To prepare the necessary adjusting entries at December 31, 2024 for each of the above situations, the following entries should be made:
1. Prepaid Insurance:
Debit: Insurance Expense $4,200
Credit: Prepaid Insurance $4,200
2. Depreciation Expense:
Debit: Depreciation Expense $12,500
Credit: Accumulated Depreciation $12,500
3. Salaries Expense:
Debit: Salaries Expense $17,000
Credit: Salaries Payable $17,000
4. Interest Expense:
Debit: Interest Expense $8,400 ($210,000 x 0.12 x (9/12))
Credit: Interest Payable $8,400
5. Deferred Rent Revenue:
Debit: Deferred Rent Revenue $1,050 ($6,300 x (3/12))
Credit: Rent Revenue $1,050
Please note that these adjusting entries are based on the assumption that no financial statements were prepared during the year and no adjusting entries were recorded.
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Case 1: Why are US Exports so Competitive? When The rise of China as the leading exporter has been widely reported, one cannot ignore the incumbent leading importer and former leading exporter of the world - the United States. In 2015, the United States exported $1.51 trillion in goods. Of China's $2.28 trillion exports in goods, only about two-thirds of the value added was contributed by China (the rest were imported components assembled in China). The United States contributed approximately 90% of the value added of its exports. Do your math: The value added of US exports ($1.36 trillion) was very close to the value added of Chinese exports ($1.52 trillion). To make a long story short, first, US exports have to deliver value. Consider civilian aircraft. One crucial reason that the new Boeing 787 Dreamliner became the hottest-selling airliner prior to its launch is its ability to reduce fuel consumption by 15%-music to the ears of airline executives. Second, US exports also have to be rare and hard to imitate. There is no shortage of global rivals tearing apart US products and trying to reverse engineer them. European, Russian, and Chinese aerospace firms are doing this at this moment by trying to out-Boeing Boeing. While Airbus has been quite successful, neither Russian nor Chinese civilian aircraft makers have much presence in export markets. In service exports, the United States is even more competitive-it is the world champion. It is hard enough to design and manufacture world-class aircraft, but it is no less challenging to operate service, training, and maintenance networks for airlines that cannot afford any equipment breakdown for a long period-on a worldwide basis and for 20 to 30 years after the initial sale. While the products themselves have to be competitive, Uncle Sam also helps. At least ten federal agencies offer export assistance: Departments of Commerce, State, Treasury, Energy, and Agriculture as well as the Office of US Trade Representative (USTR), Export-Import Bank (Ex-Im Bank), US Agency for International Development (USAID), Overseas Private Investment Corporation (OPIC), and Small Business Administration (SBA). Since only approximately 1% of all US firms export and 58% of them export to just one country, clearly more assistance will be helpful to facilitate more firms to join the export game. Going beyond routine export assistance, new initiatives focus on negotiating free trade agreements (FTAS). As of this writing, the United States has 12 FTAs in force with 18 countries: Australia, Bahrain, Chile, DRCAFTA (Dominican Republic-Central America FTA, which covers Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua), Israel, Jordan, Morocco, NAFTA (which covers Canada and Mexico), Oman, Peru, Singapore, and South Korea. In addition, two FTAs with Panama and Colombia were negotiated, but they are still pending Congressional approval. FTAs typically reduce trade barriers to US exports and create a more stable and transparent trading environment. In this regard, the Trump administration's actions to withdraw from the Trans-Pacific Partnership (TPP), a massive FTA negotiated among 12 member countries over seven years, and to renegotiate NAFTA are likely to be counterproductive. In addition to formal institutions, informal norms and values also play a role behind US exports. While some gurus write about the decline of US influence, the informal norms of consuming and appreciating US products seem to proliferate overseas. Around the world, it is cool to consume made-in-USA products. In Paris metro (underground) stations, almost every other poster seems to be about a Hollywood blockbuster. In Accra, the middle class flock into Ghana's first KFC and lick their fingers greased by grown-in-USA chicken. In Beijing, the Chinese president takes off and lands in a "Chinese Air Force One," which is a Boeing 747. If you are studying this book outside the United States, then you are a US export customer too. Question 2 (10 marks) From an institution-based view, elaborate on the factors in both formal and informal institutions that helps US to be a top exporter. Use evidence from the above article to support your answers. For evidence not found above, you may provide specific examples based on known products/services or state your assumptions. State ONE(1) example each for formal and informal institutions respectively to support your answers.
The United States' position as a top exporter is facilitated by formal institutions such as export assistance programs and free trade agreements, as well as informal institutions that promote the consumption and appreciation of U.S. products globally.
Formal institutions, such as export assistance programs and free trade agreements, contribute to the United States' success as a top exporter. The article mentions that at least ten federal agencies offer export assistance, providing support to U.S. firms. Additionally, the United States has 12 free trade agreements in force with 18 countries, which reduce trade barriers and create a more favorable trading environment for U.S. exports. These formal institutions help to facilitate and promote international trade for U.S. businesses.
Informal institutions, such as consumer preferences and cultural norms, also play a role in the success of U.S. exports. The article mentions the proliferation of consuming and appreciating U.S. products overseas, indicating a positive perception and desirability of made-in-USA products. Specific examples mentioned include the popularity of Hollywood blockbusters in Paris metro stations and the success of U.S. fast-food chains like KFC in countries like Ghana. These examples highlight the influence of informal institutions in driving demand for U.S. exports.
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The United States is a top exporter due to factors in both formal and informal institutions. Examples include the existence of free trade agreements (FTAs) and the positive reputation of US products overseas.
Explanation:From a institution-based view, there are several factors, both formal and informal, that contribute to the United States being a top exporter.
One example of a formal institution is the existence of free trade agreements (FTAs) which reduce trade barriers and create a more stable and transparent trading environment. The United States currently has 12 FTAs in force with 18 countries. These FTAs have helped to increase US exports to these countries.
An example of an informal institution is the positive perception and reputation of US products overseas. The article mentions that consuming and appreciating US products is considered cool around the world. This positive perception helps to drive demand for US exports.
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1. What is the primary object of the law of tort?
2. Although the law of tort and the law of contract are both areas of civil law, identify the key conceptual difference between the two.
3. Although there may be overlap between a tortious action and a criminal action what is the key distinction between the two, in relation to the sanctions?
4. What are the four main elements of a negligence action?
5. The first element that a plaintiff must prove is that the defendant owed the plaintiff a duty of care. Lord Atkin, in Donoghue v Stevenson [14.70], used, for the first time, the concept of the "neighbor" as a general limiting principle. Who, according to Lord Atkin, is our neighbour, at least according to law? What specific duty of care was owed by a manufacturer to a consumer? 6. In Donoghue v Stevenson [14.70], why did May Donoghue not sue the shop owner?
7. In novel situations, where the duty of care question has not been settled by case law, what twofold or composite test is outlined by the High Court in Tame [14.110]?
8. Explain why the courts have been reluctant to find a duty of care in cases where the damage is psychological.
9. The High Court in Annetts [14.180] rejected the proposition that a plaintiff is only entitled to compensation if (a) the psychiatric injury suffered was as a result of a "nervous shock" or (b) the plaintiff was a witness to the incident (or its immediate aftermath). Do you agree with the decision? Can you appreciate why Mrs Tame failed and the Annetts’ succeeded?
10. What is a "pure economic loss" and why have the courts limited the scope of the duty of care where such a loss occurs?
1. The primary object of tort law is to provide compensation for harm caused by wrongful actions, while contract law focuses on enforcing agreements.
2. Courts are cautious in recognizing duties of care for psychological harm, and the scope of duty is limited in cases of pure economic loss to avoid excessive liability.
1. The primary object of the law of tort is to provide a legal framework for individuals to seek compensation for harm or injury caused by the wrongful actions of others.
2. The key conceptual difference between the law of tort and the law of contract is that tort law deals with civil wrongs committed against individuals, whereas contract law governs the enforcement of agreements and obligations between parties.
3. The key distinction between a tortious action and a criminal action, in terms of sanctions, is that tort law primarily aims to compensate the victim for their losses or injuries, while criminal law focuses on punishing the wrongdoer through fines, imprisonment, or other criminal penalties.
4. The four main elements of a negligence action are: (1) Duty of care - the defendant owed a legal duty of care to the plaintiff; (2) Breach of duty - the defendant breached that duty by failing to meet the required standard of care; (3) Causation - the defendant's breach of duty caused the plaintiff's harm or injury; (4) Damages - the plaintiff suffered actual harm or loss as a result of the defendant's actions.
5. According to Lord Atkin in Donoghue v Stevenson, our "neighbor" is any person who can be reasonably foreseen as being affected by our actions. In the case, the specific duty of care owed by a manufacturer to a consumer was to take reasonable care to avoid acts or omissions that could harm the consumer.
6. May Donoghue did not sue the shop owner because her friend had purchased the drink for her, and she did not have a contractual relationship with the shop owner. Instead, she sued the manufacturer of the ginger beer based on the duty of care owed to consumers.
7. In novel situations where the duty of care question is not settled by case law, the High Court in Tame outlined a twofold or composite test. This test involves considering whether a reasonable person in the defendant's position would have foreseen the risk of harm to the plaintiff and whether it is just and reasonable to impose a duty of care in the circumstances.
8. Courts have been reluctant to find a duty of care in cases where the damage is psychological due to the difficulty in establishing causation and foreseeability. Psychological harm is often more subjective and complex to prove compared to physical harm, which has led to cautiousness in recognizing such claims.
9. In the case of Annetts, the High Court rejected the proposition that a plaintiff is only entitled to compensation if the injury suffered was due to a "nervous shock" or witnessing the incident. Whether one agrees with the decision is subjective, but it highlights the court's recognition that psychological harm can be caused in various ways and should not be limited to specific circumstances. Mrs. Tame failed because her psychiatric injury did not meet the requirements set by the court, while the Annetts succeeded because their claim was deemed to meet the necessary criteria.
10. "Pure economic loss" refers to financial or economic harm that does not arise from any accompanying physical harm or property damage. Courts have limited the scope of the duty of care in cases involving pure economic loss due to concerns about indeterminate liability and the potential for imposing excessive burdens on defendants. The courts have established various tests and criteria to assess the existence and extent of a duty of care in such cases.
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Describe three recent situations in which you were directly
affected by poor product or service quality.
Discuss the concept(s) relating to the above question. Please
Provide References.
I have experienced poor product or service quality in the following three recent situations: (1) receiving a defective electronic device, (2) encountering slow and unresponsive customer support, and (3) receiving subpar food quality at a restaurant.
In the first situation, I purchased a new smartphone that malfunctioned shortly after I started using it. The device had several hardware issues, affecting its performance and usability. This directly impacted my satisfaction as a customer and required me to seek a replacement or repair.
In the second situation, I faced a prolonged and frustrating experience with a customer support team. They were unresponsive to my inquiries and failed to address my concerns promptly. This lack of quality service not only caused inconvenience but also reflected poorly on the company's commitment to customer satisfaction.
Lastly, I encountered poor food quality at a restaurant where the dishes I ordered did not meet the expected standards in terms of taste, presentation, and freshness. This directly affected my dining experience and left me dissatisfied with the overall quality of the establishment.
These situations highlight the importance of product and service quality in customer satisfaction and the negative impact that poor quality can have on the overall customer experience. It emphasizes the need for businesses to prioritize quality control and customer-centric approaches to ensure customer loyalty and positive brand perception.
References:
- Parasuraman, A., Zeithaml, V. A., & Berry, L. L. (1985). A conceptual model of service quality and its implications for future research. Journal of Marketing, 49(4), 41-50.
- Grönroos, C. (1984). A service quality model and its marketing implications. European Journal of Marketing, 18(4), 36-44.
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A Play on Words owns a movie theatre that has an accounting net book value value of $4,000,000 and a tax basis (undepreciated capital cost) of $3,500,000, which means there is a temporary difference of $500,000. The company’s tax rate is 40%.
If the building were sold tomorrow for its accounting value:
1. there would be an accounting gain of
.
2. There would be a gain (recapture) for tax purposes of
.
3. This would result in taxes payable of
A Play on Words owns a movie theatre that has an accounting net book value value of $4,000,000 and a tax basis (undepreciated capital cost) of $3,500,000, which means there is a temporary difference of $500,000. The company’s tax rate is 40%.
This would result in taxes payable of $60,000.Temporary differences refer to the difference between the tax basis of an asset or liability and its book value in the accounting books.
The tax basis is also known as the undepreciated capital cost (UCC) and is used to calculate tax depreciation allowances. Temporary differences are important because they result in deferred tax assets or liabilities that can impact future tax payments.
The formula to calculate taxes payable due to temporary differences is:Temporary Differences x Tax Rate = Taxes PayableIn this case, the temporary difference is $500,000 and the tax rate is 40%. So, using the formula above, we get:Taxes Payable = $500,000 x 40% = $200,000.
Here, since there is no deferred tax asset mentioned, we can assume that the full deferred tax liability is the taxes payable. Thus, the taxes payable due to temporary differences in this case would be $200,000 x 30% = $60,000.
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Instructions: Complete all questions. Show working for all parts. Answers do not have to be integers: assume all variables (goods, prices) are infinitely divisible. Submit answers in P DF format. 1. Alice, Bill and their mother are deciding how to split a chocolate bar. Assume that the chocolate bar has 8 squares, so can only be divided into multiples of 81. Assume also that each only wants to maximise how much chocolate he or she gets. (a) Consider the following simultaneous move game: Alice, Bill and the mom each name a fraction of the chocolate bar that would be allocated to them. If the three fractions add up to a number less than or equal to 1 , each player gets the share of the chocolate equal to the fraction they named (e.g. if the mom says 41, Alice says 41 and Bill says 41, each gets 41 of the chocolate). If the three fractions add up to more than 1 , each player gets no chocolate. Name one Nash equilibrium of the game. (b) Consider the following simultaneous move game: Alice, Bill and the mom each name a fraction of the chocolate bar that would be allocated to them. If the three fractions add up to a number less than or equal to 1 , each player gets the share of the chocolate equal to the fraction they named (e.g. if the mom says 41, Alice says 41 and Bill says 41, each gets 41 of the chocolate). If the three fractions add up to more than 1 , each player gets 81 of the chocolate. Name a strategy profile that constitutes a Nash equilibrium of the game in part (a) but would not be a Nash equilibrium of this game. (c) Consider the following sequential move game: in the first st age, the mom divides the chocolate bar into 3 pieces. In the second stage, Alice takes one of these three pieces. In the second stage, Bill takes one of the remaining two pieces. The mom then gets the piece that remains. This game has two SP NE. In both of them, the mom gets the same fraction of the chocolate. What is this fraction? Explain in two sentences, and feel free to include a drawing if it helps.
(a) One Nash equilibrium is for each player to name 1/3 of the chocolate bar.
(b) One strategy profile that constitutes a Nash equilibrium in part (a) but would not be a Nash equilibrium of this game is for Alice and Bill to name fractions that add up to more than 1.
(c) The mom gets 3/8 of the chocolate bar in both SPNEs. In the first stage, the mom divides the chocolate bar into 3 pieces of 3, 3, and 2 squares.
If any player deviates from this strategy, they will receive less chocolate since the other two players will also change their strategy to maintain their equal share.
While the mom names a fraction that will bring the total below 1 so that she receives no chocolate and Alice and Bill each receive 81. This is not a Nash equilibrium in the second game because if the mom deviates by naming a fraction that brings the total above 1, Alice and Bill will also deviate and the mom will receive nothing while Alice and Bill each receive 40.5.
In the second stage, Alice takes the piece with 2 squares, and in the third stage, Bill takes one of the pieces with 3 squares. The mom then takes the remaining piece with 3 squares. Since the mom knows that she will get one of the three pieces, she chooses to divide the chocolate into pieces such that each piece has the same ratio of squares to the total number of squares (i.e. 3/8 in this case) to ensure that no matter which piece she gets, she receives the same fraction of the chocolate bar.
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Kristina and Mallory decide to form a partnership. Kristina has $56,000 in her Capital account and nothing in her Drawings account. Mallory has $15,000 of cash to invest in the partnership. As they are going to deliver the pet treats to the pet stores, Mallory is also investing a truck into the partnership. The fair value of the truck is $23,000 and the partnership is going to take over the $11,000 bank loan that Mallory still has on the van. Kristina and Mallory agree that Mallory will receive 40% ownership of the company. The partnership will start January 1, 2024 and will have a December 31 year-end. Kristina has asked you to record the journal entry to form the partnership.
Kristina and Mallory are forming a partnership, and according to the agreement, the partnership will start on January 1, 2024. The partnership's year-end will be December 31.
Kristina will have $56,000 in her Capital account, and Mallory will contribute $15,000 in cash and a truck worth $23,000, as well as a $11,000 bank loan. Mallory will get a 40% ownership interest in the partnership. Mallory's investment in the partnership will be recorded as cash of $15,000 and a truck with a fair value of $23,000, for a total of $38,000, in the following journal entry.
The Journal Entry for forming the partnership: Cash $15,000.00 Truck $23,000.00 Notes Payable $11,000.00 Kristina, Capital $56,000.00 Mallory, Capital $19,000.00[Being the investment by Mallory in the Partnership]Total = $84,000.00 Thus, the above journal entry records the formation of the partnership between Kristina and Mallory.
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Select the statement that is TRUE.
A) Limited partners are not employees but general partners are employees.
B) If Cooper, a partner, has a monthly salary allowance of $1,400, the partnership would record salary expense of $0.
C)Partners are employed by the partnership.
D) If Cooper, a partner, has a monthly salary allowance of $1,400, the partnership would record salary expense of $16,800.
The statement that is TRUE regarding the given terms "salary allowance" is: D) If Cooper, a partner, has a monthly salary allowance of $1,400, the partnership would record a salary expense of $16,800. Option D is the correct answer
Salary allowance is a fixed amount that an employee gets every month in addition to basic pay to cover living expenses, meals, and other daily needs. It is typically referred to as an additional sum of money added to the employee's monthly paycheck.
Salary allowance is not part of basic pay or any incentive pay that an employee earns. When a partner of a partnership has a salary allowance, the partnership will have to record salary expenses equal to the partner's allowance. Hence, if Cooper, a partner, has a monthly salary allowance of $1,400, the partnership would record a salary expense of $16,800 (1,400 x 12). Therefore, option D is the correct answer.
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Your company is planning on introducing a new residential smoke detector at the start of next year. The COS2013 carbon monoxide and smoke alarm (to be called the LifeSaver II) monitors and detects harmful smoke and carbon monoxide gas. It measures the concentration of CO or smoke and sounds a loud alarm pattern when a potentially harmful level is reached. The alarm is designed to detect both fast burning and slow smoldering fires. The type of alarm is visibly indicated by an alarm icon. The new model is a 120 volt hardwire combination smoke and carbon monoxide alarm, using the latest ionization, photoelectric and semiconductor technology. Features include visual alarm icons (for both smoke and CO), instant test and retest feature, inter-connectability for up to 12 units, an alarm pause silencer feature, an 85 dB alarm pattern, a 5 year warranty and is UL & ULc listed. The COS2013 is clearly superior to your other lines but will actually carry a lower price due to the lower cost of the new technology. Your company also realizes that competitors possess similar technology and cost structures which necessitate the introduction of the new alarm. Your company will continue to sell its current product: the LifeSaver I. Your boss has asked you to assess the impact of cannibalization on the company's projected total contribution margin. The LifeSaver I is priced at $48 and has unit variable costs of $25. The LifeSaver II will be priced at $40 and will carry unit variable costs of $24. First year LifeSaver II sales are projected at 375,000 units. The company had expected to sell 450,000 LifeSaver I alarms, without the introduction of LifeSaver II. While difficult to estimate, the company believes that about 200,000 LifeSaver I's will be cannibalized by the introduction of the LifeSaver II. Calculate the projected 2013 total contribution margin for LifeSaver II.
Total Contribution Margin is calculated as the product of the number of units sold and the contribution margin per unit. The contribution margin per unit is determined by subtracting the unit variable costs from the selling price per unit. Here is the calculation:
Given data:Number of units of LifeSaver II sold in 2013 = 375,000Selling price per unit of LifeSaver II = $40
Unit variable costs of LifeSaver II = $24Total contribution margin per unit of LifeSaver II = ($40 - $24) = $16
Number of LifeSaver I units cannibalized by LifeSaver II = 200,000Number of LifeSaver I units sold in 2013 without LifeSaver II = 450,000 - 200,000 = 250,000
Selling price per unit of LifeSaver I = $48Unit variable costs of LifeSaver I = $25
Total contribution margin per unit of LifeSaver I = ($48 - $25) = $23
Therefore, the total contribution margin for LifeSaver II in 2013 is calculated as:
Total contribution margin = Total contribution margin per unit * Number of units sold= $16 * 375,000= $6,000,000
Therefore, the projected 2013 total contribution margin for LifeSaver II is $6,000,000.
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The histoncal returns tor two investments - A and B-are summarzed in the following table for the period 2016 to 2020 . Use the data to answer the questions that follow a. On the basis of a review of the return data, which investment appears to be more risky? Why? b. Calculate the standard deviation for each imvestment's returns c. On the basis of your calculations in part b, which investment is more risky? Compare this conclusion to your observation in part a less deviation from the average C. Investment A and investment B have equal risk because the average retums are the same D. The niskier investment appears to be investment B, with returns that are closet to the average relative to investment A, whose returns are farther from the average b. The standard deviation for investment A is
We need to compare the standard deviations calculated in part b to determine which investment is more risky. a. On the basis of a review of the return data, which investment appears to be more risky why?
To determine which investment appears to be more risky based on the return data, we need to analyze the variability of the returns. One commonly used measure of variability is the standard deviation. The higher the standard deviation, the more risky the investment is considered to be. b. Calculate the standard deviation for each investment's returns To calculate the standard deviation, we need to follow these steps:
1. Calculate the average return for each investment by summing up all the returns and dividing by the total number of years.
2. For each year, subtract the average return from the actual return and square the result.
3. Calculate the average of the squared differences obtained in step 2.
4. Take the square root of the average calculated in step 3.
Let's calculate the standard deviation for each investment's returns:
For Investment A:
1. Average return = (Return 2016 + Return 2017 + Return 2018 + Return 2019 + Return 2020) / 5
2. Calculate the squared differences: (Return 2016 - Average return)^2, (Return 2017 - Average return)^2, (Return 2018 - Average return)^2, (Return 2019 - Average return)^2, (Return 2020 - Average return)^2
3. Calculate the average of the squared differences obtained in step 2.
4. Take the square root of the average calculated in step 3.
For Investment B:
Repeat steps 1-4 using the returns for Investment B.
c. On the basis of your calculations in part b, which investment is more risky? Compare this conclusion to your observation in part a.
To determine which investment is more risky based on the standard deviation, we compare the calculated standard deviations for Investment A and Investment B. The investment with a higher standard deviation is considered to be more risky.
If the standard deviation for Investment A is higher, then Investment A is more risky. If the standard deviation for Investment B is higher, then Investment B is more risky. Less deviation from the average does not necessarily indicate lower risk. It is the magnitude of the deviation, measured by the standard deviation, that determines the riskiness of an investment.
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A bond has the following features:
Coupon rate of interest (paid annually): 11 percent
Principal: $1,000
Term to maturity: 10 years
What will the holder receive when the bond matures?
-Select-PrincipalAll coupon paymentsItem 1
If the current rate of interest on comparable debt is 7 percent, what should be the price of this bond? Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar.
$
Would you expect the firm to call this bond? Why?
-Select-YesNoItem 3 , since the bond is selling for a -Select-discountpremiumItem 4 .
If the bond has a sinking fund that requires the firm to set aside annually with a trustee sufficient funds to retire the entire issue at maturity, how much must the firm remit each year for ten years if the funds earn 7 percent annually and there is $120 million outstanding? Use Appendix C to answer the question. Round your answer to the nearest dollar.
$
When the bond matures, the holder will receive the Principal amount, which is $1,000.
To determine the price of the bond, we can calculate the present value of its cash flows. The bond pays an annual coupon of 11% on a principal of $1,000 for 10 years. Using Appendix B and a discount rate of 7%, we can calculate the present value of the coupon payments and the principal. Adding these present values together will give us the price of the bond.
The price of the bond is approximately $1,265.
No, I would not expect the firm to call this bond because the bond is selling at a premium. Calling the bond would mean redeeming it before maturity, but since the bond is selling at a premium, it would be more expensive for the firm to call the bond than to let it continue until maturity.
To calculate the amount the firm must remit each year for ten years, we need to find the annuity amount that, when discounted at 7%, will accumulate to $120 million over 10 years. Using Appendix C, the firm must remit approximately $7,954,913 each year.
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A company that manufactures air-operated drain valve assemblies currently has $130,000 available to pay for plastic components over 5-year period. If the company spent only $44,000 in year 1, what uniform annual amount can the company spend in each of the next 4 years to deplete the entire budget? Let /9% per year. The uniform annual amount the company can spend is $
The company can spend $21,500 in each of the next 4 years to deplete the entire budget.
The company has $130,000 available to pay for plastic components over a 5-year period.
In the first year, they spend $44,000. The goal is to determine the uniform annual amount the company can spend in each of the next 4 years to deplete the entire budget.
To find the uniform annual amount, we can divide the remaining budget by the number of years left.
Remaining budget after year 1 = $130,000 - $44,000
= $86,000
Number of years left = 4
Uniform annual amount = Remaining budget / Number of years left
Uniform annual amount = $86,000 / 4
Uniform annual amount = $21,500
Therefore, the company can spend $21,500 in each of the next 4 years to deplete the entire budget.
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The uniform annual amount the company can spend in each of the next 4 years to deplete the entire budget is approximately $26,225.93.
To determine the uniform annual amount the company can spend in each of the next 4 years to deplete the entire budget, we can use the concept of uniform annual cash flow.
The company has $130,000 available over a 5-year period, and it spent $44,000 in year 1. This means that the remaining budget for the next 4 years is $130,000 - $44,000 = $86,000.
To find the uniform annual amount, we can divide the remaining budget by the present value interest factor of an annuity (PVIFA) for 4 years at 9% per year.
[tex]\[PVIFA = \frac{{1 - (1 + r)^{-n}}}{{r}}\][/tex]
Where r is the interest rate per period and n is the number of periods.
In this case, r = 9% = 0.09 and n = 4.
[tex]\[PVIFA = \frac{{1 - (1 + 0.09)^{-4}}}{{0.09}}\][/tex]
[tex]\[PVIFA = \frac{{1 - 0.705036}}{{0.09}}\][/tex]
[tex]\[PVIFA = \frac{0.294964}{0.09}\][/tex]
PVIFA ≈ 3.27738
Now, we can calculate the uniform annual amount:
Uniform annual amount = Remaining budget / PVIFA
Uniform annual amount = $86,000 / 3.27738
Uniform annual amount ≈ $26,225.93
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Landmark Coal operates a mine. During July, the company obtained 500 tons of ore, which yielded 250 pounds of gold and 62,800 pounds of copper. The joint cost related to the operation was $500,000. Gold sells for $325 per ounce and copper sells for $0.87 per pound. Allocate the joint costs using relative weight. With these costs, what is the profit or loss associated with Copper?
Round to two decimal places.
The joint costs for gold and copper are allocated using relative weight. The relative weight of copper is 62,800 / (62,800 + 250 * 16) = 99.7%. The joint cost allocated to copper is $499,250. The profit associated with copper is $750.
The relative weight of copper is calculated by dividing the weight of copper by the total weight of the two products. The total weight of the two products is 250 * 16 + 62,800 = 63,750 pounds. The joint cost allocated to copper is $499,250, which is 99.7% of the total joint cost. The profit associated with copper is calculated by subtracting the joint cost allocated to copper from the selling price of copper. The selling price of copper is 62,800 * $0.87 = $54,375. The profit associated with copper is $54,375 - $499,250 = $750.
Joint cost allocated to copper:
Relative weight of copper * Total joint cost
= 99.7% * $500,000
= $499,250
Profit associated with copper:
Selling price of copper - Joint cost allocated to copper
= $54,375 - $499,250
= $750
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Blockchain provides a way to securely and efficiently create a tamper-proof log of sensitive activity. This makes it excellent for international payments and money transfers. For example, in April 2018, Banco Santander launched the world’s first blockchain-based money transfer service. Known as "Santander One Pay FX," the service uses Ripple’s xCurrent to enable customers to make same-day or next-day international money transfers. By automating the entire process on the blockchain, Santander has reduced the number of intermediaries typically required in these transactions, making the process more efficient. As a large commercial bank, Santander has numerous retail clients who would benefit from more efficient and cheaper payments, particularly in the area of international transfers. Blockchain technology can be used to decrease the cost of these transfers by reducing the need for banks to manually settle transactions. Historic methods of trade financing have been a major pain point for businesses because the slow processes often interrupt business and make liquidity hard to manage. Cross-border trade involves a large number of variables when communicating information – such as country of origin and product details – and transactions generate high volumes of documentation. Blockchain has the ability to streamline trade finance deals and simplify the process across borders. It enables enterprises to more easily transact with each other beyond regional or geographic boundaries.
From the case above please give your opinion about :
1. Future of Financial Services
2. Other Financial Technology Solutions
This technology is being used by the industry to reduce costs, increase efficiency, and create a more customer-centric approach. Fintech solutions like digital wallets, robo-advisors, and peer-to-peer (P2P) lending platforms have already taken the world by storm, and this is just the beginning.
1. Future of Financial ServicesBlockchain technology is one of the most significant developments in the history of financial services. The financial system's foundations have been changed by this disruptive technology, offering faster and more secure payments, particularly in the area of international transactions, as evidenced by Santander One Pay FX. The future of the financial services industry appears to be moving toward more efficient, effective, and secure processes thanks to blockchain's innovation.The most significant advantage of blockchain technology is that it is decentralized, and transactions are transparent and irreversible. This technology makes it possible to reduce the number of intermediaries and middlemen involved in financial transactions.2. Other Financial Technology SolutionsFintech (Financial Technology) is a rapidly expanding industry that combines finance and technology. Blockchain technology has already been employed by some fintech firms, but they have a lot more to offer. The future of fintech is likely to be characterized by the emergence of new technologies that will continue to simplify and streamline financial transactions.Fintech companies are creating innovative solutions to traditional banking issues, including reducing payment processing times and providing more efficient and accurate analytics. This technology is being used by the industry to reduce costs, increase efficiency, and create a more customer-centric approach. Fintech solutions like digital wallets, robo-advisors, and peer-to-peer (P2P) lending platforms have already taken the world by storm, and this is just the beginning.
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Convexity is the difference between a actual price change and duration-predicted price change b actual price change and market average price change c actual price change and government bond price change d actual price change and yield to maturity change
Convexity is the difference between the actual price change of a bond and the price change predicted by duration alone, making option "a) actual price change and duration-predicted price change" the correct choice. The correct option is a.
Convexity refers to the difference between the actual price change of a financial instrument and the predicted price change based on its duration. It is not related to market average price change, government bond price change, or yield to maturity change.
Duration measures the sensitivity of a bond's price to changes in interest rates. It provides an estimate of the percentage change in the bond's price for a given change in interest rates. However, duration is a linear approximation and assumes that the relationship between price and yield is linear.
Convexity, on the other hand, accounts for the non-linear relationship between price and yield. It captures the curvature of the price-yield relationship, especially for bonds with embedded options or non-linear cash flows. Convexity provides a more accurate estimate of the bond's price change when there are significant interest rate fluctuations.
Therefore, convexity is the difference between the actual price change of a bond and the price change predicted by duration alone, making option "a) actual price change and duration-predicted price change" the correct choice. Hence, the correct option is a.
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A true statement about displays is that they are used by people to clarify a point they might be making. O are used in a specific manner because they have a specific meaning understood by both sender and receiver. O are used to get a person's attention and control the flow of communication O portray a person's inner emotions and effectively show just how strongly people mean what they say . Increasing the number of skills used on the job results in a O higher likelihood of being motivated to work hard. O reduction in job dissatisfaction. O higher likelihood of a midlife career change. O reducti in job enrichment. An individual's feeling of confidence and worth as a person refers to O self-esteem. O communication. O motivation. O self-efficacy.
A true statement about displays is that they are used by people to clarify a point they might be making. Displays are used to get a person's attention and control the flow of communication. An individual's feeling of confidence and worth as a person refers to self-esteem.
Increasing the number of skills used on the job results in a higher likelihood of being motivated to work hard. Displays can be defined as a collection of visual aids or items arranged in a particular manner to assist viewers to understand or perceive specific information. Displays are frequently used in educational and professional settings to facilitate presentations, lectures, and other forms of communication.
Self-esteem is defined as an individual's belief or confidence in themselves as a person. It is a reflection of an individual's worth and is influenced by a variety of internal and external factors. When employees have the chance to use and develop a range of abilities and knowledge on the job, they are more likely to feel challenged and engaged, resulting in higher levels of motivation.
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There are arguments for and against the use of tariffs.
How can tariffs help and hurt a country that already has a trade deficit with other countries?
What are the most likely reasons why a cattle-producing country like Argentina might have a tariff on the importation of beef?
Tariffs can have both positive and negative effects on a country with a trade deficit.
Here's how:
1. How tariffs can help:
- Tariffs can protect domestic industries by making imported goods more expensive, which can encourage consumers to buy domestically produced goods instead.
- Tariffs can also generate revenue for the government, as they are essentially taxes on imported goods.
2. How tariffs can hurt:
- Tariffs can increase the cost of imported goods for consumers, leading to higher prices and reduced purchasing power.
- Other countries may retaliate by imposing their own tariffs, which can harm the exporting industries of the country with the initial trade deficit.
As for why a cattle-producing country like Argentina might have a tariff on beef imports, there could be several reasons:
- To protect domestic cattle producers and ensure their competitiveness in the market.
- To maintain self-sufficiency in beef production and reduce dependence on imports.
- To stabilize domestic prices and prevent fluctuations due to foreign competition.
- To support local farmers and maintain agricultural employment.
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Based on the information provided, assess and document your opinion about the realism of the EAC for the A-12 program. To help you with the assessment, answer the following questions: What percent complete is the project? [36.9%] • What percent was scheduled to be complete? [51.4%] What percent has been spent of the EAC? [44.3%] Compare CPI and TCPI for realism: • o CPI shows the cost efficiency to date [0.765] o TCPI shows the required cost efficiency to meet the EAC [1.043] o If the CPI and TCPI are more than 10% different, the EAC is very likely to be unrealistic [(TCPI-CPI)/CPI] x 100 [36.34%] • Compare the overrun to date (CV) with the overrun at the end of the project (VAC): o The CV shows the cost variance to date [CV = EV – AC] [$ 459] o The VAC shows the projected cost variance at the end of the project, based on the EAC [VAC = BAC - EAC] [$ 354] o If the overrun to date (CV) is worse than the projected final overrun (VAC), then a recovery is expected; recoveries of more than 10% are rare, especially if the project is more than 20% complete [(VAC-CV)/CV] x 100 and EV/BAC X 100 [22.8% and 36.8%] • Calculate two statistical EACs, based on trends to date: o Low End Statistical EAC (1) = AC + [(BAC-EV)/CPI] [$ 5289.87] o High End Statistical EAC (2) = AC + [(BAC – EV) / (CPI X SPI)] [$ 6608.21] If you were a consultant for the government, what action would you recommend for the A-12 Program?
Based on the provided information, the EAC (Estimate at Completion) for the A-12 program appears to be unrealistic. Several factors indicate this, including the project being behind schedule, overspending of the EAC, a significant difference between the CPI (Cost Performance Index) and TCPI (To-Complete Performance Index), and a projected overrun (VAC) that is worse than the cost variance to date (CV). Additionally, the statistical EACs suggest potential cost overruns. As a consultant for the government, it is recommended to take immediate action to reassess and address the issues in the A-12 program to prevent further cost and schedule deviations.
The A-12 program shows several signs of an unrealistic EAC. The project is currently only 36.9% complete, lower than the scheduled completion of 51.4%. This indicates a delay in progress. Furthermore, the percent spent of the EAC is 44.3%, suggesting cost overruns.Comparing the CPI and TCPI, there is a significant difference of 36.34%. This indicates that the required cost efficiency to meet the EAC is considerably higher than the current cost efficiency. The overrun to date (CV) is $459, while the projected cost variance at the end of the project (VAC) is $354. This suggests a worsening situation, and a recovery is expected. However, recoveries of more than 10% are rare, particularly if the project is more than 20% complete.Considering the two statistical EACs, the low-end estimate is $5,289.87, and the high-end estimate is $6,608.21. Both values indicate potential cost overruns based on the trends observed.As a consultant for the government, it is recommended to conduct a thorough analysis of the A-12 program to identify the underlying issues causing delays and cost overruns. This may involve reassessing the project plan, budget allocation, resource management, and implementation strategies. Corrective measures should be taken promptly to mitigate further deviations from the planned schedule and budget, ensuring the successful completion of the A-12 program.Learn more about EAC:
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Answer if the statement is true of false. If false, correct the
statement so that it is true. US Treasury bills are often used as a
proxy for real interest rates
.
The statement is false. US Treasury bills are often used as a proxy for nominal interest rates, not real interest rates. Nominal interest rates represent the actual interest rate charged on a loan or earned on an investment.
The statement is false. US Treasury bills are often used as a proxy for nominal interest rates, not real interest rates. Nominal interest rates represent the actual interest rate charged on a loan or earned on an investment, without adjusting for inflation. On the other hand, real interest rates take into account the effects of inflation by subtracting the inflation rate from the nominal interest rate. To correct the statement, we could say, "US Treasury bills are often used as a proxy for nominal interest rates, which reflect the actual interest rate without adjusting for inflation."
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Questions 3 Suppose the market demand for pizza is given by Qd = 300 – 20P And the market supply for pizza is given by Qs = 20P – 100 a) Graph the supply and demand schedules for pizza using $5 through $15 as the value of P. b) In equilibrium, how many pizzas would be sold at what price. c) What would happen if suppliers set the price of pizza at $15? Explain the market adjustment process. d) Suppose the price of hamburgers, a substitute for pizza, doubles. This leads to a doubling of the demand for pizza. (At each price, consumers demand twice as much pizza as before.) Write the equation for the new market demand for pizza. e) Find the new equilibrium price and quantity of pizza.
a) The supply and demand schedules for pizza are as follows:
P = $5, Qd = 300 – 20(5) = 200
P = $6, Qd = 300 – 20(6) = 180
P = $7, Qd = 300 – 20(7) = 160
P = $8, Qd = 300 – 20(8) = 140
P = $9, Qd = 300 – 20(9) = 120
P = $10, Qd = 300 – 20(10) = 100
P = $11, Qd = 300 – 20(11) = 80
P = $12, Qd = 300 – 20(12) = 60
P = $13, Qd = 300 – 20(13) = 40
P = $14, Qd = 300 – 20(14) = 20
P = $15, Qd = 300 – 20(15) = 0
in equilibrium, 100 pizzas would be sold at a price of $10.
If suppliers set the price of pizza at $15, it would be above the equilibrium price of $10.To find the new equilibrium price and quantity of pizza, we need to equate the new demand equation with the supply equation:
600 – 40P = 20P – 100
Supply Schedule:
P = $5, Qs = 20(5) – 100 = 0
P = $6, Qs = 20(6) – 100 = 20
P = $7, Qs = 20(7) – 100 = 40
P = $8, Qs = 20(8) – 100 = 60
P = $9, Qs = 20(9) – 100 = 80
P = $10, Qs = 20(10) – 100 = 100
P = $11, Qs = 20(11) – 100 = 120
P = $12, Qs = 20(12) – 100 = 140
P = $13, Qs = 20(13) – 100 = 160
P = $14, Qs = 20(14) – 100 = 180
P = $15, Qs = 20(15) – 100 = 200
b) In equilibrium, the quantity demanded (Qd) equals the quantity supplied (Qs). From the schedules, we can see that at a price of $10, the quantity demanded and supplied is 100 pizzas. Therefore, in equilibrium, 100 pizzas would be sold at a price of $10.
c) If suppliers set the price of pizza at $15, it would be above the equilibrium price of $10. This means that the price is higher than what consumers are willing to pay, resulting in excess supply. At $15, the quantity supplied is 200 pizzas, while the quantity demanded is 0 pizzas. To adjust to this situation, suppliers would have to lower the price to attract buyers. As the price decreases, the quantity demanded would increase, and the quantity supplied would decrease. The market would continue to adjust until it reaches a new equilibrium where the quantity demanded equals the quantity supplied.
d) If the price of hamburgers, a substitute for pizza, doubles, the demand for pizza would also double. This means that at each price level, consumers would demand twice as much pizza as before. The equation for the new market demand for pizza can be written as:
Qd = 600 – 40P
e) To find the new equilibrium price anquantity of pizza, we need to equate the new demand equation with the supply equation:
600 – 40P = 20P – 100
Simplifying the equation, we get:
60P = 700
P ≈ $11.67
Substituting the price back into either the demand or supply equation, we can find the quantity:
Q = 20(11.67) – 100
Q ≈ 73.4
Therefore, the new equilibrium price of pizza is approximately $11.67, and the new equilibrium quantity is around 73.4 pizzas
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PROMPT: Describe the concept of price bundling. Why might a company initiate this pricing strategy?
Give an example of a company that implements price bundling and how the combined pricing strategy affects customer behavior. (Think about the telecommunications industry, restaurants, software, etc.)
Price bundling refers to the process where businesses or sellers group several products or services and sell them as a single combined package.
The rationale behind this approach is that customers are more likely to purchase the bundle as a whole as opposed to individual items sold separately.
Therefore, the business can increase sales and revenue by using price bundling.Pricing strategy refers to a set of actions or plans that a business develops to price its products or services effectively. Different pricing strategies, such as penetration pricing and premium pricing, can help a business achieve different goals, such as attracting new customers or improving profitability.Companies initiate the price bundling strategy for several reasons, including the following:Reducing costs:
By bundling products together, companies can reduce the overall cost of the package. For example, packaging and shipping multiple items together can be more cost-effective than shipping each item separately.Increasing sales: Price bundling encourages customers to purchase more products than they would if the items were sold separately. This, in turn, can lead to increased sales and revenue.Offering value: Price bundling allows companies to offer customers a better value for their money. When customers perceive that they are getting a good deal, they are more likely to make a purchase and remain loyal to the brand.Example of a company that implements price bundling and how the combined pricing strategy affects customer behavior:
An example of a company that implements price bundling is McDonald’s. McDonald’s, the fast-food giant, offers value meals that consist of a burger, fries, and a drink. By selling these items together as a package, McDonald’s encourages customers to purchase a full meal instead of just a burger. This results in higher sales and profits for the company.
As for how the combined pricing strategy affects customer behavior, McDonald’s value meal bundle is a perfect example of how price bundling affects consumer behavior. Customers are more likely to purchase a value meal bundle as it offers more value for their money.
Furthermore, customers are encouraged to purchase the bundle because they perceive that they are getting a good deal. The value meal bundle offers more products than customers would receive if they bought items separately, resulting in higher sales for McDonald’s.
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Q1: What is the role of demand forecasting?
Q2: Explain the benefits of Warehouse Management Systems.
Q3: Explain the similarities and differences of EDI and VAN
Q4: Discuss the benefits of using the SCOR five performance attributes.
Q5: How does a company know if it is using the right metrics?
1: The role of demand forecasting is to estimate future customer demand for a product or service. It helps businesses make informed decisions about production, inventory management, and resource allocation to meet customer needs efficiently.
2: Warehouse Management Systems (WMS) offer several benefits, including improved inventory accuracy, increased operational efficiency, optimized storage space utilization, streamlined order fulfillment processes, and enhanced visibility and control over warehouse operations.
3: Electronic Data Interchange (EDI) and Value-Added Networks (VAN) are both used for electronic data exchange between trading partners. EDI is a standardized format for transmitting business documents, while VAN is a network infrastructure that facilitates secure data transmission and provides additional services like data translation and routing.
4: The SCOR (Supply Chain Operations Reference) model's five performance attributes (reliability, responsiveness, flexibility, cost, and asset efficiency) provide a framework to measure and improve supply chain performance. Benefits include enhanced customer satisfaction, reduced costs, increased agility, improved collaboration, and optimized resource utilization.
5: A company can determine if it is using the right metrics by aligning them with its strategic goals and objectives, regularly monitoring and evaluating the metrics' performance, seeking feedback from stakeholders, comparing against industry benchmarks, and making adjustments when necessary to ensure the metrics effectively measure progress and drive desired outcomes.
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Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset depreciation range (ADR). Carefully refer to Table 12–11 to determine in what depreciation category the asset falls. (Hint: It is not 10 years.) The asset will cost $130,000, and it will produce earnings before depreciation and taxes of $36,000 per year for three years, and then $18,000 a year for seven more years. The firm has a tax rate of 36 percent. Assume the cost of capital is 10 percent. In doing your analysis, if you have years in which there is no depreciation, merely enter a zero for depreciation. Use Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Calculate the net present value. (Do not round intermediate calculations and round your answer to 2 decimal places.) b. Based on the net present value, should Universal Electronics purchase the asset? Yes No
To determine whether Universal Electronics should purchase the asset, we need to calculate the net present value (NPV) of the investment. The NPV compares the present value of cash inflows and outflows associated with the investment.
First, let's calculate the present value of cash inflows:
PV_inflows = (EBDT - Depreciation) * (1 - Tax rate) * PVIFA(cost of capital, years) + Terminal value
Where:
EBDT = Earnings before depreciation and taxes
Depreciation = Annual depreciation expense
Tax rate = Tax rate applied to earnings
PVIFA = Present Value Interest Factor of Annuity
Using the information provided:
EBDT = $36,000 for 3 years and $18,000 for 7 years
Depreciation = Cost of the asset / Depreciation years = $130,000 / (10 + 1 + 10) = $4,333.33
Tax rate = 36%
Cost of capital = 10%
PVIFA(10%, 3 years) = 2.4869 (from Table 12-12)
PVIFA(10%, 7 years) = 4.8684 (from Table 12-12)
PV_inflows = ($36,000 - $4,333.33) * (1 - 0.36) * 2.4869 + ($18,000 - $4,333.33) * (1 - 0.36) * 4.8684 = $51,234.81
Next, let's calculate the present value of cash outflows (initial cost of the asset):
PV_outflows = Cost of the asset = $130,000
Now, we can calculate the net present value (NPV):
NPV = PV_inflows - PV_outflows = $51,234.81 - $130,000 = -$78,765.19
The net present value is negative, indicating that the investment is not expected to generate sufficient returns to cover the cost. Therefore, based on the net present value, Universal Electronics should not purchase the asset.
Answer: No, Universal Electronics should not purchase the asset.
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(External Funds Needed): Dalia Colby, CFO of Charming Florist Ltd., has created the firm’s pro forma balance sheet for the next fiscal year. Sales are projected to grow by 10 percent to $360 million. Current assets, fixed assets, and short-term debt are 20 percent, 75 percent, and 15 percent of sales, respectively. Charming Florist pays out 30 percent of its net income in dividends. The company currently has $105 million of long-term debt and $46 million in common stock par value. The profit margin is 9 percent.
Part a: Construct the current balance sheet for the firm using the projected sales figure.
Part b: Based on Ms. Colby’s sales growth forecast, how much does Charming Florist need in external funds for the upcoming fiscal year?
Part c: Construct the firm’s pro-forma balance sheet for the next fiscal year and confirm the external funds needed that you calculated in part b.
The external funds needed calculated in Part b ($281 million) is equal to the increase in Total Liabilities and Equity ($227.68 million) compared to the current balance sheet.
Part a: Current Balance Sheet for Charming Florist Ltd. (using projected sales figure):
Current Assets:
Cash: 20% of $360 million = $72 million
Accounts Receivable: 20% of $360 million = $72 million
Inventory: 20% of $360 million = $72 million
Total Current Assets = $72 million + $72 million + $72 million = $216 million
Fixed Assets: 75% of $360 million = $270 million
Total Assets = Current Assets + Fixed Assets = $216 million + $270 million = $486 million
Short-term Debt: 15% of $360 million = $54 million
Long-term Debt: $105 million
Common Stock Par Value: $46 million
Total Liabilities and Equity = Short-term Debt + Long-term Debt + Common Stock Par Value = $54 million + $105 million + $46 million = $205 million
Part b: External Funds Needed for the upcoming fiscal year:
Net Income = Profit Margin * Sales
Net Income = 9% * $360 million = $32.4 million
Dividends = 30% of Net Income = 30% * $32.4 million = $9.72 million
Retained Earnings = Net Income - Dividends = $32.4 million - $9.72 million = $22.68 million
Increase in Total Liabilities and Equity = External Funds Needed = Total Assets - Total Liabilities and Equity
External Funds Needed = $486 million - $205 million = $281 million
Part c: Pro-forma Balance Sheet for the next fiscal year:
Current Assets:
Cash: $72 million
Accounts Receivable: $72 million
Inventory: $72 million
Total Current Assets: $216 million
Fixed Assets: $270 million
Total Assets: $486 million
Short-term Debt: $54 million
Long-term Debt: $105 million
Common Stock Par Value: $46 million
Retained Earnings: $22.68 million (calculated in Part b)
Total Liabilities and Equity: $227.68 million (Short-term Debt + Long-term Debt + Common Stock Par Value + Retained Earnings)
This confirms the external funds needed for the upcoming fiscal year.
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Upper Gullies Corp. Just paid a dividend of $1.25 per share. The dividends are expected to grow at 28% for the next eight years and then level off to a 6% growth rate indefinitely. If the required return is 13%, what is the price of the stock today? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Stock price $ 5.68
To calculate the price of the stock today, we can use the dividend discount model (DDM). The DDM values a stock by discounting its future dividends back to the present. In this case, the dividends are expected to grow at 28% for the first eight years and then stabilize at a 6% growth rate indefinitely. With a required return of 13%, the calculated price of the stock today is $5.68.
The DDM formula for the price of a stock is P = D₁ / (r - g),
where
P is the price, D₁ is the dividend in the first year, r is the required return, and g is the growth rate of dividends.Given that the dividend in the first year is $1.25, the required return is 13%, and the dividend is expected to grow at 28% for the first eight years and 6% thereafter, we can calculate the price of the stock:
P = $1.25 / (0.13 - 0.28) * (1 - (1 + 0.06)⁸) / (0.13 - 0.06) = $5.68.
Therefore, the price of the stock today, according to the dividend discount model, is $5.68. This price reflects the expected future dividends and the required return, taking into account the growth rate of the dividends.
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Service members who wish to exclude gain on the scale of the primary residence and who are on extended duty may suspend the application of the five-year ownership and use test four up to....
no extension allowed
5 years
10 years
12 years
Service members who wish to exclude gain on the sale of the primary residence and who are on extended duty may suspend the application of the five-year ownership and use test for up to 10 years.
The five-year ownership and use test is a rule that helps service members to exclude gain on the sale of their primary residence. A gain on the sale of the principal residence is the difference between the price for which it was sold and the cost basis. Service members are eligible to exclude gain on the sale of the primary residence provided that they meet the eligibility criteria and certain conditions, such as the five-year ownership and use test.
Service members must have owned and lived in the home as their primary residence for at least two of the five years preceding the sale to qualify for the exclusion. However, if they are on extended duty and want to exclude gain on the sale of the primary residence, they may suspend the application of the five-year ownership and use the test for up to 10 years (two years longer than the default five-year test).
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What types of financing do small entrepreneurs
typically use? What are some of the pros and cons of each?
Small entrepreneurs typically use a variety of financing options to fund their businesses. Some common types of financing available to small entrepreneurs include:
1. Personal Savings:
Pros:
- Easy access: Entrepreneurs can use their own savings to fund their business without going through complex application processes.
- Control: Entrepreneurs maintain full control over their business decisions and do not have to answer to external investors.
Cons:
- Limited funds: The amount of money available is dependent on the entrepreneur's personal savings, which may not be sufficient to cover all business expenses.
- Personal risk: Using personal savings means risking one's own money, and if the business fails, the entrepreneur may suffer financial losses.
2. Friends and Family:
Pros:
- Trust and flexibility: Friends and family members may be more willing to invest in the entrepreneur's business and offer flexible repayment terms.
- Potential lower interest rates: Friends and family may provide loans or investments with lower interest rates compared to traditional lenders.
Cons:
- Strained relationships: Mixing personal relationships with business can sometimes lead to conflicts or strained relationships, especially if the business encounters difficulties.
- Limited funding: The pool of funds from friends and family may be limited, making it insufficient for substantial business growth.
3. Bank Loans:
Pros:
- Established process: Banks have well-defined loan application processes, making it easier for entrepreneurs to understand and navigate.
- Potential lower interest rates: Depending on the entrepreneur's creditworthiness, bank loans may offer lower interest rates compared to other forms of financing.
Cons:
- Stringent requirements: Banks typically require collateral, a good credit score, and a detailed business plan, which can be challenging for small entrepreneurs to meet.
- Lengthy approval process: Obtaining a bank loan may involve lengthy approval periods, which can delay the entrepreneur's access to funds.
4. Microloans:
Pros:
- Small loan amounts: Microloans are designed for small businesses and entrepreneurs who need smaller amounts of capital.
- Flexible eligibility criteria: Microloan providers may have less stringent requirements compared to traditional banks, making it more accessible to small entrepreneurs.
Cons:
- Higher interest rates: Microloans often come with higher interest rates due to the perceived higher risk associated with lending to small businesses.
- Limited funding: The maximum loan amount available through microloans may not be sufficient for larger business ventures.
5. Crowdfunding:
Pros:
- Access to a broad audience: Crowdfunding platforms allow entrepreneurs to reach a large number of potential investors and customers.
- Validation and marketing: A successful crowdfunding campaign can validate the business idea and generate early marketing buzz.
Cons:
- Time-consuming: Running a crowdfunding campaign requires significant time and effort to create compelling campaigns and engage with backers.
- Uncertain outcomes: Crowdfunding success is not guaranteed, and if the funding goal is not reached, the entrepreneur may receive no funds at all.
6. Angel Investors:
Pros:
- Capital infusion: Angel investors provide funding to early-stage businesses in exchange for equity or convertible debt.
- Expertise and connections: Angel investors often bring valuable industry experience, knowledge, and networks to help the entrepreneur grow the business.
Cons:
- Equity dilution: Accepting angel investment means giving up a portion of the business ownership and decision-making control.
- High expectations: Angel investors typically expect a high return on investment and may impose certain growth targets and milestones on the entrepreneur.
It's important for entrepreneurs to carefully consider the pros and cons of each financing option and assess which one aligns best with their specific needs and goals. Additionally, seeking professional advice from financial advisors or mentors can provide valuable insights for making informed financing decisions.
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Calculating EFN with multiple conditions: In Problem 4, suppose the firm was operating at only 80 percent capacity in 2011. Also, going into 2012 it expects the following changes to take place: (1) the firm will want to have a minimum cash balance of $30,000 (higher minimum cash balance); (2) its customers will start making payments by day 30, in other words DSO will become 30 or Account Receivable outstanding will be 30 days of sales; (3) they will start paying suppliers every 10 days on average, in other words DPO will become 10; (4) Inventory Turnover will slow down to 6 times a year, in other words DIO will become 61 days and the firm will take longer to turn its inventory over. What is EFN now? *think about how each of the changes included in the above questions individually influences the firm's need for external financing/borrowing and why. 8. Calculating EFN: In Problem 4, suppose the firm wishes to keep its debt, equity ratio constant. What is EFN now? 9. EFN and Internal Growth: Redo Problem 4 using sales growth rates of 15 and 25 percent (you used 20 percent in Problem 4). Illustrate graphically the relationship between EFN and the growth rate, and use this graph to determine the relationship between them. At what growth rate is the EFN equal to zero? (Hint: you need to graph EFN at the Y axis and % growth on the X axis) Income Statement Balance Sheet 2011 Assets 2011 $ Sales Costs Other expenses EBIT Interest expense Taxable income Taxes $ 743,000 578,000 15,200 $ 149,800 11,200 $ 138,600 48,510 Cash AR Inventory Total Current Assets 20,240 -32,560 69,520 122,320 $ $ Net Plant Total assets 330,400 452,720 $ Net income $ 90,090 $ Dividends (constant) Add. to RE 27,027 63,063 $ $ 54,400 13,600 68,000 126,000 194,000 Liabilities and owners' equity AP NP Total Current Liabilities Long-term Debt Total Liabilities Owners' Equity Common Stock RE Total Owner's Equity Total Liabilities and Owners' Equity $ $ $ 112,000 146,720 258,720 452,720 $ S
The EFN (External Financing Needed) with the given changes and conditions is X million dollars.
What is the EFN considering the specified changes?To calculate the EFN, we need to consider the effects of each change on the firm's need for external financing:
1. Higher minimum cash balance: The firm's minimum cash balance of $30,000 will require additional funds to meet this requirement.
2. Decreased DSO (Days Sales Outstanding): If customers start making payments by day 30, the firm will receive cash faster, reducing the need for financing.
3. Decreased DPO (Days Payable Outstanding): If the firm pays suppliers every 10 days on average, it will need additional funds to cover the shorter payment period.
4. Slower inventory turnover (increased DIO): If the firm takes longer to turn over its inventory (61 days), it will tie up more funds in inventory, requiring additional financing.
Considering these changes, we can calculate the EFN by comparing the projected assets and liabilities with the expected sales and retained earnings.
The difference between these values represents the external financing needed (EFN) to maintain the desired level of operations.
EFN (External Financing Needed) is a measure used to determine the additional funding required by a firm to support its growth or maintain its operations.
It takes into account various factors, such as changes in sales, assets, liabilities, and profitability ratios.
Understanding EFN helps businesses plan their financing strategies and identify the need for external funding sources, such as loans or equity investments, to meet their operational requirements and growth objectives.
Monitoring EFN is crucial for financial planning and ensuring a company has adequate resources to sustain its operations and pursue its strategic initiatives effectively.
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Return on Assets Ratio and Asset Turnover Ratio
Campo Systems reported the following financial data (in millions) in its annual report:
2015 2016
Net Income $8,052 $6,134
Net Sales 39,540 36,117
Total Assets 58,734 68,128
If the company’s total assets are $55,676 in 2014, calculate the company’s (a) return on assets (round to one decimal point) and (b) asset turnover for 2015 and 2016 (round to two decimal points).
2015 2016
a. Return on Assets Ratio b. Asset Turnover Ratio
(a) The company's return on assets ratio for 2015 is 13.7% and for 2016 is 9.0%. (b) The company's asset turnover ratio for 2015 is 0.67 and for 2016 is 0.53.
a. The return on assets ratio for 2015 and 2016 is 13.7% and 9.0%, respectively.
To calculate the return on assets (ROA) ratio, we divide the net income by the total assets and express it as a percentage. In 2015, the net income is $8,052 million, and the total assets are $58,734 million. Therefore, the ROA for 2015 is calculated as follows:
ROA 2015 = (Net Income 2015 / Total Assets 2015) * 100
= ($8,052 million / $58,734 million) * 100
≈ 13.7%
Similarly, for 2016, the net income is $6,134 million, and the total assets are $68,128 million. Thus, the ROA for 2016 is:
ROA 2016 = (Net Income 2016 / Total Assets 2016) * 100
= ($6,134 million / $68,128 million) * 100
≈ 9.0%
b. The asset turnover ratio for 2015 and 2016 is 0.67 and 0.53, respectively.
The asset turnover ratio measures how efficiently a company utilizes its assets to generate sales. It is calculated by dividing net sales by average total assets. To calculate the asset turnover ratio, we need the net sales data. In 2015, the net sales are $39,540 million, and the total assets are $58,734 million. Therefore, the asset turnover ratio for 2015 is:
Asset Turnover 2015 = Net Sales 2015 / Total Assets 2015
= $39,540 million / $58,734 million
≈ 0.67
For 2016, the net sales are $36,117 million, and the total assets are $68,128 million. Thus, the asset turnover ratio for 2016 is:
Asset Turnover 2016 = Net Sales 2016 / Total Assets 2016
= $36,117 million / $68,128 million
≈ 0.53
Note: Average total assets are not provided in the given data, so we have used the total assets for each respective year.
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Consider a simple two-period economy. In the second period there are two possible contingencies/states of nature denoted by s=1,2. Financial markets are complete and the matrix of asset returns is given by (columns refer to assets, rows to states of nature): [
3
1
2
1
]. (a) Find the portfolios attaining returns (1,0) and (0,1). (b) If the price of asset 1 and 2 are 4 and 3 respectively, find the prices of the portfolios delivering returns (1,0) and (0,1). (c) Find the risk neutral probabilities of state 1 and 2 for the above economy
To find the portfolios attaining returns (1,0) and (0,1), we need to solve the system of equations where the portfolio weights multiplied by the asset returns equal the desired returns. The risk-neutral probabilities of state 1 and 2 are 0.83 and 0.17, respectively.
Let x and y represent the portfolio weights for asset 1 and asset 2, respectively.
For the portfolio attaining return (1,0):
3x + 1y = 1
x + y = 0
Solving this system of equations, we find that x = -1/2 and y = 1/2.
For the portfolio attaining return (0,1):
3x + 1y = 0
x + y = 1
Solving this system of equations, we find that x = 1/2 and y = -1/2.
To find the prices of the portfolios delivering returns (1,0) and (0,1), we multiply the portfolio weights by the prices of the assets.
For the portfolio delivering return (1,0):
Price = 4(-1/2) + 3(1/2) = 2.5
For the portfolio delivering return (0,1):
Price = 4(1/2) + 3(-1/2) = 0.5
The risk-neutral probabilities of state 1 and 2 can be found by dividing the price of the corresponding portfolio by the sum of the prices of both portfolios.
For state 1:
Prob(state 1) = Price of portfolio delivering return (1,0) / (Price of portfolio delivering return (1,0) + Price of portfolio delivering return (0,1))
= 2.5 / (2.5 + 0.5)
= 2.5 / 3
= 0.83
For state 2:
Prob(state 2) = Price of portfolio delivering return (0,1) / (Price of portfolio delivering return (1,0) + Price of portfolio delivering return (0,1))
= 0.5 / (2.5 + 0.5)
= 0.5 / 3
= 0.17
Therefore, the risk-neutral probabilities of state 1 and 2 are 0.83 and 0.17, respectively.
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You are the CFO of a drug company, and you must decide whether to invest 15M dollars in R&D for a new drug. If you conduct the R&D, you believe that there is a 4% chance that the research will produce a useful drug. If the research is successful, investment in the drug will require an outlay of 400 million dollars. The drug will likely generate annual profits of 100 million for 10 years, until the patent expires. After that, it will generate a cash flow equal to 10 million a year in perpetuity (no growth) . The discount rate is 7%.
a) If the research is successful, what is the net present value of the drug cash flows ?
b) If you invest in R&D, you estimate that it will take 2 years to know whether the drug is successful or not. What is the NPV of the R&D investment?
a) The net present value of the drug cash flows, if the research is successful, is the sum of the present values: $563.98 million + $142.86 million = $706.84 million.
b) The NPV of the R&D investment, taking into account the probability of success, is $13.87 million.
a) To calculate the net present value (NPV) of the drug cash flows, we need to discount the future cash flows to their present value.
If the research is successful, the drug will generate annual profits of $100 million for 10 years, followed by $10 million per year in perpetuity. Using the perpetuity formula, the present value of the perpetual cash flow is $10 million / 0.07 (discount rate) = $142.86 million.
For the cash flows generated over the 10-year period, we can calculate the present value using the formula for the present value of an ordinary annuity. The present value of the annuity is $100 million * (1 - (1 + 0.07)^-10) / 0.07 = $563.98 million.
Therefore, the net present value of the drug cash flows, if the research is successful, is the sum of the present values: $563.98 million + $142.86 million = $706.84 million.
b) If you invest in R&D, you will incur a cost of $15 million upfront and will have to wait for 2 years to determine if the drug is successful or not. At that point, you will need to make a decision about investing the additional $400 million for the drug.
To calculate the NPV of the R&D investment, we need to consider the potential outcomes. There is a 4% chance of success and a 96% chance of failure. If the research is successful, the NPV is the net present value of the drug cash flows calculated in part (a), which is $706.84 million.
If the research fails, the NPV of the R&D investment is simply the negative value of the initial investment, which is -$15 million.
Now, we can calculate the overall NPV of the R&D investment by weighting the potential outcomes by their respective probabilities:
NPV = (0.04 * $706.84 million) + (0.96 * -$15 million) = $28.27 million - $14.4 million = $13.87 million.
Therefore, the NPV of the R&D investment, taking into account the probability of success, is $13.87 million.
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