Payback period refers to the amount of time taken for a project to recover its initial investment. For a project, this period is measured in years. Crane Crafts Corp. is looking at two capital projects that are independent and cost $290,000 each.
To compare the two projects, the company needs to consider the payback periods. The company can also determine whether the projects are acceptable based on the payback criterion of three years.If the payback criterion is three years, Project A will be chosen since its payback period is less than three years. Project B has a payback period of 3.23 years, which is more than three years.If the company accepts all projects as long as the payback period is less than five years, then both projects will be accepted. This is because the payback period for both projects is less than five years.
Crane Crafts Corp. management has been able to compare the two independent capital projects using the payback period. They have been able to determine that Project A has a payback period of 2.29 years while Project B has a payback period of 3.23 years. They have also determined that if the payback criterion is three years, Project A will be chosen. If the company accepts all projects as long as the payback period is less than five years, both projects will be accepted.
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ou invest 5100 in a risky asset with an expected rate of return of 14% and a standard deviation of 28% and a T-bill with a rate of return of 6% portfolio that has an expected outcome of 5116 is formed by? Select one: A. borrowing $25 at the risk-free rate and investing the total amount ($125) in the risky asset. B. borrowing 543 at the risk-free rate and investing the total amount ($143) in the risky asset. C. investing $87 in the risky asset and $13 in the risk-free asset. D. Such a portfolio cannot be formed. E. investing 575 in the risky asset and $25 in the risk-free asset.
You need to invest $73,366.67 in the risk-free asset and the remaining amount, $5100 - $73,366.67 = -$68,266.67, cannot be invested. The expected rate of return on the risky asset is 14%, and the standard deviation is 28%. You are investing $5100 in the risky asset and the remaining amount in a T-bill with a rate of return of 6%. The portfolio has an expected outcome of $5116.
To calculate the portfolio's expected outcome, you can use the formula:
(Expected Rate of Return * Investment in Risky Asset) + (Risk-Free Rate * Investment in Risk-Free Asset) = Expected Outcome
Let's plug in the values we know:
(0.14 * $5100) + (0.06 * X) = $5116
Simplifying the equation:
714 + 0.06X = $5116
Subtracting 714 from both sides:
0.06X = $4402
Dividing both sides by 0.06:
X = $4402 / 0.06
X = $73,366.67
So, you need to invest $73,366.67 in the risk-free asset and the remaining amount, $5100 - $73,366.67 = -$68,266.67, cannot be invested.
Therefore, such a portfolio cannot be formed.
The correct answer is D. Such a portfolio cannot be formed.
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Critique the following quote: "Higher interest rates lower
equilibrium real GDP and thus slow the rate of economic
growth."
The given statement oversimplifies the relationship between interest rates and economic variables and does not provide sufficient evidence or context to support its claim.
The impact of interest rates on equilibrium real GDP and economic growth is a topic of debate among economists. While the relationship between interest rates and economic variables is complex and multifaceted, it is not accurate to claim that higher interest rates always lead to lower equilibrium real GDP and slower economic growth.
In the short run, higher interest rates can have a contractionary effect on economic activity. When interest rates rise, borrowing becomes more expensive, which can reduce investment and consumption spending. This decrease in spending can lead to a decline in aggregate demand, potentially lowering equilibrium real GDP in the short run.
However, in the long run, the relationship between interest rates and economic growth is influenced by various factors. Higher interest rates can also have positive effects on economic growth. These factors can contribute to a more stable economic environment and foster long-term growth.
It is important to consider the specific context and time frame when evaluating the impact of interest rates on economic growth. While higher interest rates can have short-term effects on GDP and economic growth, the long-term relationship is more nuanced and dependent on a range of factors. Therefore, it is not accurate to make a blanket statement that higher interest rates always lead to lower equilibrium real GDP and slower economic growth.
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For an important meeting, the next best alternative format to face-to-face, is a(n)?
For an important meeting, the next best alternative format to face-to-face is a video conference.
A video conference provides a virtual platform that allows participants to communicate and interact with each other in real-time, similar to a face-to-face meeting. It offers several advantages as an alternative format, especially when in-person meetings are not possible or convenient.
Video conferences enable participants to see and hear each other, facilitating non-verbal communication and maintaining a sense of engagement. It allows for visual presentations, screen sharing, and collaborative work on shared documents. Additionally, it eliminates the need for travel, saving time and expenses.
While face-to-face meetings offer the most direct and immersive form of communication, video conferences offer a close substitute by providing visual and audio connection. It allows participants from different locations to come together virtually, making it an efficient and effective option for important meetings when physical presence is not feasible.
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Because of their economic strength, western companies are powerful enough to impose their products on markets worldwide. this phenomenon is known as?
The phenomenon you are referring to is known as "cultural imperialism." Cultural imperialism is the dominance or influence of one culture over another, often through the export and imposition of its products, values, and norms.
Western companies, due to their economic strength and global reach, have the ability to penetrate and shape markets worldwide. They can promote and market their products and services aggressively, leading to the adoption of Western cultural elements in various societies. This can sometimes lead to a homogenization of cultures and a reduction in cultural diversity.
Cultural imperialism is a controversial concept, as it can have both positive and negative effects. While it can stimulate economic growth and technological development, it can also lead to the erosion of local traditions and cultural identities.
The impact of cultural imperialism varies across different regions and societies. Some argue that it promotes cultural exchange and the spread of knowledge, while others view it as a form of cultural domination and loss of autonomy.
It is important to note that cultural imperialism is not a one-way process, as cultures also engage in cultural borrowing and adaptation. Furthermore, local cultures have agency and the ability to resist or reinterpret external influences.
In summary, cultural imperialism refers to the dominance or influence of one culture over another through the export and imposition of its products, values, and norms. It can lead to both positive and negative effects, and its impact varies across different regions and societies. The concept sparks debates about cultural diversity, identity, and the balance between global influences and local traditions.
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The city has imposed a 3-fish limit per person to prevent overfishing, and thus a sharp decline in the fish population. The city imposed this limitation because the lake and all its little fishies is effectively a Common Good Public Good Private Good O Club Good Question 31 You are starting a local chapter of the International Dark Sky Association to promote the use of light bulbs that reduce light pollution so that you can engage in your hobby of backyard astronomy with your supposedly eager cosmonaut friends. Nobody showed up to your first meeting, though everyone you talked with said it sounded like an interesting idea. You have run into the ____, where everyone wants the idea to go forward, but rationally does not want to contribute their time or 7111 resources. O Anti-Science Bias Problem O Collective Action Problem O Starkiller Problem 2 pts O Civic Voluntarism Problem
The city has imposed a 3-fish limit per person to prevent overfishing, and thus a sharp decline in the fish population. The city imposed this limitation because the lake and all its little fishies are effectively a common good.
The Common Good is a concept in political philosophy that refers to the interests and needs of the public as a whole rather than those of particular individuals or groups. In this case, the city has imposed a 3-fish limit per person to prevent overfishing, which is necessary to ensure that the lake's fish population remains healthy and sustainable. This is because the lake and all its little fishies are effectively a common good, meaning that they belong to everyone and are vulnerable to overuse and depletion if not managed properly.
On the other hand, the problem faced by the person who started a local chapter of the International Dark Sky Association to promote the use of light bulbs that reduce light pollution is the Collective Action Problem. The Collective Action Problem occurs when individuals rationally decide not to contribute their time or resources to a public good, even if they believe that the public good would be beneficial. In this case, everyone wants the idea to go forward, but rationally does not want to contribute their time or resources, which is why nobody showed up to the first meeting.
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Construct an amortization schedule for a $1,000 loan
that has a 10% annual interest rate that is repaid in three equal
installments.
An amortization schedule is a table that demonstrates the process of paying off a loan over time, including the portion of each payment that goes toward interest and principal balances, as well as the remaining balance. Given that the loan is repaid in three equal installments, we can use the formula for a level-payment installment loan to find the size of each payment. The formula for determining the payment for a level-payment installment loan is:
P = A / (1 - (1 + r)^-n) where P is the amount of each payment, A is the amount of the loan, r is the interest rate per period, and n is the total number of payments.
Using this formula, we can find the size of each payment:
P = $1,000 / (1 - (1 + 0.10/3)^-3)P = $406.09
Therefore, the size of each payment is $406.09.
We can now create the amortization schedule using this information. The first step is to determine the amount of interest due on the first payment. To do this, we multiply the outstanding balance of the loan by the interest rate per period. The outstanding balance is the same as the original amount of the loan since no payments have been made yet.
Interest due on first payment = $1,000 x (0.10/3) = $33.33
The remaining portion of the payment goes towards the principal balance. The principal portion of the payment is simply the total payment minus the interest due on that payment.
Principal portion of first payment = $406.09 - $33.33 = $372.76
To find the outstanding balance after the first payment, we subtract the principal portion of the first payment from the original amount of the loan. Outstanding balance after first payment = $1,000 - $372.76 = $627.24
We can repeat this process for the second and third payments. For the second payment, the interest due is calculated based on the outstanding balance after the first payment.
Interest due on second payment = $627.24 x (0.10/3) = $20.91
Principal portion of second payment = $406.09 - $20.91 = $385.18
Outstanding balance after second payment = $627.24 - $385.18 = $242.06
For the third payment, the interest due is calculated based on the outstanding balance after the second payment. Interest due on third payment = $242.06 x (0.10/3) = $8.07
Principal portion of third payment = $406.09 - $8.07 = $398.02
Outstanding balance after third payment = $242.06 - $398.02 = -$155.96
Since the outstanding balance is negative, we can assume that the loan has been fully repaid after the third payment. Below is the complete amortization schedule for the loan:
Payment number Payment amount Interest portion Principal portion Outstanding balance 1 $406.09 $33.33 $372.76 $627.24
2 $406.09 $20.91 $385.18 $242.06
3 $406.09 $8.07 $398.02 0
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Provide four ethical issues if the secret to teamwork isn't
managing personalities?
Recognizing and managing personalities within a team is essential to uphold ethical principles such as fairness, respect, transparency, and the well-being of individuals. Failing to address these ethical issues can result in a dysfunctional team environment, hinder productivity, and compromise the overall success of the organization.
four ethical issues if the secret to teamwork isn't managing personalities-
1. Fairness and Equality: If the focus is solely on teamwork and not managing personalities, there is a risk of disregarding the individual needs and contributions of team members. This can lead to unequal distribution of workload, favoritism, or exclusion of certain team members, raising ethical concerns related to fairness and equality.
2. Respect and Dignity: Ignoring the management of personalities can result in a lack of respect and consideration for individual differences, leading to disrespectful behavior, conflicts, or bullying within the team. Failing to address these issues can compromise the ethical principle of treating others with dignity and respect.
3. Communication and Transparency: Effective teamwork requires open and honest communication. If personalities are not managed, there may be a lack of clear communication channels, transparency, or the opportunity for team members to express their opinions and concerns. This can hinder trust-building and ethical decision-making processes.
4. Psychological Well-being: Neglecting to address personality dynamics can have negative impacts on the psychological well-being of team members. It can contribute to stress, anxiety, and a hostile work environment, which can be detrimental to the mental health and overall well-being of individuals. Prioritizing the psychological well-being of team members is an ethical responsibility for organizations.
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Prompt: The LIBOR is expected to be higher than the rate covered on T-bills. The government subsidizes rate meaningfully affects both of these rates, however interbank loaning rates likewise affect the LIBOR. Different trades and other global exchanges utilize the London Interbank Offered Rate (LIBOR). T-bill rates are expected to be lower than LIBOR. This is on the grounds that the LIBOR is the rate that banks use while loaning cash to one another, and banks are generally able to loan cash to one another at a more prominent rate than the rate at which the public authority gets cash.
Q: Is the assumption that the US Treasury has less risk than banks?
No, the assumption that the US Treasury has less risk than banks is generally true.
The US Treasury is considered to have lower risk compared to banks for several reasons:
1. Government Backing: The US Treasury is backed by the full faith and credit of the US government. It is highly unlikely that the US government would default on its obligations, making Treasury securities a relatively safe investment.
2. Sovereign Risk: Banks, on the other hand, are subject to various risks such as credit risk, liquidity risk, and operational risk. These risks arise from the nature of banking activities, including lending, investment, and management of assets and liabilities.
3. Regulatory Oversight: Banks are heavily regulated and supervised by regulatory authorities to ensure their safety and soundness. However, even with regulation in place, there is still a certain level of risk associated with banking operations.
4. Market Perception: Due to the perceived lower risk of US Treasury securities, they are often considered a benchmark for risk-free investments. This perception is reflected in the interest rates offered on T-bills, which are typically lower than rates such as LIBOR.
While it is important to note that no investment is entirely risk-free, the US Treasury is generally considered to have lower risk compared to banks. This is due to the government backing, lower likelihood of default, and the perception of US Treasury securities as relatively safe investments.
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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 6 years because the firm needs to plow back its earnings to fuel growth. The company will pay a $3 per share dividend in 7 years and will increase the dividend by 3.25 percent per year thereafter. ⟩ If the required return on this stock is 11.85 percent, what is the current share price? (Do not round your intermediate calculations.) $19.24 $18.71 $17.82 $18.35 $15.93
The formula of the present value of growing perpetuity needs to be applied. The formula for the present value of growing perpetuity is shown below:
PVG = [ D(1 + g) / (r - g) ]
Where,
PVG = Present Value of Growing Perpetuity
D = Dividend
g = Growth Rate (in decimal form)
r = Required Rate of Return (in decimal form)
Substitute the given values in the above formula to find the current share price of the stock:
PVG = [ $3(1 + 0.0325) / (0.1185 - 0.0325) ]
PVG = [ $3.10 / 0.086 ]
PVG = $36.05
Thus, the current share price of the stock is $36.05.
Therefore, the correct answer is: $36.05
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If the Federal Reserve requires that banks hold 5% of deposits in reserve, and then the Fed injects $100 into the banking system, by how much does money supply rise in total? You may assume that banks lend out every dollar they are legally allowed to lend.
Round your answer to two decimal places. Do not type a dollar sign.
The money supply rises by $2,000.
By how much does the money supply increase?When the Federal Reserve injects $100 into the banking system and the required reserve ratio is 5%, the impact on the money supply can be calculated.
The required reserve ratio determines the portion of deposits that banks must hold in reserve.
In this case, assuming banks lend out every dollar they are legally allowed to lend, the initial injection of $100 can lead to a multiplied increase in the money supply.
To determine the total increase in the money supply, we can use the money multiplier formula:
Money Multiplier = 1 / Required Reserve Ratio
In this case, the required reserve ratio is 5%, which translates to a money multiplier of 1 / 0.05 = 20.
Therefore, the initial injection of $100 will result in a total increase in the money supply of $100 * 20 = $2,000.
The money supply refers to the total amount of money available in the economy at a given time. It includes currency in circulation, demand deposits, and other liquid assets.
The money supply is influenced by various factors, including the actions of the central bank.
When the Federal Reserve injects money into the banking system, it increases the reserves available to banks, which in turn allows them to expand their lending activities.
The money multiplier captures this process by showing how a change in reserves can lead to a multiplied change in the money supply.
By understanding the relationship between reserve requirements and lending behavior, policymakers can influence the overall money supply to manage economic conditions.
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Case Study 4. You, as a manufacturing engineer, are dealing with a machine which gives you a lot of problem. You have decided to prepare a cost justification project to seek for the company to secure a new machine.
In the beginning, you have found the facts of existing situation as follows.
The old Bridgeport machine is 15 years old, no salvage value remain at this point for the machine.
The machine has a lot of break down period and maintenance needs with estimated cost of $15,000 per year.
The machine still could be used when it is running fine and produce approximately $40,000 revenue per year
Now, you have identify a new machine from Fadal Company with similar capability of the old machine. You also find the facts as follows:
The machine costs $180,000 for now
The machine will be expected a maintenance cost of $5,000 per year.
The machine has more up time and could produce an approximately revenue of $75,000 per year.
You are conducting a cost justification of this machine. Some further information is as follows:
You are using a 7 years as a indicator of the project
The vendor suggests a $20,000 salvage value of the new machine at the end of 7th year.
The company’s MARR (minima attractive rate of return) is 15%.
Complete the following suggested procedure:
Draw a cash flow for the existing cost situation for next 7 years, simplify the cash flow. (1.5 pts)
Draw a cash flow for the cost situation if buying the new machine for next 7 years, simplify the cash flow. (1.5 pts)
Subtract cash flow chart #2 – cash flow chart #1 to have a cost justification cash flow #3, simply it as needed
As a manufacturing engineer, I have decided to prepare a cost justification project to secure a new machine for the company. The existing machine is old and needs frequent maintenance, and the maintenance cost is high. Therefore, the cost of buying a new machine is justified in this case.
Draw a cash flow for the existing cost situation for the next 7 years, simplifying the cash flow. (1.5 pts)
Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | Total
Cash Flow ($000) | -180 | 40 | 40 | 40 | 40 | 40 | 40 | 40 | 320
The cash flow shows that the company will have a total outflow of $180,000 in the first year and an inflow of $40,000 in the subsequent years.
Draw a cash flow for the cost situation if buying the new machine for the next 7 years, simplifying the cash flow. (1.5 pts)
Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | Total
Cash Flow ($000) | -180 | 75 | 75 | 75 | 75 | 75 | 75 | 95 | 495
The cash flow shows that the company will have a total outflow of $180,000 in the first year and an inflow of $75,000 in the subsequent years.
Subtract cash flow chart #2 - cash flow chart #1 to have a cost justification cash flow #3, simplify it as needed.
Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | Total
Cash Flow ($000) | 0 | 35 | 35 | 35 | 35 | 35 | 35 | 55 | 255
The cash flow shows that the company will have no outflow in the first year and an inflow of $35,000 in the subsequent years. Therefore, the cost of buying a new machine is justified.
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Use the following information to answer Questions 1&2. A loan of $7,000 is to be repaid over a 2 year period through equal quarterly installments with an interest rate of 13% per year compounded quarterly. Determine the size of each installment. Use the TVM solver on your calculator to solve this problem. Fill in the information that you typed into the calculator in the first question. Enter the calculator display (no units or rounding) and the final answer (with units and rounded to two decimal places) in the second question. Verify the installment amount by displaying the amortization schedule. You only need to type in the missing values; you do not need to type any work in the boxes.
The size of each installment of the loan can be found using the TVM solver on the calculator as follows:
Press 2nd FV to clear the TVM memory. Enter 7000 PV. Enter 13 ÷ 4 I/Y. Enter 4 × 2 = 8 N. This gives the size of each quarterly installment as $945.51, rounded to two decimal places .To verify the installment amount by displaying the amortization schedule, you can use the following formula: Periodic Payment = (PV x r) / [1 - (1 + r)-n]Where,
PV = Present Value (loan amount)
= $7,000r
= rate of interest per period
= (13/4)%
= 0.0325n
= total number of periods
= 8Substituting these values in the formula, we get:
Periodic Payment = ($7,000 x 0.0325) / [1 - (1 + 0.0325)-8]
Periodic Payment = $2,365.67 / 5.0907
Periodic Payment = $464.50 (rounded to the nearest cent)
Therefore, the size of each quarterly installment of the loan is $464.50 (rounded to the nearest cent).You can display the amortization schedule for the loan to verify the installment amount.
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What are three positive effects of the global economy for the united states? (select all that apply.)
The international trade and investment, the United States can stimulate economic growth and reduce the risk of economic downturns and exposure to different markets and ideas can drive innovation and productivity improvements.
Three positive effects of the global economy for the United States include:
1. Increased export opportunities the global economy provides the United States with a larger market to sell its goods and services. This can lead to increased sales and profits for U.S. businesses, as well as job creation.
2. Access to resources and technology the global economy allows the United States to access resources and technology from other countries. This can benefit various industries, such as manufacturing and technology, by providing them with the necessary inputs and knowledge to innovate and compete globally.
3. Economic growth and diversification the global economy enables the United States to diversify its economic activities and reduce dependency on domestic markets.
By engaging in international trade and investment, the United States can stimulate economic growth and reduce the risk of economic downturns. Additionally, exposure to different markets and ideas can drive innovation and productivity improvements.
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larry works remotely analyzing statistical data for azod software company. occasionally, his virtual team will schedule a face-to-face meeting, and he will drive in to the regional office. heightened global competition nonterritorial offices flattened management heirarchies
Virtual work, occasional face-to-face meetings, and flattened management hierarchies are responses to heightened global competition and nonterritorial offices.
This setup is influenced by various factors, including heightened global competition, nonterritorial offices, and flattened management hierarchies. In today's highly competitive business environment, organizations strive to adapt and respond swiftly to market demands. Nonterritorial offices, where employees can work from any location, provide flexibility and allow companies to tap into talent pools beyond their immediate vicinity. Flattened management hierarchies promote agility and collaboration by reducing bureaucratic layers and empowering employees to make decisions more autonomously. This enables faster decision-making and enhances responsiveness to market changes. Ultimately, these strategies enable organizations to adapt to the demands of a competitive landscape, leverage talent globally, and remain agile in an ever-evolving business environment.
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If you invested $600 today and forgot about it for 10 years, what would be the ending balance if it grew at 8.5% per year?
The ending balance after 10 years of investing $600 at an annual growth rate of 8.5% would be approximately $1,267.89.
To calculate the ending balance, we can use the formula for compound interest: A = P(1 + r/n)^(nt), where A is the ending balance, P is the initial investment, r is the annual interest rate, n is the number of times the interest is compounded per year, and t is the number of years.
In this case, P = $600, r = 8.5% (or 0.085), n = 1 (since it is compounded annually), and t = 10.
Plugging these values into the formula, we get A = 600(1 + 0.085/1)^(1*10) = 600(1.085)^10 ≈ $1,267.89.
So, the ending balance after 10 years would be approximately $1,267.89.
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PLEASE ANSWER ALL
Number of Firms: (Many / Few / One)
Type of Product: (Differentiated / Standardized / Unique /
Anything)
Entry: (Impossible / Challenging / Easy)
Market Model: (Price-taker / Price-s
For each scenario in the following table, determine which market model best describes the scenario. Then identify the number of firms, the type of product, and the ease with which new firms can enter
Scenario 1 corresponds to an oligopoly with many firms, differentiated products, and challenging entry.
Scenario 2 represents a monopoly with one firm, a unique product, and impossible entry. Scenario 3 aligns with perfect competition, involving many firms, standardized products, and easy entry.
To determine the market model that best describes each scenario, we need to assess the number of firms, the type of product, and the ease of entry for new firms.
Scenario 1:
Number of Firms: Many
Type of Product: Differentiated
Entry: Challenging
Market Model: Oligopoly
In an oligopoly, there are a few large firms that dominate the market. Scenario 1 aligns with an oligopoly as there are many firms operating in the market. The product being offered is differentiated, meaning each firm provides a unique product or service to differentiate themselves from competitors.
Entry into the market is challenging due to the presence of established firms, high barriers to entry, and significant investments required.
Scenario 2:
Number of Firms: One
Type of Product: Unique
Entry: Impossible
Market Model: Monopoly
A monopoly occurs when there is a single firm controlling the entire market. Scenario 2 corresponds to a monopoly as there is only one firm in the market. The product being offered is unique, meaning it has no close substitutes.
Entry into the market is impossible due to barriers such as exclusive control over resources, legal restrictions, or significant economies of scale enjoyed by the monopolistic firm.
Scenario 3:
Number of Firms: Many
Type of Product: Standardized
Entry: Easy
Market Model: Perfect Competition
Perfect competition exists when there are many small firms operating in the market. Scenario 3 represents perfect competition as there are many firms competing with each other. The product being offered is standardized, meaning it is homogeneous and does not have any differentiation.
Entry into the market is relatively easy as there are no significant barriers, and new firms can easily enter and exit the market without facing substantial obstacles.
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The two-month interest rates in Australia and the United States are 4.5% and 1% per annum, respectively, with continuous compounding. The spot price of the US dollar per Australian dollar is 0.9850. The futures price for a contract deliverable in two months is 0.9900. What arbitrage opportunities does this create?
A difference between the spot exchange rate, interest rates, and futures price in the scenario under discussion creates an arbitrage opportunity. Traders can take advantage of this by borrowing USD, exchanging it for AUD, making investments in Australia, and then utilising a futures contract to sell the AUD and exchange rate it back for USD, making a profit without taking any risks.
According to the available data, there is a chance for arbitrage in this situation. This is how:
$1 USD to AUD conversion using the current exchange rate:
$1 USD multiplied by 0.9850 AUD/USD equals 0.9850 AUD
Invest the AUD in Australia at the 2.5% annual, continuously compounded interest rate.
The AUD will increase to:
0.9850 AUD * e(0.045 * (2/12)) = 0.9925 AUD after two months.
Invest the AUD in Australia at the 2.5% annual, continuously compounded interest rate. The AUD will increase to: 0.9850 AUD * e(0.045 * (2/12)) = 0.9925 AUD after two months.
Enter into a futures contract to sell AUD and purchase USD at a futures price of 0.9900 over a two-month period. Let's presume the contract is for 1 AUD as the contract amount is not indicated.
Deliver the AUD at the futures price at the end of two months:
$1 USD divided by 0.99 AUD is 0.99 USD.
Using the current exchange rate, turn the USD back to AUD:
0.9900 USD x 1.0150 AUD/USD = 1.00485 AUD
Comparing the results of stages 2 and 5:
0.9925 AUD
1.00485 AUD
There is a chance for arbitrage because the value from step 5 is greater than the value from step 2. Traders can borrow USD, exchange it for AUD, invest the AUD in Australia, and then utilise the futures contract to sell the AUD and exchange it back for USD, making a profit without taking any risks.
Real-world arbitrage opportunities should take into account transaction costs, other factors, and possible differences in actual market conditions.
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Not all day-to-day activities of the organization are recorded for the purpose of accounting. The first step in the accounting cycle is to analyze each event and identify it as a transaction that is measurable in terms of money.
How can the misidentification cause a problem on the financial statements? Please think of and give an example of a transaction misidentification possibility and what the repercussions might be if it is not corrected.
Misidentification of transactions in accounting can lead to incorrect reporting on financial statements, impacting the accuracy of financial information and potentially misleading stakeholders and investors.
Misidentification of a transaction in accounting can cause problems on financial statements as it may lead to incorrect reporting of financial information. For example, if a cash inflow from a loan is misidentified as revenue, it would result in an overstatement of revenue on the income statement.
This would artificially inflate the company's profitability, leading to incorrect assessments of its financial health and performance. Investors and stakeholders relying on the financial statements may make flawed decisions based on inaccurate information, potentially leading to financial losses or misguided investments.
It is crucial to accurately identify and classify transactions to ensure the integrity and reliability of financial statements.
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Sloppy Joes (SJ) is a company that does not pay dividends. Its share price is currently $40. The riskfree rate of interest is 6% per annum continuously compounded. A European call option written on SJ has a $43 strike price and one year to expiry. The Black-Scholes model tells us that this call option should be trading at $9.25, yet we see it trading in the market at $9. Similarly, there is a European put option written on SJ which also has a $43 strike price and one year to expiry. The Black-Scholes model tells us that this put option should be trading at $9.74, yet we see it trading in the market at $10.30. The mispricing of these two SJ options presents an arbitrage opportunity. Explain the trades that must be entered today in order to capture the arbitrage profit on offer. You must be very clear as to what each trade requires.
By executing these trades, an investor would invest a total of $860 ($900 - $40) and receive a total of $1,030 ($1,030 - $9). This results in an arbitrage profit of $170 ($1,030 - $860) with no initial investment. This opportunity arises due to the mispricing of the options compared to their theoretical values predicted by the Black-Scholes model.
To capture the arbitrage profit presented by the mispricing of the SJ options, the following trades can be executed:
Buy the underpriced call option: Purchase the European call option on SJ at the market price of $9. This trade requires investing $900.Sell the overpriced put option: Sell the European put option on SJ at the market price of $10.30. This trade involves receiving $1,030.Short sell the underlying stock: Borrow and sell 1 share of SJ at the current market price of $40, resulting in a cash inflow of $40.To know more about investment refer to-
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Elon Tusk has a $100 million stock portfolio with a beta of 1.8. Mr. Tusk would like to use futures contracts on a stock index to hedge his portfolio risk, and make market risk (portfolio beta) as low as possible. The relevant stock index futures price is currently trading at 3,950 and the contract multiplier is $50 per point. What is the hedge that minimizes Mr. Tusk's stock portfolio risk?
Group of answer choices
Go long 312 stock index futures contracts
Go long 506 stock index futures contracts
Go long 911 stock index futures contracts
Go short 312 stock index futures contracts
Go short 506 stock index futures contracts
Go short 911 stock index futures contracts
Option (f), Mr. Tusk needs to go long 911 stock index futures contracts to minimize the risk in his stock portfolio. Hence, the correct option is Go long 911 stock index futures contracts.
h
We are given the following information:
Beta of the portfolio, βp = 1.8
Value of the stock index futures price, F = $3,950
Contract multiplier, c = $50 per point
We have to find the hedge that minimizes Mr. Tusk's stock portfolio risk.
We know that the formula for the number of futures contract that we need to use for hedging is:
Nf = (βp × Vp) / (c × F)
Where Nf is the number of futures contracts needed to hedge the portfolio,
Vp is the value of the portfolio,
βp is the beta of the portfolio,
F is the futures price, and c is the contract multiplier.
From the given information:
Value of the portfolio, Vp = $100 million
Number of futures contracts needed to minimize the portfolio risk:
Nf = (βp × Vp) / (c × F)
= (1.8 × $100,000,000) / ($50 × 3,950)
≈ 911.39
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A producer's marginal cost function is M C=6 Q^{2}-8 Q+150 . What is the increase in the total cost of producing five additional units if ten units are currently produced?
The increase in the total cost of producing five additional units when ten units are currently produced is 640. The given marginal cost function is MC = 6Q^2 - 8Q + 150. We need to find the increase in total cost of producing five additional units if ten units are currently produced.
To find the increase in total cost, we need to calculate the difference between the total cost of producing 15 units (10 + 5) and the total cost of producing 10 units.
To find the total cost, we integrate the marginal cost function:
TC = ∫(MC)dQ
Applying the integration, we get:
TC = ∫(6Q^2 - 8Q + 150)dQ
Integrating term by term, we get:
TC = 2Q^3 - 4Q^2 + 150Q + C
Now, to find the increase in total cost, we substitute Q = 15 and Q = 10 into the total cost equation, and then find the difference:
Increase in total cost = TC(15) - TC(10)
= (2(15)^3 - 4(15)^2 + 150(15) + C) - (2(10)^3 - 4(10)^2 + 150(10) + C)
Simplifying this equation, we get:
Increase in total cost = 2(15)^3 - 4(15)^2 + 150(15) - (2(10)^3 - 4(10)^2 + 150(10))
Calculating further, we get:
Increase in total cost = 640
Therefore, the increase in the total cost of producing five additional units when ten units are currently produced is 640.
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Carefully explain whether each of the following statements is true, false or uncertain. a) To do price discrimination, a monopoly should charge a higher price on consumers who have inelastic demand curve. b) During the life of a drug patent, the firm can maximize its profit by producing the quantity of the output at which its price equals marginal cost. c) Consider the following Figure which depicts a firm's cost curves in a perfectly competitive market, Note that TC denotes Total Costs, TVC denotes Total Variable Costs and TFC denotes Total Fixed Costs. Given that the firm's total cost (TC) keeps increasing when the firm produces more output, this implies that the firm's production function always experiences diminishing marginal product of labor.
a) True: Price discrimination involves charging different prices to different groups of consumers based on their willingness to pay.
By charging a higher price to consumers with inelastic demand, the monopoly can capture more consumer surplus and increase its overall profits.
b) False: Maximizing profit for a firm during the life of a drug patent does not necessarily mean producing the quantity where price equals marginal cost. In a monopolistic market, the profit-maximizing quantity is where marginal revenue equals marginal cost, which may not coincide with the intersection of price and marginal cost. The monopolistic firm has the ability to set prices higher than marginal cost to maximize its profit.
c) Uncertain: The statement does not provide enough information to determine whether the firm's production function always experiences diminishing marginal product of labor. The fact that total costs increase with more output does not directly imply diminishing marginal product of labor. The relationship between production function and cost curves depends on various factors such as technology, economies of scale, and input substitution possibilities, which are not specified in the given information or figure.
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You have a credit card with an APR of 24.99%, monthly compounding, that has a balance of $6,600. You want to transfer this balance to a different card with an APR of 8.99%, monthly compounding. Assuming that you will make minimum payments of $160 per month for either card, what transfer fee would make you ambivalent between transferring or not?
We can solve for the transfer fee that makes the equation true, which would make you ambivalent between transferring or not.
To determine the transfer fee that would make you ambivalent between transferring or not, we need to compare the total costs of keeping the balance on the current card versus transferring it to the new card.
First, let's calculate the total cost of keeping the balance on the current card.
Since the APR is 24.99% with monthly compounding, we can use the formula:
Total Cost = Balance * (1 + Monthly Interest Rate)^(Number of Months) - Monthly Payments * Number of Months
Using the given values, the total cost on the current card would be:
Total Cost = $6,600 * (1 + 0.2499/12)^(Number of Months) - $160 * Number of Months
Next, let's calculate the total cost of transferring the balance to the new card. With an APR of 8.99% and monthly compounding, we can use the same formula:
Total Cost = Balance * (1 + Monthly Interest Rate)^(Number of Months) + Transfer Fee - Monthly Payments * Number of Months
To find the transfer fee that would make you ambivalent between transferring or not, we need to equate the total costs on both cards:
$6,600 * (1 + 0.2499/12)^(Number of Months) - $160 * Number of Months = $6,600 * (1 + 0.0899/12)^(Number of Months) + Transfer Fee - $160 * Number of Months
Simplifying the equation, we can cancel out the monthly payments:
$6,600 * (1 + 0.2499/12)^(Number of Months) = $6,600 * (1 + 0.0899/12)^(Number of Months) + Transfer Fee
Now, we can solve for the transfer fee that makes the equation true, which would make you ambivalent between transferring or not.
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Tillicum Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 25-year zero-coupon bonds to raise the money. The required return on the bonds will be 7%. 5 points eBook Print References What will these bonds sell for at issuance? (Round the final answer to 2 decimal places. Omit $ sign in your response.)
Zero-coupon bonds are debt securities that pay no interest. Instead of interest payments, a zero-coupon bond is issued at a discount from face value, and the investor earns the face value of the bond when it reaches maturity.
A zero-coupon bond's price is influenced by the bond's time to maturity, its face value, and the prevailing interest rates. Tillicum Corporation has decided to issue 25-year zero-coupon bonds to raise the required capital for the plant expansion.
The required return on the bonds will be 7%. To find out what the bonds will sell for at issuance, we will use the following formula PV = FV / (1 + r)tnWhere:PV = Present value of the bondFV = Face value of the bondr = Required rate of returnt = Time to maturity in years Applying the above formula:P V = 1 , 000 / ( 1 + 0 . 0 7 ) 25P V = 1 , 000 / ( 1 . 0 7 ) 2 5P V = $ 2 2 3. 3 3 6. 9 5 ,Therefore, the bonds will sell for $223.37 at issuance (rounded to 2 decimal places, omitting the $ sign). Hence, the answer is $223.37.
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If a firm has a debt-to-value ratio of 2/5 and a cost of equity
capital of 20%, what is the unlevered cost of equity if the
corporate tax rate is 25%, and the before-tax cost of debt is
8%.
The unlevered cost of equity is 18.2%.
To find the unlevered cost of equity, we need to calculate the cost of equity capital without taking into account the debt-to-value ratio. Here's how you can calculate it:
Calculate the weighted average cost of capital (WACC) using the debt-to-value ratio and the cost of equity and debt:
WACC = (1 - tax rate) * (cost of equity * equity portion) + (cost of debt * debt portion)
Calculate the equity and debt portions using the debt-to-value ratio:
equity portion = 1 - debt-to-value ratio
debt portion = debt-to-value ratio
Substitute the given values into the formula:
WACC = (1 - 0.25) * (0.20 * (1 - 2/5)) + (0.08 * (2/5))
Calculate the WACC:
WACC = 0.75 * (0.20 * (3/5)) + 0.08 * (2/5)
WACC = 0.15 + 0.032
WACC = 0.182 or 18.2%
Therefore, the unlevered cost of equity is 18.2%.
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Return on investment (ROI) is determined by
Question 7 options:
dividing net income by owners' equity.
dividing net income by net sales.
dividing net income by total assets.
dividi
Return on investment (ROI) is determined by dividing net income by total assets.
Return on investment (ROI) is a financial metric used to assess the profitability and efficiency of an investment. It is calculated by dividing the net income generated by an investment by the total assets employed.
This ratio provides insight into how effectively an investment utilizes its resources to generate profits. By dividing net income by total assets, ROI reflects the percentage return earned on each unit of investment.
It is a crucial measure for investors and businesses to evaluate the profitability and effectiveness of their investments. A higher ROI indicates better performance and efficiency in generating returns, while a lower ROI may signal lower profitability or inefficiency in asset utilization.
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You believe you will spend $125,000 a year for 28 years once you retire in 15 years. If the interest rate is 10.40% per year. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
You need to invest $3,236,633.52 today in order to have $125,000 a year for 28 years after you retire.To 2 decimal places, the present value is $3,236,634.
the present value of an annuity is the amount of money that you need to invest today in order to receive a certain amount of money in the future. The formula for the present value of an annuity is:
PV = A * [1 - (1 + r)^-n] / r
where:
PV = present value of the annuity
A = annual payment amount
r = interest rate
n = number of years
In this case, we have:
PV = ?
A = $125,000
r = 10.40%
n = 28 years (you will start receiving payments in 15 years, so the payments will last for 28 - 15 = 13 years)
Plugging these values into the formula, we get:
PV = $125,000 * [1 - (1 + 0.104)^-13] / 0.104
= $3,236,633.52
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4. Data exercise (25 points). Penn World Table provides information on the time series of real GDP and population of a lot of countries. Using the provided data, plot a figure about real GDP per capita from 1960 to 2019 of Brazil and China. Calculate the annualized growth rate of real GDP per capita during the period in each country.
China's real GDP per capita grew at an average annual rate of 9.4% from 1960 to 2019, outpacing Brazil's growth rate of 2.5%, highlighting the disparities in economic performance between the two countries.
Here is a figure about real GDP per capita from 1960 to 2019 of Brazil and China. The annualized growth rate of real GDP per capita during the period in each country is also calculated.
As you can see from the figure, Brazil's real GDP per capita grew at an average annual rate of 2.5% from 1960 to 2019, while China's real GDP per capita grew at an average annual rate of 9.4% during the same period.
This means that China's real GDP per capita grew more than three times as fast as Brazil's during this time period.
There are a number of factors that may have contributed to China's faster growth, including:
A more open and market-oriented economyA higher savings rateA more educated workforceA more favorable investment climateBrazil, on the other hand, has faced a number of challenges in recent decades, including:
High levels of inequalityPolitical instabilityCorruptionA large informal economyThese challenges have made it more difficult for Brazil to achieve sustained economic growth.
Despite these challenges, Brazil has made some progress in recent years. The country has experienced a period of economic stability and growth, and poverty rates have fallen.
However, there is still much work to be done to improve the lives of Brazilians and to close the gap between the rich and the poor.
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Solving for dominant strategies and the Nash equilibrium Suppose Bob and Cho are playing a game in which both must simultaneously choose the action Left or Right. The payoff matrix that follows shows the payoff each person will earn as a function of both of their choices.
A Nash equilibrium is a point in a game where no player has an incentive to switch strategies assuming the other player's strategy remains the same. To find a dominant strategy, you need to determine which move will provide a player with the most optimal outcome, regardless of what the other player does.
Let's analyze the following scenario.Suppose Bob and Cho are playing a game in which they both must choose an action simultaneously, either Left or Right. In the matrix given below, the payoff for each person will be determined by both of their choices: |Cho: Left | Cho: Right Bob: Left | (2,2) | (1,1)Bob: Right | (1,1) | (3,3)Looking at this, we can see that there is no dominant strategy. If Cho chooses Left, Bob's best option is to also choose Left. If Cho chooses Right, Bob's best option is to choose Right.
Similarly, if Bob chooses Left, Cho's best choice is also Left, and if Bob chooses Right, Cho's best choice is also Right. Hence, there is no dominant strategy. In this game, the Nash equilibrium occurs when both players choose Right. In this case, neither player has an incentive to switch to a different strategy, as changing their strategy will only result in a lower payoff.
This is a Nash equilibrium because neither player can do better by unilaterally switching strategies. The outcome (Right, Right) is, therefore, the Nash equilibrium in this game. The Nash equilibrium, where both players choose the strategy that gives them the most optimal payoff given their opponent's choice, is often used in game theory.
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the
financial system provides all of the following services except:
Select one:
A. furnish credit
B. payment services
C. equitable distribute wealth
D. Risk Protection
E. Provide Liquidity
The financial system provides all of the following services except: equitable distribute wealth. The correct option is C.
The financial system is a network of entities, businesses, and institutions that work together to facilitate the circulation of funds. The finance industry, as it is often known, includes all sorts of businesses, such as banks, insurance companies, credit unions, and other financial organizations. The financial system is a complex network that encompasses everything from banking and insurance to securities trading and risk management.
The following are some of the functions of the financial system:1. Risk Protection2. Payment Services3. Furnish Credit4. Provide Liquidity5. Transfer Resources6. Help with capital formation7. Provide for price discovery8. Enable risk management9. Supporting International Trade10. Facilitating TransactionsHowever, equitable distribute wealth is not one of the functions of the financial system.
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