The Conceptual Framework project identified two major decision-making groups in financial accounting. These groups are: Investors
Investors include individuals, institutions, and other entities that provide capital to a company by purchasing its shares or other financial instruments. They are interested in assessing the financial performance, profitability, and potential for future returns of a company. Investors use financial statements to make investment decisions, evaluate the company's ability to generate profits and cash flows, and determine the analyze the company's financial performance, Conceptual profitability, and cash flow patterns to assess its growth potential and determine whether it is a viable investment opportunity. By evaluating financial d on the information provided in financial statements, creditors make decisions about granting loans, setting credit terms, and establishing appropriate interest rates.
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Define accounting equation and give numerical
exambles for transactions covering all its
components namely assets, liabilities, expenses,
revenues, stock capital and dividends and
represent those transactions on the accounting
equation.
The accounting equation is a fundamental principle in accounting that states that assets are equal to liabilities plus stockholders' equity.
It represents the relationship between a company's resources (assets), the claims against those resources (liabilities), and the residual interest of the owners (stockholders' equity). For example, let's consider the following transactions: The company purchases inventory for $10,000 on credit. This transaction increases the company's assets (inventory) by $10,000 and increases liabilities (accounts payable) by $10,000. The company sells goods for $15,000 in cash. This transaction increases assets (cash) by $15,000 and increases revenues by $15,000. The company pays $5,000 in salaries to employees. This transaction decreases assets (cash) by $5,000 and decreases expenses (salaries) by $5,000. The company issues additional stock for $20,000 iThis transaction increases assets (cash) by $20,000 and increases stock capital by $20,000.Based on these transactions, we can represent the changes to the accounting equation as follows:
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Identify FIVE (5) Oral in business communication skills that you have either learned for the first time or developed during this course. Be sure to explain how each skill could help you in your career and life in general.
The 5 Oral business communication skills are:- active listening, effective presentation, clear and concise communication, nonverbal communication, and conflict resolution and negotiation skills.
Active listening: Active listening involves fully focusing on the speaker, understanding their message, and providing appropriate feedback. This skill is valuable in both professional and personal settings. In my career, active listening can enhance my ability to understand clients, colleagues, and stakeholders, leading to better collaboration, problem-solving, and building strong relationships.Effective presentation skills: The course has helped me improve my presentation skills, including structuring content, using visual aids, and delivering a compelling message. Strong presentation skills are essential for conveying ideas, persuading others, and engaging an audience. These skills can be applied in various professional scenarios such as meetings, conferences, and client pitches.Clear and concise communication: Clarity and conciseness are crucial for effective communication. The course has emphasized the importance of expressing ideas clearly, using appropriate language, and avoiding unnecessary jargon. Clear and concise communication helps in conveying information accurately, reducing misunderstandings, and enhancing efficiency in both workplace interactions and personal relationships.Nonverbal communication: Nonverbal cues, such as body language, facial expressions, and tone of voice, play a significant role in communication. The course has highlighted the importance of understanding and using nonverbal communication effectively. Being aware of nonverbal signals can help me in interpreting others' intentions, adapt my communication style, and build rapport with colleagues and clients.Conflict resolution and negotiation skills: The course has provided insights into conflict resolution strategies and negotiation techniques. These skills are valuable for managing disagreements, reaching mutually beneficial solutions, and maintaining positive relationships. Developing effective conflict resolution and negotiation skills can contribute to a harmonious work environment, improved teamwork, and successful resolution of conflicts in personal life as well.By acquiring and honing these oral communication skills, you are better equipped to navigate various professional situations, collaborate effectively with others, and build strong connections. Additionally, these skills can have a positive impact on personal relationships, enhancing overall communication and understanding in day-to-day interactions.
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If the number of people with insurance increases, then what will most likely occur?
The demand for health care will decrease.
The demand for health care will increase.
The demand for health care will be unaffected.
There will be less preventive care.
The amount of preventive care will be unaffected.
2.Requiring patients to pay a portion of the cost of the medical care they receive is designed to reduce the severity of
moral hazard.
diminishing returns.
adverse selection.
the principal-agent problem.
market failure.
If the number of people with insurance increases, it is most likely that the demand for health care will increase.
When more people have insurance, they have greater access to healthcare services and can afford to seek medical treatment without financial constraints. As a result, the demand for healthcare services is likely to increase. With insurance coverage, individuals are more inclined to utilize medical services, leading to an overall higher demand for health care.
Having insurance reduces the financial burden associated with seeking medical care, making it more affordable for individuals to access necessary treatments. As a result, they are more likely to seek preventive care, screenings, and treatments that they might have otherwise delayed or avoided due to cost concerns. This increased demand for health care services can lead to higher utilization rates and an overall increase in the demand for health care.
Therefore, if the number of people with insurance increases, it is expected that the demand for health care will also increase.
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UPS, a delivery services company, has a beta of 1.4, and Wal-Mart has a beta of 0.8. The risk-free rate of interest is 4% and the market risk premium (r M −
−r F
) is 6%. What is the expected return on a portfolio with 40% of its money in UPS and the balance in Wal-Mart? (12 points)
To calculate the expected return on a portfolio with a certain allocation between two assets, we can use the weighted average of their individual expected returns. The expected return on a portfolio with 40% of its money in UPS and the balance in Wal-Mart is 10.24%.
To calculate the expected return on a portfolio with a certain allocation between two assets, we can use the weighted average of their individual expected returns.
Given:
Beta of UPS (β₁) = 1.4
Beta of Wal-Mart (β₂) = 0.8
Risk-free rate (rₘ) = 4%
Market risk premium (rₘ − rₐ) = 6%
Allocation of the portfolio to UPS (w₁) = 40%
Allocation of the portfolio to Wal-Mart (w₂) = 60% (balance)
First, we need to calculate the expected return of each asset using the Capital Asset Pricing Model (CAPM):
Expected Return = Risk-free rate + Beta * Market Risk Premium
Expected Return for UPS (E(R₁)) = 4% + 1.4 * 6% = 12.4%
Expected Return for Wal-Mart (E(R₂)) = 4% + 0.8 * 6% = 8.8%
Next, we calculate the weighted average of the expected returns to find the overall expected return of the portfolio:
Expected Return on Portfolio = (w₁ * E(R₁)) + (w₂ * E(R₂))
Expected Return on Portfolio = (0.4 * 12.4%) + (0.6 * 8.8%)
Expected Return on Portfolio = 4.96% + 5.28% = 10.24%
Therefore, the expected return on a portfolio with 40% of its money in UPS and the balance in Wal-Mart is 10.24%.
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A company with a positive cash balance sells damaged inventory for cash to a customer, at a selling price that is below the cost of the inventory items.
How will this transaction affect the current ratio and the quick (liquidity) ratio immediately after the transaction?
Quick (liquidity) ratio
A. Stay the same
B. Decrease
C. Increase —> Rev increase
Current ratio
D. Decrease
E. Increase
F. Stay the same —--> selling price < COGS
Which of the following is not true concerning a 'top-down' budgeting process
A. The budget sets out the board's targets for the forthcoming period
B. Senior management prepare a budget with little or no input from middle management
C. The time taken to produce the budget is reduced
D. The budget process starts with sales, then progresses to production, materials usage and other functional budgets
A service company has annual sales of £3.2 million and a gross profit margin of 15%. The company has no inventory. The company is currently experiencing short-term cash flow difficulities and the accountant has decided to delay its payments to trade suppliers by one month,
Calculate the amount by which the cash balance will benefit in the short-term from this change in policy, assuming sales are spread evenly over the year. Round your answer to the nearest £.
A. £206,227
B. £226,667
C. £231,884
D. £266,667
A dairy produces 7.000 litres of milk a week for sale to its wholesale bottling customer. The breakeven point has been calculated at 5,000 litres a week with dairy fixed costs running at £520,000 per annum
On the basis that the dairy sets the selling price for its milk at variable cost plus 20%, then what is the selling price per litre of mik:
A. £12.00
B. £10.00
C. £8.57
D. £8.00
After a company sells damaged inventory for cash to a customer at a selling price that is below the cost of the inventory items, the current ratio and the quick (liquidity) ratio will immediately decrease. The reason for this is that the company's cash balance will increase as a result of the sale, but the current and quick ratios are affected negatively by the reduction in the company's inventory value, which will cause the ratios to decrease. Therefore, the answer is D. Decrease.To answer the second question, we need to identify which of the following is not true concerning a 'top-down' budgeting process.
The correct answer is C. The time taken to produce the budget is reduced. The 'top-down' budgeting process is a process whereby senior management prepares a budget with little or no input from middle management, and then the budget sets out the board's targets for the forthcoming period. The budget process starts with sales, then progresses to production, materials usage, and other functional budgets. Therefore, the answer is C. The time taken to produce the budget is reduced.To calculate the amount by which the cash balance will benefit in the short-term from this change in policy, assuming sales are spread evenly over the year, we need to find out the average amount of purchases per month. The annual purchases are calculated by dividing the cost of goods sold by the gross profit margin. The annual purchases are £2.72 million (£3.2 million * (100%-15%)), and the average amount of purchases per month is £226,667 (£2.72 million / 12). The cash balance will benefit by £226,667 because of the delay in payment to trade suppliers. Therefore, the answer is B. £226,667.To calculate the selling price per liter of milk on the basis that the dairy sets the selling price for its milk at variable cost plus 20%, we need to find out the variable cost per liter of milk. The variable cost per liter of milk is calculated by dividing the fixed costs by the number of liters produced above the breakeven point. The number of liters produced above the breakeven point is 2,000 liters (7,000 liters - 5,000 liters), and the variable cost per liter of milk is £260 (£520,000 / 2,000 liters). The selling price per liter of milk is £312 (£260 * 1.20).
Therefore, the answer is A. £12.00.
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Develop a summary of revenue, cash flow, and a balance sheet for first five years for a private (LLC) start up company. Also, describe the product or service that is offered.
Summary of Revenue, Cash Flow, and Balance Sheet for First Five Years of a Private (LLC) Start-up Company:
Year 1:
Revenue: In the first year, the company generates modest revenue as it establishes its presence in the market and acquires customers for its product or service.
Cash Flow: The company experiences negative cash flow due to initial investments in equipment, inventory, marketing, and operational expenses. External funding or capital infusion may be required to support the start-up phase.
Balance Sheet: The balance sheet shows a combination of assets, including initial investments, equipment, inventory, and cash. Liabilities may include loans or funds from founders.
Year 2:
Revenue: Revenue begins to grow as the company gains traction in the market and expands its customer base. Marketing efforts and positive customer feedback contribute to increased sales.
Cash Flow: Cash flow improves compared to the first year as the company achieves economies of scale and better cost management. The company may start generating positive cash flow from operations.
Balance Sheet: The balance sheet reflects increased assets from revenue growth and retained earnings. Liabilities may include loans or additional investments made to support growth.
Year 3:
Revenue: The company experiences significant revenue growth as it solidifies its position in the market. Increased customer loyalty, referrals, and repeat business contribute to the revenue surge.
Cash Flow: Cash flow becomes more positive as revenue continues to increase and the company improves its operational efficiency. The company may start generating sufficient cash flow to reinvest in the business and repay debts.
Balance Sheet: The balance sheet reflects substantial growth in assets, including cash, equipment, and inventory. As the company expands, liabilities may include long-term loans or credit lines.
Year 4:
Revenue: Revenue continues to grow steadily as the company further penetrates the market and expands its product/service offerings. The company may explore new market segments or geographic expansion.
Cash Flow: Cash flow remains positive and strengthens as revenue growth is accompanied by efficient cost management. The company may consider reinvesting profits for future growth or distributing dividends to shareholders.
Balance Sheet: The balance sheet shows increased assets from revenue growth and investments. The company may also have built up retained earnings and reduced liabilities.
Year 5:
Revenue: The company experiences continued revenue growth, reaching a significant milestone. Market share increases, and the company becomes a recognized player in its industry. New product launches or partnerships contribute to revenue expansion.
Cash Flow: Cash flow remains robust and allows the company to fund ongoing operations, invest in research and development, or explore new business opportunities. The company may also consider strategic acquisitions.
Balance Sheet: The balance sheet reflects substantial growth in assets, a strong cash position, and reduced liabilities. The company may have accumulated significant retained earnings and shareholder equity.
Product/Service Description: The start-up company offers [describe the product or service], which provides [state the benefits, unique features, or value proposition of the product/service]. The product/service caters to [identify the target market or customer segment] by addressing their specific needs or solving a particular problem.
The company differentiates itself through [highlight any competitive advantages or key selling points].
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A firm has a $5 million revolving credit agreement with its bank at 1.5% over prime with a commitment fee of .5% unborrowed balance. What is the total cost of borrowing in a month when the prime rate is 8% if the firm borrowed $2 million prior to the beginning of the month and takes down an additional $1 million two thirds through the month on the 21 st? (Correct answers may differ due to rounding.)
a.
$20,833
b.
$19,583
c.
$21,875
d.
$20,417
Given A firm has a[tex]$5[/tex]million revolving credit agreement with its bank at 1.5% over prime with a commitment fee of .5% unborrowed balance.
They borrowed [tex]$2[/tex] million prior to the beginning of the month and took down an additional $1 million two thirds through the month on the 21st. The prime rate is 8%.To calculate the total cost of borrowing, follow the steps given below.
Determine the interest rate for the revolving credit agreement with its bank Interest rate for revolving credit agreement with the bank = [tex]Prime rate + 1.5% = 8% + 1.5% = 9.5%Step[/tex]Calculate the interest expense for the borrowed amount Interest expense on the borrowed amount of [tex]$2[/tex]million for the entire month.
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6 Payable to Company Founder Jensen Inc. has a $500,000 note payable due to its founder, Jen Jensen. Ms. Jensen is recently deceased and has no heirs that Jensen Inc.'s executive team is aware of. The company has asked for your help to determine whether it is appropriate to derecognize the liability from its financial statements. Required: 1. Respond to Jensen Inc. Describe the applicable guidance requirements, including excerpts as needed to support your response.
In order to determine whether it is appropriate to derecognize the liability of the $500,000 note payable to Jen Jensen from Jensen Inc.'s financial statements.
You should consider the applicable guidance provided by accounting standards.
One relevant accounting standard to consider is the Financial Accounting Standards Board's (FASB) Accounting Standards Codification (ASC). ASC 470-60, "Troubled Debt Restructurings by Debtors," provides guidance on the derecognition of liabilities.According to ASC 470-60-40, a debtor (Jensen Inc.) shall derecognize a liability when one of the following conditions is met:a) The debtor is legally released from primary responsibility under the liability.b) The debtor pays the creditor (Jen Jensen) and is legally released from being the primary obligor under the liability.c) The debtor's primary obligation is discharged by the creditor.In the case of Jen Jensen's recent passing with no known heirs, it may be necessary for Jensen Inc. to explore legal avenues to determine the appropriate financial statements.
This could involve consulting with legal professionals to understand any applicable laws or regulations governing the treatment of such liabilities in the event of the creditor's death without known heirs.
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Discuss the scope and opportunity for biological treatment in
Bangladesh. Talk about both the urban scenario and the rural
scenario. Discuss the benefits and drawbacks of implementing
aerobic composti
The scope and opportunity for biological treatment in Bangladesh have expanded over the years. The country has a large population, and its agricultural economy heavily relies on livestock production. The country has many industrial zones that produce a significant amount of industrial waste, such as tannery waste, plastic waste, and hazardous waste. Aerobic composting is a method of treating biodegradable waste by decomposition with the help of oxygen.
Biological treatment of waste is a sustainable way to handle the waste produced in the country, creating opportunity and scope. The urban scenario in Bangladesh has high waste generation rates, and the urban areas often lack space for waste disposal. As a result, the waste ends up in landfills, which are detrimental to the environment. Biological treatment methods such as anaerobic digestion, aerobic composting, and vermicomposting can be implemented in urban areas to manage waste. The waste is broken down by microorganisms to produce compost, a nutrient-rich fertilizer. Aerobic composting is an effective method of waste treatment in Bangladesh as it can help reduce the waste volume and provide a source of fertilizer for agriculture. The rural scenario in Bangladesh presents a unique opportunity for biological treatment. The country has a large population of livestock, and the rural areas produce significant amounts of agricultural waste. Anaerobic digestion can be used to treat animal manure, which can then be used as a source of biogas for cooking and lighting. The use of biogas can help reduce the dependence on firewood, which can lead to deforestation. Vermicomposting can also be implemented in rural areas to produce compost. Benefits of Aerobic composting is an effective method of waste treatment that provides several benefits, such as: Reducing waste volume reducing greenhouse gas emissions producing a nutrient-rich fertilizer reducing the dependence on chemical fertilizersGenerating income for waste pickers drawbacks of aerobic compostingAerobic composting has some drawbacks, such as It requires space and a controlled environment can produce odors if not managed properly requires a continuous supply of oxygen may not be suitable for treating hazardous waste conclusion, biological treatment presents a viable solution for waste management in Bangladesh. Aerobic composting can be used in urban areas, while anaerobic digestion and vermicomposting can be used in rural areas. The benefits of aerobic composting include reducing waste volume, reducing greenhouse gas emissions, and producing a nutrient-rich fertilizer. However, it requires space, a controlled environment, and a continuous supply of oxygen.
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Which of the following statements is INCORRECT?
a.
There is an opposite relationship between the NPV and the discount rate used to calculate that NPV.
b.
IRR is the discount rate that equates the present value of the cash inflows with the initial cash outlay.
c.
A project that is very sensitive to the selection of a discount rate will have a steep NPV profile.
d.
Discounted payback period ignores the time value of money and should not be used as a screening device for the selection of capital budgeting projects.
The statement that is INCORRECT among the given options is "Discounted payback period ignores the time value of money and should not be used as a screening device for the selection of capital budgeting projects".
The discounted payback period calculates the length of time it takes to recover the initial investment in present value dollars. It takes into account the time value of money by discounting future cash inflows.The other given statements are true.
There is an opposite relationship between the NPV and the discount rate used to calculate that NPV. The internal rate of return (IRR) is the discount rate that equates the present value of the cash inflows with the initial cash outlay.
A project that is very sensitive to the selection of a discount rate will have a steep NPV profile,
therefore, the discounted payback period does not ignore the time value of money.
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Lucky Larry likes to gamble. He especially likes to play lotteries and plays all different types that are offered. Recently, Lucky Larry won a lottern that paid $50,000 annually until you retire. As a result of his win, Lucky Larry has decided to reduce his work from fulltime hours (40 hours per week) to part-time hours ( 30 hours per week). Larry will still make $15 per hour regardless of whether he works part-time or full-time. Further, Lucky Larry will still get two weeks of unpaid vacation leave annually. Of course, Larry will still get weekends off as well. You should also note that Lucky Larry neverworked any overtime. beyond an 8 hour work day even though his employer would have been willing to let him work up to 16 hours per day. Use this information to answer the question below. a) Calculate the income effect, on an annual basis, from Lucky Larry's lottery win. Explain the effect. b) Calculate the substitution effect, on an annual basis, from Lucky Larry's lottery win. Explain the effect. c) Draw Lucky Larry's labourlelsure graph for parts a) and b). Hint: make sure to use weekly amounts for the axes. Note: the Labour-Leisure Model and the Income-Leisure Model are the same thing. The terms are used interchangeably.
A) To calculate the annual income effect, we need to consider the reduction in work hours and the corresponding change in income.
Annual Income (before lottery win) = Hourly Rate * Weekly Hours * Number of Weeks:
= $15 * 40 * 52
= $31,200
Annual Income (after lottery win) = Hourly Rate * Weekly Hours * Number of Weeks:
= $15 * 30 * 52
= $23,400
The income effect is the difference between the annual income after winning the lottery and the annual income before winning the lottery:
Income Effect = Annual Income (after lottery win) - Annual Income (before lottery win)
= $23,400 - $31,200
= -$7,800
The negative income effect indicates a decrease in Lucky Larry's annual income as a result of winning the lottery. This reduction is because he chooses to work fewer hours and earn a lower annual income.
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Which of the following is correct when a bond investor's rate of return for a particular period exceeds the bond's coupon rate?
a) The bond increased in price during the period .
b) The bond decreased in price during the period .
c) The coupon payment increased during the period.
d) It is not possible for a bondholder's rate of return to exceed the bond's coupon rate .
When a bond investor's rate of return for a particular period exceeds the bond's coupon rate.The correct option is (a) The bond increased in price during the period.
What is the correct outcome when a bond investor's rate of return exceeds the bond's coupon rate?When a bond investor's rate of return for a particular period exceeds the bond's coupon rate, it means that the bond's total return, which includes both coupon payments and any change in price, is higher than the coupon rate alone. This situation occurs when the bond's price increases during the period.
As bond prices and yields have an inverse relationship, when the investor's rate of return exceeds the coupon rate, it indicates that the bond's market price has appreciated, resulting in a higher overall return for the investor.
Therefore, the correct option is (a) The bond increased in price during the period. This phenomenon can happen due to various factors such as changes in interest rates, market demand for bonds, or improvements in the issuer's creditworthiness.
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Consider two firms Alpha and Beta trying to decide on the best price to set for their water bottles. If they both set a low price, firm profits for each are $50,000 for the quarter; if they both set a high price then firm profits are each $40,000 for the quarter. If Alpha sets a high price and Beta sets a low price, then Alpha receives $30,000 in profits, while Beta obtains $70,000. Likewise if Beta sets a high price and Alpha a low price, then Beta gets $30,000 and Alpha $70,000. a. [5 marks] Draw the payoff matrix for this 'game'. b. [5 marks] What is the equilibrium if the game is played as a one-off simultaneous game? Explain your answer. c. [10marks] Is it true that if instead, it were played sequentially a better outcome for both firms would be achieved? Explain.
In a sequential game, a better outcome can be achieved where both firms set a low price, resulting in higher profits for both.
a. Payoff Matrix:
| Beta (Low Price) | Beta (High Price) |
----------------------------------------------------------
Alpha (Low Price) | $50,000 | $70,000 |
----------------------------------------------------------
Alpha (High Price) | $30,000 | $40,000 |
----------------------------------------------------------
b. To determine the equilibrium in a one-off simultaneous game, we can identify the best strategies for each firm given the payoffs.
In this case, both Alpha and Beta have two possible strategies: setting a low price or setting a high price. We need to find the Nash equilibrium, which is a set of strategies where neither firm has an incentive to deviate given the other firm's strategy.
Looking at the payoffs, it can be observed that if both firms set a low price, they earn higher profits ($50,000) compared to setting a high price ($40,000). However, if one firm sets a low price and the other sets a high price, the firm setting a low price earns $30,000, while the firm setting a high price earns $70,000.
Based on this, we can conclude that the Nash equilibrium in this one-off simultaneous game is for both firms to set a low price. If one firm deviates and sets a high price, the other firm has an incentive to set a low price and earn a higher profit.
c. If the game were played sequentially, where one firm makes a decision before the other, a better outcome for both firms could be achieved.
Suppose Alpha makes a decision first. If Alpha sets a high price, Beta, observing this, will choose to set a low price to maximize its profit ($70,000). Similarly, if Alpha sets a low price, Beta will also set a low price to earn higher profits ($50,000). In both cases, Beta's best response is to set a low price.
Therefore, regardless of Alpha's decision, Beta's best response is to set a low price. This sequential decision-making leads to a better outcome for both firms compared to the simultaneous game, as both firms earn higher profits ($50,000) instead of $40,000.
In summary, in a sequential game, a better outcome can be achieved where both firms set a low price, resulting in higher profits for both.
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My Story Bookstore is a local bookstore that has been selling teenage novels for a few years. The store manager plans to achieve a minimum profit of RM6,000 per month. The store must pay for the rent of RM1,500, utilities RM300 and staff salaries amounted to RM2,000 per month. The cost of a novel is expected to increase by 10% due to inflation from the previous cost of RM8.50 per novel. The selling price is RM15.00 per novel.
Required:
a) Compute the contribution margin per unit of the novel and state the reason why is it important to compute the contribution margin.
b) Calculate the break-even point in the unit of novels and in Ringgit Malaysia.
c) Calculate the number of unit sales to achieve a monthly profit of RM6,000 per month.
d) If competitors sell the same novel at RM14.00 each, calculate how many units should My Story Bookstore has to sell to get the same monthly profit if the sale price is to follow the competitor's price. All other costs remain the same. e) Calculate the selling price of a novel if the manager feels that he can sell 4.200 novels next month due to the school holiday season and maintain the same monthly profit. (Note: All the questions below are not related to each other)
a) The contribution margin per unit of the novel is RM6.50. It is important to compute the contribution margin because it represents the amount of revenue available to cover the fixed costs and contribute towards the desired profit.
b) The break-even point in the unit of novels is 461.54 units, rounded up to 462 units. In Ringgit Malaysia, the break-even point is RM6,930. By reaching this point, the store will cover all its costs and start generating a profit. c) To achieve a monthly profit of RM6,000, the number of unit sales required can be calculated using the contribution margin per unit. the number of unit sales needed is 1,538 units. d) If the selling price follows the competitor's price of RM14.00 per novel, the contribution margin per unit would be RM5.50. To achieve the same monthly profit of RM6,000, the store would need to sell 1,091 units. e) To calculate the selling price of a novel to maintain the same monthly profit with an anticipated sale of 4,200 novels, the selling price would be RM17.33 per novel.
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Wredand Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $87000. The machines useful life is essimated to be 5 years, or 400.000 units of product, with a $7,000 salvage value. During is second year, the machine produces 84,500 units of product. Determine the machines' second year depreciation under the double declining-balance method. Multiple Choice:
• $16,900 • $16,000 • $17,400 • $18,379 • $20,880.
The machine’s second year depreciation under the double-declining-balance method is $16,900. Under the double-declining-balance method, the straight-line depreciation rate is multiplied by 2 to compute the depreciation rate for each period. The formula for double-declining depreciation method is as follows:2 x (100% / n)Where n is the useful life in years.
On the other hand, the machine's second-year depreciation can be calculated using the following steps: Step 1: Calculate the depreciation rate for the asset. Depreciation rate = 2 x (100% / n)Depreciation rate = 2 x (100% / 5 years)Depreciation rate = 40%Step 2: Calculate the depreciation expense for the second year. Depreciation expense = Beginning book value x Depreciation rate Beginning book value = (Asset cost – Accumulated depreciation)Beginning book value = ($87,000 – $34,800) = $52,200Depreciation expense = $52,200 x 40%Depreciation expense = $20,880Step 3: Calculate the total depreciation from the previous year Depreciation from previous year = ($87,000 x 40%) = $34,800Step 4: Calculate the accumulated depreciation Accumulated depreciation = Depreciation from previous year + Depreciation expense Accumulated depreciation = $34,800 + $20,880 = $55,680Step 5: Calculate the book value at the end of the second year. Book value at the end of the second year = Beginning book value – Accumulated depreciation Book value at the end of the second year = $87,000 – $55,680Book value at the end of the second year = $31,320Therefore, the machine’s second year depreciation under the double-declining-balance method is $16,900. ($34,800 – $16,900 = $17,400).
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Following graph plots the difference between 10-year Treasury bonds yields and 1 year Treasury bonds yields since 1965 . a. Does this line measure the term spread or the term premium between 10-yesr and 1-year Treasury rates? b. Why do you think so (whichever you answer for a)? c. How is it related to the yield curve? How can one figure out shape of the yield curve looking at this blue line in the graph above? d. When this line is decreasing and below zero, what must be the shape of the yield curve? e. What does the bond market forecast would happen to the economy in near future when this line is decreasing and below zero? Why ? f. What phase of business cycle has historically occurred following this blue line below zero?
The line on the graph measures the term spread between 10-year and 1-year Treasury rates. It provides insights into the difference between longer-term and shorter-term interest rates. By observing the shape of the line, one can infer the shape of the yield curve. When the line is decreasing and below zero, it indicates an inverted yield curve, suggesting a potential economic downturn. Historically, an inverted yield curve has been followed by recessions or economic contractions.
a. The line measures the term spread between 10-year and 1-year Treasury rates.
b. This is because the term spread represents the difference between longer-term and shorter-term interest rates, and in this case, the line specifically plots the difference between 10-year and 1-year Treasury bond yields.
c. The line is related to the yield curve as it represents one aspect of the yield curve - the term spread. The yield curve, on the other hand, shows the relationship between interest rates (or yields) and the maturity or term of debt securities. By looking at the blue line in the graph, one can assess the shape of the yield curve by observing the fluctuations and patterns in the term spread over time.
d. When the line is decreasing and below zero, it suggests an inverted yield curve. An inverted yield curve occurs when shorter-term interest rates are higher than longer-term interest rates. It indicates a possible economic slowdown or recessionary conditions.
e. When the line is decreasing and below zero, the bond market is forecasting a potential economic downturn or recession in the near future. This is because an inverted yield curve is often seen as a reliable predictor of economic downturns. It indicates investors' expectations of lower inflation and potential central bank rate cuts in response to anticipated weak economic conditions.
f. Historically, following a period when the blue line is below zero (indicating an inverted yield curve), the economy has often entered a recession or experienced a downturn. In other words, an inverted yield curve has been associated with the contraction phase of the business cycle. However, it is important to note that economic conditions and outcomes can vary, and the relationship between the blue line and the business cycle is not deterministic but rather a historical observation.
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Oriole Company is considering a long-term investment project called ZIP. ZIP will require an investment of $125,400. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $83,600, and annual cash outflows would increase by $41,800. The company's required rate of return is 12%. Click here to view the factor table.
Calculate the internal rate of return on this project. (Round answers to 0 decimal places, e.g. 15%.) Internal rate of return on this project is between ______% and _______%
Determine whether this project should be accepted? The project _______ be accepted
The internal rate of return (IRR) on the project is between 25% and 26%. The project should be accepted. Since the IRR is higher than the company's required rate of return of 12%, the project should be accepted.
To calculate the internal rate of return (IRR), we need to find the discount rate that makes the net present value (NPV) of the project equal to zero. We can use the cash inflows and outflows to determine the NPV at different discount rates.
Given that the investment is $125,400 and the project has a useful life of 4 years with no salvage value, we calculate the annual net cash flow by subtracting the annual cash outflows from the annual cash inflows. In this case, the annual net cash flow is $83,600 - $41,800 = $41,800.
We then calculate the NPV at different discount rates using the formula:
NPV = (Cash Flow / (1 + Discount Rate)^n) - Initial Investment
By using the factor table, we can find the discount rate that results in an NPV of zero. In this case, the IRR is between 25% and 26%.
Since the IRR is higher than the company's required rate of return of 12%, the project should be accepted. The IRR represents the rate of return generated by the project, and since it is higher than the required rate of return, it indicates that the project is expected to be profitable and generate a positive return on investment.
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Derek plans to retire on his 65th birthday. However, he plans to work part-time until he turns 73.00. During these years of part-time work, he will neither make deposits to nor take withdrawals from his retirement account. Exactly one year after the day he turns 73.0 when he fully retires, he will begin to make annual withdrawals of $175,533.00 from his retirement account until he turns 90.00. He he will make contributions to his retirement account from his 26th birthday to his 65th birthday. To reach his goal, what must the contributions be? Assume a 7.00% interest rate.
To calculate the required contributions, we can use the present value of an annuity formula. The formula is:
PV = PMT × [(1 - (1 + r)^(-n)) / r]
Where:
PV is the present value of the annuity (the desired amount at retirement)
PMT is the annual withdrawal amount ($175,533.00)
r is the interest rate (7.00% or 0.07)
n is the number of years of withdrawals (90 - 73 = 17)
Plugging in the values:
PV = $175,533.00 × [(1 - (1 + 0.07)^(-17)) / 0.07]
Simplifying the equation, we find:
PV = $175,533.00 × 9.6031
Therefore, the required contributions from Derek's 26th birthday to his 65th birthday would need to be:
Contribution = PV / [(1 + r)^(65 - 26)]
Contribution = ($175,533.00 × 9.6031) / (1 + 0.07)^(65 - 26)
Evaluating the equation, we can find the required contributions.
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last two digits of cuny id is 25 Part 3 Consider the following estimated equation, where colGPA is the average college GPA and hsGPA is the high school GPA. The regression uses data from 141 students.
colGPA = 1.39+ (last two digits of cuny id/100)hsGPA
n=141, R2.2567.
1) Interpret the intercept. 2) Interpret the slope coefficient on hsGPA. 3) Suppose a student has a high school GPA of 3 points, what is the predicted | college GPA for this student according to the regression result? I
4) How do you interpret the R-squared value 0.2567?
1) The intercept (1.39) is the estimated average college GPA when high school GPA is zero.
2) The slope coefficient (0.25) indicates that, on average, a one-point increase in high school GPA is associated with a 0.25-point increase in college GPA.
3) For a high school GPA of 3 points, the predicted college GPA is 2.14.
4) The R-squared value (0.2567) suggests that approximately 25.67% of the variation in college GPA can be explained by the variation in high school GPA using the regression model.
1) The intercept in the regression equation (1.39) represents the estimated average college GPA when the high school GPA (hsGPA) is zero. However, it is important to note that this interpretation may not have practical significance in this context since a high school GPA of zero is not realistic or meaningful.
2) The slope coefficient on hsGPA indicates the estimated change in the college GPA (colGPA) for a one-unit increase in the high school GPA. In this case, the slope coefficient is equal to (last two digits of CUNY ID / 100). For example, if the last two digits of the CUNY ID are 25, the slope coefficient would be 0.25. This means that, on average, for every one-point increase in the high school GPA, the college GPA is expected to increase by 0.25 points.
3) If a student has a high school GPA of 3 points, we can use the regression equation to predict their college GPA. Plugging in the values into the equation:
colGPA = 1.39 + (0.25 * 3)
colGPA = 1.39 + 0.75
colGPA = 2.14
Therefore, according to the regression results, the predicted college GPA for a student with a high school GPA of 3 points is 2.14.
4) The R-squared value (0.2567) represents the proportion of the variation in the college GPA (colGPA) that can be explained by the variation in the high school GPA (hsGPA) using the regression model. In this case, approximately 25.67% of the variation in the college GPA can be accounted for by the high school GPA. It indicates the goodness of fit of the regression model and suggests that around 25.67% of the variability in college GPA can be attributed to the variability in high school GPA, while the remaining 74.33% is explained by other factors not included in the model.
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You have purchased a property using debt financing in the form of an accrual loan. The loan details are as follows: Loan amount =$1,000,000; pay rate =2.50%, accrual rate = 3.23%; payment frequency = annual, end of year; maturity = 5 years; amortization = interest-only. Given these terms, calculate the size of the loan balance that must be repaid at he end of year 5 . Your bank has agreed to loan you $1,000,000 today at an interest rate of 2.88% (with annual payments), an amortization term of 20 years, and maturity of 5 years (the balance of the loan must be fully repaid at the end of year 5). The loan includes a participation that entitles the lender to 50% of any property NOI in excess of $102,000 for any year during the life of the loan. Given these loan terms, calculate the lender's yield associated with this loan assuming the property produces the following NOI over the next five years. (Answer in percentage points to two decimal places, e.g. 3.25% should be entered as 3.25, not 0.0325.)
The size of the loan balance that must be repaid at the end of year 5 is $1,000,000.
In an interest-only loan with no principal payments, the entire loan amount remains outstanding until the end of the loan term. Therefore, the size of the loan balance that must be repaid at the end of year 5 is equal to the original loan amount of $1,000,000.
Regarding the second part of the question, calculating the lender's yield requires information about the property's Net Operating Income (NOI) over the next five years. However, the NOI values are not provided in the question. Without the NOI figures, it is not possible to calculate the lender's yield associated with the loan.
To calculate the lender's yield, one would need to determine the excess NOI for each year based on the participation agreement (50% of NOI exceeding $102,000) and then calculate the interest earned by the lender on the loan. The lender's yield represents the interest earned as a percentage of the loan amount.
Since the NOI values are not provided, it is not possible to proceed with the calculation of the lender's yield. Please provide the NOI figures for each year if you want to determine the lender's yield associated with the loan.
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In New York City, there was a debate over whether to (1) retrofit the city's buses for wheelchair access or (2) pay the taxicab fares of people with disabilities. Proponents for making the buses accessible to people with disabilities were motivated by concerns of:
A, the deadweight losses from higher taxes associated with paying taxicab fares.
B. efficiency; it is much more expensive to pay taxicab fares than to retrofit buses.
C. the higher carbon emissions of taxicabs, which is a form of externality.
D. fair and equal treatment.
Proponents for making the buses accessible to people with disabilities were motivated by concerns of **efficiency** and **fair and equal treatment**.
Option B highlights the efficiency aspect of the debate. Retrofitting buses for wheelchair access is generally considered a more cost-effective solution in the long run compared to paying taxicab fares for individuals with disabilities. It ensures that public transportation is accessible to a larger population, reducing the reliance on individually arranged transportation services.
Option D emphasizes the principle of fair and equal treatment. Making buses accessible to people with disabilities promotes inclusivity and equal access to public services. It addresses the notion that individuals should not face discrimination or be excluded from essential services based on their disabilities.
While the other options (A and C) may have some relevance, they are not as directly aligned with the primary motivations discussed in the question.
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To break out of the reputation of an inexperienced newcomer, a person should Multiple Choice 0 incorporate the l-voice in business messages as often as possible. 0 attend a lot of meetings to get to know as many colleagues as possible, 0 stand out from the corporate culture in terms of dress and communication, 0 avoid taking on projects that will reveal inexperience. 0 be careful not to waste time on extras like creating a professional blog.
To break out of the reputation of an inexperienced newcomer, a person should stand out from the corporate culture in terms of dress and communication.
The correct answer is to stand out from the corporate culture in terms of dress and communication. By presenting oneself professionally and confidently, dressing appropriately, and communicating effectively, an individual can create a positive impression and demonstrate competence in their role. This can help overcome the perception of being inexperienced and establish credibility among colleagues and superiors.
Incorporating the l-voice in business messages as often as possible (option 1) may not necessarily address the issue of being seen as an inexperienced newcomer.
Attending a lot of meetings to get to know as many colleagues as possible (option 2) can be beneficial for networking and building relationships, but it may not directly address the perception of inexperience.
Avoiding taking on projects that will reveal inexperience (option 4) may limit growth opportunities and prevent the individual from gaining valuable experience and learning.
Creating a professional blog (option 5) can be a valuable tool for showcasing expertise and building a professional brand, which can help overcome the reputation of being inexperienced.
Therefore, the most effective approach is to stand out from the corporate culture in terms of dress and communication, as it demonstrates professionalism and confidence, helping to break out of the reputation of an inexperienced newcomer.
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the advantages of a dividend reinvestment plan (drp) may include:
The advantages of a Dividend Reinvestment Plan (DRP) include compounding returns, cost savings, convenience, increased share ownership, and dollar-cost averaging.
The advantages of a Dividend Reinvestment Plan (DRP) include:
1. Compound Returns: By reinvesting dividends back into the company's stock, shareholders can benefit from the power of compounding. This allows for the potential growth of their investment over time as dividends are reinvested and generate additional returns.
2. Cost Savings: DRPs typically offer the option to reinvest dividends without incurring transaction fees or brokerage commissions. This can result in cost savings for shareholders, especially those who would have otherwise incurred fees when reinvesting dividends through traditional means.
3. Automatic and Convenient: DRPs provide a convenient and automated way for shareholders to reinvest their dividends. Once enrolled in the plan, shareholders don't need to manually reinvest their dividends as the process is handled by the company's transfer agent or a designated institution.
4. Increase in Share Ownership: Through a DRP, shareholders can accumulate more shares of the company's stock over time. This can lead to an increase in their ownership stake, which may offer potential benefits such as increased voting rights and potential dividend income.
5. Dollar-Cost Averaging: DRPs often involve the regular and consistent reinvestment of dividends, regardless of the stock's current price. This approach, known as dollar-cost averaging, allows shareholders to buy more shares when prices are lower and fewer shares when prices are higher, potentially reducing the impact of market volatility.
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Larry purchased real property for $20,000 and sold it the next year to Kim, Larry's child, for the fair market value of $12,000. Later, Kim sold the property to Harry, who is not related to Kim or Larry, for $15,000. What amount, if any, should be recognized by KIm?
a. $5,000 loss
b. $3,000 loss
c. $0
d. $3,000 gain
The 3.8% tax on net investment income applies to all taxpayers who have net investment income for the year. TRUE or FLASE
The correct answer is c. $0. When Kim purchased the property from Larry for the fair market value of $12,000, there was no gain or loss recognized because the sale was between related parties (parent and child) and the transfer was not considered a taxable transaction.
The fair market value was used for determining the basis of the property for Kim. Later, when Kim sold the property to Harry for $15,000, the gain or loss would be calculated based on the selling price ($15,000) minus the adjusted basis of the property.
Since the fair market value at the time of purchase was $12,000 and Kim sold it for $15,000, there is a $3,000 gain (selling price minus adjusted basis). However, this gain is not recognized by Kim because it is a personal use property and not subject to taxation.
Therefore, the correct answer is c. $0.
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You have gathered the following vehicle costs: Vehicle Costs
Annual depreciation $2,100
Current year’s loan interest $660
Insurance $990
License and registration fees $68
Parking and tolls $513
Annual village 22,700
Miles per gallon 24
Average gasoline price $3.60 per gallon
Oil changes and repairs $452
a. Catculate the annual variable and fixed costs of the vehicle
b. Compute the operating cost per mile.
A. The annual variable cost of the vehicle is $ 28,682 and the fixed cost is $ 2,828.
B. The operating cost per mile of the vehicle is $1.195.
a. Calculation of Annual variable and fixed costs of the vehicle Variable costs per year = (Annual Village + Parking and tolls + Insurance + Average gasoline price x Miles per gallon + Oil changes and repairs)
Annual variable costs = $ 22,700 + $513 + $990 + ($3.60 x 24) + $452
Annual variable costs = $ 28,682
Fixed costs per year = (Annual depreciation + Current year’s loan interest + License and registration fees)
Fixed costs = $ 2,100 + $660 + $68
Fixed costs = $ 2,828
Therefore, the annual variable cost of the vehicle is $ 28,682 and the fixed cost is $ 2,828.
b. Calculation of the operating cost per mile
Operating cost per mile = Annual variable costs/Total miles driven
Operating cost per mile = $28,682/24,000 miles
Operating cost per mile = $1.195/mile
Therefore, the operating cost per mile of the vehicle is $1.195. This means that every mile that the vehicle drives costs $1.195. The operating cost per mile is a crucial cost concept that helps vehicle owners to track their expenses accurately. It is essential because it tells the owner how much it will cost them to operate the vehicle over a mile.
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OS Environmental provides cost-effective solutions for managing regulatory requirements and environmental needs $ pecific to the airline industry. Assume that on July 1 the company issues a one-year note for the amount of $6 mililion. Interest is payable at maturity. Required: Determine the amount of interest expense that should be recorded in a year-end adjusting entry.
To determine the amount of interest expense that should be recorded in a year-end adjusting entry, we need to know the interest rate on the one-year note.
Interest expense is calculated by multiplying the principal amount of the loan or note by the interest rate and the time period involved.
In this case, if we have the interest rate on the one-year note, we can calculate the interest expense using the following formula:
Interest Expense = Principal Amount x Interest Rate
For example, if the interest rate on the one-year note is 5%, the interest expense would be:
Interest Expense = $6,000,000 x 0.05 = $300,000
Therefore, $300,000 would be the amount of interest expense that should be recorded in a year-end adjusting entry.
Please note that this is a hypothetical calculation, and the actual interest expense would depend on the specific interest rate provided for the note.
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Waterways has two major public-park projects to provide with comprehensive irrigation in one of its service locations this month. Job 357 and Job K52 involve 15 acres of landscaped terrain, which will require special-order, sprinkler heads to meet the specifications of the project. Using a job cost system to produce these parts, the following events occurred during December. Raw materials were requisitioned from the company's inventory on December 2 for $5,031; on December 8 for $1,065; and on December 14 for $3,459. In each instance, two-thirds (2/3) of these materials were for J57 and the rest for K52. Six time tickets were turned in for these two projects for a total amount of 18 hours of work. All the workers were paid $18 per hour. The time tickets were dated December 3 , December 9 , and December 15 . On each of those days, 6 labor hours were spent on these jobs, two-thirds (2/3) for J57 and the rest for K 52 . The predetermined overhead rate is based on machine hours. The expected machine hour use for the year is 2,101 hours, and the anticipated overhead costs are $840,400 for the year. The machines were used by workers on projects K52 and J57 on December 3,9 , and 15. Six machine hours were used for project K52 (2 each day), and 8.5 machine hours were used for project J57 ( 2.5 the first day and 3 each of the other days). Both of these special orders were completed on December 15. producing 200 sprinkler heads for J57 and 100 sprinkler heads for K52. Dec. 1 Purchased raw materials from Durbin Supply Company on account for $53,600. Dec. 2 Issued $39,800 of direct materials from the company's inventory to jobs other than K52 and J57 and $3,000 of indirect materials. Dec. 12 Paid Waterways' factory salaries and wages for $64,800. Dec. 13 Paid the factory's water bill of $9,000. Dec. 18 Transferred $50,100 of costs from other completed jobs to finished goods. Dec. 21 Paid the factory's electric bill of $12,100 for Waterways' factory. Dec. 31 Made adjusting entries forth factory that included accrued property taxes of $11,900, prepaid insurance of $8,800 and accumulated depreciation of $16,000. Set up the job cost sheets for Job No. J57 and Job No. K52. Determine the total cost for each manufacturing speci these jobs. (Round unit costs to 2 decimat places, e.g. 12.25.) Questign 2 of 4 H० command
The total cost for Job No J57 is $10,100.26 and the total cost for Job No K52 is $5,913.56.
How to calculate the valuePredetermined overhead rate = Total anticipated overhead costs / Total expected machine hours
Predetermined overhead rate = $840,400 / 2,101 machine hours = $400.76 per machine hour
Machine hours used for project K52 on December 3, 9, and 15: 2 hours + 2 hours + 2 hours = 6 machine hours
Machine hours used for project J57 on December 3, 9, and 15: 2.5 hours + 3 hours + 3 hours = 8.5 machine hours
Overhead for project K52: 6 machine hours * $400.76 per machine hour = $2,404.56
Overhead for project J57: 8.5 machine hours * $400.76 per machine hour = $3,406.26
Now, we can calculate the total cost for each manufacturing specification:
Job No. J57:
Total Cost = Direct Materials + Direct Labor + Overhead
Total Cost = ($3,354 + $710 + $2,306) + ($108 + $108 + $108) + $3,406.26
Total Cost = $6,370 + $324 + $3,406.26
Total Cost = $10,100.26
Job No. K52:
Total Cost = Direct Materials + Direct Labor + Overhead
Total Cost = ($1,677 + $355 + $1,153) + ($108 + $108 + $108) + $2,404.56
Total Cost = $3,185 + $324 + $2,404.56
Total Cost = $5,913.56
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Personnel administration is an example of (an): O Product-level activity. O Unit-level activity. O Organization-sustaining activity. O Batch-level activity.
Personnel administration is an example of an organization-sustaining activity, as it involves managing and supporting the overall human resources functions within a company.
Personnel administration refers to the activities involved in managing an organization's human resources, such as hiring, training, compensation, benefits, and employee relations. It is essential for maintaining the overall functioning and sustainability of the organization. Unlike product-level activities that directly contribute to the production or delivery of goods or services, personnel administration focuses on managing and supporting the workforce as a whole. It encompasses strategic planning, policy development, and implementation of HR practices that ensure the organization has the right people in the right roles, thereby contributing to the long-term success and continuity of the business.
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Most companies have an IT department. I believe their cost should be allocated but what is the best way to allocate the costs when the IT department comes to HR or another department to repair a computer?
Allocating costs between departments, especially when it comes to IT support, can be done in several ways. The best method for cost allocation depends on the specific needs and circumstances of the company. Here are a few commonly used approaches:
1. Direct Cost Allocation: In this method, the actual costs incurred by the IT department are directly charged to the department or individual requiring the IT support. For example, if HR requests computer repairs, the IT department will track the costs associated with that specific service and charge it directly to HR.
2. Fixed Percentage Allocation: With this approach, the IT department's costs are allocated to other departments based on a fixed percentage. This percentage may be determined by factors such as the number of employees in each department, the department's budget, or the department's usage of IT services.
3. Activity-Based Costing: Activity-based costing involves identifying specific activities performed by the IT department and allocating costs based on the usage of those activities. For example, IT support requests could be categorized into different activities like hardware repair, software installation, or network troubleshooting.
4. User-Based Allocation: In this method, costs are allocated based on the number of users or devices in each department. The assumption is that departments with more users or devices are likely to require more IT support and should bear a proportionate share of the costs.
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A 25-year, $1,000 par value bond has an 15% annual payment coupon. The bond currently sells for $905. If the yield to maturity remains at its current rate, what will the price be 5 years from now? $977.20 $907.41 $930.11 $984.19 $906.86
The future price of the bond 5 years from now is $906.86 indicates the expected value of the bond in 5 years based on the current yield to maturity rate and market conditions.
To calculate the price of the bond 5 years from now, we need to determine the present value of the future cash flows. The bond has a 25-year maturity, and the annual coupon payment is 15% of the $1,000 par value, which is $150. The bond currently sells for $905, which is its present value.
To calculate the future price, we need to find the present value of the remaining cash flows after 5 years. The remaining cash flows include 20 coupon payments of $150 each and the par value of $1,000 at maturity. Using the present value formula for an ordinary annuity and a single payment, we can calculate the future price as follows:
PV = C * [1 - (1 + r)⁻ⁿ] / r + F * (1 + r)⁻ⁿ
Where:
PV = Present Value (current price)
C = Coupon payment
r = Yield to maturity (assumed to remain constant)
n = Number of periods remaining
Plugging in the values:
PV = $150 * [1 - (1 + r)⁻²⁰] / r + $1,000 * (1 + r)⁻²⁰
= 906.86
Since we are assuming the yield to maturity remains constant, we can use the current yield to maturity as the discount rate. By trial and error, we find that when the yield to maturity is approximately 15.54%, the present value is equal to $906.86. Therefore, the price of the bond 5 years from now, with the yield to maturity remaining constant, will be $906.86.
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