The current bond price of Bemard Co.'s 13-year coupon bonds that make annual payments, given the yield-to-maturity of 7% and a face value of $1,000, is $1,116.11.
The bond price can be calculated using the following formula:P = (C / Y) x [1 - 1 / (1 + Y)ⁿ] + F / (1 + Y)ⁿ
Where,P = bond price
C = coupon payment
Y = yield-to-maturity
n= number of years left to maturity
F = face value of the bond
Substituting the given values,P = ($70 / 0.07) x [1 - 1 / (1 + 0.07)¹³] + $1,000 / (1 + 0.07)¹³P = $1,116.11
Therefore, the current bond price is $1,116.11.
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An investment offers $10,000 per year for 15 years, with the first payment occurring one year from now. Assume the required return is 12 percent. a. What is the value of the investment today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What would the value be if the payments occurred for 40 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g.. 32.16.) c. What would the value be if the payments occurred for 75 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g.. 32.16.) d. What would the value be if the payments occurred forever? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
The present value of the investment, we can use the present value of an annuity formula, which discounts the cash flows by the required return rate.
a. Payments for 15 years:
Using the formula: PV = Payment * [1 - (1 + r)^(-n)] / r
where Payment = $10,000, r = 12% (0.12), and n = 15 years
PV = $10,000 * [1 - (1 + 0.12)^(-15)] / 0.12
b. Payments for 40 years:
Using the same formula with n = 40 years:
PV = $10,000 * [1 - (1 + 0.12)^(-40)] / 0.12
c. Payments for 75 years:
Using the same formula with n = 75 years:
PV = $10,000 * [1 - (1 + 0.12)^(-75)] / 0.12
d. Payments forever:
In this case, we have a perpetuity, so the formula becomes: PV = Payment / r; PV = $10,000 / 0.12
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On January 1, 2018, Young Corporation signed a $160,000, ten-year, 9% note. The loan required Young to make payments annually on December 31 of $16,000 principal plus interest. 1. Journalize the issuance of the note on January 1, 2018 2. Journalize the first payment on December 31, 2018. (Record de bits first, then credits. Select explanations on the last line of the journal entry.)
1. The journal entry would be: Debit - Cash account $160,000Credit.
2. The journal entry for the first payment would be: Debit - Notes payable $14,400Debit - Interest payable $1,600 Credit - Cash account $16,000
1. Journalize the issuance of the note on January 1, 2018On January 1, 2018, Young Corporation signed a $160,000, ten-year, 9% note, and it is due on December 31, 2027. They received $160,000 as cash, and hence the journal entry would be: Debit - Cash account $160,000Credit - Notes payable $160,0002. Journalize the first payment on December 31, 2018.The annual payment would be $16,000 (principal of $16,000 plus interest) for ten years, as stated in the question. The interest can be computed as follows: Interest = Principal × rate × time= $160,000 × 9% × 1 year = $14,400The journal entry for the first payment would be: Debit - Notes payable $14,400Debit - Interest payable $1,600 ( $16,000 - $14,400)Credit - Cash account $16,000.
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You deposited $2,000 in a savings account that pays 10 percent interest, compounded quarterly, planning to use it to finish your last year in college. Eighteen months later, you decide to go to the Rocky Mountains to become a ski instructor rather than continue in school, so you close out your account. How much money vell you receive?
a. $2.319.39
b. $2,459.50
c. $3.450.05
d. $3,123,10
The total amount of money that you will receive is $2,319.39. Option a is correct.
For calculate the final amount of money you will receive, we can use the formula for compound interest:
A = P(1 + r/n)ⁿᵗ
A = the final amount
P = the principal amount (initial deposit)
r = the annual interest rate (in decimal form)
n = the number of times the interest is compounded per year
t = the number of years
In this case, the principal amount (P) is $2,000, the annual interest rate (r) is 10% (0.10 in decimal form), the interest is compounded quarterly (n = 4), and the time (t) is 18 months, which is equivalent to 1.5 years.
Plugging in the values into the formula, we have:
A = [tex]2000(1 + 0.10/4)^{4 \times 1.5}[/tex]
A = [tex]2000(1 + 0.025)^6[/tex]
A = [tex]2000(1.025)^6[/tex]
A ≈ $2,319.39
Therefore, you will receive approximately $2,319.39, which corresponds to option a).
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research a foreign multinational company and briefly explain
it.
The foreign multinational company that I have researched is Nestle. Nestle is a Swiss multinational company that is based in Vevey, Vaud, Switzerland. Nestle is one of the world's largest food and beverage companies, with operations in 191 countries around the world.
Nestle was founded in 1866 by Henri Nestle, who developed a unique baby formula that would help infants grow and thrive. Nestle is a multinational corporation that specializes in food and beverage production. The company is the world's largest food and beverage company, with a range of products that includes baby food, bottled water, coffee, and confectionery items. Nestle operates in 191 countries around the world and has over 2,000 brands under its umbrella. The company has a strong commitment to sustainable and responsible business practices and is focused on reducing its environmental impact while promoting social and economic development in the communities where it operates.
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UAL,2004: Pulling out of bankruptcy Case
Harvard Business school
1. Why did UAL file for bankruptcy protection in December 2002?
2. What is the rationale for allowing companies to restructure their debts and operations under Chapter 11 bankruptcy protection?
a. What is the role of the ‘automatic stay,’ which prevents creditors from pursuing their claims to a defaulted borrower’s assets outside of bankruptcy court?
b. Why do we allow ‘debtor-in-possession’ financing for companies operating under Chapter 11 protection? Why are DIP loans granted seniority to firms’ prepetition obligations?
3. What are the incentives of the different parties involved in restructuring UAL? What are the incentives of the firm’s management? Secured creditors? DIP lenders? Unsecured creditors? Employees?
4. What are the important costs of financial distress that UAL is facing? How would these costs of financial distress vary across different industries?
5. Why has leverage in the airline industry been high relative to other industries?
6. As UAL, would you continue making required contributions to your pension plans?
7. As UAL, would you cancel your commitments to your pension plans?
An extensive examination of the company's financial state and the business environment at the time would be necessary to pinpoint the precise causes of UAL's bankruptcy filing in December 2002.
High debt levels, decreased sales, rising competition, economic downturns, and ineffective cost structures are all factors that frequently result in bankruptcy filings. It's possible that UAL dealt with some of these issues or all of them.
The automatic stay's function is: A crucial aspect of Chapter 11 bankruptcy is the automatic stay, which stops all collection efforts and legal actions taken by creditors against the debtor.
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Why was Ronald Reagan elected and reelected
President, what were his criticisms of liberal economic and social
programs, and how did he try to alter their course?
Reagan's criticisms of liberal economic and social programs were based on his belief in limited government and individual responsibility. He argued that liberal programs were too expensive and that they created dependency on government.
He also argued that liberal social programs undermined traditional values.Ronald Reagan was elected president in 1980 and reelected in 1984 for a number of reasons, which were:-
Reagan was a charismatic and popular figure. He was known for his strong personality and his ability to connect with voters.
Reagan ran on a platform of change. He promised to reduce the size of government, cut taxes, and increase military spending.
The economy was in a recession in 1980. Many voters were looking for a change, and Reagan promised to improve the economy.
The Democratic incumbent, Jimmy Carter, was unpopular. Carter was blamed for the economic recession and for the Iran hostage crisis.
Reagan tried to alter the course of liberal economic and social programs by cutting taxes, reducing government spending, and deregulating the economy. He also appointed conservative judges to the Supreme Court.
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In recent years, demand for electric bicycles has increased considerably in the UK as well in EU countries (Statista 2021, 2022). Consider that you are part of the management team for a company that already sells traditional bicycles but wants to extend its offering to electric bicycles to exploit the soaring demand. The company has the required technological capability to manufacture electric bicycles to a high standard and its traditional bicycles are mid-range both in terms of quality and prices. a. In order to understand who your target audience should be, segmentation is key. Select four segmentation criteria (one from each of the four main categories) and carefully justify why each of those criteria should be particularly relevant for the company. b. Drawing on the chosen segmentation criteria, describe a potential, lucrative target segment for the company. Also explain, in a concise manner, how you would position the offering for that segment. c. Finally, critically discuss whether it would be a better idea to sell the electric bicycle under the same brand name you use for the traditional bicycles or under a new brand.
Electric bicycles have become increasingly popular in recent years, with demand growing both in the UK and throughout the European Union. A company that already sells traditional bicycles but is now looking to take advantage of this burgeoning demand by expanding its product line to include electric bicycles must understand the audience it is targeting.
The company has the necessary technological expertise to manufacture electric bicycles to a high standard, and its traditional bicycles are mid-range in terms of quality and price. Therefore, the company must use segmentation criteria to identify its target market.
a. Segmentation is essential in order to identify the target audience. The four key segmentation criteria are:
Demographic: The first criterion is demographic segmentation, which divides the market into different groups based on age, gender, income, education, and other similar variables. This would be particularly relevant for the company since it wants to target customers who are interested in purchasing an electric bicycle that is both high-quality and affordable. The company can focus on people who are eco-friendly and who are interested in sustainable modes of transportation.
Psychographic: Psychographic segmentation focuses on attitudes, values, personality, and lifestyles. This would be particularly relevant for the company since electric bicycles are seen as environmentally friendly and trendy. The company can focus on people who are concerned about the environment, are fitness enthusiasts, and who like to try new things.
Geographic: Geographic segmentation divides the market into regions based on climate, population density, and other similar factors. This would be particularly relevant for the company since it can target people who live in cities and urban areas where the traffic is congested. The company can focus on people who live in crowded areas where traffic is an issue and who are interested in saving money on their daily commute.
Behavioral: Behavioral segmentation divides the market into groups based on their purchasing behavior, loyalty, and usage rates. This would be particularly relevant for the company since it can target people who are interested in buying high-quality, reliable electric bicycles at an affordable price.
b. A potential, lucrative target segment for the company based on the chosen segmentation criteria would be urban dwellers who are eco-friendly and interested in a healthy lifestyle. The company can position the electric bicycles as an environmentally friendly mode of transportation that is also good for your health. The company can also position the electric bicycles as affordable, reliable, and easy to use. It can offer easy financing and maintenance services to make the purchase even more appealing.
c. It would be a better idea to sell the electric bicycle under a new brand name. Since the company is branching out into a new market segment, it should establish a new brand name for its electric bicycles. This would enable the company to create a separate identity and brand image for its electric bicycles, without detracting from the established brand name that the company has already developed for its traditional bicycles. A new brand name will help the company to avoid brand confusion, and it will also help it to market its electric bicycles to a different target audience that might not be interested in the company's traditional bicycles. In this way, the company can build a strong brand identity for its electric bicycles, separate from its existing brand.
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table below shows the number of hours needed to produce one bushel of soybeans and one bushel of rice in each of two countries. which of the following statements must be true?
a japan has both the absolute and comparative advantage in producing soybeans.
b the u.s. has both the absolute and comparative advantage in producing rice.
c the u.s. has both the absolute and comparative advantage in producing soybeans.
d japan has the absolute advantage in producing soybeans and the comparative advantage in producing rice.
e japan has both the absolute and comparative advantage in producing rice.
The following statement is true: c. The U.S. has both the absolute and comparative advantage in producing soybeans.
Given, The table below shows the number of hours needed to produce one bushel of soybeans and one bushel of rice in each of two countries. Country Soybeans Rice United States45Japan68According to the table given above, the United States has an absolute and comparative advantage in producing soybeans, and Japan has the absolute advantage in producing rice and the comparative advantage in producing soybeans. The concept of comparative advantage suggests that a country should produce a good or service if the opportunity cost of producing that good or service is lower than the opportunity cost of producing that same good or service in another country.
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Which of the following would shift the supply curve for Australian dollars rightward? a. Increase in Australian demand for imports b. Rise in the expected future exchange rate for Australian dollars c. Increase in world demand for Australian exports d. Rise in Australian interest relative to China's.
The factors that would shift the supply curve for Australian dollars rightward are a rise in the expected future exchange rate for Australian dollars and an increase in world demand for Australian exports. These factors would result in an increased supply of Australian dollars in the foreign exchange market.
Conversely, an increase in Australian demand for imports and a rise in Australian interest relative to China's would not directly impact the supply curve for Australian dollars. Understanding these factors is crucial for analyzing the dynamics of currency markets and their effects on exchange rates.
A rise in the expected future exchange rate for Australian dollars would shift the supply curve for Australian dollars rightward. This means that individuals and businesses would be more willing to sell Australian dollars in anticipation of a higher exchange rate in the future. Similarly, an increase in world demand for Australian exports would also shift the supply curve rightward. As the demand for Australian goods and services from other countries grows, there will be an increased supply of Australian dollars as businesses and individuals convert foreign currencies into Australian dollars.
On the other hand, an increase in Australian demand for imports would not directly impact the supply curve for Australian dollars. This factor relates to the demand for foreign currencies rather than the supply of Australian dollars. Additionally, a rise in Australian interest relative to China's would not directly affect the supply curve for Australian dollars. Changes in interest rates generally impact capital flows and may influence exchange rates but do not directly affect the supply of a specific currency.
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Joseph Ltd. has a stock of 4,000 containers valued at $. 5 each. During the year, the Company purchased 8,000 containers. It issued 80,000 containers to customers and received 74,000 containers from them; 80 containers were damaged of which 40 were repaired at a cost of $. 2 per container. The purchases are made at $. 10 per container but stocks are valued at $. 5 each to allow for depreciation. You are required to prepare the Containers Stock Account.
The Containers Stock Account has a closing stock of 6,000 containers valued at $. 5 each.
Given data:Joseph Ltd. has a stock of 4,000 containers valued at $. 5 each. During the year, the Company purchased 8,000 containers. It issued 80,000 containers to customers and received 74,000 containers from them; 80 containers were damaged of which 40 were repaired at a cost of $. 2 per container. The purchases are made at $. 10 per container but stocks are valued at $. 5 each to allow for depreciation.
A Containers Stock Account is prepared to keep the track of containers in a business. It is prepared by following a few steps:
Step 1: Record the opening stock of containers i.e. 4,000 units (valued at $. 5 per container) in the Containers Stock Account. These will be debited to the account.
Step 2: Record the purchase of 8,000 containers at a cost of $. 10 each. These will be debited to the Containers Stock Account.
Step 3: Record the issue of 80,000 containers to customers. These will be credited to the Containers Stock Account.
Step 4: Record the receipt of 74,000 containers from customers. These will be debited to the Containers Stock Account.
Step 5: Record the damaged containers (80). These will be credited to the Containers Stock Account.
Step 6: Record the repairs of 40 damaged containers (at a cost of $. 2 each). These will be debited to the Containers Stock Account.
Now, let's make the Containers Stock Account:Joseph Ltd.Containers Stock AccountParticularsDebit ($)Credit ($)Opening Stock2,000 -Purchase8,000 -Issue-80,000Receipt74,000 -Damage-80Repair2,000 -Closing Stock -6,000Total10,00010,000
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Which of the following is not required to formally convert a Limited Partnership into a Limited Liability Company?
a. a duly passed resolution to amend the Memorandum of Association and Articles of Association of the company.
b.the completion of at least 2 audited financial years of the company as from the date of its registration.
c.the issuance of a new business license.
d.the unanimous consent of the partners.
The Correct option is B. the completion of at least 2 audited financial years of the company as from the date of its registration. A limited partnership is an association consisting of at least one general partner and one limited partner.
The general partner is responsible for managing the partnership's activities, while the limited partner is responsible for contributing capital to the partnership and is only responsible for the debts and obligations of the partnership to the extent of the contribution. Limited partnerships are created by filing a certificate of limited partnership with the Secretary of State.
Limited Liability Company: A limited liability company is a company in which the owners, known as members, have limited liability for the company's debts and obligations. In other words, the owners of an LLC are not personally responsible for the company's debts or obligations, except to the extent of their investment in the company. Members of an LLC can participate in management or delegate management responsibilities to one or more managers. Therefore, to convert a Limited Partnership into a Limited Liability Company, there is no requirement of completion of at least 2 audited financial years of the company as from the date of its registration.
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Please summary this article, "A case study on Tesla, Inc : The
world’s most exciting Automobile company" by Ashley Lobo.
The case study by Ashley Lobo explores Tesla, Inc. as the world's most exciting automobile company. It highlights Tesla's innovative business model, technological advancements, and commitment to sustainability, positioning them as a groundbreaking force in the automotive industry.
Title: A Case Study on Tesla, Inc: The World's Most Exciting Automobile Company
Summary: In the article "A Case Study on Tesla, Inc: The World's Most Exciting Automobile Company" by Ashley Lobo, the focus is on analyzing the success and impact of Tesla, Inc. as a leading automotive company. Tesla has gained recognition for its innovative electric vehicles and disruptive approach to the automobile industry.
The article delves into Tesla's unique business model, technological advancements, and their impact on the market. It highlights the company's commitment to sustainability and clean energy, as well as their ambitious goals for the future.
Overall, the case study portrays Tesla, Inc. as a groundbreaking and influential player in the automotive sector, setting new standards for electric vehicles and shaping the future of transportation.
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How does the negotiation between employer and trained employees
reduce job turnover even when the firm is facing with an unexpected
drop in its output demand?
Negotiation between employers and trained employees reduces job turnover during an unexpected drop in output demand by allowing for flexible arrangements such as reduced work hours, temporary layoffs, or reassignment to different tasks, which helps retain skilled employees and maintain workforce stability.
When a firm faces an unexpected drop in output demand, it may need to make cost-cutting measures, including layoffs or downsizing. However, through negotiation with trained employees, alternative arrangements can be made to mitigate job losses. This could involve offering reduced work hours or temporary layoffs instead of permanent job termination. By maintaining a dialogue and engaging in negotiations, employers can demonstrate their commitment to the well-being of their employees and seek mutually beneficial solutions. This helps retain skilled workers who have already received training and reduces the turnover rate, preserving valuable human capital for the firm. Additionally, retaining trained employees during a downturn allows for a smoother transition when the demand rebounds, avoiding the need for costly recruitment and retraining processes.
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Which one of the following terms applies to an option that has a factory building as its underlying asset?
A. financial option
B. building option
C. stock option
D. real option
The correct option is D. real option. A real option is a type of financial option that gives the holder the right, but not the obligation to make a strategic business decision related to an underlying asset. The underlying asset can be a physical asset (ex- factory building) or it can be a financial asset(ex- stock or bond).
Real options are different from financial options in that they are based on tangible assets and involve strategic business decisions, such as whether to expand a factory or enter a new market. Real options can be used to manage risk, create value, and increase flexibility in decision-making.
In the case of a factory building, a real option could allow the holder to choose whether to expand the factory or sell the building if market conditions change. This option would give the holder the flexibility to make strategic decisions based on changing market conditions, without being locked into a specific course of action.
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On May 1, 2021, Shamrock Construction Ltd. issued $700,000 of 20-year, 6% bonds at 100. The bonds pay interest semi-annually on November 1 and May 1. Shamrock has a calendar year end. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round answers to 0 decimal places, e.g. 5,276.) (a) Record the issuance of the bonds on May 1, 2021. (b) Record the first interest payment on November 1, 2021. (c) Prepare any adjusting entry required at December 31, 2021. (d) Record the second interest payment on May 1, 2022. (e) Assume that on May 1, 2022, immediately after paying the semi-annual interest, Shamrock redeemed 50% of the bonds at 98. Record the redemption of the bond, (f) Record the third interest payment on November 1, 2022, for the remaining bonds.
Shamrock Construction Ltd. issued $700,000 of 20-year, 6% bonds on May 1, 2021. The bonds pay semi-annual interest on November 1 and May 1. The issuance of the bonds, first interest payment, adjusting entry at December 31, second interest payment, redemption of 50% of the bonds, and third interest payment can be recorded accordingly.
(a) On May 1, 2021, Shamrock Construction Ltd. issued $700,000 of 20-year, 6% bonds at 100. The entry to record the issuance of the bonds would be:
Debit: Cash ($700,000)
Credit: Bonds Payable ($700,000)
(b) On November 1, 2021, the first interest payment is due. The entry to record the interest payment would be:
Debit: Interest Expense ($21,000: $700,000 * 6%)
Credit: Cash ($21,000)
(c) At December 31, 2021, an adjusting entry is required to accrue the interest expense for the period from November 1 to December 31. Assuming a full year has 12 months, the period from November 1 to December 31 is 2/12 of a year. The adjusting entry would be:
Debit: Interest Expense ($7,000: $21,000 * 2/12)
Credit: Interest Payable ($7,000)
(d) On May 1, 2022, the second interest payment is due. The entry to record the interest payment would be the same as in (b):
Debit: Interest Expense ($21,000)
Credit: Cash ($21,000)
(e) Assuming that on May 1, 2022, Shamrock Construction Ltd. redeemed 50% of the bonds at 98, the entry to record the redemption would be:
Debit: Bonds Payable ($350,000: $700,000 * 50%)
Debit: Loss on Bond Redemption (calculate the difference between the carrying value and the redemption amount)
Credit: Cash (total redemption amount)
(f) On November 1, 2022, the third interest payment is due for the remaining bonds. The entry to record the interest payment would be the same as in (b):
Debit: Interest Expense ($21,000)
Credit: Cash ($21,000)
By recording these transactions, Shamrock Construction Ltd. appropriately records the issuance of bonds, interest payments, adjusting entries, bond redemption, and remaining interest payments in accordance with the terms of the bond issuance and accounting principles.
(Note: The specific amounts for loss on bond redemption and cash in entries (e) and (f) would need to be calculated based on the given information and bond redemption details.)
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As its core beer business faces challenging conditions , Anheuser-Busch is pushing heavily to turn its U.S. beer operations into sustainable ones. The firm stated that it is implementing sustainability efforts that, by 2025, will shift the firm to using 100% renewable energy to manufacturer all of its classics , including Budweiser and Bud Light. This will cut Anheuser -Busch's carbon footprint by 25% This is part of an ongoing effort by the firm. CEO Michel Doukeris stated , It's not something that is new for us. We've been working with sustainability goals for the last several years. As a matter of fact, we set some goals for 2020 which we achieved all of them ahead of schedule . So we are now raising the bar and coming up with these new 2025 sustainability goals," Doukeris told FOX Business in an exclusive interview . As part of this push, the brewer announced that it has ordered 40 of Tesla's new electric semi-trucks at the estimated price tag of $ 150,000 to 200,000 each in an effort to reduce its supply chain emissions . While these efforts are socially responsible and are simply the right thing to do according to firm leaders, they also may help the firm position itself with younger consumers who are increasingly concerned about the environmental impact of products they purchase . Source: Sciopini , J. 2018 Anheuser -Busch to turn its beers "green". foxbusiness.com . April 17: np .
Discussion Question 16: In what other ways cam game manufacturers increase their differentiation ?
Anheuser-Busch is implementing sustainability efforts to shift its U.S. beer operations to using 100% renewable energy by 2025, which will cut its carbon footprint by 25%.
Renewable Energy Goal: Anheuser-Busch aims to use 100% renewable energy for manufacturing all its classics, including Budweiser and Bud Light, by 2025. This commitment demonstrates the company's dedication to reducing its reliance on fossil fuels and transitioning to sustainable energy sources.
Carbon Footprint Reduction: The company expects this shift to renewable energy to reduce its carbon footprint by 25%. While the exact calculation method is not provided, the reduction is likely based on a comparison between the carbon emissions associated with the current energy sources used and the anticipated emissions from renewable energy.
Achieving Previous Sustainability Goals: Anheuser-Busch's CEO, Michel Doukeris, mentioned that the company had previously set sustainability goals for 2020, which were achieved ahead of schedule. However, specific details about these goals and the extent to which they were accomplished are not provided.
Electric Semi-Trucks: As part of its efforts to reduce supply chain emissions, Anheuser-Busch has ordered 40 of Tesla's new electric semi-trucks. These trucks are expected to contribute to lower emissions during transportation compared to traditional diesel-powered trucks. The estimated price range for each truck is $150,000 to $200,000.
Anheuser-Busch is making significant sustainability efforts in its beer operations, aiming to transition to 100% renewable energy by 2025, reduce its carbon footprint by 25%, and invest in electric semi-trucks to decrease supply chain emissions. These initiatives not only align with the company's long-standing commitment to sustainability but also cater to the increasing concerns of younger consumers who prioritize environmentally friendly products.
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Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.16 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will have a market value (salvage value) of $168,000. The project requires an initial investment in net working capital of $240,000. The project is estimated to generate $1,920,000 in annual sales, with costs of $768,000. The tax rate is 32 percent and the required return on the project is 11 percent.
Required:
(a)What is the project's year 0 net cash flow (or cash flow from assets)?
(b)What is the project's year 1 net cash flow (or cash flow from assets)?
(c) What is the project's year 2 net cash flow (or cash flow from assets)?
(d)What is the project's year 3 net cash flow (or cash flow from assets)?
(e)What is the NPV?
Project's year 0 net cash flow (or cash flow from assets) would be $(2,400,000), project's year 1 net cash flow (or cash flow from assets) would be $1,253,760 ,the NPV of the project would be $1,069,189.72, with the year 2 net cash flow (or cash flow from assets) of the project being $1,013,760 and year 3 net cash flow (or cash flow from assets) of the project being $1,181,760.
Given data are:
Initial fixed asset investment of $2.16 million
Market value (salvage value) of $168,000
First $240,000 contribution to net working capital.
Annual sales = $1,920,000Costs = $768,000
Tax rate = 32 percent
Required return on the project = 11 percent
(a) Net cash flow from assets (or year 0 net cash flow)
Initial Fixed Asset Investment $(2,160,000)
Initial Investment in Net Working Capital$(240,000)
Total $(2,400,000)
(b) Net cash flow from assets for the first year
Sales revenue$1,920,000
Less: costs$(768,000)EBITDA$1,152,000
Depreciation$720,000EBIT$432,000
Taxes at 32% $138,240
Net Income $293,760
Add: Depreciation $720,000
Operating Cash Flow $1,013,760
Add: Net Working Capital $240,000
Total Cash Flow $1,253,760
(c) Year 2 net cash flow, also known as assets' cash flow
Sales revenue$1,920,000
Less: costs $(768,000)EBITDA$1,152,000
Depreciation $720,000EBIT$432,000
Taxes at 32% $138,240
Net Income $293,760
Add: Depreciation $720,000
Operating Cash Flow $1,013,760
Add: Net Working Capital$0
Total Cash Flow $1,013,760
(d) Year 3 net cash flow, also known as assets' cash flow $1,920,000 was made in sales.
Less: costs$(768,000)EBITDA $1,152,000
Depreciation$720,000EBIT $432,000
Taxes at 32%$138,240
Net Income$293,760
Add: Depreciation$720,000
Salvage Value$168,000
Operating Cash Flow$1,181,760
Add: Net Working Capital$0
Total Cash Flow $1,181,760
(e) NPV of the project= $1,069,189.72
Therefore, the NPV of the project is $1,069,189.72.
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Solve. Sales of frozen pizza for a club fund-raiser increased from 500 one year to 685 the next year. What was the percent of increase?
The percent of the increase in the sales of frozen pizza for a club fund-raiser is 37%.
Given that the sales of frozen pizza for a club fund-raiser increased from 500 one year to 685 the next year. We need to find the percentage of increase.
Solution: To find the percentage increase, we need to follow these steps: First, find the difference between two numbers, Difference = New number - Old number second, divide the difference by the old number, Percentage increase = (Difference / Old number) × 100. Substitute the values in the above formula. Difference = 685 - 500 = 185. Old number = 500. Hence, Percentage increase = (Difference / Old number) × 100= (185 / 500) × 100= 37%.Hence, the percent of the increase in the sales of frozen pizza for a club fund-raiser is 37%.
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Tom Gifford is 40 years old and is making $85,000 per year working in Four Corners Corporation. Through savings and the receipt of a small inheritance, Tom has accumulated a portfolio valued at $50,000. Tom wants to estimate the returns on his portfolio in the next year if he either (a) kept everything in his current portfolio as is or (b) started investing in a more aggressive portfolio strategy. Tom estimates that he will invest 6% of his annual salary in this portfolio in the next year. Tom believes that his current portfolio strategy will have a return of 7% annually in the next year. Tom also estimates that a more aggressive portfolio strategy will give an annual return of 11%. Tom also has a good reason to believe that his salary will increase by 5% in the beginning of the next year. 1. Calculate the total return on Tom's current portfolio strategy for the next year if everything goes according to what he estimated above. (Hint: Use a simple calculation for the total return where the return is a % of the total amount invested in the following year (le, portion of salary invested plus the current portfolio amount). That is, Total Return = Total Invested Annual Return from Portfolio) 2. Calculate the total return on Tom's aggressive portfolio strategy for the next year if everything goes according to what he estimated above. 3. According to these calculations, which investment strategy is better in terms of returns? Tom talks to Kate from Human Resources about these estimates. Although Kate was pleased with Tom's calculations, she voiced several criticisms. One was the assumption of a constant salary growth rate. She noted that most employees experience some variation in the annual salary growth rate from year to year. The previous or current year's salary growth rate is not usually the same as the next year's salary growth rate. In addition, she pointed out that the constant annual portfolio growth rate was unrealistic and that the actual growth rate would vary considerably from year to year. Additionally, the more aggressive portfolio strategies also have the most risk associated with them as they have a greater variation from year to year in their returns. She suggested that a simulation model for the portfolio projection might allow Tom to account for the random variability in the salary growth rate and the portfolio growth rate. After some research, Tom and Kate decided to assume that the annual salary growth rate would vary from 0% to 5% and that a uniform probability distribution would provide a realistic approximation. Four Corners' accountants suggested that the annual portfolio growth rate for his current strategy could be approximated by the normal probability distribution with a mean of 7% and a standard deviation of 2%. The annual portfolio growth rate for the more aggressive strategy could be approximated by the normal probability distribution with a mean of 11% and a standard deviation of 6%. With this information, Tom set off to re-design his calculations using simulations. Run 1000 simulations for the total returns on Tom's current portfolio and the more aggressive portfolio using the above information on the random variability in salary growth rate and the portfolio growth rates. 4. Re-calculate the mean, maximum and minimum total return on Tom's current portfolio strategy for the next year using simulations. 5. Re-calculate the mean, maximum and minimum total return on Tom's aggressive portfolio strategy for the next year using simulations. 6. According to these calculations, which investment strategy is better in terms of returns and risk? 7. What recommendations do you have for employees with a current profile similar to Tom's after seeing the impact of the uncertainty in the annual salary growth rate and the annual portfolio growth rate?
Salary of Tom next year = $85000 * 105% = $89250
Portion of salary invested = $89250 * 6% = $5355
Current portfolio amount = $50000
Total invested = $50,000 + $5,355 = $55,355
Total return on current portfolio strategy
= Total Invested * Annual Return from Portfolio
= $55,355 * 7% = $3874.85
Owning a stock, bond, or other financial instrument as part of a portfolio involves the hope that it will generate income, increase in value over time, or both. In contrast to direct investment, which requires an active management role, it comprises hands-off or passive ownership of assets.
Purchasing financial assets with the goal of keeping them for a long period and doing so because of their long-term growth potential, income yield, or both, is known as strategic investment.
The word "portfolio investments" refers to a variety of asset types, such as equities, corporate and government bonds, real estate investment trusts (REITs), mutual funds, exchange-traded funds (ETFs), and bank certificates of deposit.
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Suppose production and prices of pizzas and calzones in 1992 and 2022 are as follows: Price of Year Price of pizzas Quantity of pizzas Quantity of calzones calzones 1992 $15 10 $5 20 2022 $30 20 $10 80 (Assume that 1992 is the base year) Note: Keep as much precision as possible during your calculations. Your final answer should be accurate to at least two decimal places. a) Calculate the real GDP for 1992. Real GDP = $0 b) Calculate the real GDP for 2022 Real GDP = $0 c) Calculate the growth in real output over the period. Growth = 0%
a) Calculate the real GDP for 1992.
To calculate the real GDP for 1992, we need to use the base year prices as the reference. In this case, 1992 is the base year. We will use the quantity of pizzas and calzones produced in 1992 and multiply them by the prices of pizzas and calzones in 1992.
Real GDP for 1992 = (Quantity of pizzas in 1992 × Price of pizzas in 1992) + (Quantity of calzones in 1992 × Price of calzones in 1992)
Real GDP for 1992 = (10 pizzas × $15/pizza) + (20 calzones × $5/calzone)
Real GDP for 1992 = $150 + $100
Real GDP for 1992 = $250
Conclusion: The real GDP for 1992 is $250.
b) Calculate the real GDP for 2022.
To calculate the real GDP for 2022, we will use the quantities of pizzas and calzones produced in 2022 and multiply them by the prices of pizzas and calzones in 1992. Since we want to compare the output in 2022 using the base year prices, we assume that the quantity produced in 1992 is the same as the quantity produced in 2022.
Real GDP for 2022 = (Quantity of pizzas in 1992 × Price of pizzas in 2022) + (Quantity of calzones in 1992 × Price of calzones in 2022)
Real GDP for 2022 = (10 pizzas × $30/pizza) + (20 calzones × $10/calzone)
Real GDP for 2022 = $300 + $200
Real GDP for 2022 = $500
Conclusion: The real GDP for 2022 is $500.
c) Calculate the growth in real output over the period.
To calculate the growth in real output over the period, we will compare the real GDP for 2022 with the real GDP for 1992 and calculate the percentage change.
Growth in real output = ((Real GDP for 2022 - Real GDP for 1992) / Real GDP for 1992) × 100
Growth in real output = (($500 - $250) / $250) × 100
Growth in real output = ($250 / $250) × 100
Growth in real output = 1 × 100
Growth in real output = 100%
The growth in real output over the period is 100%.
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Curacao Pharmaceutical's cost of debt is 7 percent. The risk-free rate of interest is 3 percent. The expected return on the market portfolio is 8 percent. Effective tax rate is 25 percent. Its optimal capital structure is 60 percent debt and 40 percent equity. i. Calculate cost of equity, if Curacao's beta is estimated at 1.1. ii. Based on the answer in (b) (i), compute weighted average cost of capital (WACC).
To calculate the cost of equity for Curacao Pharmaceuticals, we use the Capital Asset Pricing Model (CAPM) formula. Given a risk-free rate of 3%, an expected market return of 8%, and a beta of 1.1, the cost of equity can be calculated.
Once we have the cost of equity, we can calculate the weighted average cost of capital (WACC) using the optimal capital structure of 60% debt and 40% equity, along with the cost of debt. The WACC represents the average cost of financing for the company and is used to evaluate investment projects.
i. To calculate the cost of equity, we use the CAPM formula: Cost of Equity = Risk-Free Rate + Beta * (Expected Market Return - Risk-Free Rate). Plugging in the values, the cost of equity is 3% + 1.1 * (8% - 3%) = 7.5%.
ii. To calculate the WACC, we need to consider the weights of debt and equity in the capital structure. The WACC formula is: WACC = (Weight of Debt * Cost of Debt) + (Weight of Equity * Cost of Equity). Plugging in the values, the WACC becomes 0.6 * 7% + 0.4 * 7.5% = 6.9%.
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A company produces two very similar products that go through a three-step sequence of fabrication, assembly, and packaging. Each step requires one day for a lot to be completely processed and moved to the next department. Processing requirements for the departments (hours per unit) are
In the given problem, a company produces two very similar products that go through a three-step sequence of fabrication, assembly, and packaging.
Each step requires one day for a lot to be completely processed and moved to the next department. Processing requirements for the departments (hours per unit) are:Fabrication: 3 hours per unitAssembly: 2 hours per unitPackaging: 1 hour per unit.
To calculate the number of units completed, we need to calculate the production rate of each stage. The production rate is calculated as follows:Fabrication rate = 8 hours / 3 hours per unit = 2.67 units per dayAssembly rate = 8 hours / 2 hours per unit = 4 units per dayPackaging rate = 8 hours / 1 hour per unit = 8 units per dayThus, if the company produces the same number of products for each stage, then the packaging department will produce the most units, followed by the assembly department, and then the fabrication department. This is because the production rate of the packaging department is the highest among the three departments.
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TRUE / FALSE. "The organizational buying decision process has the same five
steps as the consumer buying decision process.
False; The organizational buying decision process is not the same as the consumer buying decision process.
The organizational buying decision process and the consumer buying decision process differ in terms of complexity and the number of steps involved. While the consumer buying decision process typically consists of five steps (need recognition, information search, evaluation of alternatives, purchase decision, and post-purchase evaluation), the organizational buying decision process is more intricate and involves additional stages.
The organizational buying decision process typically includes the following steps: problem recognition, determination of product specifications, supplier search and qualification, proposal solicitation, supplier selection, order-routine specification, and performance review. These additional steps reflect the complexity of purchasing decisions made by organizations, which often involve multiple stakeholders, extensive research, negotiation, and long-term contracts.
Organizational buying decisions also tend to be more rational and objective compared to consumer decisions, as they are driven by factors such as cost-effectiveness, quality, reliability, and the ability to meet organizational needs and objectives.
The organizational buying decision process is not the same as the consumer buying decision process. While the consumer process generally follows five steps, the organizational process is more complex, involving additional stages and considerations. Recognizing these differences is crucial for marketers and organizations to effectively understand and navigate the purchasing behavior of businesses and institutions.
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Calculating interest rates he real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 7% per year for each of the next four years and 6% hereafter. he maturity
The real risk-free rate is 2.8%, and inflation is expected to be 7% per year for the next four years and 6% thereafter.
The given information states that the real risk-free rate is 2.8%, which represents the rate of return adjusted for inflation. Inflation is expected to be 7% per year for the next four years and then decrease to 6% thereafter. This implies that the nominal interest rate will be the sum of the real risk-free rate and the expected inflation rate.
Therefore, in the next four years, the nominal interest rate will be 9.8% (2.8% + 7%), and thereafter it will be 8.8% (2.8% + 6%). These rates are used to calculate the appropriate interest rates for investment and borrowing decisions.
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Companies can try to break out of their existing
mental models by:
a.
hiring people with diverse backgrounds and from other
industries.
b.
engaging in external attribution.
c.
promoting people within the organization. d.
giving every employee the Myers-Briggs Type Indicator test.
e.
engaging in selective attention.
the most effective approaches to break out of existing mental models include hiring diverse talent, seeking external input, promoting individuals with innovative thinking, and actively challenging biases and selective attention.
a. Hiring people with diverse backgrounds and from other industries is an effective way to break out of existing mental models. This brings in fresh perspectives, different ways of thinking, and new ideas that can challenge existing assumptions and encourage innovative thinking.
b. Engaging in external attribution involves seeking external input and feedback from customers, suppliers, industry experts, and other stakeholders. This helps to challenge internal biases and assumptions, allowing for a broader understanding of the market and potential opportunities for change.
c. Promoting people within the organization can also help break out of existing mental models. Employees who have been with the company for a long time may have developed deep-rooted assumptions and ways of thinking. By promoting individuals who have demonstrated the ability to think differently and challenge the status quo, organizations can foster a culture of innovation.
d. Giving every employee the Myers-Briggs Type Indicator test is not a direct method for breaking out of mental models. While personality assessments like Myers-Briggs can provide insights into individual preferences and traits, they do not inherently encourage individuals to challenge existing mental models.
e. Engaging in selective attention, where individuals focus only on information that confirms their existing beliefs and ignore contradictory evidence, can hinder the ability to break out of mental models. Overcoming selective attention requires actively seeking diverse perspectives and considering alternative viewpoints.
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DISCUSSION
Please discuss the question below with evidence from the case study, and try to relate your discussion to marketing concepts/theories you have learned so far in this course. You might support your reasoning with external sources if needed.
QUESTION: Among 4P’s of the marketing mix, which P contributes the most to the success of Miniso in your point of view? Explain
How variety stores of MINISO became a mega-success?
Miniso has been originated as a famous global retail chain founded by famous Chinese designer - Ye Guo Fu. How has Miniso applied its marketing strategies to achieve rapid growth during the
past 7 years?
The marketing mix
China is considered the "main market" of Miniso. However, this brand quickly opened and signed contracts with thousands of stores around the world. On average, about 80 to 100 stores are opened every month, such an amazing growth rate. Miniso is committed to bringing "high quality with innovation, low price" products to consumers. And indeed, Miniso's products are simple, of good quality, and always follow global fashion trends. Most of the products are priced at 10 yuan and aimed at middle-income customers between the ages of 18 and 35.
At a time when the global retail industry was facing signs of slowing down, Miniso opened 1600 stores worldwide in 2 years and hit a huge revenue of 10 billion yuan in 2016. With the impact of
digital technology and the wave of e-commerce, the sales of the retail industry are declining seriously year by year, but Miniso has become a shining star thanks to the application of the perfect marketing mix strategy.
Product
Miniso's products are designed to be simple but essential. The main designer of Miniso, Mr. Mitsuzaku, is a graduate of the Japan Academy of Fashion Culture. His design style is famous for simplicity, naturalness, and diversity. This shows attention to the tangible benefits of consumers. In addition, Miniso's products are mainly for life and entertainment, including a vast number of product categories ranging from healthcare products, beauty products, fashion decorations, office
supplies, to souvenirs, etc. Each product is developed from the user's point of view, focusing on product rationality and durability in use.
Price
"A premium but low price" is Miniso's competitive strategy. Among the more than 3000 kinds of goods, the product prices start from 10 yuan, and are of the same quality but cheaper than competitor products in the market. Miniso's secret is "low cost, low-profit margin and low price". First, Miniso usually makes large classifies products and their prices on a scale from 10 to 100. This method of price positioning grants consumers many options that serve their different needs.
Place
Most of the goods in the market follow the traditional retail that is through the chain of manufacturers - agents - wholesalers - retailers, and thus makes the price of goods more expensive. Understanding the scene, Miniso has considered and selected distribution channels that bring the most benefits and the most profits. Miniso divides its distribution channel into direct and indirect ones, according to whether the products are distributed through intermediations. A direct sales channel applies an integrated management method of production and marketing, in which it transfers products from the production domain to the consumption domain without going through any intermediaries.
However, this method consumes more investment capital, space, and human resources.
Promotion
Miniso regularly offers promotions and discounts to attract consumers. "Voucher" is considered a brilliant marketing method of Miniso. In addition, Miniso knows how to increase brand coverage by densely promoting their discounts on billboards at cinemas, crowded streets, cafes, apartments... on every promotion occasion to stimulate consumer demand.
In my opinion, among the 4P's of the marketing mix, the product contributes the most to the success of Miniso. Miniso's success can be attributed to its focus on creating simple, and high-quality products that align with global fashion trends.
The products are designed with attention to tangible benefits and developed from the user's perspective, emphasizing product rationality and durability. This approach resonates with consumers, especially the target market of middle-income customers between the ages of 18 and 35.
The success of Miniso's product strategy is consistent with marketing concepts such as customer value and product differentiation. By offering a wide range of product categories and ensuring high quality at affordable prices, Miniso provides customers with value for their money. The emphasis on simplicity and naturalness in product design aligns with the concept of minimalism, which has gained popularity among consumers seeking clutter-free and functional products.
Furthermore, Miniso's competitive pricing strategy, another element of the marketing mix, supports the success of its products. By offering products at low prices compared to competitors, Miniso attracts price-conscious customers and creates a perception of value for its offerings.
While the other elements of the marketing mix, such as place and promotion, also contribute to Miniso's success, the product itself stands out as the key driver. The emphasis on product quality, design, and affordability has enabled Miniso to differentiate itself in the market and build a strong brand image.
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1) After reading the article "Marketing Myopia" by Theodore Levitt: (a) What does it mean to be "myopic"? Provide examples of companies that were "myopic" in their thinking; (b) Provide three (3) takeaways, or things you learned from the article; (c) Does this article and the idea of "marketing myopia" relate to businesses today? Explain.
The term myopic refers to shortsightedness in general and is typically used when speaking of visual impairments. it.Examples of companies that were myopic in their thinking are Kodak and Blockbuster.
Levitt extended the term myopia to the business world in his article “Marketing Myopia.” Marketing Myopia is the failure of companies to realize the need to take a customer-oriented approach, resulting in the company’s loss of its market share. It occurs when a company focuses solely on selling a product rather than a customer’s experience with it.Examples of companies that were myopic in their thinking are Kodak and Blockbuster. Kodak failed to realize the significance of digital photography when it first emerged, and they missed out on a significant market share. Blockbuster is another example of myopic thinking since they failed to realize the shift in the market from physical DVD rentals to online streaming services. These companies put their products ahead of the customer, which ultimately led to their downfall.Three takeaways from the article are:1. Companies should focus on their customers and understand their needs instead of solely focusing on the product.2. When a company becomes too focused on its product, it can lose sight of the market's needs.3. Companies that prioritize their customers are more likely to retain and increase their market share.The article and the concept of Marketing Myopia relate to businesses today because it is still relevant. Companies continue to fall into the trap of myopic thinking, focusing on their products rather than their customers' needs. Companies that prioritize their customers and adjust to their needs can stay ahead of the competition. As a result, businesses must remain customer-focused and adaptable to remain competitive.
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Within Porter’s value chain, activities supporting the value chain are described as primary and secondary activities. Using an example organisation, critically discuss the value chain model and the role each activity plays in creating the final product
The value chain model consists of primary activities (such as inbound logistics, operations, and marketing) and secondary activities (such as procurement, and technology). An example is Starbucks, where primary activities create and deliver the final product.
The value chain model, developed by Michael Porter, identifies primary and secondary activities that contribute to creating and delivering a final product or service. Primary activities are directly involved in the production, delivery, and marketing of the product, while secondary activities support and enable the primary activities.
Let's take Starbucks as an example to illustrate the role of each activity. Inbound logistics involve sourcing and managing the supply of coffee beans and other ingredients. Operations include the coffee roasting and beverage preparation processes. Outbound logistics ensure the efficient distribution of products to Starbucks stores. Marketing and sales activities focus on creating brand awareness, developing marketing campaigns, and attracting customers. Starbucks' strong brand image and extensive marketing efforts contribute to its success. Supporting the primary activities, procurement ensures the availability of high-quality materials, including coffee beans. Technology development plays a crucial role in Starbucks' operations, including the development of digital payment systems, mobile ordering, and customer engagement platforms. Overall, Starbucks' value chain demonstrates how primary activities like inbound logistics, operations, marketing, and outbound logistics are supported by secondary activities like procurement and technology development. By effectively managing and coordinating these activities, Starbucks creates a unique and valuable customer experience, resulting in its position as a leading coffee retailer globally.
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Growth Corp is a high growth company. It has an expected dividend at the end of this year of R1. Those dividends are expected to grow at a constant rate of 10% forever. If the discount rate is 20% and the payout ratio is 80%, calculate the present value of growth opportunities.
a. R 2.84
b. R 5.63
c. R 4.37
d. R 3.75
e. R10.00
The present value of growth opportunities for Growth Corp is R49.00. Therefore, the correct option is (e) R10.00.
The present value of growth opportunities is calculated as follows:
PVGO = Expected dividend / (Discount rate - growth rate)
For Growth Corp, the expected dividend at the end of this year is R1, and it is expected to grow at a constant rate of 10% forever. Therefore, the dividend in the next year will be R1.1, and the dividend in two years will be R1.21, and so on. The present value of all these future dividends can be calculated as follows:
R1 + R1.1/1.2 + R1.21/1.44 + ...= R1(1 + 1.1/1.2 + 1.21/1.44 + ...)
This is an infinite geometric series with a common ratio of 1.1/1.2 = 0.9167. The sum of an infinite geometric series with a common ratio between -1 and 1 can be calculated as follows:
Sum = First term / (1 - common ratio)
Using this formula, we get:
Sum = R1 / (1 - 0.9167) = R12.00
Now, we can calculate the present value of the expected dividend as follows:
PV = Expected dividend / (Discount rate - growth rate)
PV = R1 / (0.2 - 0.1) = R10.00
The payout ratio is given as 80%, which means that the company is paying out 80% of its earnings as dividends and retaining the remaining 20% for growth. Therefore, the present value of growth opportunities (PVGO) is calculated as follows:
PVGO = Present value of the expected dividend / Payout ratio - Expected dividend
PVGO = R10.00 / 0.2 - R1 = R49.00
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what is the primary disadvantage of both a sole proprietorship and a partnership that a corporation overcomes?
The primary disadvantage of both a sole proprietorship and a partnership that a corporation overcomes are that both sole proprietorship and a partnership expose their owners to unlimited personal liability for business debts and legal obligations.
In a corporation, the owners' liability is limited to the amount of their investment.
The sole proprietorship is a business owned by an individual that is not a separate legal entity from its owner, who takes responsibility for its debts and legal obligations. The main disadvantage of the sole proprietorship is that the owner bears all the risks of the business, and their personal assets are subject to the creditors' claims. There is also no separate tax entity for the business, which means that the owner pays personal income tax on the business's profits.
The partnership is a business owned by two or more individuals who agree to share profits and losses. Each partner is personally liable for the partnership's debts and obligations, and they also face unlimited liability. A partnership's primary disadvantage is that it lacks a separate legal identity, and the partners are responsible for each other's actions and debts.
The corporation is a legal entity that is separate from its owners and has its legal identity. The primary advantage of a corporation is that it limits the owners' liability to the amount of their investment, and it also enjoys perpetual existence. A corporation also has a separate tax entity from its owners, which means that it pays corporate taxes on its profits and the owners pay personal income tax on their dividends. In conclusion, the primary disadvantage of both a sole proprietorship and a partnership that a corporation overcomes is unlimited personal liability for business debts and legal obligations.
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