Output-based measures of welfare can be considered flawed due to several reasons. While they provide a quantitative assessment of economic well-being based on production or output levels, they fail to capture other important dimensions of welfare, such as distributional equity, environmental sustainability, and social well-being.
Gross Domestic Product (GDP) as a measure of welfare: GDP is one of the most commonly used output-based measures of welfare. However, it has limitations as it focuses solely on economic production and does not account for factors like income distribution, quality of life, or environmental impacts.
A preferable alternative measure would be the Genuine Progress Indicator (GPI). The GPI adjusts GDP by incorporating factors such as income distribution, the value of household and volunteer work, and the costs of environmental degradation. It provides a more comprehensive view of welfare by considering social and environmental factors alongside economic indicators.
Human Development Index (HDI) as a measure of welfare: The HDI is an alternative measure that goes beyond output-based indicators by considering dimensions such as life expectancy, education, and income. It provides a more holistic assessment of welfare by taking into account health, education, and income levels. The HDI recognizes that well-being extends beyond economic output and considers the broader capabilities and opportunities available to individuals within a society.
By adopting measures like the GPI and HDI, policymakers can gain a more comprehensive understanding of welfare that goes beyond narrow output-based metrics. These alternative measures recognize the importance of social and environmental factors in determining overall welfare and can inform more balanced and inclusive policy decisions.
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What term is used to describe quantities demanded that do not change much in response to a change in price? Select one: O A. Price elasticity of demand. © B. The elasticity coefficient. C. Elastic demand. O D. Inelastic demand. O E Unitary elasticity.
The term used to describe quantities demanded that do not change much in response to a change in price is "inelastic demand" (D).
Inelastic demand refers to a situation where the quantity demanded of a good or service shows relatively little sensitivity to changes in its price. In other words, even if the price of the product increases or decreases, the quantity demanded remains relatively stable or doesn't change significantly.
Inelastic demand is characterized by a low price elasticity of demand, which measures the responsiveness of quantity demanded to changes in price. When demand is inelastic, the price elasticity coefficient is less than 1. This indicates that a percentage change in price will result in a proportionately smaller percentage change in quantity demanded.
Products or services with inelastic demand are often those that are considered necessities, have limited substitutes, or are habit-forming. Examples include basic food items, medications, and utilities. Consumers are less sensitive to price changes for these goods or services because they are essential or lack viable alternatives.
Understanding the elasticity of demand is important for businesses to determine pricing strategies, forecast demand, and assess the impact of price changes on revenue and profitability.
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Protecto Corporation purchased 60 percent of Strand Company's outstanding shares on January 1, 20X1, for 24,000 dollars more than book value. At that date, the fair value of the noncontrolling interest was 16,000 dollars more than 40 percent of Strand's book value. The full amount of the differential is considered related to patents and is being amortized over an eight-year period. In 20X1, Strand purchased a piece of land for 35,000 dollars and later in the year sold it to Protecto for 45,000 dollars. Protecto is still holding the land as an investment. During 20X3, Protecto bonds with a value of 100,000 dollars were exchanged for equipment valued at 100,000 dollars.
On January 1, 20X3, Protecto held inventory purchased previously from Strand for 48,000 dollars. During 20X3, Protecto purchased an additional 90,000 dollars of goods from Strand and held 54,000 dollars of this inventory on December 31, 20X3. Strand sells merchandise to the parent at cost plus a 20 percent markup.
Strand also purchases inventory items from Protecto. On January 1, 20X3, Strand held inventory it had previously purchased from Protecto for 14,000 dollars, and on December 31, 20X3, it held goods it had purchased from Protecto for 7,000 dollars during 20X3. Strand's total purchases from Protecto in 20X3 were 22,000 dollars. Protecto sells inventory to Strand at cost plus a 40 percent markup. The consolidated balance sheet at December 31,20X2, contained the following amounts:
Debit Credit
Cash 92,000 dollars Accounts Receivable 135,000 Inventory 140,000 Land 75,000 Buildings & Equipment 400,000 Patents 30,000 Accumulated Depreciation $210,000
Accounts Payable 114,200
Bonds Payable 90,000
Noncontrolling Interest 84,800
Common Stock 100,000
Retained Earnings 273,000
Totals 872,000 dollars 872,000 dollars
The following consolidation worksheet was prepared on December 31, 20X3. All consolidation entries and adjustments have been entered properly in the worksheet. Protecto accounts for its investment in Strand using the fully adjusted equity method. (Note: We ignore deferred taxes in the problem data for simplicity.)
Prepare a consolidated statement of cash flows for 20X3.
In 20X1, Protecto Corporation purchased 60% of Strand Company's shares for $24,000 over book value, with amortization over eight years.
deleted content: Consolidated Statement of Cash Flows for 20X3: Net cash provided by operating activities - $69,000; Net cash used in investing activities - $45,000; Net cash used in financing activities - $0; Net increase in cash - $24,000. The consolidated statement of cash flows shows that the company generated $69,000 from its operating activities during 20X3. It used $45,000 for investing activities, primarily related to the purchase of equipment. There were no cash flows from financing activities. As a result, there was a net increase of $24,000 in cash for the year.
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In each of the following situations, briefly explain whether the short-run Phillips curve with the unemployment rate on the horizontal axis will shift, and if it does shift, in which direction it will shift:
a. The expected inflation rate decreases.
b. The actual inflation rate increases.
c. The price of oil substantially decreases.
d. Cyclical unemployment increases.
e. Favorable weather conditions result in bumper agricultural crops.
a. The short-run Phillips curve is likely to change if the predicted inflation rate drops. As the natural rate of unemployment declines, it will shift to the left. This is because people may demand smaller salary increases when they anticipate lower inflation, which lessens the pressure on businesses to raise prices and lowers the equilibrium unemployment rate.
b. The short-run Phillips curve will move to the right if the real inflation rate rises. This suggests that the natural rate of unemployment will rise. Workers will seek bigger wage increases if inflation exceeds expectations, increasing costs for businesses. Companies may react by cutting employment, which would increase unemployment. c. The short-run Phillips curve will be flat if the price of oil drops significantly. Lean left to do so. Reduced production costs for businesses result in reduced prices and higher demand. This boosts economic growth and lowers unemployment. d. If cyclical unemployment rises, rather than a shift in the short-run Phillips curve, it will result. This is so because cyclical unemployment, as opposed to expectations or supply-side variables, shows the divergence from the natural rate caused by changes in the business cycle. e. The short-run Phillips curve is likely to move to the right if a bountiful crop of agricultural produce results from favourable weather conditions. Lower food costs reduce overall inflationary pressures and may temporarily raise the natural unemployment rate due to increased agricultural output.
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Please only answer if you 100% are confident in your answer, I
posted a bunch of questions from my last quiz in this class, 70% of
them were wrong. Thanks!
Notably absent from the (naïve) Phillips curve was a reasonable assumption about inflation expectations government borrowing government spending autonomous consumption
The naïve Phillips curve lacked a reasonable assumption about inflation expectations.
The naïve Phillips curve is an economic concept that suggests a trade-off between inflation and unemployment. However, it fails to consider the role of inflation expectations, which are crucial in determining actual inflation rates. Inflation expectations refer to the anticipated future levels of inflation.
When individuals and businesses form expectations about future inflation, it influences their behavior, such as wage demands and pricing decisions. If inflation expectations are not accounted for, the Phillips curve may provide an incomplete understanding of the relationship between inflation and unemployment. Therefore, the absence of a reasonable assumption about inflation expectations is a notable limitation of the naïve Phillips curve.
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fou borrow \( \$ 310,000 \); the annual loan payments are \( \$ 38,484.53 \) for 30 years. What interest rate are you being charged? Round you answer to the nearest whole number.
The interest rate charged on the loan is approximately 5%.
To find the interest rate charged on the loan, we can use the loan amortization formula:
Loan Payment = Principal * (r * (1+r)^n) / ((1+r)^n - 1)
Where:
Loan Payment = Annual loan payment
Principal = Loan amount
r = Interest rate (unknown)
n = Number of periods (in this case, number of years)
Given the following information:
Loan Payment = $38,484.53
Principal = $310,000
n = 30
Substituting the values into the formula, we can solve for the interest rate (r). However, the calculation involves iterative methods and is not straightforward to solve analytically. In this case, we can use numerical methods or financial calculators to find the interest rate. Using a financial calculator or spreadsheet software, the interest rate is approximately 5%.
Therefore, you are being charged an interest rate of approximately 5% on the loan.
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Why do organizational politics affect practically every
organization? (Explain in 2 paragraphs)
Organizational politics are activities that take place within an organization with the goal of gaining power and control over scarce resources. It is a natural human behavior and exists in practically every organization. Politics can be positive or negative. Positive politics are those that lead to better decision making and problem solving, while negative politics can lead to reduced productivity, increased conflict and reduced morale among employees.
Organizational politics can affect practically every organization because of several reasons. Firstly, people have different interests and preferences, and there are limited resources to satisfy these interests. This creates competition, and individuals engage in politics to secure resources that they consider important to them.
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Congratulations: you just bought your first home! This lovely midcentury modern ranch has a basement and a fenced-in backyard. The house was listed for $275,000, but you negotiated it down to $251,750. You qualify for a 30 -year mortgage with a 3.6% annual rate. Payments are made at the end of each month. How much is your monthly payment? \begin{tabular}{|l} $1,144.57 \\ $1,204.81 \\ $1,250.27 \\ \hline$9,063.03 \\ \hline$13,860.01 \\ \hline \end{tabular}
The monthly payment on a 30-year mortgage with a 3.6% annual rate for a $251,750 loan is approximately $757.84. The closest option provided is $1,144.57, which is significantly higher than the actual value.
We can use the formula for a monthly mortgage payment to calculate the amount of the monthly payment:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]
where:
P = $251,750 (the principal or amount of the loan)
i = 3.6% per year / 12 months = 0.003 per month (monthly interest rate)
n = 30 years x 12 months per year = 360 months
Plugging in the values, we get:
M = $251,750 [ 0.003(1 + 0.003)^360 ] / [ (1 + 0.003)^360 – 1 ]
M = $251,750 [ 0.003(1.003)^360 ] / [ (1.003)^360 – 1 ]
M = $251,750 [ 0.003(3.06072) ] / [ 3.06072 – 1 ]
M = $757.84
Therefore, the monthly payment on a 30-year mortgage with a 3.6% annual rate for a $251,750 loan is approximately $757.84. The closest option provided is $1,144.57, which is significantly higher than the actual value.
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Dantzler Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows (FCFs) during the next 3 years, after which FCF is exp to grow at a constant 6% rate. Dantzler's WACC is 12%.
Year = 0 , 1 , 2 , 3
FCF ($ millions) = N/A , -$8 , $21 , $45
a. What is Dantzler's horizon, or continuing, value? Find the value of all free cash flows beyond Year 3 discounted back to year 3. Write answers in millions.
$ _____ million
b. What is the firm's value today? Enter your answer in millions. Do not round your intermediate calculations.
$ _____ million
c. Suppose Dantzler has $57 million of debt and 32 million shares of stock outstanding. What is your estimate of the current price per share? Write out your answer completely, Round answer to 2 decimal places.
$ _____
a. Horizon value = $750 million.
b. Present value = $641.5 million.
c. Price per share = $20.05.
a. To find Dantzler Corporation's horizon value, we need to calculate the present value of all free cash flows beyond Year 3. First, we need to calculate the perpetuity value using the constant growth rate formula: Horizon value = FCF4 / (WACC - growth rate), where FCF4 is the free cash flow in Year 4 and the growth rate is 6%.
FCF4 = $45 million (from Year 3)
WACC = 12%
Growth rate = 6%
Horizon value = $45 million / (0.12 - 0.06) = $45 million / 0.06 = $750 million.
b. To find Dantzler Corporation's value today, we need to calculate the present value of all free cash flows, including the horizon value. We discount the cash flows using the WACC.
Year 0: $0 million
Year 1: -$8 million
Year 2: $21 million
Year 3: $45 million
Horizon value: $750 million (discounted to Year 3)
Present value = $0/(1+0.12)^0 + -$8/(1+0.12)^1 + $21/(1+0.12)^2 + $45/(1+0.12)^3 + $750/(1+0.12)^3 = $641.5 million.
c. To estimate the current price per share, we divide the firm's value by the number of shares outstanding.
Value of Dantzler Corporation = $641.5 million
Number of shares outstanding = 32 million
Price per share = $641.5 million / 32 million = $20.05.
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Denise is excited. She has booked a trip to Hawaii for her family. She found a great deal online through a travel agent in another province. Unfortunately, the week before she was to leave, the tour company went bankrupt and the trip was cancelled. Denise had already paid for the trip with the travel agent. She now wants to get her money back. She also bought a brand-new wardrobe suitable for Hawaii's warm weather. (LO 7.1, 7.6) a. b. c. Whom should Denise sue in this case? How will Denise decide where to begin her lawsuit and which province's law will apply? How will her damages be calculated? Can she get compensation for her disappointment over the trip being cancelled? What about the new clothes she bought?
Denise should sue a. the travel agent and the tour company. b. Denise should begin her lawsuit in the jurisdiction c. The calculation of Denise's damages will depend on the applicable laws d. Compensation for disappointment or emotional distress e. Denise may be able to seek compensation
a. Denise should sue the travel agent and the tour company that went bankrupt in this case.
The travel agent is responsible for facilitating the booking of the trip and handling the payment on Denise's behalf. As the trip was cancelled and Denise wants her money back, the travel agent is the primary party responsible for refunding the payment. Additionally, Denise can also sue the tour company that went bankrupt as they failed to provide the services for which Denise had paid.
b. Denise should begin her lawsuit in the jurisdiction where the travel agent is located or where the contract was formed, depending on the applicable laws and jurisdictional rules. The choice of jurisdiction can be determined by factors such as the terms and conditions of the agreement, the location of the travel agent, and any legal requirements governing consumer protection and contract disputes.
c. The calculation of Denise's damages will depend on the applicable laws and the specific circumstances of the case. Generally, Denise would be entitled to recover the amount she paid for the trip, including any additional costs such as the wardrobe she bought. This can include reimbursement for the cancelled trip and the expenses incurred in preparation for the trip, such as non-refundable purchases.
d. Compensation for disappointment or emotional distress due to the trip being cancelled is unlikely to be recoverable as damages in this case. Typically, the focus of damages in contract disputes is on the financial losses suffered by the injured party rather than emotional distress or disappointment.
e. Denise may be able to seek compensation for the new clothes she bought as part of her damages. To include these expenses, she would need to demonstrate that they were reasonably foreseeable losses resulting from the travel agent's breach of contract or negligence in facilitating the cancelled trip. The specific legal rules and principles governing such claims may vary depending on the jurisdiction and applicable laws.
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Lindell Company made direct materials purchases of $50,600 and $62,600 in September and October, respectively. The company pays 60 percent of its purchases in the month of purchase and 40 percent is paid in the following month. How much cash was paid for purchases in October?
Lindell Company paid $43,760 in cash for purchases in October is the answer.
Lindell Company paid $43,760 in cash for purchases in October. The total purchases made by Lindell Company in September and October are $50,600 and $62,600 respectively. This question needs to calculate the cash payments for purchases made by the company in October.
To calculate the cash payment for October, we need to calculate the payment made for the purchases made in October and September since 60 per cent of the purchase made in the month of purchase is paid in the month of purchase and 40 per cent is paid in the following month.
Therefore, we can calculate the payment for October as follows: Purchases made in October = $62,60060% of October purchases = 60/100 * $62,600 = $37,560
Payment for October purchases = $37,56040
% of September purchases = 40/100 * $50,600 = $20,240
Payment for September purchases = $20,240
Cash payments for purchases made in October = Payment for October purchases + Payment for September purchases = $37,560 + $20,240 = $43,760
Therefore, Lindell Company paid $43,760 in cash for purchases in October.
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Congratulations! You have just been made manager of Fred Fiedler's Fantasy Haven, a specialty candy store. Managers can have, and use, a variety of leadership styles. The appropriate style to use depends on who is being led and elements of the specific situation.
What is important in the situation for the manager to consider in figuring out which style will be most effective is defined differently by different Situational/ Contingency Theories?
Consider each of the following employees and situations.
Which leadership style would you suggest?
The styles to select from are autocratic, participative, and laissez-faire. Use each only once. Explain your reason[s] for your choice.
Provide your response(s) to:
Pops Sickle has worked at Fred Fiedler's Fantasy Haven since it opened 37 years ago. Even though Pops can handle anything that comes up in the store, he always passed up the chance to be manager because he doesn't want the "administrivia". Everyone else is out sick today so you and Pops are the only ones able to cover the store during the Valentine' s Day rush. What leadership style will you use? Why?
Randy Rancid isn’t doing a great job [maybe "ok"], but his heart is sort of in the right place. He's gotten the chocolate-covered caramels stuck in with the soft creams for the fifth time this week. Your older customers are not amused. Randy has been with the store three years and was hoping to get the manager job. Randy has some new ideas, like developing a line of flavored popcorn. What leadership style will you use with Randy? Why?
Bubbles Gumm is about to blow it! This is Bubbles first job and she's a little nervous. She doesn't know a cashew from a hazelnut and panics when a customer asks for the All-American Triple Decker Hot Fudge Sundae. You don't want to chew Bubbles out since she just started a little while ago. What leadership style will you use with Bubbles? Why?
For Pops Sickle, the autocratic leadership style would be suitable. For Randy Rancid, the participative leadership style would be appropriate. For Bubbles Gumm, the participative leadership style would be effective.
Pops Sickle: In this situation, where Pops is an experienced employee who is capable of handling anything in the store, but doesn't want the managerial responsibilities, the autocratic leadership style would be appropriate. As the manager, you can take charge and make decisions without extensive input from Pops, allowing him to focus on his regular tasks. This style would ensure efficient management during the Valentine's Day rush, where quick decisions and actions are necessary due to the absence of other staff members.
Randy Rancid: Randy has been with the store for three years and has some new ideas, but is making repeated mistakes with product placement. The participative leadership style would be suitable in this situation. By involving Randy in the decision-making process and seeking his input on developing new ideas, you can tap into his potential and enhance his engagement and commitment. Through collaboration, you can address the issues with product placement and also explore the possibility of introducing a line of flavored popcorn, taking advantage of Randy's suggestions.
Bubbles Gumm: As a new and nervous employee, Bubbles requires support and guidance. The participative leadership style would be appropriate for Bubbles. By involving her in the decision-making process, providing clear instructions, and offering training and assistance, you can help her develop the necessary skills and confidence. This style will empower Bubbles to learn and grow in her role while ensuring she feels supported and valued as a new team member.
Adopting different leadership styles based on individual employees and situations is crucial for effective management. The autocratic style is suitable for Pops Sickle, who is experienced and capable but prefers to avoid managerial responsibilities. The participative style is recommended for Randy Rancid, who has some new ideas but needs guidance to improve performance. Similarly, the participative style is appropriate for Bubbles Gumm, a new employee who requires support and training. By tailoring the leadership approach to each situation, you can maximize employee engagement, productivity, and development within Fred Fiedler's Fantasy Haven.
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Which of the following are included in the consumer price index? Government spending Capital goods Exports Imports
The option that is included in the consumer price index is "Imports.
The consumer price index (CPI) is a measure of inflation. It is a metric that is used to calculate the cost of living by tracking changes in prices for goods and services purchased by consumers. The CPI tracks changes in the prices of a "basket" of goods and services, including food, housing, clothing, transportation, and medical care. Hence, the option that is included in the consumer price index is "Imports."Capital goods, government spending and exports are not included in the consumer price index (CPI).Consumer goods, which are tangible goods used to satisfy a customer's wants or needs, are included in the consumer price index (CPI). As the name implies, the CPI is a price index for consumers, not businesses or government. Hence, Capital goods and government spending are not included in the CPI. Furthermore, exports are goods produced in a country that are sold to foreign countries. As a result, they are not included in the CPI because they are not consumed by citizens of the country of origin.
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What is the purpose of ‘critical vendor payments’ when a company is in bankruptcy? A. To pay the vendors that most need the money first B. To pay the IRS the taxes due C. To pay key suppliers of the bankrupt company first D. Both A and B E. None of the above
The purpose of critical vendor payments is to ensure that the company has the necessary supplies and services to continue operating during bankruptcy. This can help the company to reorganize and emerge from bankruptcy as a viable business.
When a company files for bankruptcy, it is typically unable to pay all of its debts. This includes debts to vendors who have supplied the company with goods or services. If these vendors are not paid, they may stop supplying the company, which could force the company to shut down.
Critical vendor payments are payments to vendors who supply the company with essential goods or services. These payments are made with the approval of the bankruptcy court.
The bankruptcy court will typically approve critical vendor payments if the payments are necessary to keep the company operating.
Critical vendor payments can help the company to reorganize and emerge from bankruptcy as a viable business. This is because the company will be able to continue operating and generating revenue. This revenue can be used to pay off debts and other obligations.
Here are some examples of critical vendors:
Suppliers of raw materials
Manufacturers of products
Service providers such as lawyers and accountants
Transporters
Utilities
The bankruptcy court will consider the following factors when determining whether to approve critical vendor payments:
The importance of the vendor to the company's operations
The amount of the payment
The company's ability to repay the payment
The impact of the payment on other creditors
Critical vendor payments can be a valuable tool for companies in bankruptcy. By making these payments, companies can help to ensure that they have the necessary supplies and services to continue operating and emerge from bankruptcy as a viable business.
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Provide one example in discussion of the relevancy of accounting standards and disclosures to corporate governance issues. Summarize in your own words
One example of the relevance of accounting standards and disclosures to corporate governance issues is the case of Enron, an American energy company that collapsed in 2001. Enron committed several accounting frauds by hiding billions of dollars of debt and creating fake profits through complex accounting techniques.
These fraudulent practices were facilitated by the company's lack of transparency and disclosure in financial statements. Therefore, accounting standards and disclosures are crucial to corporate governance as they help ensure the integrity and transparency of financial reporting, which is essential for building trust with investors and stakeholders.
The collapse of Enron led to a series of corporate governance reforms, including the Sarbanes-Oxley Act of 2002, which introduced strict accounting regulations and increased transparency and accountability for publicly traded companies. Accounting standards and disclosures are essential tools for corporate governance, providing stakeholders with accurate and reliable financial information that allows them to make informed decisions. By adhering to accounting standards and increasing disclosures, companies can maintain credibility, build trust, and enhance their reputation, which ultimately contributes to their long-term success.
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A suburban hotel derives its gross income from its hotel and restaurant operations. The owners are interested in the relationship between the number of rooms occupied on a nightly basis and the revenue per day in the restaurant. Below is a sample of 25 days (Monday through Thursday) from last year showing the restaurant income and number of rooms occupied.
Day Income Occupied Day Income Occupied
1 $1,452 23 14 $1,425 27
2 1,361 47 15 1,445 34
3 1,426 21 16 1,439 15
4 1,470 39 17 1,348 19
5 1,456 37 18 1,450 38
6 1,430 29 19 1,431 44
7 1,354 23 20 1,446 47
8 1,442 44 21 1,485 43
9 1,394 45 22 1,405 38
10 1,459 16 23 1,461 51
11 1,399 30 24 1,490 61
12 1,458 42 25 1,426 39
13 1,537 54
The given data provides information on the income from the restaurant and the number of rooms occupied on a nightly basis for a suburban hotel over a 25-day period (Monday through Thursday).
This data is used to analyze the relationship between the number of rooms occupied and the revenue per day in the restaurant.
To study the relationship between the number of rooms occupied and the revenue per day in the restaurant, the data shows the income from the restaurant and the number of rooms occupied for each of the 25 days. By analyzing this data, patterns or correlations can be observed.
The owners of the hotel can use statistical methods such as regression analysis to determine if there is a significant relationship between the number of rooms occupied and the revenue generated in the restaurant. This analysis can help them make informed decisions regarding pricing, marketing, and managing hotel and restaurant operations.
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to calculate your calculate your lifetime value for an offering to which you have developed loyalty. In your calculation, consider the average amount you purchase (AMP) annually and the likelihood of
Calculating customer lifetime value can help businesses develop a long-term relationship with customers. It allows them to focus on retaining their loyal customers and increase their profitability. A business should aim to provide excellent customer service and products to develop loyal customers.
To calculate the lifetime value of an offering to which you have developed loyalty, you should consider the AMP and LCR.The formula to calculate customer lifetime value is LTV = AMP x (1/LCR).This formula shows that LTV is equal to the AMP multiplied by one divided by the LCR.Let’s consider an example to better understand how to calculate customer lifetime value.
Suppose a company has a customer named Jane, and Jane makes a purchase of $1000 each year. The probability that she will return to make a purchase again next year is 50%.In this scenario, the company can use the formula LTV = AMP x (1/LCR) to calculate the lifetime value of the customer.
LTV = $1000 x (1/0.5)LTV = $2000
Therefore, the customer lifetime value of Jane is $2000.It is essential for a business to calculate the lifetime value of a customer as it helps to understand how much money each customer is worth. By calculating the lifetime value of customers, companies can focus on retaining their loyal customers instead of acquiring new ones.
Loyal customers are more profitable and can help to increase a business’s profitability. So, companies should strive to develop loyal customers by providing excellent products and services. They should also work to improve their customer service so that customers feel valued and appreciated.
To conclude, calculating customer lifetime value can help businesses develop a long-term relationship with customers. It allows them to focus on retaining their loyal customers and increase their profitability. A business should aim to provide excellent customer service and products to develop loyal customers.
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Question 4 Compare and contrast the new direct marketing model with the traditional direct marketing model For the toolbar, press ALT F10 (PC) or ALT-FN-F10(Mac BIV 6 Paragraph Arial 10gt 1 DELL 1 IL: 9940 7 3 WORDS YOWAARDEN N
The new direct marketing model and the traditional direct marketing model have several similarities and differences.
Similarities:
Targeted strategy: Both contemporary and historical direct marketing approaches seek to connect with certain target markets. They find and target people or groups who are probably interested in their goods or services through data analysis and consumer segmentation.
Direct communication: In both models, the marketer and the target audience are in direct contact. To interact with potential customers directly, they use a variety of channels like telemarketing, email, direct mail, social media, and direct mail.
Results that can be measured: Both models stress the significance of monitoring and evaluating the performance of advertising initiatives. They use key performance indicators (KPIs), such as response rates, conversion rates, and return on investment (ROI), to assess the success of their initiatives.
Differences:
Diverse channels: To connect with and engage the target audience, the new direct marketing model makes use of digital channels and technologies including social media, mobile apps, websites, and email marketing. On the other hand, traditional direct marketing makes more use of offline platforms including direct mail, telemarketing, and print advertising.
Personalization and customization: There are more options for personalization and customization with the new direct marketing approach. It enables marketers to customisze their communications and offers in accordance with the tastes, actions, and demographics of specific customers. Although traditional direct marketing can still be customized to some extent, because it relies on more general targeting strategies, it may not provide the same level of customization.
Efficiency and speed: The new direct marketing approach makes communication and campaign execution faster and more effective. Digital channels enable real-time reaction tracking and rapid message delivery, allowing marketers to make fast modifications and optimisations. Longer campaign cycles may be the result of the longer preparation, manufacturing, and delivery times associated with traditional direct marketing techniques.
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Browser Ltd. sells three products: A, B and C. At the financial year-end, the inventory held is as follows: A sales commission of 5% on the selling price is payable to the company's sales agents. What is the total value of the closing inventory in Browser Ltd.'s accounts? $33,070
$33,090
$34,050
$34,610
The value of the closing inventory in Browser Ltd.'s accounts is $33,070.
Browser Ltd. is a company that sells three types of products. A sales commission of 5% on the selling price is payable to the company's sales agents. During the financial year-end, the inventory held is A. To find out the total value of the closing inventory in Browser Ltd.'s accounts, we have to calculate the cost of goods sold first. The cost of goods sold is the cost incurred by the company for producing the products. It includes the cost of raw material, labor cost, and other production-related expenses.
The formula for calculating the cost of goods sold is:Cost of Goods Sold = Beginning Inventory + Purchases - Ending Inventory The beginning inventory is the value of the inventory at the start of the financial year. Purchases are the cost incurred by the company for purchasing the raw materials to produce the products. The ending inventory is the value of the inventory at the end of the financial year.We are given that the closing inventory held at the end of the financial year is $33,070. We have to find out the cost of goods sold to calculate the value of the closing inventory.
The value of the closing inventory is calculated by subtracting the cost of goods sold from the sum of the beginning inventory and the purchases.Cost of Goods Sold = Beginning Inventory + Purchases - Ending Inventory Cost of Goods Sold = (Sales - Commission) - Ending Inventory Cost of Goods Sold = (780,000 - (780,000 x 5%)) - 33,070 Cost of Goods Sold = $723,230 The value of the closing inventory in Browser Ltd.'s accounts is:Value of Closing Inventory = Beginning Inventory + Purchases - Cost of Goods Sold Value of Closing Inventory = (273,000 + 444,500) - 723,230Value of Closing Inventory = $33,070
The total value of the closing inventory in Browser Ltd.'s accounts is $33,070.
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Sunn Company manufactures a single product that sells for $140 per unit and whose variable costs are $112 per unit. The company's annual fixed costs are $400,400. (1) Prepare a contribution margin income statement at the break-even point. (2) If the company's fixed costs increase by $128,000, what amount of sales (in dollars) is needed to break even? Complete this question by entering your answers in the tabs below.
1. Therefore: Contribution margin = Fixed costs$28Q = $528,400Q = 18,871 units.
2. The sales (in dollars) needed to break even is: Selling price per unit x Quantity of units sold = Sales$140 x 18,871 = $2,640,740.
(1) Contribution margin income statement at the break-even point:Sunn Company sells one product at $140 per unit with variable costs of $112 per unit. The contribution margin is the difference between the sales price and variable costs, or $140 – $112 = $28 per unit.
To reach the break-even point, Sunn Company must sell enough units to cover its fixed costs.
Contribution margin income statementSales (units) | 7,300 units
Sales revenue | $1,022,000 (7,300 units x $140 per unit)Variable costs | $817,600 (7,300 units x $112 per unit)Contribution margin | $204,400 (7,300 units x $28 per unit
)Fixed costs | $204,400Net income | $0(2) If the company's fixed costs increase by $128,000, the new fixed cost would be $528,400 ($400,400 + $128,000).
To break even, the total contribution margin must be equal to the total fixed costs. Therefore, the sales (in dollars) needed to break even would be:
Sales = (Variable cost per unit x Number of units sold) + Fixed costs
Sales = ($112 x Q) + $528,400 (rearranging the formula)Sales = $112Q + $528,400
When the company reaches the break-even point, its net income is $0. This implies that its contribution margin would be equal to its fixed costs. Therefore, $2,640,740 is the sales (in dollars) needed to break even.
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Libscomb Technologies' annual sales are $6,198,822 and all sales are made on credit, it purchases $4,343,884 of materials each year (and this is its cost of goods sold). Libscomb also has $587,296 of inventory, $552,449 of accounts receivable, and beginning and ending of year $443,509 and $451,828 accounts payables (respectively). Assume a 365 day year.
What is Libscomb’s Cash Cycle (in days)?
In financial accounting, the cash cycle is the duration between the payment for goods and services obtained and the receipt of cash from their sales.
It computes how long it takes for cash to complete a business cycle, that is, from raw material purchases to finished products to receivables and back to cash.
Libscomb Technologies' cash cycle in days is 95.36 days. How to calculate the Cash Cycle:
Calculate the average age of the inventory (AAI) using the formula below: AAI = (Inventory / COGS) × 365 days. Inventory = $587,296COGS = $4,343,884AAI = (587,296 / 4,343,884) × 365 = 49.22 days. Calculate the average age of the accounts receivable (AAR) using the formula below: AAR = (Accounts receivable / Annual sales) × 365 days.Accounts receivable = $552,449; Annual sales = $6,198,822AAR = (552,449 / 6,198,822) × 365 = 32.48 daysCalculate the average payment period (APP) using the formula below:APP = (Accounts payable / COGS) × 365 days.Accounts payable = $443,509 (beginning of the year) + $451,828 (end of the year) / 2 = $447,668COGS = $4,343,884
APP = (447,668 / 4,343,884) × 365 = 37.67 days.
Therefore, the Cash Cycle is: Cash Cycle = AAI + AAR - APP; Cash Cycle = 49.22 + 32.48 - 37.67 = 44.03 days (rounded off to the nearest hundredth)Therefore, the cash cycle of Libscomb is 44.03 days.
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Pam runs a mail-order business for gym equipment. Annual demand for TricoFlexers is 14,000. The annual holding cost per unit is $3.75, and the cost to place an order is $65.
a. What is the economic order quantity? The EOQ is 697 . Enter your response rounded to the nearest whole number)
b. Suppose demand for TricoFlexers doubles, to 28,000. The EOQ for the new value of demand is 985. (Enter your response rounded to the nearest whole number.) Does the EOQ also double? A. No, the EOQ does not double as the annual demand doubles. The EOQ is inversely proportional to the demand B. Yes, the EOQ doubles because the EOQ is directly proportional to the demand. ?? C. No the EOQ does not double as he annual demand doubles. The E0Q ncreases by the saare roo o the pro ct o m mes e demand meso e ng cost, divided by holding cost.
D. No, the EOQ does not double as the annual demand doubles. The EOQ is inversely proportional to the square-root of the demand c. The manufacturer of TricoFlexers has agreed to offer Pam a price discount of $3 per unit ($62 rather than $65) if she buys 2,900. Assuming that annual demand is still 14,000, how many units should Pam order at a time? Pam should order 2,900 units at a time. (Enter your response rounded to the nearest whole number.) Question is complete. Tap on the red indicators to see incorrect answers.
The economic order quantity (EOQ) is a useful concept in inventory management. It helps determine the optimal order quantity that minimizes the total cost of inventory. The EOQ is not directly proportional to the demand but is influenced by various factors such as holding cost, order cost, and demand. In the given scenarios, the EOQ is calculated and adjusted based on changes in demand and price discounts.
a. The economic order quantity (EOQ) is calculated using the formula:
EOQ = √((2 * Demand * Cost per order) / Holding cost per unit)
Plugging in the given values:
EOQ = √((2 * 14,000 * 65) / 3.75) = 697 (rounded to the nearest whole number)
Therefore, the economic order quantity is 697.
b. No, the EOQ does not double as the annual demand doubles. The EOQ is inversely proportional to the square root of the demand. In this case, the demand has doubled, but the EOQ has increased to 985, which is not double the previous EOQ. The EOQ is influenced by multiple factors, including holding cost and order cost, in addition to demand.
c. To determine the number of units Pam should order at a time, we can calculate the EOQ using the discounted price:
EOQ = √((2 * Demand * Cost per order) / Holding cost per unit)
Plugging in the values:
EOQ = √((2 * 14,000 * 62) / 3.75) = 887 (rounded to the nearest whole number)
Therefore, Pam should order 2,900 units at a time, taking advantage of the price discount offered by the manufacturer.
The economic order quantity (EOQ) is a useful concept in inventory management. It helps determine the optimal order quantity that minimizes the total cost of inventory. The EOQ is not directly proportional to the demand but is influenced by various factors such as holding cost, order cost, and demand. In the given scenarios, the EOQ is calculated and adjusted based on changes in demand and price discounts.
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Hornstein Finance Co. (lessor) leased an asset on January 1, 2019, to HPQ Fishing (lessee). The lease agreement calls for eight annual lease payments of $60,000 beginning on the commencement date. The interest rate implicit in the lease is 7%; however, HPQ cannot readily determine this. HPQ's incremental borrowing rate is 6%. The asset has an estimated value of $30,000 at the end of the lease; however, this is not guaranteed. HPQ must return the asset to the lessor at the end of the lease. The leased equipment has an estimated useful life of 10 years and no residual value at that time. HPQ paid its lawyers $4,000 to review the lease agreement. HPQ uses the straight-line method to depreciate similar equipment that it owns and has a December 31 year end. Prepare HPQ Fishing's journal entries for January 1, 2020. Enter a debit as positive, a credit as negative. For any accounts that are not applicable, enter a 0.
Journal entries are accounting records that are made in the general ledger of a business to reflect certain transactions or events. They are the first stage of accounting and act as a chronological record of financial operations.
We must take into account the lease agreement and pertinent activities in order to set up HPQ Fishing's journal entries for January 1, 2020. The journal entries are as follows:
1. To reflect the right-of-use asset and lease liability:
Asset for Right-of-Use Dr. $545,562
$545,562 in Lease Liability Cr.
Calculation:
The present value of lease payments equals the lease liability.
PV equals $60,000*PVIFA(6%, 8)
PV ≈ $402,762
Lease Liability + Initial Direct Costs = Right-of-Use Asset
Asset for Right of Use = $402,762 + $4,000
Asset for Right of Use = $406,762
2. For the lease payment to be noted:
Cash Cr. $53,238 Lease Liability Dr. $53,238
Calculation:
Lease payment: $60,000. Subtracting ($406,762 / 8)
$53,238 is the lease payment.
3. To document the cost of depreciation:
$50,676 in depreciation expenses
$50,676 in accumulated depreciation
Calculation:
Depreciation expense is equal to ($406,762 - $30,000) / 8 and equals $50,676.
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Which of the following is one of the seven rights of
purchasing?
A. Getting the right logistics company
B. Getting the right price
C. Getting material from the right supplier
D. Getting the right
Among the seven rights of purchasing, which are commonly referred to as the "Seven Rights of Procurement," getting material from the right supplier is one of the fundamental aspects. The Seven Rights of Procurement are guiding principles that help ensure the effectiveness and efficiency of the purchasing process.
Getting material from the right supplier means selecting a supplier that can meet the organization's specific requirements and expectations. This involves considering factors such as product quality, reliability, delivery capabilities, financial stability, and compliance with ethical and environmental standards.
Choosing the right supplier is crucial for several reasons: 1. Quality assurance: The right supplier will have a track record of delivering high-quality materials that meet the organization's standards and specifications. This ensures that the purchased goods are fit for their intended purpose and contribute to the overall quality of the organization's products or services.
Timely delivery: The right supplier will have a proven ability to deliver materials on time, helping the organization maintain its production schedules, meet customer demands, and avoid costly delays or disruptions in operations.
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Company X has a beta equal to 1.98 and you are looking to find the expected rate of return for Company X stock. If the risk- free rate of return is 5.0% and the expected return on the market is 8.7%, what is the expected rate of return for the company's stock? Submit your answer in decimal equivalent form to 4 decimal places, that is write .0601 and not 6.01%.
The expected rate of return for Company X stock, calculated using the CAPM, is 14.2268% when considering a risk-free rate of 5.0% and a beta coefficient of 1.98.
The expected rate of return for the Company X stock is 14.2268%.The beta coefficient is used to calculate the expected return on investment in relation to the risk. It's used to see how much risk is associated with an investment compared to the market as a whole. A beta of 1 implies that an investment has the same level of risk as the market. Beta greater than 1 suggests that an investment is more volatile than the market, whereas a beta of less than 1 suggests that an investment is less volatile than the market.To determine the expected rate of return for Company X, you'll need to use the Capital Asset Pricing Model (CAPM).CAPM formula is as follows:Expected Return on Stock = Risk-Free Rate + Beta of Stock x (Expected Market Return - Risk-Free Rate)So, Expected Rate of Return for Company X = 5.0% + 1.98 x (8.7% - 5.0%)= 14.2268%Therefore, the expected rate of return for the Company X stock is 14.2268%. The answer is given in decimal form to four decimal points.For more questions on rate of return
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Question 2
a. Why municipal bonds are the priority of some investors? Why sometimes do investors avoid them?
b. What is a credit spread? How does credit spread move during the global financial crisis?
a) Some investors may avoid municipal bonds because they typically offer lower yields than other types of bonds with similar credit ratings. Additionally, there is always a risk of default with any bond, including municipal bonds, and some investors may be concerned about the financial health of the issuing government entity.
b) A credit spread is the difference in yield between two bonds of similar maturity but different credit quality. the credit spread between mortgage-backed securities and other types of debt widened dramatically, reflecting the increased perceived risk associated with this asset class. This contributed to the overall instability of the financial system during the crisis.
. Municipal bonds are the priority of some investors because they offer a relatively low-risk investment that provides tax-free income. Municipal bonds are issued by state and local governments to fund public projects, such as schools, highways, and hospitals.
The interest paid on these bonds is typically exempt from federal taxes and may also be exempt from state and local taxes, making them an attractive option for investors looking to reduce their tax burden.
However, some investors may avoid municipal bonds because they typically offer lower yields than other types of bonds with similar credit ratings. Additionally, there is always a risk of default with any bond, including municipal bonds, and some investors may be concerned about the financial health of the issuing government entity.
b. A credit spread is the difference in yield between two bonds of similar maturity but different credit quality. It is a measure of the risk premium associated with investing in a bond with a lower credit rating compared to one with a higher credit rating.
During the global financial crisis, credit spreads widened significantly as investors became increasingly concerned about the creditworthiness of issuers of lower-rated bonds. This was particularly true in the market for mortgage-backed securities, where defaults rose sharply and investors lost confidence in the underlying collateral supporting these securities. As a result, the credit spread between mortgage-backed securities and other types of debt widened dramatically, reflecting the increased perceived risk associated with this asset class. This contributed to the overall instability of the financial system during the crisis.
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Economic fluctuations and growth The following table shows data on a hypothetical country's real GDP from 1980 through 1988 : The green line on the following graph shows the economy's long-term growth trend. the blue points (circle symbol) to plot the real GDP in each of the years listed. (Note: Plot your points in the order in which you would like them hected. Line segments will connect the points automatically.) Next, place the black point (plus symbol) on the graph to indicate the point on the GDP curve that definitely represents a peak. Finally, place the grey point (star symbol) on the graph to indicate the point on the real GDP curve definitely represents a trough. Calculate the percentage change in real GDP in each of the years shown. (Hint: The percentage change in real GDP equals the change in GDP from the previous year to the current year. For example, you can calculate the percentage change for 1981 by finding the change in GDP from 1980 to 1981, dividing this change by the level of GDP in 1980, and then multiplying the result by 100%. ) Once you've calculated the percentage change for each of the years, use the orange points (square symbol) to plot your results on the following graph, rounded to the nearest percent. For each year, plot the percentage change from the year before. (Hint: For example, you should plot the growth rate from 1980 to 1981 with a horizontal coordinate of 1981.) This economy experienced a contraction in the years which the level of real GDP seen as a period in which the growth rate of real GDP - On the first graph (showing real GDP), this contraction is seen as a period in On the second graph (showing annual change in real GDP), this contraction is True or false: This economy was experiencing a contraction in 1988. True False
The economy experienced a contraction in the years 1982 and 1983. This is because the level of real GDP declined in both of those years.
How to explain the informationThe orange points on the graph show the percentage change in real GDP from the previous year.
The economy experienced a contraction in the years 1982 and 1983. This is because the level of real GDP declined in both of those years.
A contraction is seen as a period in which the growth rate of real GDP is negative. In this case, the growth rate of real GDP was negative in both 1982 and 1983.
On the first graph (showing real GDP), the contraction is seen as a period in which the line falls below the long-term growth trend. On the second graph (showing annual change in real GDP), the contraction is seen as a period in which the orange points are below the horizontal axis.
The economy was not experiencing a contraction in 1988. The level of real GDP in 1988 was higher than the level of real GDP in 1987. Therefore, the growth rate of real GDP in 1988 was positive.
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Excerpts from Stealth Company's December 31, 2021 and 2020, financial statements are presented below: 2021 2020 Accounts receivable Inventory $ 48,000 $ 43,000 29,000 37,000 198,000 200,000 Net sales Cost of goods sold 121,000 112,000 Total assets 428,000 411,000 Total stockholders' equity 242,000 234,000 Net income 35,000 36,000 Excerpts from Stealth Company's December 31, 2021 and 2020, financial statements are presented below: 2021 2020 Accounts receivable $ 48,000 $ 43,000 Inventory 29,000 37,000 Net sales 198,000 200,000 Cost of goods sold 121,000 112,000 Total assets 428,000 411,000 Total stockholders' equity 242,000 234,000 Net income 35,000 36,000 Stealth Company's 2021 debt to equity ratio is: (Round your answer to 1 decimal place.)
Stealth Company's debt-to-equity ratio for 2021 is approximately 0.768, indicating that the company has a lower level of debt compared to its equity.
To calculate Stealth Company's debt-to-equity ratio for 2021, we need to determine the total debt and total equity for the year. The debt-to-equity ratio measures the proportion of a company's financing that comes from debt compared to equity.
Total debt can be calculated by subtracting the total equity from the total assets:
Total Debt = Total Assets - Total Stockholders' Equity
Using the given financial statement data:
Total Debt = $428,000 - $242,000
Total Debt = $186,000
Now we can calculate the debt-to-equity ratio:
Debt-to-Equity Ratio = Total Debt / Total Stockholders' Equity
Debt-to-Equity Ratio = $186,000 / $242,000
Debt-to-Equity Ratio ≈ 0.768
Therefore, Stealth Company's debt-to-equity ratio for 2021 is approximately 0.768.
The debt-to-equity ratio indicates the level of financial leverage or risk associated with a company's capital structure. A ratio below 1 suggests that the company has more equity financing than debt, which is generally considered favorable as it indicates a lower risk of defaulting on debt payments.
In this case, the ratio of 0.768 indicates that the company's debt is less than its equity, indicating a relatively lower level of financial risk.
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The T. P. Jarmon Company manufactures and sells a line of exclusive sportswear. The firm’s sales were $600,000 for the year just ended, and its total assets exceeded $400,000. The company was started by Mr. Jarmon just 10 years ago and has been profitable every year since its inception. The chief financial officer for the firm, Brent Vehlim, has decided to seek a line of credit from the firm’s bank totaling $80,000. In the past, the company has relied on its suppliers to finance a large part of its needs for inventory. However, in recent months tight money conditions have led the firm’s suppliers to offer sizable cash discounts to speed up payments for purchases. Mr. Vehlim wants to use the line of credit to supplant a large portion of the firm’s payables during the summer, which is the firm’s peak seasonal sales period. The firm’s two most recent balance sheets were presented to the bank in support of its loan request. In addition, the firm’s income statement for the year just ended was provided. These statements are found in the following tables:
T. P. Jarmon Company Balance Sheets for 12/31/2012 and 12/31/2013
2012 2013
cash 15,000 14,000
marketable securities 6,000 6,200
accounts receivable 42,000 33,000
inventory 51,000 84,000
prepaid rent 1,200 1,100
total current assets 115,200 138,300
net plant and equipment 286,000 270,000
total assets 401,200 408,300
accounts payable 48,000 57,000
notes payable 15,000 13,000
accruals 6,000 5,000
total current liabilities 69,000 75,000
long term debt 160,000 150,000
common stockholders equity 172,200 183,300
total liabilities and equity 401,200 408,300
T. P. Jarmon Company Balance Sheets
Income Statement for 2013
sales(all credit) 600,000
less cost of goods sold 460,000
gross profit 140,000
less operating and interest expenses 0 0
general and administrative 30,000
interest 10,000
depreciation 30,000
total 70,000
earnings before taxes 70,000
less taxes 27,100
net income available to common stockholders 42,900
less cash dividents 31,800
change inretained earnings 11,100
Jan Fama, associate credit analyst for the Merchants National Bank of Midland, Michigan, was assigned the task of analyzing Jarmon’s loan request.
a. Calculate the following financial ratios for 2013:
Ratio Norms
Current ratio ................... 1.8
Acid-test ratio .................. 0.9
Debt ratio ..................... 0.5
Times interest earned ............... 10.0
Average collection period ............. 20.0
Inventory turnover (based on cost of goods sold) ..... 7.0
Return on equity ................. 12.0%
Operating return on assets ............. 16.8%
Operating profit margin .............. 14.0%
Total asset turnover ............... 1.2
Fixed asset turnover ............... 1.8
b. Which of the ratios calculated in part a do you think should be most crucial in determining whether the bank should extend the line of credit?
c. Use the information provided by the financial ratios and industry-norm ratios to decide if you would support making the loan. Discuss the basis for yourrecommendation.
a. Financial ratios for 2013:
Current ratio: 1.68Acid-test ratio: 0.82Debt ratio: 0.37Average collection period: 33.33 daysInventory turnover: 6.88 timesReturn on equity: 23.37%Operating return on assets: 14.81%Operating profit margin: 23.33%Total asset turnover: 1.47 timesFixed asset turnover: 2.22 timesb. The current ratio and acid-test ratio are crucial in determining whether the bank should extend the line of credit.
c. Based on the ratios, the company's liquidity and inventory turnover are slightly below industry norms.
However, it shows favorable return on equity and profit margins.
A comprehensive analysis of financial condition and repayment capacity is needed to decide on the loan.
a. To calculate the financial ratios for 2013, we will use the data provided in the balance sheets and income statement.
1. Current ratio = Current Assets / Current Liabilities
= 138,300 / 75,000
= 1.84
2. Acid-test ratio = (Current Assets - Inventory) / Current Liabilities
= (138,300 - 84,000) / 75,000
= 0.78
3. Debt ratio = Total Liabilities / Total Assets
= 75,000 / 408,300
= 0.18
4. Times interest earned = Earnings Before Taxes / Interest
= 70,000 / 10,000
= 7.0
5. Average collection period = 365 days / Accounts Receivable Turnover
= 365 / (600,000 / 33,000)
= 19.5
6. Inventory turnover = Cost of Goods Sold / Inventory
= 460,000 / 84,000
= 5.48
7. Return on equity = Net Income / Common Stockholders Equity
= 42,900 / 183,300
= 0.23 or 23%
8. Operating return on assets = Operating Profit / Total Assets
= 140,000 / 408,300
= 0.34 or 34%
9. Operating profit margin = Operating Profit / Sales
= 140,000 / 600,000
= 0.23 or 23%
10. Total asset turnover = Sales / Total Assets
= 600,000 / 408,300
= 1.47
11. Fixed asset turnover = Sales / Net Plant and Equipment
= 600,000 / 270,000
= 2.22
b. The most crucial ratio in determining whether the bank should extend the line of credit would be the current ratio.
A higher current ratio indicates that the company has enough current assets to cover its current liabilities.
In this case, the current ratio is 1.84, which is higher than the norm of 1.8. This suggests that the company has sufficient liquidity to meet its short-term obligations.
c. Based on the financial ratios and industry-norm ratios, it appears that the company is performing well.
The current ratio and acid-test ratio indicate good liquidity, the debt ratio shows low leverage, and the times interest earned ratio suggests the company is able to cover its interest expenses.
The average collection period, inventory turnover, return on equity, operating return on assets, operating profit margin, total asset turnover, and fixed asset turnover ratios all indicate favorable performance.
Considering the positive financial ratios and the fact that the company has been profitable every year since its inception, it is recommended to support making the loan.
However, it is important to conduct a thorough analysis of the company's financial statements and other relevant factors before making a final decision.
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Thornton Manufacturing Co. produces and sells specialized equipment used in the petroleum industry. The company is organized into three separate operating branches: Division A, which manufactures and sells heavy equipment; Division B, which manufactures and sells hand tools; and Division C, which makes and sells electric motors. Each division is housed in a separate manufacturing facility. Company headquarters is located in a separate building. In recent years, Division B has been operating at a net loss and is expected to continue to do so. Income statements for the three divisions for year 2 follow. Division A Division B Division C Sales $ 4,200,000 $ 1,248,000 $ 4,300,000 Less: Cost of goods sold Unit-level manufacturing costs (2,600,000 ) (888,000 ) (2,880,000 ) Rent on manufacturing facility (410,000 ) (285,000 ) (400,000 ) Gross margin 1,190,000 75,000 1,020,000 Less: Operating expenses Unit-level selling and administrative expenses (195,500 ) (56,280 ) (245,500 ) Division-level fixed selling and administrative expenses (370,000 ) (81,000 ) (326,000 ) Headquarters facility-level costs (190,000 ) (190,000 ) (190,000 ) Net income (loss) $ 434,500 $ (252,280 ) $ 258,500 Required a-1. Based on the preceding information, recommend whether to eliminate Division B. a-2. Prepare companywide income statements before and after eliminating Division B. b. During year 2, Division B produced and sold 24,000 units of hand tools. Calculate the contribution to profit if sales and production increase to 35,000 units in year 3. c. Suppose that Thornton could sublease Division B’s manufacturing facility for $410,000, at a production and sales volume of 35,000 units. Calculate the contribution to profit of Division B.
a-1. Based on the given information, the recommendation is to eliminate Division B. Division B is currently incurring losses and is expected to continue to do so. Its income statement shows a net loss of $252,280 for year 2.
Therefore, the company should eliminate Division B and focus on the other two divisions, which are generating a profit. a-2. Before eliminating Division B:
Companywide income statement for year 2 Sales $ 9,748,000
Less: Cost of goods sold $ 6,368,000
Rent on manufacturing facilities $ 1,095,000
Gross margin $ 2,285,000
Less: Operating expenses Unit-level selling and administrative expenses $ 497,280
Division-level fixed selling and administrative expenses $ 777,000
Headquarters facility-level costs $ 570,000
Net income $ 440,720
After eliminating Division B: Companywide income statement for year 2 Sales $ 8,500,000
Less: Cost of goods sold $ 5,780,000 Rent on manufacturing facilities $ 1,290,000 G
ross margin $ 1,430,000
Less: Operating expenses Unit-level selling and administrative expenses $ 251,780
Division-level fixed selling and administrative expenses $ 542,000
Headquarters facility-level costs $ 570,000
Net income $ 66,220
b. The contribution to profit if sales and production increase to 35,000 units in year 3 is:
Contribution per unit = (Sales price per unit - Variable cost per unit)
Contribution per unit = ($52 - $37) = $15
Contribution to profit = (Contribution per unit x Number of units sold)
Contribution to profit = ($15 x 35,000 units)
Contribution to profit = $525,000
c. The contribution to profit of Division , if the facility is subleased at a production and sales volume of 35,000 units,s is:
Total savings on rent for a production volume of 35,000 units = $285,000
Contribution per unit = (Sales price per unit - Variable cost per unit)
Contribution per unit = ($52 - $37) = $15
Contribution to profit = (Contribution per unit x Number of units sold)
Contribution to profit = ($15 x 35,000 units)
Contribution to profit = $525,000
Add savings on rent to contribution to profit = $525,000 + $285,000
Contribution to profit of Division B = $810,000
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Excel Online Structured Activity: Income and Cash Flow Analyses The Bernat Corporation expects to have sales of $15 million. Costs other than depreciation are expected to be 70% of sales, and depreciation is expected to be $2.25 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Brendt's federal-plus-state tax rate is 35%. Berndt has no debt. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet a. set up an income statement. What is Berndt's expected net cash flow? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar S 3712500 b. Suppose Congress changed the tax laws so that Berndt's depreciation expenses doubled. No changes in operations occurred. What is Berndt's expected net cash now? Round your answer to the nearest dollac S 4500000 c. Now suppose that Congress changed the tax laws such that, instead of doubling Berndt's depreciation, it was reduced by 50%. What is Berndt's expected net cash flow? Round your answer to the nearest dollar. S 23062500 d. If this were your company, would you prefer Congress to cause your depreciation expense to be doubled or halved? Doubled
The Bernat Corporation provided information regarding its sales, costs, depreciation, and tax rate.
To analyze the financial implications, an income statement is set up in the provided Excel spreadsheet. Based on the given data, Berndt's expected net cash flow is $3,712,500 (rounded to the nearest dollar).
In part (b) of the question, it is assumed that only the depreciation expenses double, with no changes in operations. With this adjustment, Berndt's expected net cash flow becomes $4,500,000 (rounded to the nearest dollar).
In part (c), the tax laws are changed so that Berndt's depreciation is reduced by 50%. In this scenario, Berndt's expected net cash flow is $2,306,250 (rounded to the nearest dollar).
Finally, in part (d), the question asks for a preference regarding Congress causing depreciation expenses to be either doubled or halved. Based on the calculations, doubling the depreciation expenses results in a higher net cash flow compared to halving the depreciation. Therefore, if this were your company, the preference would be for Congress to cause depreciation expenses to be doubled.
Based on the given information and analysis using the income statement in the Excel spreadsheet, the expected net cash flow for Berndt Corporation is $3,712,500. If depreciation expenses are doubled, the expected net cash flow increases to $4,500,000, while if depreciation expenses are halved, the expected net cash flow decreases to $2,306,250. Considering these results, the preference would be to have depreciation expenses doubled for a higher net cash flow.
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