there has been a profit or loss on the sale of the office buildings, we need to compare the carrying value of the buildings with the sale proceeds. The carrying value is the historic cost minus accumulated depreciation.
In this case, the historic cost of the buildings is $300,000, and the accumulated depreciation is $150,000. Using the straight-line method of depreciation, the annual depreciation expense would be $300,000 / 20 = $15,000 per year.
Since the buildings have been in use for an unknown number of years, we need to calculate the carrying value at the time of the sale. The carrying value can be calculated as follows:
Carrying value = Historic cost - Accumulated depreciation
= $300,000 - $15,000 * (number of years of use)
Given that the sale proceeds are $600,000, we can set up the following equation:
Carrying value + Loss on sale = Sale proceeds
Substituting the values, we have:
$300,000 - $15,000 * (number of years of use) + Loss on sale = $600,000
Simplifying the equation, we find:
Loss on sale = $600,000 - $300,000 + $15,000 * (number of years of use)
Since the scrap value is given as $200,000, we can calculate the loss on sale:
Loss on sale = $600,000 - $300,000 + $15,000 * (number of years of use) - $200,000
Based on the given information, the loss on sale is $200,000, indicating that Company X incurred a loss upon selling the buildings. Therefore, the correct statement is D. There has been a loss on sale of $200,000.
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The proper cutoff of inventories is best achieved when receiving
reports and purchase invoices surrounding the year-end are
examined.
-True o False
The give statement "The proper cutoff of inventories is best achieved when receiving reports and purchase invoices surrounding the year-end are examined." is false because the proper cutoff of inventories is not solely achieved by examining receiving reports and purchase invoices surrounding the year-end.
The cutoff of inventories refers to the process of determining the point at which goods or materials received or sold should be included in the ending inventory or cost of goods sold calculation. It ensures that transactions occurring at or around the year-end are accurately recorded in the appropriate accounting period.
While examining receiving reports and purchase invoices can be helpful in determining the timing of inventory transactions, it is not sufficient to achieve proper cutoff. Other factors need to be considered as well, such as the physical count of inventory, transit time, terms of sale, shipping documents, and any other relevant information that helps establish the ownership and control of goods.
To achieve accurate inventory cutoff, companies should perform a comprehensive review of all relevant documentation and information, including sales invoices, shipping records, purchase orders, and any other supporting documents. The physical count of inventory is particularly important to verify the quantities on hand and reconcile them with the accounting records.
By considering a variety of factors and conducting a thorough review of transactions and supporting documentation, companies can ensure the proper cutoff of inventories and accurately reflect them in the appropriate accounting period. Hence the statement is false.
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Suppose each worker in Turkey and Canada can produce the following amounts of Good A and Good B
italy: 20 units of Good A and 30 units of Good B
Croatia: 3 units of Good A and 4.5 units of Good B
Which of these countries has the comparative advantage in Good A?
italy
Croatia
both countries
neither country
To determine the comparative advantage, we need to calculate the opportunity cost for each country in producing Good A.
Opportunity cost is the value of the next best alternative that is given up when making a choice. In this case, it represents the amount of Good B that must be given up to produce one more unit of Good A.
For Italy:
Opportunity cost of producing 1 unit of Good A = (30 units of Good B) / (20 units of Good A) = 1.5 units of Good B
For Croatia:
Opportunity cost of producing 1 unit of Good A = (4.5 units of Good B) / (3 units of Good A) = 1.5 units of Good B
Both countries have the same opportunity cost of producing Good A, which is 1.5 units of Good B. Therefore, neither country has a comparative advantage in producing Good A. The answer is "neither country."
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Ideal Company owns a department store selling furniture and home furnishing. It is studying the feasibility of opening a new store. Ideal plans to run the store for only 3 years. The details relating to the project are as follows:
• Additional working capital of $100,000 is required. This level is expected to remain the same until the end of the project.
• Sales of the new store for the 3 years are $500,000, $550,000 and $600,000, respectively.
• Lost sales of in main store due to opening of new store is $50,000 a year.
• Rent and other expenses for the new store amount to $150,000 each year.
• Cost of goods are 50% of sales.
• Cost of market research done 1 year ago is $50,000.
Ideal plans to borrow $500,000 to finance this project. The bank will charge the same loan rate as the existing bank loan that the company has of $2 million. The bank charges the company a loan rate which consists of the risk-free rate and a risk premium of 2%.
Ideal has 1,000,000 common shares with a market price of $2 each. The stock has a beta of 1. Currently, the market risk premium is 5% while the risk-free rate is 3%. Ideal pays a 20% tax rate.
(a) Determine Ideal’s cost of equity, cost of debt as well as the weighted average cost of capital. (b) Compute the operating cash flows related to the project. (c) Compute cash flows from assets for the project. (d) Compute the NPV of the project using a discount rate of 10 %. Appraise whether the firm should go ahead with the project. (e) The payback period has been criticised for not considering the time value of money and all the project cash flows. Appraise the circumstances when these issues do not matter much.
In order to evaluate the feasibility of opening a new store, Ideal Company needs to consider various financial aspects.
This includes determining the cost of equity, cost of debt, and the weighted average cost of capital (WACC). Additionally, the operating cash flows, cash flows from assets, and the net present value (NPV) of the project need to be calculated.
Lastly, the relevance of the payback period in certain circumstances needs to be appraised.
(a) To calculate the cost of equity, Ideal Company uses the capital asset pricing model (CAPM) which takes into account the risk-free rate, market risk premium, and the stock's beta.
The cost of debt is determined based on the loan rate charged by the bank, which includes the risk-free rate and a risk premium. The weighted average cost of capital (WACC) is calculated by weighting the cost of equity and cost of debt based on the company's capital structure.
(b) The operating cash flows for the project can be determined by subtracting the expenses, including the cost of goods sold, rent, and other expenses, from the sales revenue. It is important to consider the impact of lost sales in the main store due to the opening of the new store.
(c) Cash flows from assets can be calculated by adding the operating cash flows to the initial investment in working capital and deducting the cost of market research.
(d) The NPV of the project is calculated by discounting the cash flows from assets using the discount rate of 10%. If the NPV is positive, it indicates that the project is expected to generate a return higher than the required rate of return and may be considered feasible.
(e) The payback period does not consider the time value of money, which can be a limitation. However, in circumstances where the cash flows are expected to be relatively stable, the payback period can still provide a quick assessment of the project's payback time without significant impact from discounting future cash flows.
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Liquidity
Estate tax-free wealth transfer
Tax leverage
Marketability of borrowing
Risk management
Leverage
Estate freeze
1. Boosts investment return by deferring taxes
2. Earning rate of return greater than the cost
3. Protecting ground gained without giving up much in return
4. Irrevocable life insurance trust
5. Ability to turn investment quickly into cash with little or no loss
6. Ability to quickly dispose of an investment
7. Transfer asset growth to next generation
The provided terms relate to various aspects of financial and wealth management strategies.
These strategies aim to boost investment returns, defer taxes, protect gains, ensure quick liquidity, and facilitate intergenerational wealth transfer.
Liquidity: Refers to the ability to convert investments into cash quickly and easily, with minimal loss.
Estate Tax-Free Wealth Transfer: Involves strategies that enable the transfer of wealth to the next generation without incurring estate taxes.
Tax Leverage: Utilizing tax advantages to maximize investment returns. By minimizing tax liabilities or deferring taxes, investors can enhance their overall investment performance.
Marketability of Borrowing: The ease and speed at which borrowed funds can be obtained or repaid.
Risk Management: Techniques employed to identify, assess, and mitigate risks associated with investments or financial activities.
Leverage: The use of borrowed funds or debt to finance investments, aiming to magnify returns.
Estate Freeze: A strategy to lock in the value of an individual's estate, allowing future growth to be transferred to the next generation.
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which of the following statements is correct relating to preparation of statement of cash flows?
a.
Partnerships are not allowed to prepare a statement of cash flows.
b.
Statement of cash flows is prepared according to cash basis of accounting.
c.
Statement of cash flows shows only the investing activities of a business.
d.
Statement of cash flows is prepared according to the accrual basis of accounting.
e.
Statement of cash flows must only be prepared using the indirect method.
The statement of cash flows is a financial statement that presents the cash inflows and outflows of a business during a specific period. The correct statement relating to the preparation of the statement of cash flows is option e.
Statement of cash flows must only be prepared using the indirect method. The indirect method is one of the two methods used to prepare the statement of cash flows, the other being the direct method. However, the indirect method is more commonly used and widely accepted. It starts with net income and adjusts for non-cash items and changes in working capital to arrive at the net cash provided by operating activities. This method focuses on reconciling the differences between net income and net cash flow from operating activities. It provides valuable insights into a company's cash inflows and outflows from various activities, including operating, investing, and financing activities.
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What are the primary differences between investment-grade bonds
and junk bonds? Explain two reasons, why are investment-grade bonds
more marketable and why are junk bonds issued at all?
The primary differences between investment-grade bonds and junk bonds lie in their credit quality and marketability. Investment-grade bonds are considered to have a higher credit quality and lower default risk compared to junk bonds.
Junk bonds are more marketable due to their lower risk profile, broader investor base, and higher liquidity. Junk bonds, on the other hand, have lower credit ratings and higher default risk. They are issued for various reasons, such as financing growth, funding acquisitions, or addressing temporary financial difficulties.
Investment-grade bonds are issued by companies or governments with strong credit ratings and low default risk. They are more marketable because they are considered safer investments, attracting a larger investor base that includes institutional investors, pension funds, and conservative investors seeking stable income streams.
The marketability of investment-grade bonds is further enhanced by their higher liquidity, as there is a greater demand for these bonds, which facilitates easier trading and price discovery.
Junk bonds, also known as high-yield bonds, have lower credit ratings and higher default risk compared to investment-grade bonds. Despite their higher risk, they are issued because they offer certain advantages.
First, junk bonds provide companies with access to capital that may not be available through traditional bank loans or equity financing. Second, they allow companies with weaker credit profiles to raise funds for growth initiatives, such as expansion into new markets or product development.
Although the interest rates on junk bonds are higher to compensate for the higher risk, they can still attract investors seeking higher yields in a low-interest-rate environment.
In summary, investment-grade bonds and junk bonds differ in credit quality and marketability. Investment-grade bonds are more marketable due to their lower risk profile and broader investor base, while junk bonds are issued to fulfill financing needs and provide opportunities for investors seeking higher yields.
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American Products is concerned about managing cash efficiently. On average, inventories have an age of 90 days, and accounts receivable are collected in 60 days. Accounts payable are paid approximately 30 days after they arise. The firm’s operating-cycle investments are $30 million per year.Cost of goods sold are $20 million, and purchases are $15 million.
a. Calculate the firm’s operating cycle.
b. Calculate the firm’s cash conversion cycle.
c. Calculate the amount of resources needed to support the firm’s cash conversion cycle.
d. Discuss how management might be able to reduce the cash conversion cycle.
Operating cycle = 333.75 days ;CCC = 242.50 days; Resources needed = $19,921,917; The firm can delay payments to its suppliers by negotiating longer payment terms, taking advantage of early payment discounts, and optimizing its payment processes.
a. Calculation of the firm’s operating cycle:
Operating cycle is the time it takes for a business to convert its inventory into cash. It is computed by adding the average age of inventory and the average collection period.
Operating cycle is calculated using the formula:
Operating cycle = Inventory conversion period + Receivables conversion period
Inventory conversion period = (Inventory/Cost of goods sold) x 365 days
Inventory conversion period = ($15,000,000/$20,000,000) x 365Inventory conversion period = 273.75 days
Receivables conversion period = (Accounts receivable/Sales) x 365Receivables conversion period = ($15,000,000/$20,000,000) x 365Receivables conversion period = 273.75 days
Operating cycle = 273.75 days + 60 days
b. Calculation of the firm’s cash conversion cycle:
The cash conversion cycle (CCC) is the duration of time it takes for a business to transform its inventories into cash and make payments to its suppliers. CCC can be calculated using the formula:CCC = Operating cycle – Payable deferral period
Payable deferral period = (Accounts payable/Cost of goods sold) x 365
Payable deferral period = ($5,000,000/$20,000,000) x 365
Payable deferral period = 91.25 days
CCC = 333.75 days – 91.25 days
CCC = 242.50 days
c. Calculation of the amount of resources needed to support the firm’s cash conversion cycle:
Resources needed = Operating cycle investment x CCC
Resources needed = $30,000,000 x (242.50/365)
Resources needed = $19,921,917
d. Discussion of how management might be able to reduce the cash conversion cycle:
There are various ways management can reduce the cash conversion cycle. The following are some of the methods:By reducing inventory levels: The firm can reduce the amount of inventory it holds by focusing on demand forecasting, reducing lead times, and adopting just-in-time (JIT) inventory management .By reducing the receivables collection period: The company can expedite the collections process by offering discounts for early payments, charging interest on late payments, and improving its credit control processes.By increasing the payable deferral period.
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Please provide an example of and explain how to calculate 1 day VaR (Value at Risk) at a confidence level of 99% based on:
--Normal distribution using a 10 day rolling window.
and
--Historical simulation based on a window of 10 days.
To calculate 1-day VaR (Value at Risk) at a 99% confidence level, we can use two methods: normal distribution and historical simulation,
For normal distribution using a 10-day rolling window, we can follow these steps:
1. Gather historical data on the variable of interest (e.g., daily returns) for a period longer than 10 days.
2. Calculate the mean and standard deviation of the returns using a rolling window of 10 days. This involves taking the average and standard deviation of the returns over the most recent 10-day period.
3. Determine the critical value for the desired confidence level (99% corresponds to a z-score of approximately 2.33 for a normal distribution).
4. Calculate the 1-day VaR by multiplying the standard deviation by the critical value obtained in the previous step.
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Dwyer/Morris pharmaceutical is considering two major investments and the respective cash flows are as follows:
period project 1 cash flow project 2 CF
0 (100,000) (100,000)
1 10,000 50,000
2 20,000 50,000
3 60,000 10,000
4 70,000 5,000
5 80,000 5,000
Both projects will be financed using funds generated from:
i. $1000,000 $1 Ordinary shares with a market value of $2.00 per share and an estimated cost of 22%
ii. $500,000 $1 Preference shares with a market value of 80 cents and an estimated cost of 15%
iii. $1 million Debenture stock with a market value of $80 per 100 nominal value and an estimated cost of 9%
You are required to:
Calculate the Weighted average cost of capital 9 marks
Calculate the Net Present value of each project 11 marks
Question 2
A project has an initial cost of $60 000, expected net cash inflows of $12,000 per year for 5 years, and a cost of capital of 12%.
What is the project’s MIRR? 10 marks
The WACC stands at 17. 25% when considering the weighted average expense of funds.
Project 1 has a net present value (NPV) of $11,633 whereas
Project 2 has a higher NPV of $17,594.
The project's MIRR stands at 15. 77%
How to solveTo determine the WACC, one must first assess the cost of each capital source and then assign a weight based on its percentage contribution to the overall capital structure of the business.
The expected return on equity amounts to 22%, the anticipated return on debt stands at 9%, while the projected return on preferred stock is 15%.
To determine the net present value of a project, one must evaluate the current worth of the project's cash inflows by adjusting them for the impact of time using a discount rate.
One way to determine the MIRR involves identifying the rate at which the present value of a project's future cash flows would be zero.
The project is deemed a profitable investment as both the NPV and MIRR demonstrate positive outcomes.
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