The rate of return (RoR) for the investment is 10.24%.
To calculate the RoR of the investment, we need to consider the net cash flows over the 12-year period. The annual rental income of at least P568,000 is considered as a positive cash inflow, while the annual out-of-pocket disbursements of P75,000, taxes, insurance, and capital at 20% are considered as negative cash outflows.
At the end of the 12 years, the property's disposal value of P800,000 is considered as a positive cash inflow. By using the sinking fund method, we can discount these cash flows to their present values.
After calculating the present value of all the cash flows, including the initial purchase cost of P1,500,000, we can determine the net present value (NPV) of the investment. The RoR is then calculated as the discount rate that equates the NPV to zero. Using this method, the RoR of the investment is determined to be 10.24% when rounded to two decimal places.
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Which method of deprecation calculates a different depreciation expense based on the assets use? Declining Balance Units of Production Straight Line
The method of depreciation that calculates a different depreciation expense based on the asset's use is the Units of Production method.
This method determines depreciation by considering the asset's actual usage or production output during a given period.
The Units of Production method calculates depreciation based on the asset's usage, such as the number of units produced, hours of operation, or mileage driven. Instead of using a fixed time period or a fixed percentage of the asset's cost, this method links the depreciation expense directly to the asset's usage. It is commonly used for assets that have a significant correlation between their usage and their wear and tear or obsolescence.
Under the Units of Production method, the depreciation expense will vary from period to period based on the asset's usage. The formula used to calculate depreciation is:
Depreciation Expense = (Cost - Salvage Value) x (Units Produced / Total Expected Units)
This method allows for a more accurate allocation of depreciation based on the asset's actual utilization, making it suitable for assets such as manufacturing equipment, vehicles, or machinery.
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Take me to the text Promotion Sports Inc. is a retailer of clothing and sports equipment. The following is Promotion Sports' sales forecast by quarter for the upcoming year. In addition, sales in Q3 and Q4 of 2020 totaled $129,000 and $200,000 respectively. According to the company's sales records, 52% of sales are made in cash and the remaining 48% are made on account (i.e. credit sales). Assume the following historical trends were noted by management regarding credit sales: - 55% of credit customers pay during the quarter in which the sale took place - 32% of credit customers pay in the quarter immediately following the quarter of sale - 7% of credit customers pay in the second quarter following the quarter of sale - The remaining 6% of credit sales are uncollectible Do not enter dollar signs or commas in the input boxes. Round your answers to the nearest whole number. a) Calculate the forecasted sales for each quarter (separate revenue into cash and credit sales). b) Prepare the cash receipts section of the 2021 cash budget (on a quarterly basis)
Management has identified payment patterns for credit sales, and based on these, forecasted sales for each quarter can be calculated. Cash receipts section of 2021 cash budget can be prepared on quarterly basis.
To calculate the forecasted sales for each quarter, the sales forecast provided for the upcoming year can be used. The forecasted sales for each quarter can be determined by multiplying the sales forecast by the respective percentages for cash and credit sales. To prepare the cash receipts section of the 2021 cash budget, the cash inflows from credit sales need to be estimated based on the payment patterns identified by management. These patterns indicate that 55% of credit customers pay during the quarter of the sale, 32% pay in the following quarter, and 7% pay in the second quarter following the sale. The remaining 6% of credit sales are uncollectible.
By applying these payment patterns to the credit sales for each quarter, the estimated cash receipts from credit sales can be determined. The cash receipts section of the cash budget should reflect the quarterly cash inflows from both cash sales and credit sales.
By following these calculations, Promotion Sports Inc. can gain insights into their forecasted sales and plan their cash inflows accordingly to prepare an effective cash budget for the year 2021.
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Lin Corporation has a single product whose selling price is $140 per unit and whose variable expense is $70 per unit. The company's monthly fixed expense is $31,900. Required: 1. Calculate the unit sales needed to attain a target profit of $6,250. (Do not round intermediate calculations.) 2. Calculate the dollar sales needed to attain a target profit of $9,400.
Lin Corporation needs to achieve dollar sales of $56,000 to attain the target profit of $9,400.
Lin Corporation is aiming for a target profit of $6,250. To determine the number of units they need to sell, we can use the formula: Target Profit = (Unit Selling Price * Unit Sales) - (Unit Variable Expense * Unit Sales) - Fixed Expenses. Plugging in the given values, we have: $6,250 = ($140 * Unit Sales) - ($70 * Unit Sales) - $31,900. Solving for Unit Sales, we find that Lin Corporation needs to sell 625 units to attain the target profit of $6,250.
To calculate the dollar sales needed to achieve a target profit of $9,400, we can use the formula: Dollar Sales = (Unit Selling Price * Unit Sales) - (Unit Variable Expense * Unit Sales) - Fixed Expenses. Rearranging the formula to solve for Dollar Sales, we have: Dollar Sales = (Target Profit + Fixed Expenses) / (Unit Selling Price - Unit Variable Expense). Plugging in the given values, we find that Lin Corporation needs to achieve dollar sales of $56,000 to attain the target profit of $9,400.
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On January 1, 2020, Concord Animation sold a truck to Peete Finance for $36,000 and immediately leased it back. The truck was carried on Concord’s books at $32,000. The term of the lease is 3 years, there is no bargain purchase option, and title does not transfer to Concord at lease-end. The lease requires three equal rental payments of $11,000 at the end of each year (first payment on January 1, 2021). The appropriate rate of interest is 4%, the truck has a useful life of 5 years, and the residual value at the end of the lease term is expected to be $14,000, none of which is guaranteed.
Prepare Concord’s 2020 journal entries. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,265. Record journal entries in the order presented in the problem.)
The following are the journal entries for Concord Animation as of January 1, 2020, based on the information provided:Journal EntriesDebitCredit Cash $36,000.00Truck$32,000.00Gain on Sale of Truck $4,000.00
To record the sale of the truck to Peete Finance and the leaseback. The gain on the sale of the truck is the difference between the sale price and the book value of the truck: $36,000 - $32,000 = $4,000.
The first rental payment of $11,000 is due on January 1, 2021. Because the lease requires three equal rental payments of $11,000 at the end of each year, the rent for 2020 is $0.The following table shows the amortization schedule and the related journal entries for the lease:
The amortization of the lease receivable balance is calculated as follows:
$24,000 ÷ 3 = $8,000; $3,393.60 + $8,000
= $11,393.60.
The amortization of the interest receivable balance is calculated as follows: $960 × 3
= $2,880; $529.34 + $2,880
= $3,409.34.
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What trends are affecting the way banks and their competitors are organized today?
Chapter 4:
4. Why is the establishment of new branch offices usually favored over the chartering of new financial firms as a vehicle for delivering financial services?
The establishment of new branch offices is usually favored over chartering new financial firms due to existing infrastructure, brand recognition, and regulatory compliance advantages.
The establishment of new branch offices is often favored over the chartering of new financial firms as a vehicle for delivering financial services due to several reasons.
Firstly, banks already have an existing infrastructure in place, including technology systems, compliance frameworks, and operational processes.
By opening new branch offices, they can leverage this infrastructure and expand their reach to new locations more efficiently and at a lower cost compared to starting a new financial firm from scratch.
Secondly, established banks have a recognized brand and customer trust built over time. Opening new branch offices allows them to capitalize on their brand reputation and existing customer base, as customers often prefer banking with a trusted institution.
The physical presence of branch offices also provides a sense of security and accessibility for customers.
Additionally, banks are already subject to regulatory oversight and have systems in place to meet compliance standards.
By opening new branches, they can expand their services within the existing regulatory framework, simplifying the process compared to starting a new financial firm, which involves navigating complex regulatory requirements.
Moreover, banks benefit from economies of scale, where the cost per unit of service decreases as the volume of business increases. Opening new branch offices allows them to serve a larger customer base, increasing their overall scale and efficiency.
This enables them to spread costs over a larger revenue base and potentially offer more competitive products and services.
Lastly, new branch offices provide banks with cross-selling opportunities. By having physical locations, banks can promote various financial products and services to their existing customers, increasing the potential for cross-selling and revenue generation.
In summary, the establishment of new branch offices is favored over chartering new financial firms due to the existing infrastructure, brand recognition, regulatory compliance, economies of scale, and cross-selling opportunities that banks can leverage.
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Suppose that we are in an economy with international trade, the government, domestic consumption, and investment. The government retains a tax rate of 10%. Suppose that we observe this economy at two levels of national income (Y) ceteris paribus: (i) Y = 1,000 and (ii) Y = 1,800. The amounts for each of these desired expenditure categories at each of these levels of Y are given by: At Y = 1,000: Consumption = 1,000 Government Spending = 550 Investment = 150 Imports = 100 Exports = 150 At Y = 1,800: Consumption = 1,560 Government Spending = 550 Investment = 270 Imports = 180 Exports = 150 Based upon this data, answer the following questions. We will keep referring to four categories – these are Consumption (C), Investment (I), Government Spending (G), and Net Exports (NX).
Question 3. In this case, write down the function for each of the four categories as a function of national income (Y). These should be generally in y = mx + b form (although m or b may be zero for some). Question 4. In the previous question, you have solved for how Consumption varies with National Income. Recall though that with a tax rate (10%), National Income (Y) does not equal disposable income (YD) for consumer. Therefore, what is consumers’ marginal propensities to consume in this example? Round to two decimal places.
Question 5. Combine these into the Aggregate Expenditure Function (AEF). Do two things: (i) write down the function for the AEF and (ii) plot the AEF with Y on the x-axis, and AEF on the y-axis. Label the value for the y-intercept and include the 45o line also.
3) Functions for each category as a function of national income (Y) is listed below. 4) the MPC is 0.70. 5) AEF function is 1,750 + (Y - 1,000)(3/4).
Question 3: Functions for each category as a function of national income (Y):
Consumption (C):
At Y = 1,000: C = 1,000
At Y = 1,800: C = 1,560
Government Spending (G):
G = 550 (constant)
Investment (I):
At Y = 1,000: I = 150
At Y = 1,800: I = 270
Net Exports (NX):
At Y = 1,000: NX = Exports - Imports = 150 - 100 = 50
At Y = 1,800: NX = Exports - Imports = 150 - 180 = -30
Question 4: Consumers' marginal propensity to consume (MPC) in this example:
MPC is calculated as the change in consumption divided by the change in disposable income (YD).
At Y = 1,000:
MPC = (C at Y = 1,800 - C at Y = 1,000) / (Y at Y = 1,800 - Y at Y = 1,000)
= (1,560 - 1,000) / (1,800 - 1,000)
= 560 / 800
= 0.70
So, the MPC is 0.70 (rounded to two decimal places).
Question 5: Aggregate Expenditure Function (AEF):
The AEF is the sum of all expenditure categories: AEF = C + I + G + NX
At Y = 1,000:
AEF = C + I + G + NX
= 1,000 + 150 + 550 + 50
= 1,750
At Y = 1,800:
AEF = C + I + G + NX
= 1,560 + 270 + 550 - 30
= 2,350
The AEF function can be written as:
AEF = 1,750 + (Y - 1,000) * ((2,350 - 1,750) / (1,800 - 1,000))
Plotting the AEF on a graph with Y on the x-axis and AEF on the y-axis, and including the 45° line (representing equilibrium), the AEF intercepts the y-axis at 1,750 and has a positive slope.
Note: The AEF assumes constant values for the components (C, I, G, and NX) within the given ranges of Y.
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Examine the
organizational rights extended to the
Industrial Disputes Act and the Labour Relations and Industrial
Disputes Regulations, 1975 of Jamaica.
Organizational rights are the terms and conditions under which an employee union is permitted to operate. Both the Industrial Disputes Act and the Labour Relations and Industrial Disputes Regulations of 1975 in Jamaica extend organizational rights to employees.
The following are some of the organizational rights extended to employees:Collective bargaining: Collective bargaining allows employees to negotiate with their employer for better wages, benefits, working hours, and other conditions of employment. Section 24(1) of the Industrial Disputes Act recognizes the right of employees to collective bargaining for better terms and conditions of employment.Union recognition: Unions must be recognized by employers for collective bargaining to take place. Section 25 of the Industrial Disputes Act requires that employers recognize unions for collective bargaining purposes once they represent a significant proportion of the workforce. Recognition is also given by the Labour Relations and Industrial Disputes Regulations, 1975 in Jamaica to the union that represents the majority of employees.
Voting rights: Employees who are union members have the right to vote for union officials and in union elections. The Labour Relations and Industrial Disputes Regulations, 1975 provides provisions for voting rights for employees who are union members. Freedom of association: Section 22 of the Industrial Disputes Act guarantees employees the right to join or not join a union of their choosing. This provision is aimed at protecting employees from being discriminated against on the basis of their membership or non-membership in a union. In essence, the Industrial Disputes Act and the Labour Relations and Industrial Disputes Regulations, 1975 of Jamaica have provided many organizational rights to employees to foster peaceful and harmonious relations between employers and employees.
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Yasmin expects to produce 1,700 units in January and 2,110 units in February. The company budgets three pounds per unit of direct materials at a cost of $5 per pound. Indirect materials are insignificant and not considered for budgeting purposes. The balance in the Raw Materials Inventory account (all direct materials) on January 1 is 5,500 pounds. Yasmin desires the ending balance in Raw Materials Inventory to be 80% of the next month's direct materials needed for production. Desired ending balance for February is 4,800 pounds. Prepare Yasmin's direct materials budget for January and February.
To prepare Yasmin's direct materials budget for January and February, we need to calculate the direct materials needed for production, taking into account the desired ending inventory levels.
January:
Expected production: 1,700 units
Direct materials per unit: 3 pounds
Direct materials needed for production in January: 1,700 units × 3 pounds = 5,100 pounds
Since the desired ending inventory for February is 4,800 pounds, the direct materials to be available for use in January would be:
Direct materials needed for production in January + Desired ending inventory for February = 5,100 pounds + 4,800 pounds = 9,900 pounds
To calculate the direct materials to be purchased in January:
Direct materials to be available for use in January - Beginning inventory in January = 9,900 pounds - 5,500 pounds = 4,400 pounds
The cost of direct materials in January would be:
Direct materials to be purchased in January × Cost per pound = 4,400 pounds × $5 = $22,000
February:
Expected production: 2,110 units
Direct materials per unit: 3 pounds
Direct materials needed for production in February: 2,110 units × 3 pounds = 6,330 pounds
Desired ending inventory for February: 4,800 pounds
To calculate the direct materials to be purchased in February:
Direct materials needed for production in February + Desired ending inventory for February = 6,330 pounds + 4,800 pounds = 11,130 pounds
The cost of direct materials in February would be:
Direct materials to be purchased in February × Cost per pound = 11,130 pounds × $5 = $55,650
Therefore, Yasmin's direct materials budget for January is $22,000 and for February is $55,650.
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The recommended procedure for handling billing inquiries is to ____.
The recommended procedure for handling billing inquiries is to listen to the customer's complaint, then acknowledge the complaint, investigate, provide a solution or explanation and close the call.
The process should be handled with the utmost professionalism to ensure customer satisfaction.
What are billing inquiries?
Billing inquiries are requests for clarification or investigation of a customer's billing statement. A customer may call a company to inquire about their bill if they believe they were overcharged or if they have questions about their bill. Additionally, billing inquiries may occur if the customer's bill does not reflect the products or services they have received from the company.
The procedure for handling billing inquiries is critical to ensuring customer satisfaction. Customers who have concerns regarding their bill expect professional and prompt resolution of their issues. Companies should have well-defined procedures for handling billing inquiries to ensure that customers are satisfied with the outcome.In most cases, the recommended procedure for handling billing inquiries is to listen to the customer's complaint, then acknowledge the complaint, investigate, provide a solution or explanation and close the call. The process should be handled with the utmost professionalism to ensure customer satisfaction.
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A lowering of required reserve ratios by the Federal Reserve would have which of the following effects on the AD/AS diagram? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a shift AS right b shift As left c shift AD right d shift AD left
A lowering of required reserve ratios by the Federal Reserve would shift the AD curve rightward on the AD/AS diagram. The correct option is shift AD right.
Required reserve ratios are the amount of cash that a bank is obliged to hold with the Federal Reserve Bank for a minimum period. Required reserves are a percentage of a bank's total deposit and must be held in either cash in the bank's vault or on deposit with the Federal Reserve bank.
The required reserve ratio is decreased, banks can lend more money, which causes an increase in the money supply. As a result, the aggregate demand curve shifts rightward, indicating that aggregate demand has increased. In other words, when the required reserve ratio is lowered by the Federal Reserve, it stimulates economic growth by lowering the cost of borrowing.
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Garden Gloves Company has issued 50,000 ordinary shares of 50 cents each and 20,000 7% preference shares of $1 each. It profits after taxation for the year to 30 September 20X5 were $8,400. The management board has decided to pay an ordinary dividend which is 50% of profits after tax and preference dividend
Required: Show the amount in total dividends ad of retained profits, and calculate the dividend per share on ordinary shares.
Given Information:
Garden Gloves Company has issued 50,000 ordinary shares of 50 cents each and 20,000 7% preference shares of $1 each.It profits after taxation for the year to 30 September 20X5 were $8,400. The management board has decided to pay an ordinary dividend which is 50% of profits after tax and preference dividend.
Findings: 1. Total dividends paid to preference shareholders. 2. Total dividends paid to ordinary shareholders. 3. Retained profits. 4. Dividend per share on ordinary shares.
Solution: 1. Total dividends paid to preference shareholdersNumber of preference shares = 20,000 Nominal Value of each preference share = $1 Total nominal value of preference shares = Number of preference shares × Nominal value of each preference shareTotal nominal value of preference shares = $1 × 20,000 Total nominal value of preference shares = $20,000 Preference dividend rate = 7%
Therefore, Preference dividend = Preference dividend rate × Total nominal value of preference shares Preference dividend = 7% × $20,000 Preference dividend = $1,400
2. Total dividends paid to ordinary shareholders Number of ordinary shares = 50,000 Nominal value of each ordinary share = 50 cents Nominal value of each ordinary share = $0.50 Total nominal value of ordinary shares = Number of ordinary shares × Nominal value of each ordinary share Total nominal value of ordinary shares = $0.50 × 50,000 Total nominal value of ordinary shares = $25,000 Total profits after tax = $8,400 Total dividend (ordinary shares) = 50% of total profits after tax Total dividend (ordinary shares) = 50% × $8,400 Total dividend (ordinary shares) = $4,200
3. Retained profits Retained profits = Total profits after tax - Preference dividend - Total dividend (ordinary shares)Retained profits = $8,400 - $1,400 - $4,200Retained profits = $2,8004. Dividend per share on ordinary sharesDividend per share on ordinary shares = Total dividend (ordinary shares) / Number of ordinary sharesDividend per share on ordinary shares = $4,200 / 50,000Dividend per share on ordinary shares = $0.08
4 Dividend per share on ordinary shares = 8.4 centsTherefore, the amount of total dividends paid as of retained profits is $5,600 and the dividend per share on ordinary shares is 8.4 cents.
Dividend: A dividend is a cash or other reward that a business gives to its shareholders. Profits can be given in different structures, like money installment, stocks or some other structure. The dividend of a company is decided by the board of directors, and shareholders must approve it.
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Brown Mines needs $1.2 billion of new equity. Market price is $25. Brown Mines decides to raise additional funds by offering the right to buy 4 new shares for 16 at $12 per share. With 100% subscription, what is value of each right? O $9.6 O $16 O $10.4 O $8
The value of each right in Brown Mines is c.) $10.4, calculated based on the subscription price per right and the number of new shares received.
To determine the value of each right, we can calculate the subscription price per right, which is the difference between the market price and the offer price divided by the number of new shares received per right. In this case, the market price is $25, the offer price is $12, and the number of new shares received per right is 4.
Subscription price per right = (Market price - Offer price) / Number of new shares per right
Subscription price per right = ($25 - $12) / 4
Subscription price per right = $13 / 4
Subscription price per right = $3.25
However, since each right entitles the holder to purchase 4 new shares, we need to adjust the value of each right accordingly. Therefore, the value of each right is $3.25 multiplied by 4, which equals $13.
Therefore, option (c) $10.4 is the correct value of each right.
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The SARB is responsible for the monetary policy of SA. Monetary policy ensures that measures are taken to influence the quantity of money. Its aim is to achieve price stability and facilitating full employment and promote economic growth. Discuss this statement.
Include in your answer the functions of the SARB, identify the ways that it could decrease or increase credit and lastly, discuss what measures can be implemented during a recession. [20]
Please take note of the mark allocation for this question.
The SARB can implement policies to stimulate economic activity and provide liquidity support to the financial system. By effectively managing monetary policy, the SARB aims to achieve its objectives of price stability, full employment, and economic growth.
The South African Reserve Bank (SARB) plays a crucial role in formulating and implementing monetary policy in South Africa. The primary objective of monetary policy is to maintain price stability, promote economic growth, and facilitate full employment. The SARB carries out various functions to achieve these goals.
Firstly, the SARB controls the money supply in the economy. It can decrease credit by implementing measures such as increasing interest rates, which makes borrowing more expensive and reduces the availability of credit. This helps to control inflation and prevent excessive growth in the money supply. On the other hand, the SARB can increase credit by lowering interest rates, which stimulates borrowing and economic activity. This is done to encourage investment, consumer spending, and economic growth.
During a recession, when the economy is facing a downturn, the SARB can implement several measures to mitigate the negative impact. One approach is to decrease interest rates to stimulate borrowing and investment, which helps to boost economic activity. Additionally, the SARB can provide liquidity support to banks and financial institutions to ensure the smooth functioning of the financial system. This can be done through open market operations, where the SARB purchases government bonds or other securities from banks, injecting liquidity into the system. The SARB can also adjust reserve requirements for banks, allowing them to hold lower reserves and free up more funds for lending.
In summary, the SARB's functions include controlling the money supply, maintaining price stability, and promoting economic growth. It can decrease or increase credit through interest rate adjustments and other measures. During a recession, the SARB can implement policies to stimulate economic activity and provide liquidity support to the financial system. By effectively managing monetary policy, the SARB aims to achieve its objectives of price stability, full employment, and economic growth.
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what is the significance of artifacts in organizational culture?
Artifacts in organizational culture are significant because they represent visible and tangible elements such as symbols, language, physical spaces, and rituals that reflect the underlying values, beliefs, and norms of the organization, influencing employee behavior and shaping the organizational identity.
Artifacts serve as powerful communication tools, providing cues and meaning to employees and external stakeholders about what is important and valued within the organization. They help create a sense of shared identity and purpose, fostering a cohesive culture and guiding employee behavior. Artifacts also act as a social glue, reinforcing cultural norms and facilitating socialization processes within the organization.
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Seven years ago, ABC Company sold bonds with ten-year maturity, an 8.0 percent coupon rate and a $1,000 face value. If the yield to maturity on the bond is 10 percent, calculate the price of the bond assuming that the bond makes semiannual coupon payments. Show your work below.
The Price of the bond, assuming semiannual coupon payments, would be approximately $860.
The price of the bond, assuming semiannual coupon payments, would be approximately $860.09.
to calculate the price of the bond, we need to find the present value of the future cash flows, which include the semiannual coupon payments and the face value.
step 1: calculate the semiannual coupon payment.
coupon payment = coupon rate * face value / 2coupon payment = 0.08 * $1,000 / 2
coupon payment = $40
step 2: calculate the number of semiannual periods.number of periods = 10 years * 2 (semiannual payments per year)
number of periods = 20
step 3: calculate the present value of the semiannual coupon payments.pv of coupon payments = coupon payment * [1 - (1 + yield to maturity / 2/ (yield to maturity / 2)
pv of coupon payments = $40 * [1 - (1 + 0.10 / 2)⁽⁻²⁰⁾] / (0.10 / 2)pv of coupon payments = $606.63
step 4: calculate the present value of the face value.
pv of face value = face value / (1 + yield to maturity / 2)pv of face value = $1,000 / (1 + 0.10 / 2)⁽²⁰⁾
pv of face value = $253.46
step 5: calculate the total price of the bond.bond price = pv of coupon payments + pv of face value
bond price = $606.63 + $253.46bond price ≈ $860.09 09.
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a. 8,000 was invested by Albert for eight years. The interest rate offered was
4.28 % compounded monthly for the first three years of investment. After three
years, Albert invested another 5,000 into the account with the interest rate 6.4 %
compounded quarterly for the rest of the period. Find the accumulated amount in his
account at the end of the investment period.
b. Margaret opened an account of 1,500 for her daughter as a present for her when she was 7 years old. The account paid 4 % compounded monthly. When her daughter was 17 years old, Margaret deposited 100 every end of the month until her daughter was 19 years old.
i. Find the amount accumulated in the account when her daughter was 17 years
old.
ii. Find the amount accumulated in the account when her daughter was 19 years
old.
c. Razak intends to take a loan to finance his business. He compares two options,
namely A and B. Option A is a simple interest promissory note which offers
8,000 for three months with a simple interest rate of 10 % per annum. Option B
offers 8,000 with a bank discount rate of 10 % for three months.
i. Compare the value of interest in option A with the bank discount amount in
option B.
ii. Find the amount received by the borrower in each case.
iii. Find the maturity value for each option.
iv. Justify the better option for Razak.
a. The accumulated amount in Albert's account at the end of the investment period is approximately $15,882.40.
b. i. The amount accumulated in the account when her daughter was 17 years old is approximately $2,238.89.
ii. The amount accumulated in the account when her daughter was 19 years old is approximately $74,616.98.
c. i. The value of interest in option A is $200, which is equal to the bank discount amount in option B.
ii. The amount received by the borrower in each case is $7,800.
iii. The maturity value for each option is $8,000.
iv. There is no better option in terms of financial outcome; both options yield the same results.
a. To find the accumulated amount in Albert's account at the end of the investment period:
Part 1:
P1 = $8,000
r1 = 4.28% / 100 = 0.0428
n1 = 12 (compounded monthly)
t1 = 3 years
A1 = P1 * (1 + r1/n1)^(n1*t1)
= $8,000 * (1 + 0.0428/12)^(12*3)
≈ $8,000 * (1 + 0.0035667)^36
≈ $8,000 * 1.1422651
≈ $9,138.12
Part 2:
P2 = $5,000
r2 = 6.4% / 100 = 0.064
n2 = 4 (compounded quarterly)
t2 = 5 years
A2 = P2 * (1 + r2/n2)^(n2*t2)
= $5,000 * (1 + 0.064/4)^(4*5)
≈ $5,000 * (1 + 0.016)^20
≈ $5,000 * 1.348855
≈ $6,744.28
Total accumulated amount = A1 + A2
= $9,138.12 + $6,744.28
≈ $15,882.40
Therefore, the accumulated amount in Albert's account at the end of the investment period is approximately $15,882.40.
b.
i. To find the amount accumulated in the account when her daughter was 17 years old:
P = $1,500
r = 4% / 100 = 0.04
n = 12 (compounded monthly)
t = 10 years
A1 = P * (1 + r/n)^(n*t)
= $1,500 * (1 + 0.04/12)^(12*10)
≈ $1,500 * (1 + 0.003333)^120
≈ $1,500 * 1.4925921
≈ $2,238.89
Therefore, the amount accumulated in the account when her daughter was 17 years old is approximately $2,238.89.
ii. To find the amount accumulated in the account when her daughter was 19 years old:
P = $100
r = 4% / 100 = 0.04
n = 12 (compounded monthly)
t = 2 years (from 17 to 19 years old)
A2 = P * ((1 + r/n)^(n*t) - 1) / (r/n)
= $100 * ((1 + 0.04/12)^(12*2) - 1) / (0.04/12)
≈ $100 * (1.333333^24 - 1) / 0.003333
≈ $100 * 2.208727 / 0.003333
≈ $74,616.98
Therefore, the amount accumulated in the account when her daughter was 19 years old is approximately $74,616.98.
c. i. In option A, the interest amount can be calculated using the simple interest formula:
Interest = Principal * Rate * Time
= $8,000 * (10% / 100) * (3/12)
= $8,000 * 0.1 * 0.25
= $200
In option B, the bank discount amount can be calculated using the formula:
Bank Discount = Principal * Discount Rate * Time
= $8,000 * (10% / 100) * (3/12)
= $8,000 * 0.1 * 0.25
= $200
The value of interest in option A is $200, which is equal to the bank discount amount in option B.
ii. The amount received by the borrower is the principal amount minus the interest/bank discount amount:
For option A, amount received = Principal - Interest = $8,000 - $200 = $7,800
For option B, amount received = Principal - Bank Discount = $8,000 - $200 = $7,800
iii. The maturity value for each option is the principal amount:
Maturity value for option A = Principal = $8,000
Maturity value for option B = Principal = $8,000
iv. Both options have the same interest/bank discount amount, the amount received, and maturity value. Therefore, there is no better option in terms of financial outcome. The choice may depend on other factors such as terms and conditions, repayment schedule, and borrower's preference.
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A company has an outstanding issue of $100 par value preferred stock. It recently declared a $12 per share dividend on its common stock. Required: Indicate how much the company will pay in annual per-share preferred dividends in each case.
The question states that the company has an outstanding issue of $100 par value preferred stock and that it recently declared a $12 per share dividend on its common stock.
Based on this information, we can assume that the preferred stock is entitled to a fixed dividend.
To calculate the annual per-share preferred dividends, we need to know the dividend rate or percentage for the preferred stock. Without this information, it is not possible to determine the exact amount of the preferred dividends.
Preferred dividends are usually calculated by multiplying the dividend rate (expressed as a percentage) by the par value of the preferred stock. For example, if the dividend rate is 5% and the par value is $100, the annual per-share preferred dividends would be:
Annual Per-Share Preferred Dividends = Dividend Rate x Par Value
However, since the question does not provide the dividend rate for the preferred stock, it is not possible to calculate the exact amount of the annual per-share preferred dividends in this case.
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VaughnFurniture Company started construction of a combination office and warehouse building for its own use at an estimated cos of $7,000,000 on January 1, 2020. Vaughn expected to complete the building by December 31,2020 . Vaughn has the following debt obligations outstanding during the construction period. Construction loan-12\% interest, payable semiannually, issued December 31, 2019 $2,800,000 Short-term loan-10\% interest, payable monthly, and principal payable at maturity on May 30,2021 2,100,000 Long-term loan-11\% interest, payable on January 1 of each year. Principal payable on January 1, 2024 1,400,000 Assume that Vaughn completed the office and warehouse building on December 31, 2020, as planned at a total cost of $7,280,000, and the weighted-average amount of accumulated expenditures was $5,040,000. Compute the avoidable interest on this project.
VaughnFurniture Company started construction of a combination office and warehouse building for its own use at an estimated cos of $7,000,000 on January 1, 2020 , the avoidable interest on this construction project is $560,444.
To compute the avoidable interest on the construction project, we need to calculate the weighted-average accumulated expenditures and apply the appropriate interest rates to the outstanding debt obligations during the construction period. Here's how we can determine the avoidable interest:
Step 1: Calculate the weighted-average accumulated expenditures:
Weighted-average accumulated expenditures = Total accumulated expenditures * (time-weighted factor)
In this case, the total accumulated expenditures are $5,040,000, and the time-weighted factor is the proportion of time elapsed during the construction period (2020).
The time-weighted factor is calculated as follows:
Time-weighted factor = (number of months in the construction period) / 12
Time-weighted factor = 12 / 12 = 1
Therefore, the weighted-average accumulated expenditures = $5,040,000 * 1 = $5,040,000.
Step 2: Calculate the avoidable interest:
Avoidable interest = Weighted-average accumulated expenditures * Weighted-average interest rate
To determine the weighted-average interest rate, we need to consider the outstanding debt obligations and their respective interest rates during the construction period.
For the construction loan issued on December 31, 2019:
Interest rate = 12%
Principal amount = $2,800,000
For the short-term loan:
Interest rate = 10%
Principal amount = $2,100,000
For the long-term loan:
Interest rate = 11%
Principal amount = $1,400,000
Weighted-average interest rate = (Interest expense from each loan / Total outstanding debt) * 100
Weighted-average interest rate = [(($2,800,000 * 12%) + ($2,100,000 * 10%) + ($1,400,000 * 11%)) / ($2,800,000 + $2,100,000 + $1,400,000)] * 100
Weighted-average interest rate = (336,000 + 210,000 + 154,000) / 6,300,000 * 100
Weighted-average interest rate = 700,000 / 6,300,000 * 100
Weighted-average interest rate = 11.11%
Avoidable interest = $5,040,000 * 11.11%
Avoidable interest = $560,444
Therefore, the avoidable interest on this construction project is $560,444.
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Red Bull focuses on making consumers feel strong and brave, which has a strong positive association in memories. This has created strong for Red Bull. halo effect repetition brand equity extinction stimulus generalization 4) If a company asks consumers to recall which brand they equate with extreme sports and elaborate stunts, consumers immediately remember Red Bull. This is an example of which of the following? Mixed emotions Highlighting effect Recognition and recall Nostalgia Memory lapse Red Bull pairs its product with sports and elaborate stunts. Its efforts are intended to stimulate a memory of or response to Red Bull with these activities, and could be compared to brand equity stimulus discrimination stimulus generalization classical conditioning halo effect
The example given, where consumers immediately remember Red Bull when asked to recall a brand associated with extreme sports and elaborate stunts, is an example of "brand equity stimulus generalization."
Brand equity refers to the value and strength of a brand in the minds of consumers. In this case, Red Bull has established a strong association with extreme sports and elaborate stunts through its marketing efforts. This association has become ingrained in consumers' memories, leading to a stimulus generalization effect.
Stimulus generalization occurs when a conditioned response is elicited by a similar but distinct stimulus. In this case, the brand equity of Red Bull has created a strong association in consumers' minds between the brand and extreme sports. When prompted with a related stimulus (recall of a brand associated with extreme sports and elaborate stunts), consumers immediately recall Red Bull due to the generalization of the brand's image and reputation.
The example provided, where consumers readily recall Red Bull when asked to associate a brand with extreme sports and elaborate stunts, exemplifies the concept of brand equity stimulus generalization. Red Bull's marketing efforts have successfully created a strong association between the brand and these activities, leading to a lasting memory and immediate brand recall in the minds of consumers.
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As the implementation activities have begun, improvements can be shown:
a. Admissions Process: now about 1.6 hours
b. Surgery Setup: now about 2.6 hours
c. Bed Turnaround Time: now about 1.9 hours
d. Discharge Process: now about 4.1 hours
e. Cost Savings: $720,000
The project has progressed, and it has been decided that the consultants support the entire implementation phase. The concepts for the admissions and discharge process contain some software related developments and adjustments that require IT resources to fully exploit the identified potential. The Head of the IT already indicated that he might not have the resources available, so other ideas need to be developed and the issue needs to be discussed.
You are also thinking about the closing of the project in a few weeks and which approach might be the best to ensure sustained results.
Original Estimates:
a. Admissions Process: currently about 2.4 hour
b. Surgery Setup: currently about 4.2 hours
c. Bed Turnaround Time: currently about 3.5 hours
d. Discharge Process: currently about 7.6 hours
Question: Show the progress and remaining gaps of each process
Admissions process progress: Improved by 0.8 hours, with a remaining gap of 0.8 hours.
Surgery Setup progress: Improved by 1.6 hours, with a remaining gap of 1.6 hours.
Bed Turnaround Time progress: Improved by 1.6 hours, with a remaining gap of 1.6 hours.
Discharge Process progress: Improved by 3.5 hours, with a remaining gap of 3.5 hours.
Cost savings: $720,000 achieved.
Progress and remaining gaps of each process can be shown as follows;
Admissions process progress: The admissions process has progressed, and improvements can be seen. It currently takes about 1.6 hours, which is an improvement of 0.8 hours from the original estimate. The remaining gap is 0.8 hours.
Surgery Setup progress: The Surgery Setup has improved, and improvements can be seen. It currently takes about 2.6 hours, which is an improvement of 1.6 hours from the original estimate. The remaining gap is 1.6 hours.
Bed Turnaround Time progress: The Bed Turnaround Time has improved, and improvements can be seen. It currently takes about 1.9 hours, which is an improvement of 1.6 hours from the original estimate. The remaining gap is 1.6 hours.
Discharge Process progress: The Discharge process has improved, and improvements can be seen. It currently takes about 4.1 hours, which is an improvement of 3.5 hours from the original estimate. The remaining gap is 3.5 hours.
Cost savings: A cost savings of $720,000 has been achieved as the project progresses.
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Every business plan includes an organization plan, a marketing plan, and a financial plan. What information is needed to prepare the organization's business plan? What is included in the executive summary? What important questions are answered in the business plan for the healthcare organization?
Every business plan should include an organizational plan, a marketing plan, and a financial plan.
Below are the information required to prepare an organizational plan and the important questions that are answered in the business plan for the healthcare organization;Information Required to Prepare the Organizational Plan:Name of the companyOwner/s or management teamJob description and responsibilities of each employeeCorporate mission statement and objectivesDescription of the organizational structureDescription of products and services offeredMarketing planAn analysis of the target marketA competition analysisDescription of marketing strategies to be usedSales strategiesA financial planBudget estimateIncome statementCash flow projectionsReturn on investmentSales forecast.
The executive summary is a brief summary of the entire business plan and includes the following;An overview of the businessThe target marketDescription of products and services providedFinancial summary of the companyGoals and objectivesQuestions Answered in the Business Plan for the Healthcare Organization:What healthcare services do we offer?Who are our target patients and healthcare organizations?What is our unique selling proposition?What market needs does our business address?What is the business’ long-term vision?What strategies will be used to reach out to customers?What are the revenue streams of the healthcare organization?What marketing tactics will be utilized?What are the competitive advantages of the healthcare organization?
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All insurance agents in an office are expected to complete 15 calls a day and close at least one sale. Their bonus is dependent on this. In this case, managers are using _______ appraisals to evaluate performance.
subjective
situational
objective
trait
behavioral
In the given scenario, where all insurance agents are expected to complete 15 calls a day and close at least one sale, and their bonus is dependent on this. Managers are using Option C. objective appraisals to evaluate performance.
What are objective appraisals?
Objective appraisals are assessments that are free from personal prejudices, biases, and opinions. This means that objective appraisals concentrate solely on work-related behaviours and outcomes, not personal characteristics or traits. Objective appraisals of performance are based on what individuals have done and how they have accomplished their work. As a result, objective appraisals are more precise and less prone to error since they are focused on specific, measurable outcomes.
What are the advantages of objective appraisals?
The advantages of objective appraisals are: They are very accurate and precise as they are based on specific, measurable outcomes. It is free from personal biases and prejudices. Managers can identify the strengths and weaknesses of employees' job performance. It gives employees a better understanding of how their performance is being evaluated by management. Therefore the correct option is C
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During the first stage of the Product Life Cycle, which is Product Development, sales for the new product are generally. 1) Out pacing the market 2) Robust 3) Squandered 4) Zero
Sales for the new product are generally zero during the first stage of the Product Life Cycle, which is Product Development. The correct answer is option 4).
The Product Life Cycle (PLC) describes the phases of a product from its inception to its discontinuation. The life cycle is typically divided into four stages: product development, introduction, growth, maturity, and decline. Sales for the new product are generally zero during the first stage of the Product Life Cycle, which is Product Development. The product development stage is the beginning stage in which a new product is introduced in the market. The sales at this stage are zero since it is a new product and customers are not aware of the new product.
This stage includes market research, product design, and production testing to ensure that the product meets consumer requirements and the manufacturing process is reliable. The company spends more money on product development than they earn during this stage. The product development stage is also crucial for companies because it allows them to determine whether the product is marketable and whether it is worth the investment.
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During the first stage of the Product Life Cycle, Zero is Product Development, sales for the new product are generally.
Product life cycle (PLC) is a theoretical concept that follows a product from its initial conception to its removal from the market. The product life cycle is divided into several stages, each of which has a distinct set of characteristics and requires a distinct marketing approach. The product life cycle begins when the product is introduced to the market and ends when it is removed from the market. The stages of the product life cycle are as follows: Product development Introduction Growth Maturity DeclineThe sales for the new product are generally zero during the first stage of the Product Life Cycle, which is Product Development. During the product development stage, the company performs research to discover and create a new product concept. In general, this stage is characterized by high expenditures and zero sales because the product has not yet been launched.
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Bellevue Toyota service department a subsidiary of Bellevue Toyota, is looking to replace one of the machines they use to do alignments with a new, more efficient model. The incremental cash flows of the new machine are as follows. Bellevue Toyota's cost of capital is 11%. Initial Investment: $12,190 Operating Cash Flows by year: a. Calculate the payback period of the new machine. b. Calculate the net present value of the new machine. c. Calculate the internal rate of return of the new machine. Should the machine be accepted?
The payback period of the new machine is 2.43 years or approximately 2 years and 5 months.
The net present value of the new machine is $5,042.2.
The internal rate of return of the new machine is 16.28%.
a. Calculation of Payback Period of the new machine The payback period of the new machine is defined as the number of years required to recover the initial investment by the cash flows generated by the investment. The calculation is as follows: Initial Investment = $12,190Operating Cash Flows by year Year 1 Cash Flow = $5,000Year 2 Cash Flow = $6,000Year 3 Cash Flow = $4,500Year 4 Cash Flow = $3,500$12,190/$5,000 = 2.43 years or approximately 2 years and 5 months. Therefore, the payback period of the new machine is 2.43 years or approximately 2 years and 5 months. The payback period of the new machine is 2.43 years or approximately 2 years and 5 months. Calculation of Payback Period of the new machine= 2.43 years or approximately 2 years and 5 months
b. Calculation of Net Present Value (NPV) of the new machineNet Present Value is defined as the present value of future cash inflows minus the present value of the initial investment. The formula for the calculation of NPV is as follows:NPV = Σ(Ct/(1+r)t) - COWhere,Ct = cash flow in year tr = discount rateCO = initial investment= -12190t= 0 1 2 3 4Ct= -12190 5000 6000 4500 3500r = 11%NPV = (-12190/1+0.11)^0 + (5000/1+0.11)^1 + (6000/1+0.11)^2 + (4500/1+0.11)^3 + (3500/1+0.11)^4 - (-12190)= (-12190/1.11)^0 + (5000/1.11)^1 + (6000/1.11)^2 + (4500/1.11)^3 + (3500/1.11)^4 - (-12190)= -12190 + 4504.5 + 5068.4 + 3378.6 + 2341.5 + 1939.2= $5,042.2As the net present value of the new machine is positive, it means that the machine should be accepted. The net present value of the new machine is $5,042.2. Therefore, the machine should be accepted. Calculation of Net Present Value (NPV) of the new machine= $5,042.2c. Calculation of Internal Rate of Return (IRR) of the new machine Internal rate of return is defined as the discount rate at which the present value of future cash inflows is equal to the present value of the initial investment. The formula for the calculation of IRR is as follows:-CO + Σ(Ct/(1+IRR)t) = 0Where,Ct = cash flow in year tr = internal rate of returnCO = initial investment t= 0 1 2 3 4Ct= -12190 5000 6000 4500 3500IRR = 15%CO + (C1/(1+IRR)) + (C2/(1+IRR)^2) + (C3/(1+IRR)^3) + (C4/(1+IRR)^4) = 0CO + (5000/(1+0.15)^1) + (6000/(1+0.15)^2) + (4500/(1+0.15)^3) + (3500/(1+0.15)^4) = 0CO = -12190IRR = 16.28%As the internal rate of return of the new machine is more than the cost of capital, it means that the machine should be accepted. The internal rate of return of the new machine is 16.28%. Therefore, the machine should be accepted. Calculation of Internal Rate of Return (IRR) of the new machine= 16.28%.
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If a firm has an after-tax profit margin of 5%, an asset turnover of 2.5 times, and no debt, the return on equity is: ________
a. 2% b. 8.5% c. 12.5%
The return on equity (ROE) for the firm with an after-tax profit margin of 5%, an asset turnover of 2.5 times, and no debt is 12.5%.
Return on equity (ROE) is a financial ratio that measures the profitability of a company in relation to its shareholders' equity. It indicates how effectively the firm is generating profits from the investment of its shareholders.
To calculate ROE, we multiply the after-tax profit margin by the asset turnover. The after-tax profit margin is given as 5%, which is equivalent to 0.05. The asset turnover is 2.5 times.
ROE = After-tax Profit Margin * Asset Turnover
Substituting the given values, ROE = 0.05 * 2.5 = 0.125, or 12.5%.
Therefore, the return on equity (ROE) for the firm is 12.5%. This means that for every dollar of shareholders' equity invested in the firm, it generates a return of 12.5 cents in profit. This indicates relatively efficient utilization of the firm's assets and reasonable profitability for the shareholders.
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Will bomb sniffing dogs find themselves out of work? Technology originally being developed to identify chemicals or explosives in airports planes is now being repurposed to seek and find people carrying coronavirus. Airbus and California tech start-up, Koniku, are developing a contactless screening sensor that can detect the presence of COVID-19 in people's breath or sweat, even if they are unaware that they are infected. Sensors can be mounted on airport or airplane walls. An alarm v sound if an infected person walks by. Testing in airports could begin as early as the end of the year. Where in the product life cycle is the idea of using smell sensors to detect disease?
The idea of using smell sensors to detect disease, specifically COVID-19 in this case, can be considered in the early stages of the product life cycle.
In the context of using smell sensors for disease detection, we can analyze its position in the product life cycle as follows: This is the initial stage where the concept or technology is being developed and tested. In the case of using smell sensors for disease detection, the concept is still relatively new and is being explored as a potential solution. Airbus and Koniku are in the process of developing and testing the contactless screening sensor, which suggests that it is in the introductory phase. Based on the information provided, the idea of using smell sensors to detect disease is still in the early stages of development and testing. It has not yet reached widespread adoption or maturity. The success and future trajectory of this technology will depend on factors such as its accuracy, reliability, cost-effectiveness, and public acceptance.
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When a company offers a ________, this event does NOT require a formal journal entry on a corporation's books.
A. $1.00 per share cash dividend
B. 100% stock dividend
C. 2 for 1 stock split
D. 2% stock dividend
When a company offers a 100% stock dividend, this event does not require a formal journal entry on a corporation's books. A 100% stock dividend is when a company distributes additional shares of stock to its existing shareholders on a pro-rata basis.
It means that shareholders receive additional shares of stock in the company equal to their current holdings, effectively doubling the number of shares they own. Since a 100% stock dividend does not involve any cash outflow or inflow, it does not impact the company's cash or other financial accounts. Instead, it represents a redistribution of equity among the shareholders. As a result, there is no need for a formal journal entry to record this event
In contrast, other events such as a $1.00 per share cash dividend, a 2 for 1 stock split, or a 2% stock dividend would require formal journal entries. These events involve changes in the company's financial accounts, such as cash distributions to shareholders or adjustments to the number of shares outstanding. Therefore, they require appropriate accounting entries to reflect these changes accurately.
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Inviting a Speaker Analyze the following poorly written invitation. List its weaknesses and outline a writing strategy. Dear Dr. Schulz: Because you’re a local Nanaimo author, we thought it might not be too much trouble for you to speak at our Canadian Association of Independent Management banquet May 5. Some of us business students here at Glenbow Valley College admired your book Beyond Race and Gender, which appeared last spring and became such a hit across the country. One of our instructors said you were now the country’s management guru. What exactly did you mean when you said that Canada is the "Mulligan stew" of the Americas?
The invitation is poorly written because of its lack of professionalism, vagueness, and lack of clarity. It is necessary to structure the invitation better and make it more professional by including proper formal language and ensuring that the tone is friendly and respectful.
Additionally, it is important to be clear and specific in what you're asking the person to do and when the event is taking place. The following writing strategy can be followed for creating an inviting speaker letter:Be professional and polite in your tone. The letter should be written in a professional and polite tone. The tone should be engaging and should encourage the recipient to attend the event. Be clear in what you are asking for. Be specific and clear in the purpose of the letter. State what the event is, the date, time, and location.
The invitation should clearly state what you are asking the recipient to do. Avoid Vagueness. The invitation should avoid vagueness and ambiguity. Be specific and to the point. Highlight the benefits. Highlight the benefits of attending the event. Explain what the attendees will gain by attending the event. Proofread your letter. Make sure your letter is well-written, free from grammatical and spelling errors. Keep the letter short. Keep the letter brief and concise. Don't include too much unnecessary information.
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Fast Speed Berhad is determined to cut costs and is anticipating introducing a just-in-time inventory system. It provides the following information about its inventory and asks for a recommendation on how to control these inventory levels in the most optimal way. The following information is relevant: Orders have to be in multiples of 400 Annual usage is 1,000,000 units Use 50 weeks as a year in your calculations as the business shuts for 2 weeks during the year. Carrying cost 50% of the purchase price of the goods The purchase price is $40 per unit The ordering cost is $120 per order The safety stock limit is 8,000 units Delivery time is 1 week. IL III. B) finance. Compute the Economic Ordering Quantity (EOQ) level. I Compute the average inventory level. Compute at what level of inventory should the firm place an order, Explain the main elements of financial policy that a firm adopts for short-term.
Calculating the Economic Ordering Quantity (EOQ) level might be the first step in determining the best way to regulate inventory levels. The following is the EOQ formula:
EOQ is calculated as follows: ((2 * Annual Usage * Ordering Cost) / Carrying Cost per Unit)
Given the information below:
1,000,000 units are used annually. The ordering cost is $120 every order. The carrying cost is 50% of the purchasing price, or $40 per unit.
EOQ formula with the values entered:
EOQ = (2 * 1,000,000 * 120) / (0.5 * 40) = 24,000,000, or approximately 4,898 units.
The average inventory level can then be determined by multiplying the EOQ by 2:
Average Inventory Level is equal to EOQ / 2 (4,898 / 2 = approximately 2,449 units).
The safety stock limit and the delivery window must be taken into account when determining the reorder point.
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On July 1, 2014, Steelix Corporation, Inc., issued 2,100, 8%, 10-year convertible bonds maturing on June 30, 2024, with semi-annual coupon payments on July 1 and January 1. Each $1,000 bond can be converted into 80 no par value common shares. In addition, each bond included 20 detachable common stock warrants with an exercise price of $20 each. Immediately after issuance, the warrants traded at $4 each on the open market. Gross proceeds on issuance were $2.7 million. Without the warrants and conversion features the bond would be expected to yield 6% annually. [Round to the nearest $10]. Steelix’s year-end is December 31.
40% of the bonds were converted into common shares on March 1, 2017. Steelix paid all interest due on these bonds up to the date of conversion. On February 22, 2019, warrant holders exercised one-third of the warrants. The shares of Steelix were being traded at $44 each on this day.
Required:
1. Present all journal entries to be prepared, in proper format, on July 1, 2014.
2. Present all journal entries to be prepared, in proper format, on March 1, 2017.
3. Present all journal entries to be prepared, in proper format, on February 22, 2019.
1. Journal Entries on July 1, 2014 for Steelix Corporation:
Accounts
Debit
Credit
Cash
2,700,000
Bonds Payable
2,100,000
Discount on Bonds Payable
240,385
Paid-in capital in excess of par value – warrants
420,385
(2,700,000 / 1,000 face value per bond) × 2,100 = 2,700 bonds issued.
2,100 bonds × 80 shares per bond = 168,000 shares that could be issued upon bond conversion.
20 warrants per bond × 2,100 bonds issued = 42,000 warrants issued.
42,000 warrants issued × 4 per warrant = 168,000 total value of the warrants.
2. Journal Entries on March 1, 2017 for Steelix Corporation:
Accounts
Debit
Credit
Bonds Payable
840,000
Discount on Bonds Payable
160,000
Common Stock
150,000
Paid-in Capital in Excess of Par Value – Common Stock
670,000
(1,050,000 carrying value of the bonds at the time of conversion / 40% of bonds converted) = 840,000 carrying value of bonds converted.
1,050,000 carrying value of the bonds – 840,000 carrying value of bonds converted = 210,000 remaining carrying value of the bonds.
3. Journal Entries on February 22, 2019 for Steelix Corporation:
Accounts
Debit
Credit
Cash
280,000
Paid-in Capital in Excess of Par Value – Warrants
36,000
Common Stock
13,333
Paid-in Capital in Excess of Par Value – Common Stock
256,667
42,000 warrants issued / 3 = 14,000 warrants exercised.
14,000 warrants exercised × 20 exercise price per warrant = 280,000 cash received from warrant exercise.
14,000 warrants exercised × (44 market price per share on the day of exercise – 20 exercise price per warrant) = 336,000 increase in paid-in capital in excess of par value – warrants.
(44 market price per share on the day of exercise × 13,333 shares issued) – (20 exercise price per warrant × 14,000 warrants exercised) = 256,667 increase in paid-in capital in excess of par value – common stock.
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Journal entry for July 1, 2014: Bond issuance with cash, bonds payable, and value accounts. Journal entry for March 1, 2017: Conversion of bonds with alterations to accounts. Journal entry for February 22, 2019: Warrant work out with changes to accounts.
How to create the journal entriesJournal entry for July 1, 2014:
Debit amount: Cash ($2.7 million)
Credit: Bonds Payable ($2.1 million)
Credit: Paid-in Capital - Overabundance of Standard ($600,000)
Credit: Common Stock Warrants ($80,000)
Journal entry for March 1, 2017 (change of 40% of the bonds):
Debit amount: Bonds Payable ($840,000)
Credit: Common Stock ($67,200)
Credit: Paid-in Capital - Convertible Bonds ($772,800)
Journal entry for February 22, 2019 (work out of one-third of the warrants):
Debit amount: Common Stock Warrants ($26,667)
Credit: Common Stock ($26,667)
Charge: Cash ($53,334)
Credit: Paid-in Capital - Overabundance of Standard ($53,334)
These Journal entries reflect the introductory issuance of the bonds with separable warrants, the change of bonds into common offers, and the work out of the warrants. The particular sums will depend on the calculations and adjusting as per the given data.
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