BigData Inc. needs to issue debt and either pay stockholders dividends or raise from stockholders via new equity issuance in order to fund the project that adds $70 million in market value to the firm’s assets and has an NPV of $30 million.
The project requires an initial investment of $40 million. BigData Inc. wants to maintain their 50% Debt to Value Ratio.
To answer the question, BigData Inc. should issue $35 million in debt and issue $5 million of new equity. This fulfills the requirement of raising $40 million to fund the project and maintains their Debt to Value Ratio at 50%, since at the end of the project, the debt is still going to be 50% of the total market value and the equity will be the other 50%.
Paying stockholders $5 million in dividends would take away from the initial investment of $40 million and only leave $35 million to fund the project. This would not generate enough money to fund the project and also would not maintain the Debt to Value ratio of 50%, since the debt would represent 43.75% of the total market value and the equity would represent 56.25%.
Issuing $20 million in debt and $20 million of new equity would also not maintain the 50% Debt to Value Ratio, since the debt would be 33.3% of the total market value and the equity would be 66.7%. This ratio should only be used if the desired target Debt to Value Ratio at the end of the project is lower than 50%.
Issuing $40 million in debt and paying stockholders $5 million in dividends would also not suffice because this would push the Debt to Value ratio of BigData Inc. past the 50% mark, meaning more debt than equity. This is not the most efficient way to fund the project, as a higher Debt to Value ratio would increase BigData Inc.’s risk of not being able to pay off the debt.
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Assuming everything else is constant, when a stock goes ex-rights the stock price should:_____.
Assuming everything else is constant, when a stock goes ex-rights the stock price should typically decrease. This is because going ex-rights means that the rights to buy additional shares at a discounted price are no longer attached to the stock.
As a result, the stock becomes less attractive to investors who were hoping to benefit from the rights offering. The decrease in demand for the stock usually leads to a decrease in its price.
However, it's important to note that other factors such as market conditions and investor sentiment can also influence the stock price. So, while the stock price is expected to decrease, it's not guaranteed and can vary depending on various circumstances.
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The commission structure on a stock purchase is $60 plus $0.03
per share. If you purchase seven round lots of a stock selling for
$162, what is your commission?
Multiple Choice
$21
$39
$60
$81
The commission for purchasing seven round lots of a stock selling for $162 would be $60 plus $0.03 per share, resulting in a total commission of $81.
To calculate the commission, we need to determine the total number of shares purchased and multiply it by the commission rate per share.
A round lot typically consists of 100 shares. Since you purchased seven round lots, the total number of shares bought is 7 round lots * 100 shares/round lot = 700 shares. The commission rate per share is $0.03. Therefore, the commission based on the number of shares is 700 shares * $0.03/share = $21.
In addition to the commission based on the shares, there is a fixed commission of $60. To find the total commission, we add the commission based on shares ($21) to the fixed commission ($60): $21 + $60 = $81. Hence, the correct answer is $81.
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Reservation wage and human capital theories are
examples of the labour demand theory . True or False
True, reservation wage and human capital theories are examples of labor demand theories.
Labor demand theories aim to explain the factors that influence the demand for labor in the market. Two prominent theories within this framework are the reservation wage theory and human capital theory.
The reservation wage theory suggests that individuals have a minimum wage level, known as the reservation wage, below which they are unwilling to accept employment. This theory explores how individuals make decisions regarding their willingness to work and how changes in factors like market conditions or personal circumstances affect their reservation wage.
Human capital theory, on the other hand, focuses on the idea that individuals' education, skills, and experience (collectively known as human capital) contribute to their productivity and earning potential. This theory emphasizes the investment in human capital through education and training as a way to enhance labor productivity and increase demand for skilled workers.
Both reservation wage theory and human capital theory fall under the broader umbrella of labor demand theories, as they examine the factors that influence employers' demand for labor and individuals' decisions regarding employment and wages.
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Inflation has really been in the news so far for 2022 and after reading a few articles, you have come up with the following information: there is a 60% chance that we will have a high level of inflation for 2022 of 16%; a 30% chance that we will have a moderate rate of inflation for 2022 of 10% and a 10% chance that we will have a low level of inflation for 2022 of 4%
Based on the above projections, what is the expected rate of inflation for all of 2022? (Set up a chart)
The expected rate of inflation for all of 2022 is calculated by the weighted average of the individual rates of inflation. The probability of occurrence of each inflation rate has to be multiplied by its corresponding inflation rate. The sum of these products is divided by the total probability of occurrence of all the events.
Given data,
High level of inflation for 2022 = 16%,
Probability of high-level inflation = 60%
Moderate rate of inflation for 2022 = 10%,
Probability of moderate-level inflation = 30%
Low level of inflation for 2022 = 4%,
Probability of low-level inflation = 10%
The expected rate of inflation for all of 2022 is calculated by the weighted average of the individual rates of inflation. The formula is;
Expected rate of inflation for all of 2022 = (probability of high-level inflation x rate of high-level inflation) + (probability of moderate level inflation x rate of moderate level inflation) + (probability of low-level inflation x rate of low-level inflation)Given that;
Probability of high-level inflation = 60%
Rate of high-level inflation = 16%
Probability of moderate-level inflation = 30%
Rate of moderate level inflation = 10%
Probability of low-level inflation = 10%
Rate of low-level inflation = 4%
Therefore,
Expected rate of inflation for all of 2022 = (60% x 16%) + (30% x 10%) + (10% x 4%)= 9.6% + 3% + 0.4%= 12%.
Hence, the expected rate of inflation for all of 2022 is 12%.
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Attempts 9. Cost of trade credit Keep the Highest/4 Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit, which affect the cost of asset of sale for the buyer as well as the seller. Consider this case: Tasty Tuna Corporation buys most of its raw materials from a single supplier. This supplier sells to Tasty Tuna on terms of 4/20, net 45. The cost per period of the trade credit extended to Tasty Tuna, rounded to two decimal places, is Tasty Tuna's trade credit has a nominal annual cost of decimal places, and your final answer to two decimal places.) assuming a 365-day year. (Note: Round all intermediate calculations to four
The cost per period of trade credit for Tasty Tuna Corporation is approximately 4.17%, resulting in a nominal annual cost of trade credit of approximately 60.64%.
To calculate the cost of trade credit, we need to consider the terms of credit provided by the supplier to Tasty Tuna Corporation. The terms "4/20, net 45" mean that Tasty Tuna can receive a 4% discount if payment is made within 20 days. Otherwise, the full payment is due within 45 days.
First, we calculate the trade credit period by subtracting the discount period from the net payment period:
Trade credit period = Net payment period - Discount period
Trade credit period = 45 days - 20 days
Trade credit period = 25 days
Next, we calculate the cost per period of trade credit:
Cost per period = Discount percentage / (100% - Discount percentage)
Cost per period = 4% / (100% - 4%)
Cost per period ≈ 4.17%
To find the nominal annual cost of trade credit, we multiply the cost per period by the number of periods in a year (365 days):
Nominal annual cost = Cost per period * (365 days / Trade credit period)
Nominal annual cost = 4.17% * (365 days / 25 days)
Nominal annual cost ≈ 60.64%
Hence, the cost per period of trade credit for Tasty Tuna Corporation is approximately 4.17%, and the nominal annual cost of trade credit is approximately 60.64%.
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Bob is planning a college fund for his oldest child. He intends to deposit $150 at the end of each month into a money market fund for the next 16 years. The account pays 8.5% annually. What will the balance be at the end of the 16 th year? Enter your answer to the nearest penny with no punctuation other than a decimal point. Do not enter commas or dollar signs.
Bob is planning a college fund for his oldest child. He intends to deposit 150 at the end of each month into a money market fund for the next 16 years. The account pays 8.5% annually.The balance in Bob's account at the end of the 16th year is 28,800.00.
The formula to calculate simple interest is :I = P x R x T
I = Interest,P = Principal or the initial amount of money that is invested,R = Rate of interest per annum,T = Time taken to repay the principal amount
Now, let's calculate the amount in Bob's account at the end of the 16th year:
Interest = Principal x Rate x Time
Using the above formula, we have the following values:I = 150 * 12 * 16, I = 28,800
Using the given rate of interest, we can calculate the balance of the account as follows:
Balance = Principal + Interest
Balance = 0 +28,800
Balance = 28,800.00
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SE Lori is a student who teaches golf on Saturdays. In a year she earns $40,000 after paying her taxes At the beginning of 2017, Lori owned $2,000 worth of books, DVDs, and golf clubs and she had $6,000 in a savings account at the bank. During 2017, the interest on her savings account was $300 and she spent a total of $30,000 on consumption goods and services. There was no change in the market values of her books, DVDs, and golf clubs. How much did Lori save in 2017? What was her wealth at the end of 2017? In 2017, Lori saved S
The amount that Lori saved in 2017 is $10,300 and her wealth at the end of 2017 is $18,300.
Given:
Lori earned $40,000 after paying her taxes. Lori owned $2,000 worth of books, DVDs, and golf clubs and she had $6,000 in a savings account at the bank. The interest on her savings account was $300. Lori spent a total of $30,000 on consumption goods and services. There was no change in the market values of her books, DVDs, and golf clubs.
To find out Lori's savings in 2017, we need to add her interest and subtract her consumption.
Interest earned = $300
Consumption expenditure = $30,000
So, Savings = Income − Consumption − Interest earned
= $40,000 − $30,000 − $300
= $9,700
Since Lori already had $6,000 in her savings account at the beginning of 2017, her wealth at the end of 2017 would be: Wealth at the end of 2017 = Savings + initial wealth
= $9,700 + $2,000 + $6,000= $18,300
Therefore, Lori saved $9,700 in 2017 and her wealth at the end of 2017 was $18,300.
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Voyager, Inc. issued callable bonds paying a semi-annual coupon at a coupon rate of 4% that can be called after five years. The maturity period for these bonds is 30 years, and the bonds were issued one year ago. What is the Yield to Call if the market price of these bonds are $950? 4.22% 5.41% 5.15% 3.91% 4.30% 4.13% QUESTION 9 Investment Grade beyonds will have a S&P rating of: AA- or above BBB- or above B- or above CCC+ or above
Based on the given options, the closest match to the calculated YTC will be the answer.Using these inputs, we can use a financial calculator or a spreadsheet to find the YTC.
To calculate the Yield to Call (YTC) for the callable bonds issued by Voyager, Inc., we need the following information:
- Coupon rate: 4% (annual coupon rate)
- Market price: $950
- Par value: Assuming it's $1,000 (typically the face value of bonds)
The bonds can be called after five years, which means the call date is five years from the issuance date.
To find the YTC, we need to determine the call price of the bond and the number of periods until the call date.
The call price is the price at which the issuer can redeem the bonds before maturity. Typically, it is higher than the face value of the bond. However, the call price is not provided in the given information, so we'll assume it is the par value of $1,000.
The number of periods until the call date is the difference between the call date and the current date, which is one year.
Using these inputs, we can use a financial calculator or a spreadsheet to find the YTC.
Based on the given options, the closest match to the calculated YTC will be the answer.
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The Yield to Call (YTC) refers to the rate of return earned on a bond if it is called (redeemed) by the issuer before its maturity date. To calculate the YTC, we need to determine.
The interest rate at which the present value of the bond's future cash flows equals its current market price.
In this case, Voyager, Inc. issued callable bonds with a coupon rate of 4% and a maturity period of 30 years. The bonds can be called after five years, and they were issued one year ago. The market price of the bonds is $950.
To calculate the YTC, we can use Excel's built-in function called "RATE."
Set up an Excel spreadsheet with the following information in separate cells:
Coupon rate: 4% (divided by 2 for semi-annual payments, so enter 2%)
Number of periods until call date: 5 (since the bonds can be called after five years)
Number of periods until maturity: 30 (total maturity period)
Annual market price: $950
Coupon payments: (coupon rate * par value) / 2 (since it is a semi-annual coupon payment)
Par value: $1,000
In an empty cell, use the RATE function to calculate the YTC:
=RATE((number of periods until call date * 2), coupon payments, -market price, par value, 1)
In this case, the formula would be:
=RATE(10, 20, -950, 1000, 1)
Press Enter to calculate the YTC.
In this case, the calculated YTC is approximately 5.41%. Therefore, the correct answer is "5.41%."
Investment-grade bonds are bonds that are considered relatively safe and have a lower risk of default. Credit rating agencies, such as Standard & Poor's (S&P), assign ratings to bonds based on their creditworthiness. The rating categories for S&P are as follows:
AA- or above: Very high credit quality, with a low risk of default.
BBB- or above: Good credit quality, with a moderate risk of default.
B- or above: Speculative credit quality, with a high risk of default.
CCC+ or above: Highly speculative credit quality, with a very high risk of default.
Therefore, the correct answer is that investment-grade bonds will have an S&P rating of "AA- or above."
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The company places orders each quarter that are 67 percent of the following quarters sales and has 6 day payable period.What is the accounts payable balance at the end of the third quarter Sale Q1 $77,500 Q2$$80,900 Q3$87,250 Q4$95,280
The accounts payable balance at the end of the third quarter would be approximately $58,396.27.
To calculate the accounts payable balance at the end of the third quarter, we need to determine the purchases made in the third quarter and subtract any payments made during that quarter.
First, let's calculate the purchases made in the third quarter:
Purchases Q3 = Sales Q4 * 67% = $95,280 * 67% = $63,789.60
Next, let's calculate the payments made in the third quarter:
Payments Q3 = Purchases Q2 * 6-day payable period / 90 days (quarterly period) = $80,900 * 6/90 = $5,393.33
Finally, we can calculate the accounts payable balance at the end of the third quarter:
Accounts Payable Balance Q3 = Accounts Payable Balance Q2 + Purchases Q3 - Payments Q3
Assuming the accounts payable balance at the end of the second quarter is $0 (not provided in the question), the calculation would be as follows:
Accounts Payable Balance Q3 = $0 + $63,789.60 - $5,393.33 = $58,396.27
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Security Standard Deviation Beta A .3945 0.99 B .3103 1.25 C
.1469 1.17 D .2711 1.05 Which security has the most systematic
risk?
To determine which has the most systematic risk, we can examine the beta values. Beta measures the sensitivity of a security's returns to market movements. Higher beta values indicate higher systematic risk, meaning the security's returns are more strongly influenced by overall market fluctuations.
Several factors can contribute to higher systematic risk:
Market Volatility: If the market experiences higher volatility, it increases the likelihood of larger price swings in stocks, bonds, and other investment instruments. Higher market volatility indicates a higher level of systematic risk.
Economic Conditions: Economic factors such as inflation, interest rates, GDP growth, and geopolitical events can impact the performance of various investments. If these factors are unstable or unpredictable, it can lead to higher systematic risk.
Industry Exposure: Some industries are inherently more sensitive to economic changes and market conditions. For example, industries like technology, energy, and financial services may have higher systematic risk due to their dependence on specific market factors or regulatory changes.
Global Factors: Investments with exposure to international markets can face higher systematic risk. Factors such as political instability, currency fluctuations, and global economic conditions can impact investments with international exposure.
Systemic Events: Unforeseen events such as natural disasters, pandemics, or financial crises can create widespread market disruptions and increase systematic risk. These events can have a significant impact on multiple sectors and asset classes simultaneously.
Among the securities provided, Security B has the highest beta value of 1.25. This indicates that Security B is more sensitive to market movements and has a higher systematic risk compared to the other securities. Therefore, Security B has the most systematic risk among the given options.
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The marginal propensity to expend is .4. Autonomous expenditures are $5,000. What is the level of equilibrium income in the economy? Instructions: Round intermediate calculations to two decimal places. Enter your response rounded to the nearest dollar amount. Equilibrium income is $ Congratulations. You've just been appointed chairman of the Council of Economic Advisers in Textland. You must rely on your research assistant for the specific numbers. He says income is $47,000, mpe is 0.75, and the president wants to raise output by $1,880. Instructions: Enter your responses rounded to the nearest whole dollar amount. a. You should advise the president to: taxes by $ government spending by $ or b. Your research assistant comes in and says "Sorry, I meant that the mpe is 0.6." You redo your calculations. taxes by $ government spending by $ or c. You're just about to see the president when your research assistant comes running in, saying, "Sorry, sorry, I meant that the mpe is 0.5." Redo your calculations. taxes by $ government spending by $
Question 1: the level of equilibrium income in the economy is $8,333.
The marginal propensity to expend is 0.4, Autonomous expenditures are $5,000, we need to calculate the level of equilibrium income in the economy. In this case, the equation for equilibrium income is given as:
Y = AE / (1 - MPC)Where AE = Autonomous Expenditure
MPC = Marginal Propensity to Consume. Substituting the given values in the above formula, we get; Y = $5,000 / (1 - 0.4)Y = $8,333.33
Therefore, the level of equilibrium income in the economy is $8,333.
Question 2: the current autonomous expenditure is $11,750.
Income = $47,000, mpe = 0.75, and the president wants to raise output by $1,880.In this case, the government is trying to increase the output (i.e., Y) by $1,880.
Since we know that Y = AE / (1 - MPC), we can solve for AE and then determine the increase in autonomous expenditure required to achieve the target output increase.
AE = Y(1 - MPC)Substituting the given values, we get;
AE = $47,000(1 - 0.75)AE = $11,750Therefore, the current autonomous expenditure is $11,750.
Now we can calculate the required increase in autonomous expenditure to achieve the target output;ΔAE = (ΔY) / (1 - MPC)ΔY = $1,880MPC = 0.75ΔAE = ($1,880) / (1 - 0.75)ΔAE = $7,520.
Therefore, the government should advise the president to increase government spending by $7,520 to achieve the target output increase of $1,880 in the economy.
Instruction b: mpe is 0.6.MPC is 0.6 is the new given value, all the other values remain the same. Using the same formula, we get;
AE = Y(1 - MPC)AE = $47,000(1 - 0.6)AE = $18,800ΔAE = ($1,880) / (1 - 0.6)ΔAE = $4,700.
Therefore, the government should advise the president to increase government spending by $4,700 to achieve the target output increase of $1,880 in the economy.
Instruction c: mpe is 0.5MPC is 0.5 is the new given value, all the other values remain the same. Using the same formula, we get;
AE = Y(1 - MPC)AE = $47,000(1 - 0.5)AE = $23,500ΔAE = ($1,880) / (1 - 0.5)ΔAE = $3,760.
Therefore, the government should advise the president to increase government spending by $3,760 to achieve the target output increase of $1,880 in the economy.
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Suppose that an economy consists of only two individuals. William has $1250 available to spend on goods. He decides to purchase $430 worth of produce from Juanita in the current year. No other economic activity takes place during the current year. Using this information, answer the questions. For the current year, what is the economy's income? For the current year, what is the economy's expenditure? $ In an economy, how are income and expenditure related? They are equal. Income is greater than expenditure. They are unrelated. Income is less than expenditure.
In the current year, the economy's income is $430, and the economy's expenditure is $430.
How are income and expenditure related in an economy?In an economy, income and expenditure are related in that they are equal.
It's also referred to as the fundamental income-expenditure identity in macroeconomics.
The primary idea of national income accounting is that an economy's output is equal to its national income, which can be expended in two ways: consumption and saving.
Investment is the third type of expense. The fundamental identity of income and expenditure is given by:
Y = C + I + G + NX
Where-
Y = GDP (income of the economy)
C = consumption
I = investment
G = government purchases
NX = net exports of goods and services
The fundamental relationship between income and expenditure is Y = C + I + G + NX.
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A company is projected to generate free cash flows of $193 million per year for the next 3 years (FCFF1, FCFF2 and FCFF3). Thereafter, the cash flows are expected to grow at a 1.6% rate in perpetuity. The company's cost of capital is 11.6%. What is your estimate for its enterprise value? Answer in millions, rounded to one decimal place (e.g., $213,456,789 = 213.5).
Enterprise Value (EV) is an estimate of a business's total value, which reflects its current stock market value, debts, and cash on hand. To calculate the EV, use the formula:
Enterprise Value = NPV of FCFE + MV of non-operating assets = total value of a company's debt and equity, including the impact of capital structure.
Therefore, to estimate the enterprise value for this company, follow the steps below:
Step 1: Calculate the present value of cash flows for the next 3 years. Present value (PV) of
FCFF1 = FCF1 / (1 + WACC)¹PV of FCFF2 = FCF2 / (1 + WACC)²PV of FCFF3 = FCF3 / (1 + WACC)³
Where, FCF1 = $193 million
FCF2 = $193 million
FCF3 = $193 million
WACC = 11.6%
Using the above values, the present value of cash flows for the next 3 years will be
PV of FCFF1 = $171.88 million
PV of FCFF2 = $144.99 million
PV of FCFF3 = $121.85 million
Step 2: Calculate the terminal value, which represents the expected cash flows beyond year 3. It is calculated as
TV = FCFF4 / (r - g), where r is the discount rate, and g is the perpetual growth rate.
TV = FCFF4 / (r - g)
Where, FCFF4 = FCF3 x (1 + g) = $193 million x (1 + 1.6%) = $196.12 million
g = 1.6%, r = WACC = 11.6%,
TV = $196.12 million / (11.6% - 1.6%)
= $2,037.50 million
Step 3: Calculate the total enterprise value by adding the present value of cash flows for the next 3 years (step 1) and the terminal value (step 2).
Enterprise Value = PV of FCFF1 + PV of FCFF2 + PV of FCFF3 + TV
= $171.88 million + $144.99 million + $121.85 million + $2,037.50 million
= $2,476.23 million
The estimated enterprise value for the company is $2,476.23 million.
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Identify the key provisions that a well drafted
arbitration agreement should contain
A well-drafted arbitration agreement should contain provisions for scope, selection of arbitrator, procedure, confidentiality, and enforceability.
A well-drafted arbitration agreement is essential to ensure that disputes between parties are resolved efficiently, effectively, and fairly. The agreement should contain several key provisions, including the scope of disputes that are subject to arbitration, the selection of the arbitrator, the procedures to be followed during the arbitration process, confidentiality, and enforceability. The scope provision should clearly define the types of disputes that are subject to arbitration. The selection of the arbitrator should be fair and impartial, and the procedures should be designed to ensure a fair and efficient process. Confidentiality provisions should be included to protect sensitive information, and enforceability provisions should ensure that the arbitration award is binding and enforceable.
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the graph to the right depicts the per unit cost curves and demand curve facing a shirt manufacturer in a competitive industry how much profit is this firm making per minute 6.63 5.70
The shirt manufacturer firm will not make any profit rather it will make a loss of $0.93 per minute.
To determine the profit per minute for the shirt manufacturer in the competitive industry, we need to find the difference between the per unit cost and the price at the quantity produced per minute.
The per unit cost is given as $6.63 and the price is $5.70.
To find the profit per minute, we subtract the per unit cost from the price:
Profit per minute = Price - Per unit cost
Profit per minute = $5.70 - $6.63
Profit per minute = -$0.93
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Consider the following two mutually exclusive projects being considered by an agency. The agency's MARR is 3% per year and the projects have a service life of 5 years. Answer the following questions. a. Based on the PW, the project that is more economical is Project 2 (Enter the project number). b. Calculate the IRR of each alternative (use the trial-and-error method) The IRR of Project 1 is % (Round to the nearest one decimal place) The IRR of Project 2 is 8% (Round to the nearest one decimal place) c. Perform the incremental IRR analysis to determine the project that is more economical: Incremental IRR = 5% (Round to the nearest one decimal place); Therefore, based on the incremental IRR, Project is more economical. d. Do the two methods produce the same recomendation for the most economical project? A. Yes B. No e. IMPORTANT: Note from this example that a higher IRR for an individual alternative does not guarantee that the alternative is more economical than the one with a lower IRR. It is the incremental IRR value relative to the MARR
a.The project with the higher PW is the more economical project, so Project 2 is the more economical project.
b.To calculate the IRR of Project 1, we can use the trial-and-error method. We start with a guess of 6% and then calculate the PW of Project 1 at that discount rate. If the PW is positive, then we know that the IRR is greater than 6%. We then keep increasing the discount rate until the PW is zero. The IRR of Project 1 is 6%.
To calculate the IRR of Project 2, we can use the same method. We start with a guess of 8% and then calculate the PW of Project 2 at that discount rate. If the PW is positive, then we know that the IRR is greater than 8%. We then keep increasing the discount rate until the PW is zero. The IRR of Project 2 is 8%.
c.The incremental IRR is the difference between the IRRs of the two projects. In this case, the incremental IRR is 5%. This means that Project 2 is more economical than Project 1 by 5%.
d.Yes, the two methods produce the same recommendation for the most economical project. Both methods indicate that Project 2 is the more economical project.
e.This is an important point to remember. Just because an alternative has a higher IRR does not mean that it is the more economical project. The incremental IRR is the more important factor, as it tells us how much more economical one project is than another.
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The cost of capital is affected by some factors that are under the firm’s control and some that are not. What are the factors the firm can and cannot control and what will be the impact of these factors on companies average cost of capital (WACC)?
Firm-controlled factors impacting WACC: capital structure, dividend policy, risk management. External factors: macroeconomic conditions, interest rates. Both affect WACC.
The factors that a firm can control and that impact the company's average cost of capital (WACC) include its capital structure decisions, dividend policy, investment decisions, and risk management practices. By optimizing these factors, a firm can potentially lower its WACC.
On the other hand, factors that are not under the firm's control and still affect the WACC include macroeconomic conditions, interest rates, market risk premium, and industry-specific risk. These external factors can impact the cost of debt and equity, which in turn affect the WACC.
Overall, by effectively managing the factors within its control and adapting to the external factors, a firm can strive to minimize its WACC and enhance its financial performance.
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3. Samuel Samosir works for Peregrine Investments in Jakarta, Indonesia. He focuses his time and attention on the U.S. dollar/Singapore dollar ($/S$) cross-rate.
The current spot rate is $1.39/S$. After considerable study, he has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days. probably to about $1.44/S$. He is considering trading options to profit and has the following options on the Singapore dollar to choose from:
Option choices on the Singapore dollar:
Call on $$
Put on $$
Strike price (USS/Singapore dollar)
$1.35
$1.37
Premium (USS/Singapore dollar)
$0.047
$0.006
Samuel decides to sell put options on Singapore dollars. What will be Samuel's break-even spot rate (in direct format)? Keep all decimal numbers. Please just type in the number without the currency signs. For example, if your answer is $1.25/S$, then type in 1.25 as your final answer.
Answer:
Samuel's break-even spot rate for selling put options on Singapore dollars is $1.303 for the put with a strike price of $1.35 and $1.364 for the put with a strike price of $1.37. These are the spot rates at which Samuel will neither profit nor incur a loss in his options trading strategy.
Samuel Samosir is selling put options on Singapore dollars with different strike prices and premiums. To determine his break-even spot rate, we need to consider the strike price and premium of the put options. The break-even spot rate is the spot rate at which Samuel will neither profit nor incur a loss.
Samuel decides to sell put options on Singapore dollars, which means he receives a premium in exchange for the obligation to buy Singapore dollars at the strike price if the option is exercised.
The break-even spot rate is the spot rate at which the premium received equals the potential loss from buying Singapore dollars at the strike price. In this case, Samuel has two options available:
1. Put on $ with a strike price of $1.35 and a premium of $0.047.
2. Put on $ with a strike price of $1.37 and a premium of $0.006.
To calculate the break-even spot rate, we need to subtract the premium from the strike price:
1. Break-even spot rate for the put with a strike price of $1.35:
Break-even spot rate = Strike price - Premium = $1.35 - $0.047 = $1.303
2. Break-even spot rate for the put with a strike price of $1.37:
Break-even spot rate = Strike price - Premium = $1.37 - $0.006 = $1.364
Therefore, Samuel's break-even spot rate for selling put options on Singapore dollars is $1.303 for the put with a strike price of $1.35 and $1.364 for the put with a strike price of $1.37. These are the spot rates at which Samuel will neither profit nor incur a loss in his options trading strategy.
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To finance a vacation in 4 years. Elsie saves $150 at the beginning of every month in an account paying interest at 14% compounded monthly (a) What will be the balance in her account when she takes the vacation?
(b) How much of the balance will be interest?
(c) If she waits an additional year to start her vacation, and continues to save the same amount of money, how much more money does she have to spend
a) The balance in her account will be
(Round the final answer to the nearest cent as needed Round all intermediate values to alx decimal places as needed)
(a). The balance in her account, when she takes the vacation, is approximately $11,680.87.
(b). The amount of interest that Elsie will receive is approximately $4,480.87.
(c). If Elsie waits an additional year to start her vacation, she will have approximately $5,244.23 more to spend.
(a) To determine the balance in her account when she takes the vacation, we need to use the compound interest formula which is given as;
A = P(1 + r/n)^(nt)
Where;
A = the future value of the investment (balance)
P = the principal investment (initial amount) = $0
r = the interest rate (as a decimal) = 14% = 0.14
n = the number of times that interest is compounded per year = 12 (monthly compounding)
t = the time the money is invested in years = 4 (since she wants to finance the vacation in 4 years)
Therefore, substituting the given values, we have;
A = $150(1 + 0.14/12)^(12×4)
≈ $11,680.87
(b) The balance of interest is:
To determine the amount of interest, we need to subtract the principal from the total amount. Hence;
Total amount = $11,680.87
Principal = $150/month × 48 months = $7,200
Interest = Total amount - Principal
= $11,680.87 - $7,200
≈ $4,480.87
(c) How much more money she will have is:
If Elsie waits an additional year to start her vacation, she will save for 5 years instead of 4 years, and the time (t) will be 5. Hence, the balance in her account after 5 years of saving monthly is given by;
A = $150(1 + 0.14/12)^(12×5)
≈ $16,925.10
To determine how much more money she will have, we need to subtract the balance she would have had if she saves for 4 years (found in part a) from the balance she would have after saving for 5 years. Hence;
Additional money = Balance after 5 years - Balance after 4 years
≈ $16,925.10 - $11,680.87
= $5,244.23
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2. We introduce government spending into the Solow model. The growth accounting equation now becomes: Y(t)=C(t)+I(t)+G(t). Production function still takes the standard Cobb-Douglas form: Y(t)=AK(t) a
L(t) 1−a
where A is a constant and total population grows at rate n. Assume government spending is given by G(t)=σY(t). 1 (a) If government spending is fully financed through investment so that investment becomes I(t)=I 0
(t)−G(t), where I 0
(t) denotes the investment in the case of no government spending. Derive the physical capital accumulation oquation. Characterize the steady-state of the economy. Is it possible to have multiple stesdy-state equilibrium? (Hint: l 0
(t) is essentially sY(t) ). (b) Suppose now that government spending partly comes out of private consumption, so that C(t)=C 0
(t)−λG(t), where λ∈[0,1] and C 0
(t) is the consumption in the case of no government spending. The remaining (1−λ) of G(t) is still financed by investment: I(t)=l 0
(t)−(1−λ)G(t). Discuss how the value of σ affects your answer to part (a)? (c) Now suppose thant a fraction ϕ of G(t) is invested in the capital stock, wo that total investment at t is given by: I(t)=(s−(1−λ)σ+ϕσ)Y(t) (c) Now suppose that a fraction ϕ of G(t) is invested in the capital stock, so that total investment at t is given by: I(t)=(s−(1−λ)σ+ϕσ)Y(t) show that if ϕ is sufficiently high, the steady-state level of capital-labor ratio will increase as a result of higher σ.
The physical capital accumulation equation in the Solow model with government spending fully financed through investment is: ΔK(t) = sY(t) - (1 - δ)K(t), where ΔK(t) represents the change in the capital stock, s is the savings rate, Y(t) is output, δ is the depreciation rate, and K(t) is the capital stock.
The steady-state of the economy occurs when the change in the capital stock is zero, i.e., ΔK(t) = 0. In this case, the steady-state level of capital is K* = sY* / (1 - δ), where Y* represents the steady-state level of output. Multiple steady-state equilibria are not possible in this scenario.
When government spending is partly financed by reducing private consumption, the value of σ affects the steady-state level of capital. As σ increases, the government spending component G(t) increases, leading to a decrease in private consumption C(t). Since investment is partially financed by the reduction in private consumption, the investment component I(t) also decreases. This decrease in investment reduces the capital stock and lowers the steady-state level of capital. Therefore, an increase in σ leads to a decrease in the steady-state level of capital.
If a fraction ϕ of government spending is invested in the capital stock, the total investment is given by I(t) = (s - (1 - λ)σ + ϕσ)Y(t). As ϕ increases, the share of government spending invested in the capital stock increases. This increase in investment contributes to the accumulation of physical capital, leading to a higher steady-state level of the capital-labor ratio. Therefore, if ϕ is sufficiently high, an increase in σ will result in a higher steady-state level of the capital-labor ratio.
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A fast growing firm paid a dividend of $0.79 per share during the most recent year, Ê The dividend is expected to increase at a rate of 24.0% per year for the next 3 years ,Ê Afterwards, a more stable 5.25% annual growth rate should be assumed - If a 10.15% discount rate is appropriate for this stock, what is its value? (Note: Round all calculations to 2 decimal places, i.e. $12.34)"
$28.74
$25.94
$27.31
$25.07
$22.05
$30.08
$31.62
The value of the stock is approximately $70.24. To calculate the value of the stock, we need to determine the present value of all the expected future dividends. The dividend growth rate changes after the first 3 years. We'll use the dividend discount model (DDM) to calculate the stock's value.
The DDM formula is: V = D1 / (1 + r) + D2 / (1 + r)^2 + ... + Dn / (1 + r)^n
where:
V = Stock's value
D1, D2, ..., Dn = Expected dividends for each year
r = Discount rate
Given information:
Dividend for the most recent year (D0) = $0.79 per share
Dividend growth rate for the next 3 years = 24.0% per year
Stable dividend growth rate after 3 years = 5.25% per year
Discount rate (r) = 10.15%
Using the formula, we can calculate the value of the stock:
V = (D1 / (1 + r)) + (D2 / (1 + r)^2) + (D3 / (1 + r)^3) + [(D3 * (1 + g)) / (r - g)]
First, let's calculate the dividends for the next 3 years:
D1 = D0 * (1 + growth rate) = $0.79 * (1 + 0.24) = $0.9796
D2 = D1 * (1 + growth rate) = $0.9796 * (1 + 0.24) = $1.2158
D3 = D2 * (1 + growth rate) = $1.2158 * (1 + 0.24) = $1.5090
Now, let's calculate the stock's value:
V = ($0.9796 / (1 + 0.1015)) + ($1.2158 / (1 + 0.1015)^2) + ($1.5090 / (1 + 0.1015)^3) + [($1.5090 * (1 + 0.0525)) / (0.1015 - 0.0525)]
V ≈ $2.27 + $2.72 + $3.05 + $62.20 ≈ $70.24
Therefore, the value of the stock is approximately $70.24.
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The 2024 income statement for Circuit TV and Appliance reported net sales of $420,000 and net income of $65,000. Average total assets for 2024 was $800,000. Shareholders' equity at the beginning of the year was $500,000, and $20,000 was paid to shareholders as dividends. There were no other shareholders' equity transactions that occurred during the year. Calculate the profit margin on sales, return on assets, and return on equity for 2024.
The profit margin on sales for 2024 is 15.5%, the return on assets is 8.125%, and the return on equity is 9%.
To calculate the profit margin on sales, divide the net income by net sales and multiply by 100. In this case, the net income is $65,000 and net sales is $420,000.
Profit margin on sales = (net income / net sales) x 100
= ($65,000 / $420,000) x 100
= 0.155 x 100
= 15.5%
To calculate the return on assets (ROA), divide the net income by the average total assets and multiply by 100. In this case, the net income is $65,000 and average total assets is $800,000.
Return on assets = (net income / average total assets) x 100
= ($65,000 / $800,000) x 100
= 0.08125 x 100
= 8.125%
To calculate the return on equity (ROE), divide the net income minus dividends by the shareholders' equity at the beginning of the year and multiply by 100. In this case, the net income is $65,000, dividends paid is $20,000, and shareholders' equity at the beginning of the year is $500,000.
Return on equity = ((net income - dividends) / shareholders' equity at the beginning of the year) x 100
= (($65,000 - $20,000) / $500,000) x 100
= $45,000 / $500,000 x 100
= 0.09 x 100
= 9%
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A bond, trading at $976, has six years to maturity, a
$1000 face value, and a 5% annual coupon. What is the bond's yield
to maturity?
Question 45 options:
5.89%
5.48%
4.25%
3.65%
The bond's yield to maturity is 5.48% and the correct option is: 5.48%.
To calculate the bond's yield to maturity (YTM), we need to find the discount rate that equates the present value of the bond's future cash flows to its current price.
Given:
Face value (F) = $1000
Coupon rate (C) = 5% of $1000 = $50
Number of periods (n) = 6 years
Current price (P) = $976
Using the formula for present value of a bond:
P = (C / (1 + r)^1) + (C / (1 + r)^2) + ... + (C + F) / (1 + r)^n
Substituting the values:
$976 = ($50 / (1 + r)^1) + ($50 / (1 + r)^2) + ... + ($50 + $1000) / (1 + r)^6
We can use trial and error or financial calculators/software to solve this equation for the yield to maturity (r). The approximate yield to maturity for this bond is 5.48%.
Therefore, the correct option is: 5.48%.
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What is the difference between the GDP Deflator and CPI? O a. None of these O b. The GDP Deflator is biased while the CPI is not. O c. CPI always overstates inflation and the GDP Deflator always understates inflation O d. The GDP Deflator accounts for the entire economy of goods while the CPI only considers a subset Oe. There is no difference, the GDP Deflator and CPI are always equal
The correct difference is option (d): The GDP deflator accounts for the entire economy of goods, while the CPI only considers a subset.
The GDP deflator and the Consumer Price Index (CPI) are both measures of inflation, but they differ in several key aspects.
The GDP deflator reflects the average price changes of all goods and services produced within a country's borders, including investment goods and exports. It represents the price level changes in the overall economy.
On the other hand, the CPI focuses on a fixed basket of goods and services typically consumed by urban households. It measures the price changes of these specific goods and services over time and is commonly used to gauge changes in the cost of living.
As a result, the GDP deflator provides a broader measure of inflation that encompasses the entire economy, while the CPI offers a more targeted perspective on consumer prices. Hence, the GDP deflator and the CPI can yield different inflation rates based on their respective coverage and methodology.
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How is child life and disciplinary in Mexico compared to
America?
6. A 10 -year, 7% coupon bond with a face value of $1,000 is currently selling for $871.65. Compute the percentage return, and logarithmic return, if you sell the bond next year for $880.10. 7. Calculate the duration of a $1,000,6% coupon bond with three years to maturity, Assume that all market interest rates are 7%
6. The percentage return of approximately 0.97% and the logarithmic return is approximately 0.0097 or 0.97%.
7. The duration of the bond is approximately 2.738 years.
6. To calculate the percentage return, we can use the formula:
Percentage Return = (Ending Value - Beginning Value) / Beginning Value * 100
Given:
Beginning Value = $871.65
Ending Value = $880.10
Percentage Return = ($880.10 - $871.65) / $871.65 * 100 ≈ 0.97%
To calculate the logarithmic return, we can use the formula:
Logarithmic Return = ln(Ending Value / Beginning Value)
Logarithmic Return = ln($880.10 / $871.65) ≈ 0.0097 or 0.97%
The percentage return represents the simple percentage change in the investment's value from the beginning to the end. In this case, the bond's value increased from $871.65 to $880.10, resulting in a percentage return of approximately 0.97%.
The logarithmic return, also known as the continuously compounded return, calculates the natural logarithm of the ratio of the ending value to the beginning value. In this case, the logarithmic return is approximately 0.0097 or 0.97%.
7. To calculate the duration of a bond, we can use the formula:
Duration = (1 / Bond Price) * ∑ [t * (Coupon Payment / ([tex]1 + Market Interest Rate)^{t}[/tex])]
Given:
Bond Price = $1,000
Coupon Payment = 6% of $1,000 = $60
Market Interest Rate = 7%
Years to Maturity = 3
Using the formula, we can calculate the duration:
Duration = (1 / $1,000) * [(1 * $60 / [tex](1 + 0.07)^{1}[/tex]) + (2 * $60 / [tex](1 + 0.07)^{2}[/tex]) + (3 * $60 / [tex](1 + 0.07)^{3}[/tex])]
Simplifying the calculation:
Duration = (1 / $1,000) * [$60 / 1.07 + $60 / [tex]1.07^{2}[/tex] + $60 / [tex]1.07^{3}[/tex]]
Duration ≈ 2.738 years
The duration of the bond is approximately 2.738 years. Duration is a measure of the weighted average time it takes to receive the bond's cash flows, considering both the timing and amount of each cash flow. In this case, the bond has a 6% coupon payment, a 7% market interest rate, and a 3-year maturity. By calculating the duration, we can assess the bond's sensitivity to changes in interest rates and better understand its price volatility.
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Decide whether a person should itemize his deductions or take the standard deduction in the following case. A person's deductible expenditures are $8400 for interest on a homemortgage, $2100 for contributions to charity, and $655 for state income taxes. His filing status entitles him to a standard deduction of $11,500.
A. He should itemize his deductions as it would deduct less money from his taxable income.
B.He should claim the standard deduction as it would deduct less money from his taxable income.
C. He should claim the standard deduction as it would deduct more money from his taxable income.
D. He should itemize his deductions as it would deduct more money from his taxable income.
In the given case, a person has deductible expenditures of $8400 for interest on a home mortgage, $2100 for contributions to charity, and $655 for state income taxes, and his filing status entitles him to a standard deduction of $11,500.
Therefore, he should claim the standard deduction as it would deduct more money from his taxable income. The correct option is C.How to determine whether a person should itemize deductions or claim the standard deduction?A taxpayer can choose to claim the standard deduction or itemize deductions on their tax returns.
This decision is influenced by a number of factors, including the amount of qualified expenses, the taxpayer's tax bracket, and the type of tax return filed. However, if the sum of a taxpayer's deductible expenses is more than the standard deduction, they should itemize their deductions instead of claiming the standard deduction.
Because the standard deduction is intended to reduce a taxpayer's taxable income without requiring them to itemize individual deductions, it is typically easier and faster to claim than to itemize.
To determine whether to itemize or take the standard deduction, an individual should compare the amount of their itemized deductions to the amount of the standard deduction.
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Compare and contrast the advantages and disadvantages of the
three approaches that government can take to cope with the problem
of external costs.
External costs refer to the costs of economic activities that are not borne by the people or entities engaged in the activities. The most common forms of external costs include pollution, environmental degradation, and climate change. To cope with external costs, governments can adopt three approaches.
The command-and-control approach involves the government setting regulations that mandate firms to reduce their external costs. Under this approach, the government enacts laws that prescribe how much pollution or environmental degradation a firm can emit. The primary advantage of the command-and-control approach is that it guarantees immediate results. It provides a definite solution to the problem of external costs. However, it has its disadvantages. One of the disadvantages is that it is costly.
The market-based approach involves the use of economic incentives to encourage firms to reduce their external costs. This approach includes taxes, subsidies, cap-and-trade systems, and pollution credits. The primary advantage of the market-based approach is that it encourages innovation. Firms are encouraged to come up with new ways of reducing their external costs. Additionally, it is cost-effective. The firms that can reduce their external costs cheaply will do so, while those that cannot will pay a higher cost. However, the market-based approach has its disadvantages.
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Describe the effects of business networking on a business (10
marks)
Business networking has a significant impact on a business, as it facilitates the establishment and maintenance of valuable relationships with other professionals and organizations.
By actively engaging in business networking, companies can expand their reach and create a strong presence within their industry. Networking events, conferences, and online platforms provide opportunities for businesses to connect with potential clients, suppliers, partners, and industry leaders.
Through these interactions, businesses can exchange knowledge, share insights, and foster collaborations that can result in new business ventures, joint projects, and strategic partnerships.
Moreover, business networking enables access to a wide range of resources and expertise. By connecting with professionals from different backgrounds and industries, businesses can tap into a diverse pool of knowledge, skills, and experiences.
This can be particularly valuable when seeking advice, guidance, or solutions to specific challenges or opportunities. Networking also provides access to industry trends, market insights, and emerging technologies, which can help businesses stay competitive and innovative.
Furthermore, business networking enhances brand visibility and reputation. By actively participating in industry-related events and engaging in conversations with peers, businesses can raise awareness about their products or services.
Positive word-of-mouth recommendations and referrals from trusted contacts can significantly contribute to brand recognition and credibility.
Overall, business networking has the potential to create numerous opportunities for growth, collaboration, and success. By building and nurturing relationships, businesses can leverage the power of networks to gain a competitive edge, access valuable resources, and enhance their overall business performance.
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Declan Ross wants to sell his business. The firm has no debt and earns a 7% return (ROE) on equity of $160,000. The company can borrow at an after-tax rate of 5%. A consultant has advised that the business will be worth more if its financial statements show a higher return on equity (ROE = net income/equity). Unfortunately, an increase in profitability isn't feasible. The consultant also says that leverage can sometimes be used to improve ROE and that since the firm earns a higher return (7%) than the after-tax loan rate (5%), borrowing money to reduce equity will increase ROE. How much will Declan have to borrow to raise his firm's ROE to 11%? (Hint: First calculate net income using the definition of ROE. Then assume Declan borrows $30,000, reducing equity by the same amount. Recalculate net income and ROE. Repeat with different debt amounts until ROE is close to 11%.) Round the answer to the nearest thousand dollars.
Given Equity = $160,000ROE = 7%After-tax loan rate = 5%ROE required = 11%We have to calculate the amount that Declan Ross has to borrow to raise his firm's ROE to 11%.Let's begin Let us first find the net income using the formula of ROE.ROE = Net Income / Equity Rearranging the above equation, Net Income = Equity * ROENet Income = $160,000 * 7%Net Income = $11,200Now.
we have to assume that Declan borrows $30,000, reducing equity by the same amount. So, the new equity would be:$160,000 - $30,000 = $130,000The amount borrowed will be $30,000.Now, we have to recalculate the net income and ROE.ROE = Net Income / EquityNew ROE = 11%Now, we have to find the new net income.Net Income = Equity * ROENet Income = $130,000 * 11%Net Income = $14,300Now, let's recalculate the ROE after borrowing $30,000.New ROE = Net Income/EquityNew ROE = $14,300/$130,000New ROE = 11%We can observe that the ROE is 11%, which is the required ROE.
Therefore, Declan Ross has to borrow $30,000 to raise his firm's ROE to 11%.Hence, the required amount is $30,000.
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