Solution: Let us assume that the weights of investment in stock ABC and XYZ are 0.5 and 0.5 respectively, and we have to find the standard deviation of the resulting portfolio.
Now,[tex]σp^2 = (w1σ1)^2 + (w2σ2)^2 + 2w1w2Cov(σ1, σ2) ------(1)[/tex]
Where w1 and w2 are the weights of the investment in stock 1 and 2 respectively,σ1 and σ2 are the standard deviations of the returns of stock 1 and 2 respectively, and Cov(σ1, σ2) is the covariance of the returns of stock 1 and 2.
Now,[tex]σp^2 = (0.5)^2(0.02448) + (0.5)^2(0.018772) + 2(0.5)(0.5)(0.55)(√0.02448)(√0.018772)σp^2 = 0.01224 + 0.0046943 + 0.01180346σp^2 = 0.02873776σp = √0.02873776σp = 0.1695[/tex]
Therefore, the standard deviation of an investment portfolio that is equally invested in both the securities is 16.95%.
Therefore, the option E: None of the above is the correct answer.
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Hi Friends!
The yield to maturity on one-year zero-coupon bonds is 7.9%. The yield to maturity on two-year zero-coupon bonds is 8.9%.
Required:
a. What is the forward rate of interest for the second year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
The forward rate of interest for the second year is X.XX%.
To calculate the forward rate of interest for the second year, you need to use the formula:
Forward Rate = (1 + Interest Rate for the Second Year) / (1 + Interest Rate for the First Year) - 1
In this formula, the interest rates for the first and second years are expressed as decimal values. You will need to convert the given interest rate into decimal form before using the formula.
First, convert the given interest rate into decimal form by dividing it by 100. For example, if the given interest rate is 5%, you would divide 5 by 100 to get 0.05.
Next, plug the decimal interest rates into the formula:
Forward Rate = (1 + 0.XX) / (1 + 0.XX) - 1
Simplify the formula:
Forward Rate = 1 / 1 - 1
Finally, calculate the forward rate of interest for the second year by subtracting 1 from the result:
Forward Rate = X.XX%
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Annie O’Donnell, an architect, acquired a house in Tarragindi under a contract dated 1 January 2015 for $520,000. She also paid $15,000 in legal fees and stamp duty upon settlement of the property on 31 January 2015. Annie initially used the house as her main residence.
Three months later on 1 April 2015, Annie decides to use one room of the house as an office and studio for her new architect business. Annie has recently set up this business and her home address is listed as the registered business address.
The room which was converted into an office and studio represented 20% of the total floor area of the house and her home based business was opened on 1 April 2015.
The market value of her property as at 1 April 2015 had risen to $570,000 as per a written market appraisal acquired from her local real estate agent.
Six years later, on 31 March 2021, Annie closed her architecture business but she continued to use the room as a home study area.
Annie then sold the home at Tarragindi under a contract of sale dated 31 March 2022 for $800,000 and was charged $20,000 in sales commission by the real estate agent.
Annie O'Donnell sold her property in Tarragindi for $800,000 after using a room as a home-based office/studio for her architecture business.
Annie O'Donnell, an architect, purchased a house in Tarragindi on 1 January 2015 for $520,000. She incurred additional expenses of $15,000 in legal fees and stamp duty upon settlement on 31 January 2015. Initially, Annie used the entire house as her main residence.
However, on 1 April 2015, Annie decided to convert one room of the house into an office and studio for her new architect business. This room accounted for 20% of the total floor area of the house, and she officially opened her home-based business on that day. At this time, the market value of the property had increased to $570,000 based on a written market appraisal obtained from her local real estate agent.
For the next six years, Annie continued to operate her architecture business until she closed it on 31 March 2021. However, she continued to use the converted room as a home study area.
Finally, on 31 March 2022, Annie sold the property for $800,000 under a contract of sale. As part of the sale, she was charged $20,000 in sales commission by the real estate agent.
From a tax perspective, Annie needs to consider the capital gains tax (CGT) implications of the property sale. The main residence exemption may apply to the portion of the property used as her dwelling. As Annie lived in the house from the date of purchase until 1 April 2015, a period of approximately three months, she may be eligible for the main residence exemption for this period.
However, from 1 April 2015 onwards, when Annie converted one room into her business office and studio, this portion of the property may be subject to CGT. The increase in value from the date of conversion until the sale date will be assessable as a capital gain.
Annie may need to engage the services of a tax professional to calculate the CGT payable based on the specific circumstances of the property, including the proportion of floor area used for business purposes and the length of time the property was used for residential and business purposes.
In summary, Annie O'Donnell purchased a house in Tarragindi and initially used it as her main residence. She later converted a room into an office and studio for her architecture business. Upon selling the property, she may be subject to CGT on the portion used for business purposes. Seeking professional tax advice is recommended to accurately determine the tax implications of the sale.
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If you are a large farm in California that needs water to irrigate your crops, how would you use the contract to hedge the cost of water? Provide a simple example of how a hedge to protect an increase in the price of water would be designed and executed (keep in mind how the contract settles)
To hedge the cost of water, a large farm in California could use a futures contract to protect against an increase in the price of water.
A futures contract is a financial instrument that allows parties to agree to buy or sell an underlying asset, such as water, at a predetermined price (the futures price) on a future date.
In this case, the farm would enter into a futures contract to purchase water at a specified future date and price. For example, if the farm expects the price of water to increase in the future, they can enter into a futures contract to buy water at the current price.
If the price of water indeed rises, the farm can purchase water at the lower futures price, thereby hedging against the increase in cost. On the settlement date of the contract, the farm would receive the physical delivery of the water at the predetermined price.
By utilizing the futures contract, the farm effectively locks in a price for water, providing protection against potential price fluctuations.
This hedge allows the farm to manage the risk of higher water prices, ensuring a more predictable cost structure for their irrigation needs and helping to mitigate potential financial losses associated with increased water costs.
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To hedge the cost of water, a farm in California could use a futures contract for water to protect against price increases.
To hedge the cost of water, a farm in California could enter into a futures contract for water. For example, they could purchase a futures contract for a specific volume of water at a predetermined price.
If the price of water increases, the farm would benefit from the futures contract, offsetting the higher costs of purchasing water for irrigation.
If the price decreases, the farm would still need to pay the predetermined price under the contract, but they would benefit from the lower market price.
The settlement of the contract would depend on the terms specified, which could involve physical delivery of the water or cash settlement based on market prices.
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Clarity, economy, and conciseness is an example of what business writing strategy?
The Clarity, economy, and conciseness are all important elements of business writing and they are often referred to as the "3 Cs" of business writing.
Clarity, economy, and conciseness are examples of the business writing strategy known as brevity.
Brevity refers to the practice of conveying information in a clear and concise manner, using as few words as possible while still maintaining clarity.
This strategy is important in business writing as it helps to effectively communicate information and ideas to the reader in a time-efficient manner.
Clarity means that your writing is easy to understand. You should use clear and concise language, and avoid jargon and technical terms that your audience may not understand.
Economy means that you use the fewest words possible to get your point across. You should avoid using unnecessary words or phrases, and make sure that every word in your writing is necessary.
Conciseness means that your writing is brief and to the point. You should avoid rambling or going off on tangents. Get to the point quickly and efficiently.
The 3 Cs of business writing are important because they help to ensure that your writing is effective. When your writing is clear, concise, and economical, your audience is more likely to understand your message and take action.
Here are some tips for writing with clarity, economy, and conciseness:
Use simple language. Avoid using jargon or technical terms that your audience may not understand.
Be direct. Get to the point quickly and efficiently. Don't ramble or go off on tangents.
Use active voice. Active voice is more concise and easier to understand than passive voice.
Avoid redundancy. Don't repeat yourself. Use the strongest word or phrase possible.
Be specific. Use specific examples and details to illustrate your points.
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2) The value of 5 basis points on a 5 year bond is worth than 5 basis points on a 30 year bond? Less More The Same 3) A robust economy would generally push long term interest rates lower. * True False
2) The value of 5 basis points on a 5 year bond is less than 5 basis points on a 30 year bond.
3)The statement " A robust economy would generally push long term interest rates higher" is False
2) A basis point (BPS) is 1/100th of a percentage point or 0.01%.
The value of 5 basis points on a 5 year bond is less than 5 basis points on a 30 year bond. The value of 5 basis points on a 5 year bond is 0.05% of the bond price, while the value of 5 basis points on a 30 year bond is 0.15% of the bond price.
So, 5 basis points on a 30 year bond is worth more than on a 5 year bond.
3) The robust economy is generally associated with higher long-term interest rates. When the economy is strong, the Federal Reserve tends to increase short-term rates to prevent inflation, which leads to higher long-term interest rates.
Therefore, the statement "A robust economy would generally push long-term interest rates lower" is false.
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Industrial Light and Magic, Inc., is a young start-up company. dividends will be paid on the stock over the next 8 years because the firm needs to plow back its earnings to fuel growth. The company will pay a $5 per share dividend in 9 years and will increase the dividend by 4.20 percent per year thereafter. If the required return on this stock is 18.35 percent, what is the current share price? (Do not round your intermediate calculations.)
18
$8.91
$7.76
$7.99
$8.26
$9.18
The current share price of Industrial Light and Magic, Inc. is approximately $8.91.
To calculate the current share price, we need to find the present value of the future dividends. We can use the dividend discount model (DDM) formula:
P = D / (1 + r)^1 + D / (1 + r)^2 + ... + D / (1 + r)^n
Where:
P = Current share price
D = Dividend payment in each year
r = Required return (discount rate)
n = Number of years
Given:
Dividend payment in year 9 = $5
Dividend growth rate = 4.20%
Required return (discount rate) = 18.35%
Number of years = 8
Let's calculate the present value of dividends:
P = 5 / (1 + 0.1835)^1 + (5 * 1.042) / (1 + 0.1835)^2 + (5 * 1.042^2) / (1 + 0.1835)^3 + ... + (5 * 1.042^7) / (1 + 0.1835)^8
Calculating the above expression, we find:
P ≈ 8.91
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OFLJH Inc., a leading manufacturer of frozen dessert products, is considering the addition of a new product: frozen yogurt. The firm estimates that each cup will sell for $2 and that the variable costs per cup will be 70% of the selling price. The firm expects to sell at least 10M cups the first year and that the marginal tax rate will be 40%. The firm wants to maintain its current degree of financial leverage of 1.5 and a maximum degree of combined leverage of 4.5 . The firm expects to pay $300,000 in preferred dividends and has 1 million shares of common stock outstanding. a) Create an income statement for the new frozen yogurt's first year using the information provided. b) Determine the operating break-even point in units and also in dollars. c) How many cups would The Cold Experience, Inc. need to sell in order to achieve earnings before interest and taxes of $3M ?
a) The income statement for OFLJH Inc.'s new frozen yogurt product in its first year is as follows:
Income Statement
Revenue:
Sales (10,000,000 cups × $2/cup) $20,000,000
Cost of Goods Sold:
Variable Costs (70% of sales) $14,000,000
Gross Profit $6,000,000
Operating Expenses:
Fixed Costs $X
Depreciation Expense $X
Operating Income (EBIT) $X
Interest Expense $X
Earnings Before Taxes (EBT) $X
Taxes (40% of EBT) $X
Net Income $X
b) To determine the operating break-even point in units and dollars, we need to calculate the contribution margin per unit and the fixed costs. The contribution margin is the selling price per unit minus the variable cost per unit.
Contribution margin per cup: $2 - ($2 × 70%) = $0.60
The operating break-even point in units can be calculated by dividing the fixed costs by the contribution margin per unit.
Operating break-even point in units = Fixed costs / Contribution margin per cup
To calculate the operating break-even point in dollars, we multiply the operating break-even point in units by the selling price per cup.
Operating break-even point in dollars = Operating break-even point in units × Selling price per cup
c) To determine the number of cups The Cold Experience, Inc. would need to sell in order to achieve earnings before interest and taxes (EBIT) of $3 million, we need to consider the operating income (EBIT) and the interest expense.
EBIT = Sales - Variable Costs - Fixed Costs - Depreciation Expense
We rearrange the formula to solve for sales:
Sales = EBIT + Variable Costs + Fixed Costs + Depreciation Expense
The number of cups to be sold can be calculated by dividing the sales by the selling price per cup.
Number of cups = Sales / Selling price per cup
By substituting the given EBIT of $3 million, the variable costs, fixed costs, depreciation expense, and the selling price per cup, we can determine the number of cups The Cold Experience, Inc. would need to sell to achieve the desired EBIT of $3 million.
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A firm expects 10% growth in Sales. Using the information below, calculate how many additional funds are needed.
Sales $564 m
Assets $399 m
Spontaneous Liabilities $88 million
Profit Margin 15%
Retention Ratio 75%
Based on the given information, the firm does not require additional funds for the expected 10% sales growth as there is a surplus of retained earnings to cover the increase in assets.
To calculate the additional funds needed, we need to determine the increase in assets resulting from the expected growth in sales.
Calculate the increase in sales:
Increase in Sales = Sales * Growth Rate
Increase in Sales = $564 million * 10% = $56.4 million
Calculate the increase in net income:
Net Income = Sales * Profit Margin
Net Income = $564 million * 15% = $84.6 million
Calculate the retained earnings:
Retained Earnings = Net Income * Retention Ratio
Retained Earnings = $84.6 million * 75% = $63.45 million
Calculate the increase in assets:
Increase in Assets = Increase in Sales - Retained Earnings
Increase in Assets = $56.4 million - $63.45 million = -$7.05 million
Since the increase in assets is negative, it indicates that there is no additional funding needed. In fact, there would be a decrease in assets by $7.05 million to accommodate the expected growth in sales.
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Use economic concepts to explain if you agree or disagree with the following statement: "The government of Ontario should increase the minimum wage rate from $15.00 per hour (effective January 1, 2022) to $20 per hour because this would completely benefit all people and organizations in Ontario.
Increasing the minimum wage from $15.00 to $20.00 per hour in Ontario has potential advantages and drawbacks.
The redistribution of income, decreased dependency on social assistance, increased productivity, and enhanced employee retention are all advantages. Increased salaries can improve living conditions, lessen poverty, and increase consumer purchasing. However, there are some issues as well. Higher labor expenses may be difficult for businesses, especially small and medium-sized ones. This might result in lower profitability, job losses, or higher pricing for customers.
As firms adapt to rising costs, job losses, and diminished employment prospects, particularly for low-skilled individuals, are conceivable. Furthermore, if pay growth outpaces productivity growth, a considerable rise in the minimum wage might exacerbate inflationary pressures and reduce people's purchasing power. Before making a choice, policymakers must carefully weigh these trade-offs and their unforeseen effects.
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Two mutually exclusive projects require the same $800,000 in initial investment. Afterwards, the first project provides the following cash flows over the next four years: $400,000, $250,000, $200,000, and $600,000. The second project provides the following cash flows over the next four years: $600,000, $200,000, $250,000, and $400,000. The target payback period is 3 years. Which project should you undertake? Explain with appropriate calculations.
The target payback period is three years, Project 1's payback period exceeds the target, whereas Project 2's payback period is less than the target, so Project 2 should be undertaken.
The Payback Period Method determines the time it takes to recover the initial investment of a project. Projects with shorter payback periods are preferred over those with longer payback periods. It is essential to consider whether or not a project's payback period falls within a company's acceptable range or is less than the anticipated useful life of the asset to be bought before determining whether or not to take the project. It is not ideal to have a payback period that exceeds the asset's useful life since the asset would not have produced any income during the last years of its useful life if the project's payback period exceeded the useful life of the asset.
Two mutually exclusive projects require the same $800,000 in initial investment. Afterward, the first project provides the following cash flows over the next four years: $400,000, $250,000, $200,000, and $600,000. The second project provides the following cash flows over the next four years: $600,000, $200,000, $250,000, and $400,000. The target payback period is 3 years. Now, we will calculate the payback period of both projects: Project 1:Year 1 = $400,000Year 2 = $250,000Year 3 = $200,000Year 4 = $600,000Total = $1,450,000Payback Period = 2 + ($350,000 / $600,000) = 2.58 years (approximately)Project 2:Year 1 = $600,000Year 2 = $200,000Year 3 = $250,000Year 4 = $400,000Total = $1,450,000Payback Period = 1 + ($200,000 / $250,000) = 1.8 years (approximately). Since the target payback period is three years, Project 1's payback period exceeds the target, whereas Project 2's payback period is less than the target, so Project 2 should be undertaken.
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Trojan Services has an expected return of 0.12 and a standard deviation of 0.3. The market's required rate of return is 0.15. Calculate the coefficient variation. 2.00 0.375 0.50 2.50 0,40
Trojan Services has an expected return of 0.12 and a standard deviation of 0.3. The coefficient of variation for Trojan Services is 2.50.
How to calculate coefficients of variation:
To calculate the coefficient of variation, we divide the standard deviation of the investment by its expected return and multiply by 100.
The formula for the coefficient of variation is:
Coefficient of Variation = (Standard Deviation / Expected Return) * 100
Given that the expected return of Trojan Services is 0.12 and the standard deviation is 0.3, we can plug these values into the formula:
Coefficient of Variation = (0.3 / 0.12) * 100
Simplifying the equation:
Coefficient of Variation = 2.5
Therefore, the coefficient of variation for Trojan Services is 2.50.
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2. Develop a schedule of full-time and part-time stockers and baggers for Marty Moyer. Explain the strategy you used and the trade-offs you made to satisfy the Rock Hill store’s competitive priorities.
To develop a schedule of full-time and part-time stockers and baggers for Marty Moyer at the Rock Hill store, the strategy used would involve considering the competitive priorities of the store. These priorities may include factors such as cost, quality, delivery speed, flexibility, and customer service.
Trade-offs may need to be made to satisfy these priorities. For example, if cost is a priority, the schedule may prioritize hiring more part-time stockers and baggers as they generally have lower hourly rates compared to full-time employees. However, this may result in less flexibility in scheduling and potentially affect customer service.
On the other hand, if customer service is a priority, the schedule may prioritize hiring more full-time employees who can provide consistent availability and better customer assistance. This could result in higher labor costs but potentially lead to improved customer satisfaction.
Overall, the strategy and trade-offs made in developing the schedule would depend on the specific competitive priorities of the Rock Hill store and the balance between cost, quality, delivery speed, flexibility, and customer service.
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Rahul purchased a house for $500,000. He made a down payment of 20% of the value of the house and received a mortgage for the rest of the amount at 5.50% compounded semi-annually for 20 years. The interest rate was fixed for a 5-year term. A. What are the monthly payments B. Calculate the principal balance after the 5 year term . Use a spreadsheet if you like C. Calculate the size of the monthly payments if after the first 5 -year term the mortgage was renewed for another 5 -year term at 5.25% compounded semi-annually. ( 3 marks)
A. The monthly payments for Rahul's mortgage are approximately $2,741.81.
B. After the 5-year term, the principal balance remaining on the mortgage is approximately $375,802.87.
C. If the mortgage is renewed for another 5-year term at a rate of 5.25% compounded semi-annually, the size of the monthly payments would be approximately $2,694.80. These calculations are based on a principal amount of $400,000 (after a 20% down payment), an initial interest rate of 5.50% compounded semi-annually, and a total mortgage term of 20 years. The mortgage formula was used to compute these values.
To calculate the monthly payments, principal balance after the 5-year term, and the size of the monthly payments after renewing the mortgage, we need to use the mortgage formula. The formula is as follows:
Monthly Payment = (P * r * (1 + r)^n) / ((1 + r)^n - 1)
Where:
P = Principal amount (loan amount)
r = Monthly interest rate
n = Total number of monthly payments
Let's calculate each part step by step:
A. Monthly Payments:
Principal amount (P) = $500,000 - 20% (down payment) = $400,000
Monthly interest rate (r) = Annual interest rate / 12 months = 5.50% / 12 = 0.0045833
Total number of monthly payments (n) = 20 years * 12 months = 240
Plugging these values into the formula:
Monthly Payment = ($400,000 * 0.0045833 * (1 + 0.0045833)^240) / ((1 + 0.0045833)^240 - 1)
Using a spreadsheet or a calculator, the approximate monthly payment is $2,741.81.
B. Principal Balance after the 5-year term:
We need to calculate the remaining principal balance after 5 years. To do this, we'll find the number of monthly payments made in 5 years:
Number of payments made = 5 years * 12 months = 60
Using the formula with the remaining number of payments:
Principal Balance = ($400,000 * (1 + 0.0045833)^240) - [($400,000 * (1 + 0.0045833)^60) - (monthly payment * ((1 + 0.0045833)^60 - 1)) / 0.0045833]
Using a spreadsheet or a calculator, the approximate principal balance after 5 years is $375,802.87.
C. Size of Monthly Payments after Renewal:
Principal amount (P) for the renewed term = Principal balance after 5 years = $375,802.87
Monthly interest rate (r) = Annual interest rate / 12 months = 5.25% / 12 = 0.004375
Total number of monthly payments (n) = 5 years * 12 months = 60
Using the formula:
Monthly Payment = ($375,802.87 * 0.004375 * (1 + 0.004375)^60) / ((1 + 0.004375)^60 - 1)
Using a spreadsheet or a calculator, the approximate monthly payment for the renewed term is $2,694.80.
Therefore:
A. The monthly payments are approximately $2,741.81.
B. The principal balance after the 5-year term is approximately $375,802.87.
C. The size of the monthly payments after renewal is approximately $2,694.80.
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Question 4 (a) Explain FIVE (5) factors in price escalation. Support your answers with appropriate examples. (15 marks) *costs of exporting, taxes,tariffs and administrative cost, inflation,deflation,middleman and transportation cost, exchange rate fluctuations and varying currency values. *please using those of the example answer and elaborate more
(b) Discuss the FOUR (4) approaches to lessen the price escalation. (10 marks)
(a) Factors in Price Escalation:
Costs of Exporting: Costs associated with exporting goods can contribute to price escalation. These costs include transportation fees, customs duties, documentation expenses, and compliance with export regulations.
For example, if a company in Country A exports goods to Country B, they may incur additional costs such as shipping charges, import taxes, and customs clearance fees, which can raise the final price of the product.
Taxes, Tariffs, and Administrative Costs: Tariffs, taxes, and administrative expenses imposed by governments can significantly impact price escalation. For instance, when importing goods, a country may impose tariffs or duties on those products, increasing their cost. Additionally, administrative costs such as obtaining licenses or complying with regulatory requirements can also contribute to price escalation.
Inflation and Deflation: Inflation and deflation in the domestic and international markets can affect prices. Inflation, characterized by a general increase in prices, can lead to higher production costs, wages, and input prices, ultimately impacting the final product's price. Conversely, deflation, a sustained decrease in prices, can also lead to price escalation by reducing profit margins and necessitating cost-cutting measures.
Middleman and Transportation Costs: Intermediaries involved in the supply chain, such as distributors or wholesalers, can introduce additional costs, contributing to price escalation. These middlemen may charge commissions, markups, or handling fees, which increase the overall price of the product. Transportation costs, including fuel prices, shipping fees, and logistics expenses, can also add to the price escalation.
Exchange Rate Fluctuations and Varying Currency Values: Exchange rate fluctuations between currencies can impact the price of imported goods. If the currency of the exporting country strengthens against the importing country's currency, the cost of the product in the importing country will rise. For example, if the exchange rate between the U.S. dollar and the euro changes unfavorably, it can lead to price escalation for U.S. buyers of European goods.
(b) Approaches to Lessen Price Escalation:
Localization and Domestic Sourcing: By establishing local production or sourcing components locally, companies can reduce costs associated with transportation, import taxes, and currency fluctuations. This approach reduces reliance on international supply chains and minimizes price escalation.
Negotiating Volume Discounts and Long-Term Contracts: Companies can negotiate volume discounts with suppliers or secure long-term contracts to stabilize prices and mitigate the impact of price escalation factors. This allows for better cost control and predictability.
Value Engineering and Cost Reduction Strategies: Implementing value engineering techniques and cost reduction strategies can help identify areas where expenses can be minimized. This may involve optimizing production processes, streamlining operations, or sourcing materials at lower costs.
Hedging and Currency Risk Management: Companies can employ hedging strategies and currency risk management techniques to mitigate the impact of exchange rate fluctuations. This involves financial instruments or contracts that protect against adverse currency movements, helping to stabilize prices and reduce the effects of price escalation due to currency fluctuations.
It's important to note that these approaches should be tailored to the specific industry, market dynamics, and company objectives to effectively address price escalation challenges.
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12.9. California Clinics, an investor-owned chain of ambulatory care clinics, just paid a dividend of $2 per share. The firm’s dividend is expected to grow at a constant rate of 5 percent per year, and investors require a 15 percent rate of return on the stock.
a. What is the stock’s value?
b. Suppose the riskiness of the stock decreases, which causes the required rate of return to fall to 13 percent. Under these conditions, what is the stock’s value?
c. Return to the original 15 percent required rate of return. Assume that the dividend growth rate estimate is increased to a constant 7 percent per year. What is the stock’s value?
(a) The stock's value is $21 (b) If the required rate of return decreases to 13%, the stock's value is $26.25 (c) Returning to the original required rate of return of 15% and assuming an increased dividend growth rate of 7%, the stock's value is $26.75.
a. In this case, the dividend expected next year is $2 multiplied by (1 + 5%) = $2.10 (since the dividend is expected to grow at a constant rate of 5% per year). The required rate of return is 15%, and the dividend growth rate is 5%. Therefore, the stock's value can be calculated as follows:
Stock Value = $2.10 / (0.15 - 0.05) = $2.10 / 0.10 = $21
b. If the required rate of return decreases to 13%, the stock's value can be recalculated using the same formula. The dividend expected next year remains the same at $2.10, but the required rate of return is now 13%, and the dividend growth rate is still 5%. Therefore, the stock's value is:
Stock Value = $2.10 / (0.13 - 0.05) = $2.10 / 0.08 = $26.25
c. Returning to the original required rate of return of 15% and assuming an increased dividend growth rate of 7%, the stock's value can be calculated again using the Gordon Growth Model. The dividend expected next year is $2 multiplied by (1 + 7%) = $2.14. The required rate of return is 15%, and the dividend growth rate is 7%. Therefore, the stock's value is:
Stock Value = $2.14 / (0.15 - 0.07) = $2.14 / 0.08 = $26.75
In summary, the stock's value is $21 when the required rate of return is 15% and the dividend growth rate is 5%. If the required rate of return decreases to 13%, the stock's value increases to $26.25. When the required rate of return returns to 15% and the dividend growth rate increases to 7%, the stock's value further increases to $26.75. These calculations demonstrate how changes in the required rate of return and dividend growth rate affect the valuation of a stock according to the Gordon Growth Model.
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How many dials of construction management are there and what two should a client or owner focus on?
Main dial in construction management: cost and schedule. The client should focus on cost control and effective planning for a successful project.
There are several important issues in construction management, but the two main areas that a client or owner should focus on are cost and schedule management. Cost management involves closely tracking and controlling the costs of a project to ensure that it stays within budget.
Schedule management involves effectively planning and coordinating various construction activities to meet project timelines and deadlines. By prioritizing these two aspects, the client can ensure the financial health of the project and its on-time completion, both critical to successful construction management.
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a. Assume that the company currently has $300 milion of net PPSE. b. The company currently has $100 million of net working capital. c. The company has operating margins of 10 percent and has an effective tax rate of 28 percent. 4. The company has a weighted average cost of capital of 9 percent. This is based on a capital structure of two-thirds equity and one-third debt. e. The firm has 2 million shares outstanding. Do not round intermediate calculations. Round your answer to the nearest cent.
The equity value per share would be approximately $234.47.
Based on the given information, we can calculate the firm's value using the formula:
Value = (Net PPSE + Net Working Capital) / (1 - Operating Margin) * (1 - Tax Rate)
a. Net PPSE = $300 million
b. Net Working Capital = $100 million
c. Operating Margin = 10% = 0.10
d. Tax Rate = 28% = 0.28
Value = ($300 million + $100 million) / (1 - 0.10) * (1 - 0.28)
Value = $400 million / 0.90 * 0.72
Value = $400 million / 0.648
Value = $617.28 million
To find the firm's equity value, we use the formula:
Equity Value = Value - (Debt * (1 - Tax Rate))
d. Weighted Average Cost of Capital (WACC) = 9% = 0.09
e. Shares Outstanding = 2 million
Since the capital structure is two-thirds equity and one-third debt, we can calculate the firm's debt as follows:
Debt = (1/3) * Value
Debt = (1/3) * $617.28 million
Debt = $205.76 million
Equity Value = $617.28 million - ($205.76 million * (1 - 0.28))
Equity Value = $617.28 million - ($205.76 million * 0.72)
Equity Value = $617.28 million - $148.3392 million
Equity Value = $468.9408 million
To find the equity value per share, we divide the equity value by the number of shares outstanding:
Equity Value per Share = Equity Value / Shares Outstanding
Equity Value per Share = $468.9408 million / 2 million
Equity Value per Share = $234.47
Therefore, rounding to the nearest cent, the equity value per share is approximately $234.47.
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Your friend borrows $100 from you and promises to pay you back $103 in 5 months. What annual percentage rate (APR) are you charging your friend? Round to the nearest tenth of a percent and write the answer as a decimal-for example, you should write 11.6% as 116
Answer:
Check
100
Apart from the check, another method of calculating the APR is to use the formula given below:
APR = (Interest paid/loan amount) × (12/number of months) × 100%
From the problem statement, the amount borrowed (loan amount) is $100 and the amount to be repaid in five months is $103. This implies that the interest paid is $103 − $100 = $3.
The number of months in which the loan is to be repaid is five months.
Substituting these values into the formula given above, we have:
APR = (Interest paid/loan amount) × (12/number of months) × 100%APR = ($3/$100) × (12/5) × 100%
APR = 0.06 × 12 × 100%APR = 7.2%
Therefore, the APR charged by you is 7.2%. Rounded to the nearest tenth of a percent, the APR is 7.2%.
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It is April 7, 2014. The quoted price of a US government bond with a 8% per annum coupon (paid semiannually) is 120-00. The bond matures on July 27,2023 . What is the cash price? How does your answer change if it is a corporate bond?
The cash price of the US government bond is $2640.
The cash price of a bond is the price that an investor actually pays to purchase the bond. To calculate the cash price of a bond, we need to take into account the quoted price and the accrued interest.
For the given US government bond with an 8% per annum coupon rate, paid semiannually, and a maturity date of July 27, 2023, the quoted price is 120-00.
To calculate the cash price, we need to determine the accrued interest up to the settlement date, which is April 7, 2014. Since the coupon is paid semiannually, we need to calculate the number of coupon periods that have passed since the last payment on January 27, 2014.
First, let's determine the coupon payment amount:
Coupon payment amount = (Coupon rate / 2) * Face value
= (8% / 2) * $1000
= $40
Next, let's calculate the number of coupon periods that have passed:
Number of coupon periods = Number of years * Number of coupon payments per year
= (2014 - 2023) * 2
= 18 * 2
= 36
The accrued interest is the sum of the coupon payments for the number of coupon periods that have passed:
Accrued interest = Coupon payment amount * Number of coupon periods
= $40 * 36
= $1440
Now, let's calculate the cash price by adding the accrued interest to the quoted price:
Cash price = Quoted price + Accrued interest
= $1200 + $1440
= $2640
Therefore, the cash price of the US government bond is $2640.
If the bond were a corporate bond instead, the calculation for the cash price would be the same. However, corporate bonds may have different coupon rates and payment frequencies, and the quoted prices may also vary. It is important to consider the specific details of the corporate bond in question to calculate its cash price accurately.
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Heather is planning to retire in 7 years. She will then need an income of $1674 at the beginning of every month for the subsequent 25 years. She is going to make one investment today to provide all of the money she will eventually collect. Her investments will earn 6.44% compounded monthly. How much should she invest today?`
Heather should invest $237,360.26 today. It is given that Heather is planning to retire in 7 years. She will then need an income of $1674 at the beginning of every month for the subsequent 25 years.
The rate of interest is 6.44% compounded monthly. We are to determine the amount that should be invested by her today. Let us use the formula for the present value of an annuity:
PVA = PMT[(1 - (1 + r)^-n) / r] where PVA is the present value of an annuity PMT is the regular payment amount,r is the rate of interest, n is the number of periods. In this question, the present value of the annuity will be the amount Heather needs to invest today to obtain the payment.
We can plug in the given values to solve for the present value of the annuity:
PVA = $1,674[(1 - (1 + 0.0644/12)^-300) / (0.0644/12)]
PVA = $1,674[(1 - 0.1635) / 0.00537]
PVA = $1,674[141.74]
PVA = $237,360.26
Therefore, Heather should invest $237,360.26 today.
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1. When are you required to file a South Carolina income tax return? Every year individual income tax returns are due April 15th unless, it is communicated that it is a different date. If you file and pay electronically you have until the first of May to submit your return, this date may vary as well.
2. What items are added back to your federal taxable income for South Carolina purposes?
3. List four items that may be deducted from your federal taxable income for South
Carolina purposes.
4. Explain the purpose of estimated tax payments.
5. How do you get an extension to file the South Carolina tax return?
1. South Carolina income tax due on April 15th. 2. Addbacks to federal taxable income: state tax refunds, federal deductions.3. Deductions from federal taxable income: state-specific deductions allowed.4. Estimated tax payments help fulfill tax obligations throughout the year.5. Extension to file South Carolina tax return obtained through request.
1. In South Carolina, individual income tax returns are generally due on April 15th each year, but the deadline may vary and be communicated as a different date. If filing and paying electronically, the deadline is extended to the first of May (which may also vary).
2. Some items that are added back to federal taxable income for South Carolina purposes include state and local income tax refunds, interest from state and municipal bonds of other states, and certain deductions taken for federal purposes.
3. Four items that may be deducted from federal taxable income for South Carolina purposes include contributions to South Carolina College Savings Plan, certain retirement income, military retirement income, and certain Social Security income.
4. The purpose of estimated tax payments is to fulfill the tax liability throughout the year for individuals who do not have taxes withheld from their income. It helps ensure that taxpayers meet their tax obligations and avoid penalties for underpayment.
5. To get an extension to file the South Carolina tax return, taxpayers can file Form SC4868 to request an extension of time. This extension provides an additional six months to file the return, moving the deadline from April 15th to October 15th. However, it's important to note that an extension of time to file does not grant an extension of time to pay any tax due.
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during its first five years of operations, white consulting reports net income and pays dividends as follows. required: calculate the balance of retained earnings at the end of each year. note that retained earnings will always equal $0 at the beginning of year 1. chegg
The balance at the end of Year 4 becomes the beginning balance for Year 5
To calculate the balance of retained earnings at the end of each year, we need to consider the net income and dividends paid during each year.
Year 1: Since the retained earnings begin at $0, the balance at the end of Year 1 will be the net income minus the dividends paid.
Year 2: The balance at the end of Year 1 becomes the beginning balance for Year 2. To calculate the balance at the end of Year 2, add the net income to the beginning balance and subtract the dividends paid.
Year 3: Similarly, the balance at the end of Year 2 becomes the beginning balance for Year 3. Add the net income to the beginning balance and subtract the dividends paid to find the balance at the end of Year 3.
Year 4: Repeat the same process. The balance at the end of Year 3 becomes the beginning balance for Year 4. Add the net income and subtract the dividends paid to find the balance at the end of Year 4.
Year 5: Finally, the balance at the end of Year 4 becomes the beginning balance for Year 5. Add the net income and subtract the dividends paid to find the balance at the end of Year 5.
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An asset was issued 14 months ago. The asset promised just one cash flow of $3000, to be paid to the owner exactly 6 years from the date that the asset was issued. If the required rate of return on this asset is 6%, then what is its present value? Round your answer to the nearest dollar.
An asset was issued 14 months ago with one cash flow of $3000 to be paid to the owner after 6 years. If the required rate of return on this asset is 6%, then what is its present value.
To find the present value, the formula of present value is used, which is:P = F / (1 + r)n Where,P is the present valueF is the future valuen is the number of yearsr is the required rate of returnGiven,F = $3000r = 6%We need to calculate n.
first as the given time is in years.N = (6 years - (14 / 12) years)N = 5.17 years (rounded to two decimal places)Now, using the formula of present value:P = F / (1 + r)n= 3000 / (1 + 0.06)5.17= 3000 / 1.41= $2127.66 (rounded to the nearest dollar)Therefore, the present value of the asset is $2128.
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Undertake a SWOT and PESTLE analysis on McDonal's and use the
results to analyse the main e-commerce related opportunities and challenges it has
faced because of the COVID-19 pandemic and evaluate how successfully it has
addressed these
Examine how the growth in sales and/or customer base has posed supply chain
challenges for McDonal's and the ways in which it has sought to
overcome these challenges in order to provide high levels of service and
fulfilment
Using your research, identify TWO (2) social media channels that McDonal's
uses to help develop its online communities. Explain the reasons why each of these
TWO (2) channels have been selected and the benefits they provide in terms of
achieving enhanced communication and interaction with these
communities.
Identify whether the McDonal's site has an SSL (Secure Sockets
Layer) certificate AND if its payment systems are PCI DSS (Payment Card Industry
Data Security Standard) compliant. Define the key characteristics of both features
and discuss how they can help customers to have confidence in the security of the ecommerce
site.
Using your research, identify and briefly describe TWO (2) features of McDonal's that you believe are particular strengths in terms of meeting the
needs and expectations of the site’s target audience(s), detailing the reasons for
your choice.
SWOT Analysis of McDonald's Strengths is one of the most well-known fast-food chains globally, with a large number of loyal customers. McDonald's has a large range of food items, including vegetarian and vegan options, as well as non-beef burgers.
The organization has a strong brand image and offers high-quality service to its consumers. The brand has also been successful in establishing a loyal fan base by sponsoring major sporting events and concerts. Weaknesses The food quality may be seen as subpar when compared to a sit-down restaurant, resulting in lower quality and lesser pricing. Since McDonald's is a franchise business, the level of control varies greatly between restaurants. Many people would argue that the food is unhealthy and does not provide much nutritional value.
Opportunities McDonald's may expand its product offerings in the future, including healthier food options and eco-friendly packaging. They may also provide better dining environments to increase their consumers' overall experience. Given the current trend in technology, McDonald's could launch an e-commerce service that allows customers to order and pay online. Threats Health concerns such as obesity and heart disease, as well as consumers' growing interest in eating healthily, could lead to lower sales of fast food.
Other fast-food chains may begin to provide a more sustainable and eco-friendly experience for their customers. COVID-19 could have a negative impact on the fast-food industry as a whole. PESTLE Analysis of McDonald's Political is subjected to government regulations and legislation that govern the operation of fast-food establishments. Economic The fast-food sector is often affected by economic fluctuations.
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You bought a call option on euros with a strike price of $1.70/euro. The option premium is 0.02 USD per unit. Which spot price make you break-even if you choose to exercise the option before maturity? (write number only)
You bought a put option on euros with a strike price of $1.70/£. The option premium is 0.02 USD per unit. Which spot price make you break-even if you choose to exercise the option before maturity? (write number only, round up to 2 decimal numbers)
The break-even spot price for the call option is $1.72 per euro. The break-even spot price for the put option is $1.68 per euro.
Call option
The strike price is the price at which the holder of an option can purchase or sell the underlying asset if he chooses to exercise the option. In this case, the strike price of the call option is $1.70 per euro. This means that the holder of the option can buy euros at this price if he chooses to exercise the option. The option premium is the price that the holder of an option pays to the writer of the option for the right to purchase or sell the underlying asset. The option premium for the call option is 0.02 USD per unit. To break even when exercising the option, the holder must make a profit equal to the option premium. To break even, the holder of the call option must exercise it at a price above the strike price by an amount equal to the option premium. Thus, the break-even point can be calculated by adding the strike price and the option premium. $1.70 + $0.02 = $1.72 per euro. Therefore, if the spot price is $1.72 per euro, the holder of the call option will break even if he exercises the option before maturity.
Put option
The strike price is the price at which the holder of an option can purchase or sell the underlying asset if he chooses to exercise the option. In this case, the strike price of the put option is $1.70 per euro. This means that the holder of the option can sell euros at this price if he chooses to exercise the option. The option premium is the price that the holder of an option pays to the writer of the option for the right to purchase or sell the underlying asset. The option premium for the put option is 0.02 USD per unit. To break even when exercising the option, the holder must make a profit equal to the option premium. To break even, the holder of the put option must exercise it at a price below the strike price by an amount equal to the option premium. Thus, the break-even point can be calculated by subtracting the option premium from the strike price. $1.70 - $0.02 = $1.68 per euro. Therefore, if the spot price is $1.68 per euro, the holder of the put option will break even if he exercises the option before maturity.
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Three exponential smoothing models with alpha values of 0.1,0.3, and 0.5 resulted mean absolute deviation values of 500,300,700, respectively, which is the best odel? 1) 0.3 2) 0.1 3) 0.5 4) All the three models are equally good
Based on the mean absolute deviation (MAD) values, the best exponential smoothing model among the three options is the one with an alpha value of 0.3.
The mean absolute deviation (MAD) measures the average difference between the predicted values and the actual values in a forecasting model. A lower MAD indicates better accuracy and performance of the model. In this case, the model with an alpha value of 0.3 resulted in a MAD of 300, which is the lowest among the three models. This suggests that the model with an alpha value of 0.3 has the smallest average difference between its predictions and the actual values, indicating higher accuracy compared to the other models. Therefore, based on the provided information, the model with an alpha value of 0.3 is the best choice among the given options.
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What happens when a company witnesses repeated service failures and lacks an effective service recovery strategy
When a company witnesses repeated service failures and lacks an effective service recovery strategy.
several negative consequences can occur:
1. Customer Dissatisfaction and Loss: Repeated service failures can lead to increased customer dissatisfaction. Unsatisfied customers may choose to take their business elsewhere, resulting in customer attrition and revenue loss. Negative word-of-mouth from dissatisfied customers can also impact the company's reputation and hinder new customer acquisition.
2. Damage to Brand Image and Reputation: Poor service performance and a lack of effective service recovery can damage the company's brand image and reputation. Negative experiences can spread through online reviews, social media, and word-of-mouth, eroding trust and credibility in the market. This can have long-term effects on the company's ability to attract and retain customers.
3. Decreased Customer Loyalty: Service failures and ineffective recovery efforts can erode customer loyalty. Customers may feel neglected, unvalued, or unappreciated, leading them to seek alternatives. Without a robust service recovery strategy, the company may struggle to regain customer trust and loyalty, further impacting customer retention rates.
4. Increased Costs and Operational Inefficiencies: Repeated service failures often result in increased costs for the company. Addressing customer complaints, rework, and potential refunds or compensation can be resource-intensive. Furthermore, the lack of an effective service recovery strategy may result in inefficient processes, leading to further operational inefficiencies and increased costs.
To mitigate these negative consequences, it is crucial for companies to proactively address service failures, develop a robust service recovery strategy, and invest in improving overall service quality. By promptly resolving customer issues, exceeding expectations in recovery efforts, and continuously improving service processes, companies can rebuild customer trust, retain loyalty, and protect their brand reputation.
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Part 1) NewTech Company is a young, vibrant company expected to grow at a rate of 30% over the next two years before settling to a long-run growth rate of 6%. The firm's required rate of return is 9%. If the firm recently paid a dividend of $2, what should be the stock's price?
A) $109.18
B) $105.67
C) $112.43
D) $81.45
The correct stock price based on the given information would be $13.33.
To calculate the stock's price using the Dividend Discount Model (DDM), we can use the formula:
Stock Price = Dividend / (Required Rate of Return - Growth Rate)
Given the following information:
Dividend = $2
Growth rate for the next two years = 30% = 0.30
Long-run growth rate = 6% = 0.06
Required Rate of Return = 9% = 0.09
Substituting these values into the formula:
Stock Price = $2 / (0.09 - 0.30 + 0.06)
Stock Price = $2 / (0.15)
Stock Price = $13.33
Since we are looking for the stock's price, none of the provided answer choices match the calculated value. The correct stock price based on the given information would be $13.33.
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What are
the costs incurred by a firm when it issues new securities through
an investment bank, in the traditional firm commitment underwriting?
What does it mean to say that a firm has "left money on
The costs incurred by a firm in traditional firm commitment underwriting include underwriting fees, legal and accounting expenses, printing and marketing costs, and potential administrative fees.
Underwriting Fees: The primary cost incurred by a firm in a traditional firm commitment underwriting is the underwriting fees. These fees compensate the investment bank for guaranteeing the purchase of the securities from the firm at a predetermined price and assuming the risk of reselling them to investors. Underwriting fees are typically a percentage of the total value of the securities issued.
Legal and Accounting Fees: The firm may also incur expenses related to legal and accounting services during the issuance process. These fees cover the costs of preparing and reviewing the necessary legal documents, such as the prospectus, as well as ensuring compliance with regulatory requirements. Additionally, accounting fees may be incurred for the preparation and audit of financial statements and other disclosure materials.
Printing and Marketing Costs: The firm might need to bear the expenses associated with printing physical copies of the prospectus and other offering materials. This includes the costs of design, printing, and distribution. Furthermore, marketing costs such as advertising and promotional activities may be incurred to attract potential investors.
Other Administrative Expenses: Depending on the complexity of the offering and the specific circumstances, there may be additional administrative expenses incurred by the firm. These could include filing fees with regulatory authorities, listing fees for stock exchange listings, and any other miscellaneous costs associated with the issuance process.
Regarding the phrase "left money on the table," it generally means that a firm could have achieved a higher price or raised more funds if it had priced the securities more optimally. This situation arises when the securities are underpriced, and their market price increases significantly shortly after the offering. In such cases, the firm could have sold the securities at a higher price, thereby obtaining more funds for its capital needs. It is often seen as a missed opportunity for the firm to maximize its fundraising potential.
The complete question is:
What are the costs incurred by a firm when it issues new securities through an investment bank, in the traditional firm commitment underwriting? What does it mean to say that a firm has "left money on the table"?
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Use the following cash flow data of Haven Hardware for the year ended December 31 , 2020 . What is the net cash provided by or used in investing activities of Haven Hardware? A) $12,000 B) −$12,000 C) −$62,000 D) $164,000
The net increase or decrease in cash for Haven Hardware for 2012 is $188,000.
To calculate the net increase or decrease in cash for Haven Hardware for 2012, we need to subtract the cash outflows (payments) from the cash inflows (receipts).
Cash inflows:
- Cash Collections from Customers: $575,000
- Sales of Equipment: $91,000
- Retirement of Common Stock: $65,000
Total cash inflows: $575,000 + $91,000 + $65,000 = $731,000
Cash outflows:
- Cash Payment on Salaries: $105,000
- Cash Payment on Interest: $50,000
- Purchase of Equipment: $75,000
- Purchase of Land: $43,000
- Cash Payments to Suppliers: $185,000
- Cash Dividend: $85,000
Total cash outflows: $105,000 + $50,000 + $75,000 + $43,000 + $185,000 + $85,000 = $543,000
To find the net increase or decrease in cash, we subtract the total cash outflows from the total cash inflows:
Net increase or decrease in cash = Total cash inflows - Total cash outflows
Net increase or decrease in cash = $731,000 - $543,000
Net increase or decrease in cash = $188,000
Therefore, the net increase or decrease in cash for Haven Hardware for 2012 is $188,000.
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