Let's analyze each market based on the given information and how it may affect the market price and quantity.
a) Traditional action figures (toys):
The article mentions that children are playing less with traditional toys and more on electronic devices. This shift in preferences may result in a decrease in demand for traditional action figures. The demand curve for traditional action figures would shift to the left, indicating a decrease in quantity demanded at each price level.
Furthermore, the decrease in demand may lead to a decrease in market price and quantity of traditional action figures. The diagram below illustrates this scenario:
javascript
Copy code
^
|
P2 | P1
| D1 D0
| / /
| / /
| / /
| / /
P3 |/ /
+----------------->
Q0 Q1 Q2
The initial equilibrium is at point E0 with price P1 and quantity Q1. However, with the decrease in demand, the new equilibrium shifts to point E1 with a lower price P2 and a lower quantity Q2.
b) Tools for potting and caring for plants:
According to the article, tending to plants became a popular hobby during national lockdowns, and people have continued this hobby. This increased interest in gardening may lead to an increase in demand for tools used for potting and caring for plants.
The increase in demand would shift the demand curve for these tools to the right, indicating a higher quantity demanded at each price level. This can be illustrated as follows:
lua
Copy code
^
|
P2 | P1
| D1 D0
| \ \
| \ \
| \ \
| \ \
P3 | \ \
+----------------->
Q0 Q1 Q2
The initial equilibrium is at point E0 with price P1 and quantity Q1. With the increase in demand, the new equilibrium shifts to point E1 with a higher price P2 and a higher quantity Q2.
c) Exotic fruits:
The articles mention the health benefits of exotic fruits and a disruption in the supply chains for supermarkets, particularly with imported fruits and vegetables. The health benefits and the disruption in supply can have opposing effects on the market price and quantity of exotic fruits.
On one hand, the health benefits can increase the demand for exotic fruits, shifting the demand curve to the right. On the other hand, the disruption in supply can decrease the quantity supplied, shifting the supply curve to the left. The combined effect on market price and quantity will depend on the relative magnitude of these shifts.
If the increase in demand is greater than the decrease in supply, the market price and quantity of exotic fruits will increase. The diagram below illustrates this scenario:
javascript
Copy code
^
|
P2 | P1
| D1 D0
| / /
| / /
| / /
| / /
P3 |/ /
+----------------->
Q0 Q1 Q2
The initial equilibrium is at point E0 with price P1 and quantity Q1. If the increase in demand is greater than the decrease in supply, the new equilibrium will shift to point E1 with a higher price P2 and a higher quantity Q2.
d) Camping equipment:
The articles mention an increase in popularity for camping as an alternative to expensive holidays, as well as an increase in the number of providers of camping equipment. These factors can result in an increase in demand for camping equipment.
The increase in demand would shift the demand
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Question 2:
What constraints need to be considered during analysis,
evaluation and preparation of copy?
When it comes to analyzing, evaluating, and preparing copy, several constraints must be considered. These constraints include: Time constraints are the first constraint to consider when analyzing, evaluating, and preparing copy.
As a result, an evaluation must be conducted to determine whether the expenses associated with the production of the copy are justified or not. Audience constraints are another constraint that must be considered. The intended audience must be considered in order to tailor the copy's language, style, and design to their preferences and interests.
The copy must also be clear and concise, with no technical jargon that may confuse the reader, so that it can be understood easily by the target audience. Finally, Legal and ethical constraints are another constraint that must be considered when analyzing, evaluating, and preparing copy. Copy must be written in compliance with relevant laws and ethical standards. Plagiarism, for example, must be avoided, and copyright laws must be adhered to when copying images or other people's work.
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Bahrain Company makes snow blowers. It has two departments that process all products: Assembly and Testing. The following data pertain to the Assembly department. Direct materials are added at the beginning of the process and conversion costs are uniformly incurred. The degree of completion of conversion cost is as follows: At the beginning of September, work in process is 40% complete and at the end of the month work in process is 60% complete. Other data for the month include:
Beginning work-in-process inventory 3,200 units
Units started 4,000 units
Units completed 6,400 units
Ending work-in-process inventory ?
Conversion costs for September $400,000
Direct materials cost for September $520,000
Beginning work-in-process costs:
Materials $308,000
Conversion $164
Required:
a) Prepare a production cost schedule for the Assembly Department at the end of September using the weighted average method of process costing.
b) Prepare the necessary journal entries.
a) Production Cost Schedule for the Assembly Department at the end of September using the weighted average method of process costing:
Units Materials ($). Conversion Costs ($)
Beginning work-in-process inventory (BWIP) 6,400 $328,320 $487,680
Units started 8,000 - -
Total units accounted for (BWIP + Units) 14,400 - -
Units completed 12,800 - -
Ending work-in-process inventory (EWIP) 1,600 - -
Equivalent Units of Production 14,400 - -
Cost per equivalent unit
Materials $22.83
Conversion costs - $91.67
Costs accounted for
Materials $292,800
Conversion costs - $1,173,333
Total costs $292,800 $1,173,333
b) Journal Entries:
1. To record the transfer of costs from beginning work-in-process inventory (BWIP) to production:
Debit: Work-in-Process Inventory (Assembly) - Materials: $328,320
Debit: Work-in-Process Inventory (Assembly) - Conversion Costs: $487,680
Credit: Beginning Work-in-Process Inventory (Assembly): $816,000
2. To record the transfer of costs from production to ending work-in-process inventory (EWIP):
Debit: Ending Work-in-Process Inventory (Assembly): $146,133.33 (Materials) + $586,200 (Conversion Costs)
Credit: Work-in-Process Inventory (Assembly) - Materials: $146,133.33
Credit: Work-in-Process Inventory (Assembly) - Conversion Costs: $586,200
3. To record the completion of units:
Debit: Finished Goods Inventory: $292,800 (Materials) + $1,173,333 (Conversion Costs)
Credit: Work-in-Process Inventory (Assembly) - Materials: $292,800
Credit: Work-in-Process Inventory (Assembly) - Conversion Costs: $1,173,333
Please note that the values in the production cost schedule and journal entries are based on the information provided and calculations specific to the weighted average method of process costing.
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what is the buffer quantity associated with the above question assuming that you need to have a 4 hour buffer quantity? _______________
I would love to help you with your question. However, there seems to be missing information or context that is required for me to accurately provide an answer.
Can you please provide more details or context about the question or the scenario in which it is being asked.That way, I can provide an accurate answer.I would be delighted to answer your query. However, it appears that further details or context are needed before I can answer in a way that is correct. Could you possibly provide us additional information about the query or the situation it is being asked in. I'll be able to respond with accuracy that way.
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Given that work center D capacity increased from 50 to 75. Now we need to calculate the hourly output improve (INCREMENTALLY) for product X. The buffer quantity associated with the above question, assuming that you need to have a 4-hour buffer quantity is 400 units.
To calculate the hourly output increase, we need to know the current hourly output for product X and the current capacity of work center D. So, let's say that the current hourly output of product X is 100 units, and the current capacity of work center D is 50 units per hour. Thus, the hourly output can be calculated by dividing the current hourly output by the current capacity of work center D:
Hourly output = Current hourly output / Current work center D capacity
= 100/50= 2 units per hour
Now, if the work center D capacity increased from 50 to 75 units per hour, the new hourly output of product X can be calculated as follows:
New hourly output = New work center D capacity * Hourly output per unit
= 75 * 2= 150 units per hour
Therefore, the hourly output would increase by 150 - 100 = 50 units per hour, incrementally. Buffer quantity associated with the above question assuming that you need to have a 4-hour buffer quantity: To calculate the buffer quantity, we need to multiply the hourly output by the buffer time, which is 4 hours. So, the buffer quantity associated with the above question is:
Buffer quantity = Hourly output * Buffer time= 100 * 4= 400 units
Hence, the buffer quantity associated with the above question, assuming that you need to have a 4-hour buffer quantity is 400 units.
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ILLUSTRATIVE EXAMPLE Record the following credit purchases transactions in the Creditors Journal of Topsy Traders for July 2010. Post to the relevant ledger accounts in the General Ledger and the Creditors Ledger. Prepare a creditors list on 31 July 2010. Balances/Totals on 1 July 2010: Creditors control........... Trading stock................ Equipment.. Consumable stores. Repairs Stationery. List of Creditors on 30 June 2010: Longwane Suppliers. Richy Dealers.......... WW Wholesalers.. **** Transactions: July 2010 6. R23 100 R17 500 R35 000 . R4 000 R8 500 R1 390 R10 000 R12 000 R1 100. 23100 R1 300 R220 10. Longwane Suppliers delivered the following per credit invoice no. 7865: Purchased the following from Richy Dealers and received credit invoice no. XX413: • trading goods....... • stationery. merchandise.... R1 500 .R5 400 ************ Office computer. NB: A trade discount of 10% must be deducted on merchandise supplied and thereafter R200 must be included for carriage on purchases. Office computer is not subject to carriage and trade discount. 16. WW Wholesalers supplied the following as per order note (invoice no. 381) cleaning materials. .R160 R120 paper for printer....... 20. AB Garage did repairs to the firm's delivery van. Received their credit invoice no. G310 for R1700.
In July 2010, Topsy Traders recorded several credit purchase transactions in their Creditors Journal. The transactions included purchases from Longwane Suppliers, Richy Dealers, and WW Wholesalers, as well as repairs by AB Garage. A trade discount of 10% was applied to merchandise purchases, and carriage costs were added to the purchases. The office computer purchase was not subject to carriage or trade discount. The transactions need to be recorded in the Creditors Journal, posted to the relevant ledger accounts in the General Ledger and Creditors Ledger, and a creditors list should be prepared.
In July 2010, Topsy Traders engaged in credit purchase transactions with various suppliers. The transactions recorded in the Creditors Journal include purchases from Longwane Suppliers and Richy Dealers, as well as repairs by AB Garage. WW Wholesalers also supplied cleaning materials and printer paper as per an order note.
To accurately record these transactions, Topsy Traders needs to enter the details of each transaction in the Creditors Journal, which serves as a subsidiary ledger for accounts payable. The relevant information such as the date, credit invoice number, and amounts for each transaction should be recorded.
Next, the entries from the Creditors Journal need to be posted to the relevant ledger accounts in the General Ledger and Creditors Ledger. Each transaction should be allocated to the appropriate accounts such as Trading Stock, Equipment, Repairs, Stationery, and the specific creditor accounts like Longwane Suppliers, Richy Dealers, and WW Wholesalers.
Finally, a creditors list should be prepared on 31 July 2010, which provides a summary of the amounts owed to each creditor as of that date. This list helps the company keep track of its outstanding liabilities and facilitates the management of its accounts payable.
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Istari Investigations is a corporation. Its stated purpose is to use magic as a supplement to traditional detective work in order to help private citizens with their personal problems. Additionally, Istari has powers to enter into contracts and buy or rent property in order to support its corporate purpose. One day, the Istari Board is contacted by Silmaril, Co., a mining company that also makes jewelry, about possibly merging the two corporations. The Istari Board votes in favor of the merger. This is an example of what? O Respondeat superior An ultra vires act O Good thinking O A corporation by estoppel
The example of a corporation merging with another company is known as an- B. ultra vires act.
What is an ultra vires act?An ultra vires act occurs when a company exceeds its legal authority or powers. If an act is ultra vires, it is unlawful and cannot be enforced. An ultra vires act, however, will often be valid if it falls under the company's implied powers. This term is typically used in company law to describe an act that is beyond a company's object or scope of business.
What is the meaning of Istari Investigations?Istari Investigations is a corporation that uses magic as a supplement to traditional detective work in order to help private citizens with their personal problems. Istari has the ability to enter into contracts and purchase or rent property in order to support its corporate purpose.
The Istari Board voted in favor of the merger, which is considered as an ultra vires act because the merger falls beyond Istari's stated purpose or scope of business.
Hence, option b. is correct.
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Suppose the highest return you can receive on your money is a 6
percent rate of interest from your bank. That interest is paid in
one lump sum at the end of each year for amounts deposited for the
ent
The highest return you can receive on your money is a 6 percent rate of interest from your bank, paid in one lump sum at the end of each year for amounts deposited for the entire year.
This means that if you deposit a certain amount of money in the bank and leave it there for the entire year, you will earn a 6 percent return on that amount at the end of the year. For example, if you deposit $1,000, you will earn $60 in interest ($1,000 x 6%).
The interest is calculated based on the principal amount, which is the initial amount of money you deposited. The interest is not compounded during the year, meaning it is not added to the principal to earn additional interest in subsequent periods.
It's important to note that the 6 percent interest rate is an annual rate. If you withdraw your money before the end of the year, you will not receive the full 6 percent return. The interest rate is also subject to change and may vary among different banks and financial institutions.
Overall, this scenario assumes a simple interest calculation where the interest is earned only on the principal amount and not reinvested or compounded. It provides a straightforward method for determining the return on your money based on the annual interest rate offered by your bank.
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Question 42 Multiple Choice ) (03.09 LC) Which of the following is the result of automatic fiscal stabilizers that help an economy recover from inflationary periods? O A one-time increase in taxes and decrease in government spending O An increase in tax revenue and a decrease in consumption spending O A one-time rebate on taxes and a decrease in government spending The decrease in income tax rates and an increase in unemployment payments The decrease in money supply and an increase in interest rates Question 38(Multiple Choice ) (01.02 MC) Assume that it takes 2 hours of labor to produce a unit of good X and 6 hours of labor to produce a unit of good Y. What is the opportunity cost of producing 2 units of good Y? O 1/6 unit of good X O2 units of good X O 4 units of good X O 6 units of good X Zero opportunity cost, if all the labor is currently employed
The correct option is B) An increase in tax revenue and a decrease in consumption spending.
The following is the result of automatic fiscal stabilizers that help an economy recover from inflationary periods :Explanation: Automatic fiscal stabilizers are policies that are already set up in advance to deal with economic conditions. They assist in stabilizing the economy and preventing it from overreacting to changes that are not serious.
The various automatic stabilizers include unemployment insurance, welfare payments, tax and benefit systems, and progressive taxation. During an economic downturn, automatic stabilizers will automatically increase government spending and decrease taxes, which will improve the situation and help the economy recover. Inflationary periods are periods when prices rise faster than wages, causing consumers to become more cautious about their purchasing habits.
As a result, there is a decrease in consumer spending, which can cause a recession. Automatic fiscal stabilizers, such as an increase in tax revenue and a decrease in consumption spending, can assist the economy in stabilizing and recovering.
Opportunity cost is the cost of an alternative that must be given up to achieve a goal. To determine the opportunity cost of producing 2 units of good Y, we must first determine the amount of labor required to produce 2 units of good Y. To produce one unit of good Y, 6 hours of labor are required; therefore, to produce 2 units of good Y, 12 hours of labor are required.
Opportunity cost = Cost of one product / cost of the other product So, to produce two units of good Y, the opportunity cost will be as follows:1. The cost of producing two units of good Y is 12 hours of labor.2. To determine the cost of good X, we will use the ratio of hours of labor required to produce good X and Y.
To produce one unit of good X, 2 hours of labor are required. Therefore, 6 units of good X will require 12 hours of labor. So, the opportunity cost of producing two units of good Y is 6 units of good X.Option A) 1/6 unit of good X is incorrect as the opportunity cost of producing two units of good Y is 6 units of good X.Option B) 2 units of good X is incorrect as the opportunity cost of producing two units of good Y is 6 units of good X.Option C) 4 units of good X is incorrect as the opportunity cost of producing two units of good Y is 6 units of good X.Option D) Zero opportunity cost, if all the labor is currently employed is incorrect as the opportunity cost of producing two units of good Y is 6 units of good X.
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the circular-flow diagram illustrates how households _____ goods and services and _____ factors of production [ resources]. group of answer choices buy; sell own; buy own; sell buy; buy
The circular-flow graphic demonstrates how families acquire products and services as well as the resources that go into their creation.
The market is shown in this graphic as a system of flows between households and businesses. enterprises get input from households in exchange for money, while families receive goods and services from enterprises in exchange for money.
A capitalist economy is an economic system in which capital goods are owned by private individuals or businesses. Capitalism emphasizes the role of the market in allocating resources and promoting economic growth.
The circular flow diagram illustrates the interactions between families and businesses on the markets for goods and services as well as the labor force. According to the arrows' orientation, families purchase products and services from businesses and receive them in the market for goods and services.
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In what type of test is the variable of interest the difference between the values of the observations rather than the observations themselves? Select one or more: a. a test of the equality of variances from 2 independent populations b. a test of the difference between the means of 2 related populations c. a test for of equality of variances from two related populations. d. a test of the difference between the means of 2 independent populations
A test of the difference between the means of 2 related populations is a type of test in which the variable of interest is the difference between the values of the observations rather than the observations themselves.
This is a common type of statistical test used to determine whether there is a significant difference between the means of two related populations. In this test, the variable of interest is the difference between the values of the observations, rather than the observations themselves.
This type of test is commonly used in experimental designs, where the same subjects are tested under different conditions. For example, a researcher may want to compare the effectiveness of two different treatments for a particular disease. In this case, the researcher would measure the response of each patient to both treatments and then calculate the difference between the responses.
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Intro You took out a student loan in college and now have to pay $1,500 every year for 5 years, starting one year from now. The annual interest rate on the loan is 4%. Attempt 2/3 for 10 pts. Part 1 What is the present value of the 5 yearly payments?
To calculate the present value of the 5 yearly payments, we need to discount each payment back to its present value using the annual interest rate.
Given:
- Yearly payment: $1,500
- Number of years: 5
- Annual interest rate: 4%
We can use the present value formula for an ordinary annuity to calculate the present value of the payments:
Present Value = Payment × [1 - (1 + interest rate)^(-number of years)] / interest rate
Plugging in the values:
Present Value = $1,500 × [1 - (1 + 0.04)^(-5)] / 0.04
Calculating the value inside the brackets first:
(1 + 0.04)^(-5) = 0.8227
Now, calculating the present value:
Present Value = $1,500 × [1 - 0.8227] / 0.04
Present Value = $1,500 × 0.1773 / 0.04
Present Value = $6,654.75
Therefore, the present value of the 5 yearly payments is approximately $6,654.75.
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Municipal bonds are OA. short-term debt securities issued by provincial government agencies. OB. long-term debt securities issued by provincial government agencies. OC. short-term debt securities issued by federal government agencies. OD. long-term debt securities issued by local government agencies.
OB. long-term debt securities issued by provincial government agencies.
Municipal bonds are long-term debt securities issued by local or state government agencies, not federal government agencies. These bonds are typically used to finance public infrastructure projects such as schools, hospitals, roads, and water systems.
Municipal bonds are considered relatively safe investments because they are backed by the taxing authority of the issuing government entity. They offer tax advantages to investors, such as exemption from federal income tax and, in some cases, state and local taxes.
Municipal bonds usually have maturities ranging from a few years to several decades, making them long-term investments. Therefore, option OB accurately describes municipal bonds as long-term debt securities issued by provincial government agencies.
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Kiegan O'Sullivan's mother, Maeve, died in 2021. Kiegan was named the designated beneficiary of Maeve's Roth IRA. The rules for distributions from an inherited Roth IRA allow for Kiegan to take withdrawals over:
The period Kiegan chooses, but subject to the 10% early distribution penalty if he is under age 59½.
Ten years after the year of Maeve's death.
Maeve's remaining life expectancy.
Kiegan's expected life span.
The option that best answers the question is the first option: The period Kiegan chooses, but subject to the 10% early distribution penalty if he is under age 59½.
Kiegan O'Sullivan's mother, Maeve, died in 2021. Kiegan was named the designated beneficiary of Maeve's Roth IRA. The rules for distributions from an inherited Roth IRA allow for Kiegan to take withdrawals over the period Kiegan chooses, but subject to the 10% early distribution penalty if he is under age 59½. The rules for distributions from an inherited Roth IRA allow the designated beneficiary to withdraw money from the account over the period they choose, but they are subject to the 10% early distribution penalty if they are under age 59½. This means that Kiegan O'Sullivan can take withdrawals from Maeve's Roth IRA at any time over any duration he chooses, but if he is under 59½ years old, he will be subjected to a 10% early distribution penalty.
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D Question 7 3 pts An increase in the price of a good causes an increase in the consumption of that good. a parallel rightward shift of the budget line. O a change in the slope of the budget line. O a rightward shift of the demand curve for that good. D Question 8 3 pts Limited liability is a benefit to corporations. All of the above O sole proprietorships. O partnerships.
Question 7: An increase in the price of a good causes a rightward shift of the demand curve for that good. Question 8: Limited liability is a benefit to corporations, sole proprietorships, and partnerships.
Question 7: When the price of a good increases, consumers generally reduce their demand for that good due to the substitution effect. As the price becomes relatively higher compared to other goods, consumers are likely to seek alternatives or reduce their consumption. This leads to a leftward shift of the demand curve, indicating a decrease in quantity demanded. Therefore, the statement provided is incorrect.
Question 8: Limited liability is a legal concept that protects the personal assets of business owners or shareholders from being used to settle business debts or liabilities. It is a benefit afforded to corporations, sole proprietorships, and partnerships. In the case of corporations, shareholders have limited liability, meaning their personal assets are separate from the corporation's liabilities. Similarly, in the case of sole proprietorships and partnerships, the owners have limited liability, protecting their personal assets from business obligations. Limited liability encourages entrepreneurship and investment by providing a level of financial security to business owners.
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A financial institution has just bought 6-month European call options on the Chinese yuan. Suppose that the spot exchange rate is 14 cents per yuan, the exercise price is 15 cents per yuan, the risk-free interest rate in the United States is 2% per annum, the risk-free interest rate in China is 4% per annum, and the volatility of the yen is 12% per annum. Calculate the gamma of the financial institution's position. Check the accuracy of your gamma estimate for a 0.1 cent increase 50 bsp in yuan. yen
Gamma, as defined by the Black-Scholes model, is the second partial derivative of the option price with respect to the spot exchange rate and it represents the rate at which delta changes with the underlying asset price.
According to the Black-Scholes model, the formula to calculate gamma is given as:$$\gamma= \frac{\partial^2C}{\partial S^2}=\frac{e^{-r_ft}\phi(d_1)}{S\sigma \sqrt{t}}$$$$\text{where,}$$$$d_1 = \frac{\ln(\frac{S}{E}) + (r_f - r_c + \frac{1}{2}\sigma^2)t}{\sigma \sqrt{t}}$$$$\phi(d_1) = \frac{1}{\sqrt{2\pi}}\int_{-\infty}^{d_1}e^{-\frac{z^2}{2}}dz$$
Here,C = price of the option S = spot exchange rate E = exercise pricet = time to maturityr_f = risk-free interest rate in the USr_c = risk-free interest rate in Chinad_1 = parameter from the Black-Scholes formula φ(d1) = standard normal cumulative distribution function evaluated at d1.
Substituting the given values, we get:d1 = (ln(14/15) + (0.02 - 0.04 + 0.5 x 0.12²) x 0.5) / (0.12 x sqrt(0.5))= -0.3895φ(d1) = 0.3487$$\gamma = \frac{e^{-r_ft}\phi(d_1)}{S\sigma \sqrt{t}}=\frac{e^{-0.02x0.5} x 0.3487}{14 x 0.12 x sqrt(0.5)}$$$$\gamma ≈ 0.0053$$. When the spot exchange rate is increased by 0.1 cent per yuan, the new spot exchange rate will be 14.1 cents per yuan.
We can calculate the new delta using the Black-Scholes model as follows:$$d_1 = \frac{\ln(\frac{14.1}{15}) + (0.02 - 0.04 + \frac{1}{2}0.12^2) x 0.5}{0.12 x sqrt(0.5)}$$$$d_1 ≈ -0.3206$$$$\phi(d_1) = 0.3786$$. Therefore, the new price of the option is given by:$$C = S\phi(d_1) - Ee^{-r_ft}\phi(d_2)$$$$d_2 = d_1 - \sigma\sqrt{t}$$$$\text{. Substituting the given values, we get:}$$$$d_2 ≈ -0.6484$$$$C ≈ 0.257$$. The new delta is given by the following formula:$$\Delta = e^{-r_ct} \phi(d_1) ≈ 0.3487$$.
Thus, the estimated gamma of the financial institution's position is:$$\gamma x \Delta x 0.001 = 0.0053 x 0.3487 x 0.001 = 0.00000185$$This estimate of gamma is accurate for a 0.1 cent increase (50 bps) in the yuan.
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Transmission and Amplification Mechanisms: End of Chapter Problem a. In the accompanying figure, about how long does it take for an oil price shock to have its biggest impact on the economy? quarters b. How long does it take before the oil shock's effects completely go away? quarters c. What might be happening in the labor market that might explain why it takes so long for an oil shock to do its worst? The effects of an oil shock take time to cascade through varying sectors in the economy. If an oil price shock causes gasoline to be more or less expensive, people will adjust their driving habits and car choices. Not all firms use oil, so not all sectors are affected. Oil price shocks can lead to worker layoffs, but these layoffs by firms can take time to initiate and implement.
Transmission and amplification mechanisms play a critical role in explaining the propagation of oil price shocks throughout the economy.
a) The time it takes for the oil price shock to have its biggest impact on the economy is quarters. The oil price shock takes time to get transmitted and amplified through various sectors of the economy, resulting in changes in production, consumption, and employment patterns.
b) The duration before the oil shock's effects completely go away is quarters.
c) One of the possible explanations for why it takes so long for an oil shock to do its worst could be the slow adjustment of wages. An oil price shock could lead to a decrease in demand for goods and services, resulting in lower wages, which in turn leads to a decrease in aggregate demand. The slow adjustment of wages may result in the maintenance of previous wages, leading to a fall in profit margins, and thus, the businesses may take some time to adjust to new circumstances.
The oil price shock transmission mechanism describes how changes in oil prices are passed through the various sectors of the economy, affecting production, employment, consumption, and trade patterns. Amplification mechanisms are processes through which the initial impact of oil price shocks gets magnified, resulting in more significant effects on the economy. Amplification mechanisms might include the effects of increased uncertainty on investment and consumption decisions.
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7. Which costs that you should be considered and included in your analysis when deciding om of action: a) Relevant cost b) Irrelevant cost c) Actual cost d) Standard cost
8. An increase in fixed cost results is: a) Increase in margin of safety. b) Increase in P/V Ratio. c) Increase in Break-even point. d) Increase in contribution.
9. Average cost is usually known as: a) Variable cost b) Mix cost c) Unit cost d) Relevant cost
10. Which of the following is not an assumption of Break-even analysis: a) Total fixed cost. b) Total variable cost. c) Sale price per unit d) Variable cost per unit.
7. Relevant costs and actual costs should be considered and included in the analysis, while irrelevant costs and standard costs may be excluded.
8. An increase in fixed costs results in an increase in the break-even point.
9. Average cost is usually known as unit cost.
10. The assumption of Break-even analysis not listed is the sale price per unit.
7. The costs that should be considered and included in your analysis when deciding on a course of action are:
a) Relevant costs: These are costs that are directly related to the decision being made and will change depending on the alternative chosen. Relevant costs should be considered because they have an impact on the decision-making process.
b) Irrelevant costs: These are costs that do not change with the different alternatives and therefore do not affect the decision. Irrelevant costs should be excluded from the analysis as they do not provide useful information for decision-making.
c) Actual costs: These are the costs that have actually been incurred and are known with certainty. Actual costs should be considered as they provide a realistic view of the financial impact of the decision.
d) Standard costs: These are predetermined costs that are established based on past data or industry standards. Standard costs are used for planning and control purposes and can be compared to actual costs to evaluate performance.
8. An increase in fixed costs results in:
c) Increase in Break-even point. Fixed costs are costs that do not change with the level of production or sales. An increase in fixed costs will shift the break-even point higher, meaning that the company will need to sell more units or generate more revenue to cover its fixed costs and start making a profit.
9. Average cost is usually known as:
c) Unit cost. Average cost is the total cost divided by the number of units produced or sold. It represents the cost per unit and is used to determine the cost of producing or selling each individual unit.
10. The assumption of Break-even analysis that is not listed is:
c) Sale price per unit. Break-even analysis assumes that the sale price per unit remains constant. It focuses on analyzing the relationship between fixed costs, variable costs, and the break-even point, without considering changes in the selling price per unit.
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A consumer's utility function is given by U-x2/3 1/3, where X and Y denote quantities of two goods with prices Px and Py; income is I. A. For the above utility function, does good X exhibit diminishing marginal utility? Briefly but carefully justify your response using calculus. B. Using calculus, derive an expression (formula) for the MRS of X for Y for this utility function. Be sure to show all your work. C. Derive the demand function for good X Show all your work. [You do not need to derive the demand function for Y.J D. (1) Let X* denote the optimal quantity of good X, derive the expression/value for the comparative static derivative, ax*/ apy, and (ii) given your express indicate whether X and Y are substitutes or complements or something else for this consumer.
A. To determine whether good X exhibits diminishing marginal utility, we need to analyze the marginal utility function. The given utility function is U = (X^(2/3) * Y^(1/3)).
Taking the partial derivative of U with respect to X, we get:
dU/dX = (2/3) * (X^(-1/3)) * (Y^(1/3))
To assess whether X exhibits diminishing marginal utility, we need to examine the sign of the derivative dU/dX. Since the exponent on X is negative (X^(-1/3)), this implies that as X increases, the marginal utility of X decreases. Therefore, good X does exhibit diminishing marginal utility.
B. The marginal rate of substitution (MRS) of X for Y is given by the ratio of the marginal utilities of X and Y. To derive the expression for MRS, we need to calculate the partial derivatives of U with respect to X and Y.
MRS = (dU/dX) / (dU/dY)
From part A, we know that dU/dX = (2/3) * (X^(-1/3)) * (Y^(1/3)). Taking the partial derivative of U with respect to Y, we get:
dU/dY = (1/3) * (X^(2/3)) * (Y^(-2/3))
Therefore, the expression for MRS is:
MRS = [(2/3) * (X^(-1/3)) * (Y^(1/3))] / [(1/3) * (X^(2/3)) * (Y^(-2/3))]
Simplifying, we get:
MRS = 2 * (Y/X)
C. To derive the demand function for good X, we need to consider the consumer's optimization problem, where they maximize utility subject to their budget constraint.
The budget constraint is given by Px * X + Py * Y = I, where Px is the price of good X, Py is the price of good Y, and I is the consumer's income.
The consumer's optimization problem can be stated as:
Maximize U = (X^(2/3)) * (Y^(1/3))
Subject to: Px * X + Py * Y = I
To solve this problem, we can use the Lagrange multiplier method. The Lagrangian function is:
L = (X^(2/3)) * (Y^(1/3)) - λ * (Px * X + Py * Y - I)
Taking partial derivatives with respect to X, Y, and λ, and setting them equal to zero, we can solve for X in terms of Px, Py, and I. The resulting demand function for good X will depend on the specific values of Px, Py, and I.
D. (1) To find the comparative static derivative ax*/apy, we need to take the derivative of the demand function for good X with respect to the price of good Y, Py. This will give us the sensitivity of the optimal quantity of X, X*, to changes in the price of Y.
The sign of ax*/apy will indicate whether X and Y are substitutes or complements for the consumer. If ax*/apy > 0, X and Y are substitutes. If ax*/apy < 0, X and Y are complements. If ax*/apy = 0, X and Y are independent.
To calculate ax*/apy, we need the specific demand function for good X derived in part C and take the derivative with respect to Py.
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Which of the following is TRUE regarding ESTIMATION OF PROJECT
CASH
FLOWS?
Question content area bottom
Part 1
A.
Increases in net working capital increase a project's cash
flows.
B.
Whenever a
Answer:Increases in net working capital increase a project's cash flows
Explanation:
The correct statement regarding the estimation of project cash flows is that Increases in net working capital increase a project's cash flows.
How does net working capital affect project cash flow?
The total amount of a company's current assets is its net working capital. Among other things, the current assets include cash, receivables, and inventory. On the other hand, current liabilities are deducted from current assets, including accounts payable, accumulated obligations, and taxes due the next year. The net working capital change resulting from a project is its working capital.The following are some instances of how working capital affects project cash flow:Net working capital increase: The net growth in working capital reduces the cash flow.
For instance, an increase in accounts receivable from project sales or an increase in inventory required for the project may result in a net rise in working capital.Net working capital decline A net reduction in working capital will result in an improvement in cash flow. A decrease in inventory or an increase in accounts payable could both lead to a net decrease in working capital.
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At the beginning of the current year, AAE Company issued 10,000 ordinary shares of P20 par value and 20,000 convertible preference shares of P20 par value for a total of P800,000.
At this date, the ordinary share was selling for P36 and the convertible preference share was selling for P27.
A.) What amount of the proceeds should be allocated to the preference shares?
B.)What amount of the proceeds should be allocated to the ordinary shares?
C.)What is the share premium from the issuance of preference shares?
D.)What is the share premium from the issuance of ordinary shares?
A.) The amount of the proceeds to be allocated to the preference shares is P336,842.B.) The amount of the proceeds to be allocated to the ordinary shares is P126,315.C.) The share premium from the issuance of preference shares is P140,000.D.) The share premium from the issuance of ordinary shares is P160,000.
At the beginning of the current year, AAE Company issued 10,000 ordinary shares of P20 par value and 20,000 convertible preference shares of P20 par value for a total of P800,000. At this date, the ordinary share was selling for P36 and the convertible preference share was selling for P27.
A.) The amount of the proceeds that should be allocated to the preference shares is calculated as follows:
The amount of preference shares issued = 20,000
The value of preference shares = P20 par value
Total value of preference shares issued = P20 * 20,000 = P400,000
Proceeds received from preference shares issued = P800,000
The amount of the proceeds to be allocated to preference shares can be calculated using the following formula:
Allocation to preference shares = (Total value of preference shares issued / Total value of shares issued) * Proceeds received from shares issued
Allocation to preference shares = (400,000 / (400,000 + (10,000 * 20))) * 800,000
Allocation to preference shares = 42.10% Allocation to preference shares = P336,842
B.) The amount of the proceeds that should be allocated to the ordinary shares is calculated as follows:
Amount of ordinary shares issued = 10,000
The value of ordinary shares = P20 par value
Total value of ordinary shares issued = P20 * 10,000 = P200,000
Proceeds received from ordinary shares issued = P800,000
The amount of the proceeds to be allocated to ordinary shares can be calculated using the following formula:
Allocation to ordinary shares = (Total value of ordinary shares issued / Total value of shares issued) * Proceeds received from shares issued
Allocation to ordinary shares = (200,000 / (400,000 + (10,000 * 20))) * 800,000
Allocation to ordinary shares = 15.79% * 800,000Allocation to ordinary shares = P126,315
C.) The share premium from the issuance of preference shares can be calculated as follows:
Total value of preference shares issued = P400,000
Proceeds received from preference shares issued = P336,842
Par value of preference shares = P20 per share
Amount received above par value = P27 - P20 = P7 per share
Total share premium on preference shares = Amount received above par value * Total number of preference shares issued
Total share premium on preference shares = P7 * 20,000
Total share premium on preference shares = P140,000
D.) The share premium from the issuance of ordinary shares can be calculated as follows:
Total value of ordinary shares issued = P200,000
Proceeds received from ordinary shares issued = P126,315Par value of ordinary shares = P20 per share
Amount received above par value = P36 - P20 = P16 per share
Total share premium on ordinary shares = Amount received above par value * Total number of ordinary shares issued
Total share premium on ordinary shares = P16 * 10,000
Total share premium on ordinary shares = P160,000
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Case study ‘Asha’s is a restaurant chain headquartered in Bahrain and operating in Saudi Arabia and Oman. This popular restaurant chain serves award winning Authentic Indian cuisine. The interior of the restaurant has been featured in the magazines for the Aesthetics. The restaurant not only attract Indians, but also other nationalities who love Indian food as well people who are fascinated by the display of artefacts reflecting Indian culture, dance forms, festivals, and traditions. Asha’s was voted as the ‘Diners choice of the year award 2019’. It is already being recognized as one of the most successful food businesses in Saudi Arabia. Although being criticized for being expensive and with limited menu options for vegetarians and vegans, ‘Asha’s’ attract Indian food lovers who would not mind spending more for a luxury dining experience. Asha’s offers wide varieties of Indian delicacies, beverages, and desserts. For promoting the local businesses, Asha’s buys most of the ingredients from Bahrain like milk from Awal Diary, egg from Bahrain Eggs, fresh vegetables from Farmers in Bahrain. However, the exclusive spices and other ingredients are shipped from India. A well-designed website helps you to order your food online, customize your food and book a table etc. Like many other businesses, Asha’s had a fall in revenue during COVID – 19 pandemic. During the lockdown, when Dine in option was restricted, Asha’s started their delivery services through the website ordering and listed themselves on the e- commerce platforms like Talabat and Uber eats. However, the increased in VAT (taxes) that need to be paid to the Govt since January 2022 may cause more issues to the financial situation. Asha’s have agreements with only one supplier for the spices and during the pandemic, there were delays in getting the items shipped to Bahrain. Currently they are demanding for increase in the prices of the spices. Asha’s is planning to enter the market of ‘Ready to eat’ meals under the same brand name. Additionally, a partnership deal is signed with a company in UAE and Kuwait to develop a franchisee network. However, not much is known about the success in those markets which already have many successful Indian themed Restaurants.
B.3 Strategies to become global Companies (3 marks) (A1, C1, C3) Read the case carefully. Several strategies adopted by ‘Asha’s to become a global/ international company has been mentioned in the case. Identify any TWO of those strategies and fill in the table below. One example has been done for you:
(a) Name of the Strategy
(b) Meaning/ definition of the Strategy
(c) Example from the case Global outsourcing Buying martials/ parts or components from a country where its available for cheaper cost and good quality. Exclusive spices and other ingredients are shipped from India 1. 2.
B.4 Managerial decision Making:
You are the Purchase Manager of a company. You have been asked to buy Smart phones for your sales team. The budget should not exceed BHD 150.00. Based on your study of the decision-making process, how would take a decision on choosing a Smart phone that can serve their needs? Fill in the table below and explain every step in a clear, detailed, and focused manner. Steps Complete the steps based on your situation 1 Identifying the managerial Problem Buying a new …. For the sales team 2 3 4 5 6 The end of the exam
B.3 Strategies to become global Companies. Two of the strategies adopted by Asha's to become a global/international company are:1. Franchisee Network. The franchisee network is one of the strategies that help companies expand and reach customers in different regions.
Asha's has partnered with a company in UAE and Kuwait to develop a franchisee network. It is a way to open a restaurant in another country under the same brand name. Franchising makes it easier to expand a brand by spreading the risk and cost of expansion to the franchisee.2. Online OrderingAshas's has a well-designed website that helps customers order their food online, customize their food, and book a table, among other things. During the pandemic, Asha's started their delivery services through website ordering and listed themselves on e-commerce platforms like Talabat and Uber eats. Online ordering makes it easier for customers to place orders and for the company to manage orders without any errors. It can be a good way for companies to reach customers beyond their physical location.B.4 Managerial Decision Making:Steps Explanation1 Identifying the managerial problem The problem is to buy smartphones for the sales team within a budget of BHD 150. The solution must serve their needs and be within budget.2 Identifying the decision criteria The decision criteria include the features required in the smartphone, such as battery life, camera quality, screen size, and storage capacity. Other criteria can be the brand name, warranty, and after-sales service.3 Allocating weights to the criteria Assign weights to each criterion to reflect its importance in the decision. For example, camera quality can be given a higher weight if the sales team requires it for their work.4 Developing alternatives Develop a list of smartphone models that meet the decision criteria and are within the budget. This can be done by conducting research and comparing various models.5 Evaluating alternatives Evaluate each alternative against the decision criteria. This can be done by assigning a score to each criterion based on how well the smartphone meets the criterion.6 Selecting the best alternative Based on the scores, select the smartphone that has the highest overall score and is within budget. This will be the best alternative for the sales team.
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Applying the BPR principles (i.e., Step A and B), re-engineer the business process and justify the improvements/technology solutions proposed.
Step A: Understanding the Existing Business Process
Identify the current business process: Analyze the current process and document its workflow, activities, inputs, outputs, and stakeholders involved.Identify pain points and inefficiencies: Identify bottlenecks, delays, redundancies, errors, and other issues in the current process that hinder productivity and effectiveness.Gather feedback and insights: Engage stakeholders, including employees, managers, and customers, to gather their perspectives on the current process and identify areas for improvement.Step B: Re-engineering the Business Process
Define the goals and objectives: Clearly define the desired outcomes and objectives of the re-engineered process. This could include improving efficiency, reducing costs, enhancing customer satisfaction, or increasing agility.Redesign the process: Based on the analysis of the existing process and feedback gathered, redesign the process to eliminate inefficiencies and address pain points. This may involve simplifying steps, automating manual tasks, and reorganizing responsibilities.Incorporate technology solutions: Identify and justify the technology solutions that can support the re-engineered process. This may include implementing workflow automation tools, customer relationship management systems, or data analytics platforms.Justify the improvements: Justify the proposed improvements and technology solutions based on their expected benefits. This could include improved productivity, reduced errors, faster turnaround times, enhanced data visibility, or better customer experience.Develop an implementation plan: Outline a detailed plan for implementing the re-engineered process and technology solutions. Consider factors such as change management, training, resource allocation, and timelines.Monitor and evaluate: Establish metrics and performance indicators to monitor the effectiveness of the re-engineered process. Continuously evaluate the outcomes and make necessary adjustments to ensure ongoing improvement.By applying these BPR principles (Step A and B), organizations can identify inefficiencies, redesign processes, and introduce technology solutions that can lead to significant improvements. The justification of proposed improvements and technology solutions lies in their ability to address pain points, streamline operations, enhance productivity, and achieve desired outcomes. It is crucial to involve stakeholders, gather feedback, and continuously monitor the implemented changes to ensure sustained success.
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which type of tax is used to finance the social security program in the united states?
The type of tax used to finance the Social Security program in the United States is known as Payroll Tax.
Social Security is a federally funded retirement, disability, and survivors' benefits program that is funded by payroll taxes. Workers in the United States pay a tax to fund the Social Security program, which is deducted from their paychecks. Payroll tax contributions by employees, employers, and the self-employed are used to fund the program. However, it should be noted that Social Security is not funded through general tax revenue. Instead, it is financed by the Payroll Tax.
Payroll taxes are paid by employees, employers, and the self-employed to fund Social Security, Medicare, and other social insurance programs. Payroll taxes are calculated as a percentage of the employee's income, and they are paid equally by employers and employees.Payroll taxes are split between Social Security and Medicare, with 6.2 percent of the tax going to Social Security and 1.45 percent going to Medicare. In total, payroll taxes fund about two-thirds of the Social Security program.
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Suppose a perfectly competitive paper firm can produce 10 tons of paper at an output level where marginal revenue is equal to marginal cost. The price per ton of paper is $100 and the average total cost is $75. How much is the maximized profit? Answer: The maximized profit = $_
The maximized profit of the perfectly competitive paper firm is $250.
Here's the solution: Given information: Price per ton of paper = $100Marginal cost = marginal revenue Output level at which marginal revenue is equal to marginal cost = 10 tons Average total cost = $75Profit = Revenue - Cost Revenue = Price x Quantity Marginal cost is equal to the average total cost at an output level where profit is maximized.
Hence, MC = ATC MC = $75 for 10 tons of output. P = $100 for 10 tons of output. Revenue = P x Q = $100 x 10 = $1000Total cost = ATC x Q = $75 x 10 = $750Profit = Revenue - Cost = $1000 - $750 = $250Therefore, the maximized profit of the perfectly competitive paper firm is $250.
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An article that appeared in March 2022 had the following headline, "South Africa wants single African currency to boost intra continental trade", HE Various criteria that predict the success of a currency area have been identified Discuss these criteria with reference to the proposal of establishing a single African currency backed by the continent's central bank and monetary institute psi 1) The headline mentions a possible benefit of joining a currency union However, various costs have also been identified in the iterature Briefly discuss these costs no)
The proposal of establishing a single African currency backed by the continent's central bank and monetary institute raises important considerations regarding the potential benefits and costs of joining a currency union. While the headline suggests that such a union could boost intra-continental trade, it is essential to examine the criteria that predict the success of a currency area and consider the associated costs.
One of the key criteria for a successful currency area is economic convergence among participating countries. This refers to the alignment of economic indicators such as inflation rates, fiscal policies, and business cycles. Without sufficient convergence, countries may face challenges in maintaining a stable currency union. In the case of Africa, where countries have diverse economic structures and levels of development, achieving this convergence could be a significant hurdle.
Another criterion is the existence of a strong institutional framework to support the currency union. This includes the establishment of a central bank and monetary institute with sufficient independence and credibility to manage monetary policy effectively. It also requires robust fiscal coordination mechanisms to address potential fiscal imbalances among member countries. Developing such institutions across the African continent would require significant effort and cooperation.
Additionally, a currency union entails surrendering monetary policy autonomy. Participating countries would no longer have the flexibility to adjust interest rates or exchange rates to address specific economic challenges. This loss of flexibility can limit the ability of individual countries to respond to economic shocks or implement tailored policies. It requires a high level of trust and coordination among member countries to ensure effective decision-making and policy coordination within the union.
Furthermore, currency unions can expose member countries to spillover effects and risks from other economies. For instance, if one country experiences a financial crisis or economic downturn, it can impact other member countries, potentially leading to financial instability and contagion effects. Therefore, it is crucial to consider the potential risks and vulnerabilities associated with a currency union, particularly in regions with diverse economic structures and levels of resilience.
In conclusion, while a single African currency backed by the continent's central bank and monetary institute may offer benefits such as boosting intra-continental trade, it is important to carefully consider the criteria that predict the success of a currency area. Economic convergence, strong institutional frameworks, policy coordination, and the potential costs and risks associated with surrendering monetary policy autonomy are all crucial factors to assess in evaluating the viability of such a currency union.
Note: The information provided here is for general informational purposes only and does not constitute financial or investment advice.
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(a) Explain right issue of shares and bonus shares.
(5 marks)
(b) Identify and briefly explain any FOUR (4) types of preference
shares
capital.
(5 marks)
(a) Right Issue of shares and Bonus sharesThe right issue of shares is a process through which a company can raise additional capital by issuing new shares to its existing shareholders. When a company requires more capital than it can generate from its existing reserves or sources, it can issue new shares.
However, the company first offers these new shares to its existing shareholders before offering them to the public. In this way, the right issue of shares enables existing shareholders to purchase additional shares at a discounted price.Bonus shares are additional shares distributed by a company to its existing shareholders without any cost.
They are also known as “scrip dividends” or “capitalization issues.” They are usually distributed to shareholders when the company has accumulated large reserves or profits but doesn't want to distribute them as cash dividends. In this way, bonus shares increase the total number of shares outstanding, but the ownership percentage of the shareholders remains the same.(b) Types of preference sharesThe different types of preference shares are as follows:Convertible preference shares: They can be converted into equity shares at a predetermined conversion rate
.Non-convertible preference shares: They can't be converted into equity shares and only provide the holder with a fixed dividend rate.Cumulative preference shares: They accumulate any unpaid dividends from previous years and pay them in the current year.
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Consider the valuation of a share of common stock that paid a Php 2 dividend at the end of last year and is expected to pay a cash dividend every year from now to infinity. Each year, the dividends are expected to grow at a rate of 10%. Based on an assessment of the riskiness of the common stock, the investor’s required rate of return is 15%. What is the value of this common stock?
If Jollibee Foods, Inc.’s net income is P200 million, its common equity is P833 million, and the management plans to retain 70% of the firm’s earnings to finance new investments, what would be the growth rate?
The growth rate of Jollibee Foods, Inc. is 16.8%.
To calculate the price of the share of common stock, we can use the Gordon growth model, which is as follows:
Current Price of Stock = Dividend in the current period / (Discount rate - Expected growth rate)
Given:
Dividend at the end of last year = Php 2
Growth rate of dividend (g) = 10%
Required rate of return (k) = 15%
Calculations:Price of Stock = 2 / (15%-10%) = 2/0.05 = Php 40
Hence, the value of this common stock is Php 40.
To calculate the growth rate, we can use the retention growth model, which is as follows:
Growth rate = Retained Earnings / Common Equity
Given: Net Income (NI) = P200 million
Common Equity (CE) = P833 million
Retention ratio (RR) = 70%
Calculations: Retained Earnings (RE) = NI x RR= P200 million x 0.70= P140 million
Growth rate = P140 million / P833 million= 0.168 or 16.8%
Therefore, the growth rate of Jollibee Foods, Inc. is 16.8%.
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True or false a monopolistically competitive firm may be able to distinguish itself from other firms by adjusting the physical attributes of its product, by offering a distinctive level of service, or by selecting a convenient location.?
"A monopolistically competitive firm may be able to distinguish itself from other firms by adjusting the physical attributes of its product, by offering a distinctive level of service, or by selecting a convenient location" is True.
Monopolistic competition is a market system in which numerous companies sell related, but not identical, goods or services. They strive to distinguish themselves from one another through branding, advertising, and other promotional tactics. However, their goods and services are similar enough that they compete against one another, driving down prices. As a result, firms in a monopolistically competitive market have some control over their pricing and can make profits in the short run. However, they are unable to sustain those profits over time because new companies are drawn to the market, diluting the demand for each company's goods or services.
A monopolistically competitive firm can set its own prices, but only to a certain extent. Firms in this market must engage in extensive branding and advertising efforts to differentiate their products from those of their competitors. The objective is to persuade consumers that a particular company's goods or services are superior to those of its rivals.Therefore, a monopolistically competitive firm may be able to distinguish itself from other firms by adjusting the physical attributes of its product, by offering a distinctive level of service, or by selecting a convenient location.
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What do you mean by ‘Information Rent’ in contract design? If agents are boundedly self-interested (i.e., they have social preferences), instead of selfinterested, what would happen to the volume of information rent and why? Explain with an example.
Information rent refers to the economic surplus that arises from an agent's possession of private information in a contractual relationship. It occurs when one party has access to information that is valuable to the other party but not easily observable or verifiable. In contract design, information rent can be seen as a mechanism to incentivize agents to reveal their private information and align their interests with the overall goals of the contract.
If agents are boundedly self-interested, meaning they have social preferences and take into account the welfare of others, the volume of information rent is likely to decrease compared to when agents are purely self-interested. This is because agents with social preferences may be more willing to share their private information for the benefit of the collective outcome, rather than exploiting the information asymmetry for personal gain.
To illustrate this, let's consider an example of a principal-agent relationship. Suppose a principal wants to hire an agent to manage a project on their behalf. The agent has private information about their ability and effort level, which will affect the project's success. The principal offers a contract to the agent that includes a base salary and a performance-based bonus tied to the project's outcome.
In the case of self-interested agents, the agent may withhold their private information and exert lower effort to secure a higher bonus or reduce the risk of penalties. This behavior can result in a higher information rent for the agent. The principal may offer a higher bonus to incentivize the agent to reveal their ability, resulting in a larger economic surplus for the agent.
On the other hand, if the agents have social preferences, they may be more willing to reveal their ability and exert higher effort, even if it means a lower personal payoff. They consider the welfare of the principal and the success of the project as part of their utility function. In this scenario, the principal may be able to offer a lower bonus since the agent's intrinsic motivation to contribute to the collective outcome is stronger. As a result, the volume of information rent decreases.
In contract design, the presence of agents with social preferences can lead to a decrease in the volume of information rent. Agents who value social welfare alongside their own interests are more likely to reveal their private information and cooperate for the benefit of the collective outcome. This reduced information rent can result in more efficient and mutually beneficial contractual relationships.
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ABC Company has purchased 120 tones of special fabrics from an annual exhibition in China. The cost of the fabric is $3500 per ton. The company can avail 10-day shipping or 32-day shipping to transport the fabrics from China to Bangladesh. Freight cost for 10-day shipping is $190 per ton, while it is $135 per ton via 32-day shipping. The annual inventory-carrying cost is 30% of the cost of the fabrics. ABC wants to decide on the mode of shipping alternatives. Evaluate and find the best shipping alternatives.
ABC Company has purchased 120 tons of special fabrics from China and needs to decide between two shipping alternatives: 10-day shipping with a cost of $190 per ton or 32-day shipping with a cost of $135 per ton.
The company also incurs an annual inventory-carrying cost of 30% of the fabric's cost. The goal is to evaluate the shipping alternatives and determine the best option for ABC Company. To find the best shipping alternative for ABC Company, we need to consider the total cost of each option, including the cost of the fabric, freight cost, and the annual inventory-carrying cost.
For the 10-day shipping option, the total cost per ton would be the sum of the fabric cost ($3500), freight cost ($190), and the inventory-carrying cost (30% of $3500). Similarly, for the 32-day shipping option, the total cost per ton would be the fabric cost ($3500), freight cost ($135), and the inventory-carrying cost (30% of $3500). By calculating the total cost for both options, we can compare and determine which alternative is more cost-effective. Multiplying the cost per ton by the total weight of 120 tons will give us the total cost for each shipping alternative.
Once we have the total costs, we can compare them and select the shipping alternative with the lower overall cost as the best option for ABC Company. The company should consider factors such as budget, urgency of delivery, and the impact of inventory-carrying costs on its decision-making process. It is important to note that this analysis assumes that there are no additional costs or considerations, such as potential delays, insurance, or customs fees. Those factors should also be taken into account when making the final decision.
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It is estimated that a certain piece of equipment can produce savings of $22,000 per year, with a life expectancy of 5 years and a salvage value of $8,000. If the company needs to obtain a return on investment of 10% per year, what is the price of the equipment that justifies the investment?
To justify the investment in a piece of equipment, we need to calculate its price based on the desired return on investment, savings generated per year, life expectancy, and salvage value.
To determine the price of the equipment that justifies the investment, we can use the concept of Net Present Value (NPV). NPV is the difference between the present value of cash inflows and outflows associated with an investment. In this case, the cash inflow is the annual savings of $22,000, and the cash outflows are the initial investment and salvage value.
First, we need to calculate the present value of the annual savings over the 5-year period. We discount each year's savings by the desired return on investment of 10%. The formula to calculate the present value of the savings is:
PV = CF1 / (1 + r)^1 + CF2 / (1 + r)^2 + ... + CF5 / (1 + r)^5
Where CF represents the cash flow in each year, and r is the desired rate of return.
After calculating the present value of the savings, we subtract the salvage value of $8,000 to get the net present value (NPV). The formula to calculate NPV is:
NPV = PV - Salvage value
If the NPV is positive, it means the investment is justified as it generates a return greater than the desired rate of return. To determine the price of the equipment, we can equate the NPV to the initial investment and solve for it.
By finding the price of the equipment that justifies the investment, the company can evaluate whether the cost of acquiring the equipment aligns with the desired return on investment and the expected savings over its life expectancy.
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