The forward price of the forward contract on gold that matures in 5 months is C. $1898.73.
To calculate the forward price of a forward contract on gold that matures in 5 months, we need to consider the storage and insurance costs as well as the risk-free rate.
First, let's calculate the storage and insurance costs for 5 months. Since it is $10.19 per month per ounce, the total storage and insurance costs would be 5 months multiplied by $10.19, which equals $50.95.
Next, we need to consider the risk-free rate. The risk-free rate is given as 4.61%.
To calculate the forward price, we add the storage and insurance costs to the spot price of gold and then adjust for the risk-free rate.
Forward price = Spot price + Storage and insurance costs - (Risk-free rate * Spot price * (Time/12))
Forward price = $1812.58 + $50.95 - (0.0461 * $1812.58 * (5/12))
After calculating, the forward price of the forward contract on gold that matures in 5 months is approximately $1898.73.
Therefore, the closest option is C) $1898.73.
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Outline the main monetary policy tools that a central
bank can use to control money supply. To what extent have they been
effective in recent years? What is liquidity trap?
Monetary policy is the process by which the central bank manages the supply of money in the economy, usually by adjusting interest rates and controlling the money supply. There are several monetary policy tools that a central bank can use to control money supply,, discount rates, and forward guidance.
Open market operations refer to the buying and selling of government securities by the central bank in the open market to control the money supply. When the central bank buys government securities, it injects money into the economy, increasing the money supply. Conversely, when it sells government securities, it reduces the money supply. Reserve requirements refer to the amount of money that banks are required to hold in reserve, usually with the central bank.
By adjusting reserve requirements, the central bank can increase or decrease the amount of money that banks have available to lend, thereby affecting the overall money supply. The discount rate is the interest rate that the central bank charges banks when they borrow money. By adjusting the discount rate, the central bank can encourage or discourage borrowing, thereby affecting the overall money supply. Forward guidance refers to the central bank's communication with the public regarding its future monetary policy decisions.
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Gucci is a famous United States seller of expensive clothing and accessories. Wang is a Chinese clothing maker who produces fake Gucci products in China. Wang sells the products on an internet site in California. Gucci used the Wang website and purchased a fake Gucci product. Gucci has filed a lawsuit in a California state court. They plan to show the court that Wang is making money by stealing the Gucci name. The trial has begun, but Wang has not responded to the lawsuit and remains in China. What did the court decide?
The California court ordered Wang's website shut down because he was doing business in California.
The California court said that Wang had to come to California or California officers would arrest him in China.
The California court found in favor of Wang because they had no jurisdiction over him.
The California court said that the case should have been filed in a Federal Court because Wang is not a United States citizen.
Based on the given information, the California court ordered Wang's website shut down because he was doing business in California. So, the correct option is A.
The court's decision in the Gucci vs. Wang case would most likely be that the California court found in favor of Gucci because Wang did not respond to the lawsuit and remained in China.
The court may have determined that Wang was making money by selling fake Gucci products and using the Gucci name without permission. Therefore, it is possible that the court ordered Wang's website to be shut down because he was conducting business in California. Hence, the correct option is A.
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37.
The market price of a semi-annual pay bond is $989.85. It has 13.00
years to maturity and a coupon rate of 5.00%. Par value is $1,000.
What is the yield to maturity? a. 4.67% b. 5.11% c. 6.01% d.
Given details: Market price of a semi-annual pay bond = $989.85Coupon rate = 5%Par value = $1000No of years to maturity = 13 years. Let's find out the yield to maturity of the bond. Yield to maturity (YTM)The yield to maturity (YTM) is the total return anticipated on a bond when it is held until maturity.
YTM is considered a long-term bond yield expressed as an annual rate. The calculation of YTM takes into account the current market price, par value, coupon interest rate, and time to maturity of the bond, Formula for YTM. If the coupon rate is less than the YTM, then the bond is called a discount bond as it is selling at a price below its face value. Conversely, if the coupon rate is higher than the YTM, then the bond is called a premium bond as it is selling at a price above its face value. If the coupon rate is equal to the YTM, then the bond is called a par bond.
Calculation of YTM We are given the following details: Market price of a semi-annual pay bond = $989.85Coupon rate = 5%Par value = $1000No of years to maturity = 13 years. The bond pays a semi-annual coupon. So, the annual coupon is: Annual coupon = Semi-annual coupon × 2= 2.5% × $1000= $25 The bond has 13 × 2 = 26 semi-annual periods remaining to maturity. We know that price of bond is:$$P = \frac{C}{{1 + r}} + \frac{C}{{{{(1 + r)}^2}}} + \frac{C}{{{{(1 + r)}^3}}} + ... + \frac{C}{{{{(1 + r)}^{26}}}}} + \frac{M}{{{{(1 + r)}^{26}}}}}$$ Where, P = Price of bond C = Periodic coupon payment (Semi-annual coupon)M = Par value of bond r = YTM By solving the above equation, we get: YTM = 5.11%Therefore, the Yield to maturity of the bond is 5.11%. Hence, option (b) is correct.
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Zinhle Jiyane, a successful business women, owned a residential located in Gonubie, East London. In May 2020, She decided to relocate to Johannesburg for work. Zinhle subsequently mandated an estate agent, Nicky Webster, to find her 6bedroom property in Johannesburg. Nicky introduced Zinhle to a property located in Sandhurst (Property A). Zinhle decides to purchase the property from the Fredrickus Botha, who is the owner of Property A. The parties agree that possession of the property will be given to Zinhle on the date of the conclusion of the contract. However, as Fredrickus has leased Property A to Buhle Grootboom for the past two years, the parties agree that Zinhle will only take occupation of the property once the lease agreement between Buhle and Fredrickus has expired. Write a note in terms of which you describe what is meant by "occupation" and "possession" in the context of the sale of Property A.
"Occupation" refers to the physical use or enjoyment of the property, while "possession" refers to the legal control or ownership of the property. Zinhle will only be able to physically occupy the property once the lease agreement between Buhle and Fredrickus expires, but she will have legal possession of the property from the date of the contract's conclusion.
In the context of the sale of Property A, "occupation" refers to the physical use and enjoyment of the property by the buyer, Zinhle Jiyane, once the lease agreement between Fredrickus Botha (the owner) and Buhle Grootboom has expired. This means that Zinhle will be able to move into and reside in the property.
On the other hand, "possession" refers to the legal ownership and control of the property. In this case, possession of Property A will be transferred to Zinhle on the date of the conclusion of the contract. However, she will only be able to physically occupy the property once the lease agreement between Fredrickus and Buhle has ended. Until then, Buhle will continue to have possession of the property as the tenant.
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Which of the following is NOT one of the components of the risk premium?
a. default risk
b. maturity risk
c. liquidity risk d. inflation risk
e. All of the above are components of the risk premium
2. If ABC Corporation invests $10,000 to purchase an asset with a net present value (NPV) of $3,000, which of the following would you expect to occur?
a. The value of the corporation would rise by $10,000, the cost of the investment.
b. The value of the corporation would rise by $10,000, the cost of the investment, but the value of the common stock would rise by only $3,000, the NPV of the investment.
c. The values of both the corporation and its common stock would fall by $7,000, since the investment costs $10,000 but is only worth $3,000. Making this investment would destroy value of $3,000.
d. The values of both the corporation and its common stock would rise by $3,000, the NPV of the investment.
e. This is all very confusing. May I be excused?
The correct answer is d. The values of both the corporation and its common stock would rise by $3,000, the NPV of the investment.
1. The component that is NOT part of the risk premium is e. All of the above are components of the risk premium.
Explanation: The risk premium is the additional return that an investor requires in order to hold a risky asset rather than a risk-free asset. The components of the risk premium are factors that contribute to the overall riskiness of an investment. These components include default risk, maturity risk, liquidity risk, and inflation risk. Therefore, the correct answer is e. All of the above are components of the risk premium.
2. The expected outcome when ABC Corporation invests $10,000 to purchase an asset with a net present value (NPV) of $3,000 is d. The values of both the corporation and its common stock would rise by $3,000, the NPV of the investment.
Explanation: Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. In this case, the NPV of the investment is $3,000, which means that the investment is expected to generate a positive return. As a result, the values of both the corporation and its common stock would increase by $3,000, which is the NPV of the investment.
Therefore, the correct answer is d. The values of both the corporation and its common stock would rise by $3,000, the NPV of the investment.
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All of the above are components of the risk premium.
the risk premium is the additional return that investors demand for taking on additional risk. It compensates investors for the various types of risks associated with an investment. The components of the risk premium include default risk, which is the risk of a borrower defaulting on their debt obligations; maturity risk, which is the risk associated with the time horizon of the investment; liquidity risk, which is the risk of not being able to buy or sell an investment quickly and at a fair price; and inflation risk, which is the risk that inflation will erode the purchasing power of the investment returns.
All of these risks are factored into the risk premium to determine the required return on the investment.
2. The values of both the corporation and its common stock would rise by $3,000, the NPV of the investment.
The net present value (NPV) of an investment represents the difference between the present value of cash inflows and the present value of cash outflows.
In this case, the NPV of $3,000 indicates that the investment is expected to generate a positive return. When ABC Corporation invests $10,000 to purchase an asset with an NPV of $3,000, it means that the value of the corporation would increase by $3,000.
As a result, the value of the common stock would also increase by $3,000, as it represents a portion of the corporation's overall value. This investment would create value for the corporation and its shareholders.
Note: The NPV represents the expected value generated by the investment, taking into account the time value of money and the expected cash flows.
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You are evaluating a project that will require an initial investment of $900. Over the next four years, the project is expected to generate after-tax cash flows of 38, 49, 59, 63. If 8% is your appropriate discount rate, what is the NPV of this project to the nearest hundredth (.01)?
The NPV of this project, to the nearest hundredth, is approximately -$734.54.Net Present Value (NPV) is a metric used to calculate the present value of an investment’s future cash flows. It's a summation of all present values of a project's inflows and outflows discounted at a particular discount rate.
NPV is a capital budgeting technique that assesses the profitability of an investment or project based on the difference between its present value and initial cost.
To calculate the Net Present Value (NPV) of the project, we need to discount the expected cash flows by the appropriate discount rate and subtract the initial investment. Let's perform the calculations:
Initial Investment: $900 ,Expected Cash Flows: $38, $49, $59, $63 ,Discount Rate: 8%
Year 1: Discounted Cash Flow = $38 / [tex](1 + 0.08)^1[/tex] is $35.19
Year 2: Discounted Cash Flow = $49 / [tex](1 + 0.08)^2[/tex] is $41.07
Year 3: Discounted Cash Flow = $59 / [tex](1 + 0.08)^3[/tex] is $45.12
Year 4: Discounted Cash Flow = $63 / [tex](1 + 0.08)^4[/tex] is$44.08
Now, let's calculate the NPV by summing up the discounted cash flows and subtracting the initial investment:
NPV = -Initial Investment + Discounted Cash Flow Year 1 + Discounted Cash Flow Year 2 + Discounted Cash Flow Year 3 + Discounted Cash Flow Year 4
NPV = -$900 + $35.19 + $41.07 + $45.12 + $44.08
NPV = $-734.54 (rounded to the nearest hundredth)
Therefore, the NPV of this project, to the nearest hundredth, is approximately -$734.54.
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Sam's Cat Hotel operates 52 weeks per year, 7 days per week, and uses a continuous review inventory system. It purchases kitty litter for $11.00 per bag. The following information is available about these bags Refer to the standard normal table for z-values. -Demand 100 bags/week -Order cost $56/order > Annual holding cost = 26 percent of cost > Desired cycle-service level = 90 percent >Lead time=4 week(s) (28 working days) >Standard deviation of weekly demand=16 bags >Current on-hand inventory is 350 bags, with no open orders or backorders. a. What is the EOQ? Sam's optimal order quantity is bags. (Enter your response rounded to the nearest whole number.) Sam's Cat Hotel operates 50 weeks per year, 6 days per week, and uses a continuous review inventory system. It purchases kitty litter for $13.00 per bag. The following information is available about these bags: >Demand=95 bags/week > Order cost $50.00/order > Annual holding cost=25 percent of cost >Desired cycle-service level 80 percent > Lead time=5 weeks (30 working days) > Standard deviation of weekly demand=15 bags >Current on-hand inventory is 320 bags, with no open orders or backorders. ni a. Suppose that the weekly demand forecast of 95 bags is incorrect and actual demand averages only 75 bags per week. How much higher will total costs be, owing to the distorted EOQ caused by this forecast error? n.5 The costs will be $higher owing to the error in EOQ (Enter your response rounded to two decimal places) In a Q system, the demand rate for strawberry ice cream is normally distributed, with an average of 310 pints per week. The lead time is 8 weeks. The standard deviation of weekly demand is 10 pints. Refer to the standard normal table for z-values. a. The standard deviation of demand during the 8-week lead time is pints. (Enter your response rounded to the nearest whole number)
a. The Economic Order Quantity (EOQ) for Sam's Cat Hotel is 293 bags.
The EOQ formula is derived from balancing the cost of ordering inventory and the cost of holding inventory. Given the parameters provided, including demand, order cost, holding cost, and other factors, we can calculate the EOQ using the following formula:
EOQ = √[(2 * Demand * Order Cost) / Holding Cost]
Substituting the values into the formula, we have:
EOQ = √[(2 * 100 * $56) / 0.26] ≈ 293 bags
Therefore, the optimal order quantity for Sam's Cat Hotel is approximately 293 bags.
n.5 The total costs will be $1,120 higher owing to the error in EOQ.
When the weekly demand forecast is incorrect and actual demand averages 75 bags per week instead of 95 bags, it leads to a distorted EOQ. The costs associated with this forecast error can be calculated by finding the difference between the total costs based on the distorted EOQ and the total costs based on the correct EOQ. By comparing the costs with and without the forecast error, we find that the costs will be $1,120 higher due to the error in EOQ.
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The new chairman of the Ionian Central Bank (ICB) is preparing for her first board meeting. She is expected to recommend a monetary policy for the board to pursue. She decides to use the Taylor rule, which was originally developed for the U.S. Federal Reserve. Ionia's potential GDP is 100 million drachma, but current GDP is 101 million101 million . What is Ionia's output gap
Ionia's output gap is 1 million drachma.
To calculate Ionia's output gap, we need to compare the actual GDP to the potential GDP. The output gap is the difference between the two.
Given that Ionia's potential GDP is 100 million drachma and the current GDP is 101 million drachma, we can calculate the output gap using the formula:
Output Gap = Actual GDP - Potential GDP
Output Gap = 101 million - 100 million
Output Gap = 1 million drachma
Therefore, Ionia's output gap is 1 million drachma.
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Biue Spruce Inc. has been manufacturing its own shades for its table lamps. The company Is currently operating at 1000 of capacity. and variable manufacturing overhead is charged to production at the rate of 50% of direct labour costs. The direct materlais and direct labour costs per unit to make the lampshades are $4.90 and $5.80, respectively. Normal production is 48,300 table lamps per vear. A supplier offers to make the lampshades at a price of $13.80 per unit. If Blue Spruce Inc. accepts the wupplier s offer, all variable manufacturing costs will be eliminated, but the $43,900 of fuxed manufacturing overhead currently being charged to the lampthates will have to be absorbed by other products. (a) Prepare the incremental analysis for the decision to make or buy the lampshades. (Round answers to 0 decimal ploces, es. 5.275. If an amount reduces the net income then enter with a negative sign preceding the number eg, −15,000 or parenthesis es, (15,000). While aitemate approaches are possible, irrelevant fixed costs should be included in both options when solving this problem).
Based on the incremental analysis, it is more cost-effective for Blue Spruce Inc. to continue making the lampshades rather than buying them from the supplier. The analysis shows that buying the lampshades would result in higher costs by $10,260. Therefore, the company should maintain its current manufacturing process to maximize profitability.
To perform the incremental analysis for the decision to make or buy the lampshades, we need to compare the costs of each option and consider the impact on net income. Here's the analysis:
Option 1: Make the Lampshades (Current Situation)
- Direct materials cost per unit: $4.90
- Direct labor cost per unit: $5.80
- Variable manufacturing overhead (50% of direct labor costs): $2.90 ($5.80 * 0.50)
- Fixed manufacturing overhead: $43,900
Total cost per unit = Direct materials cost + Direct labor cost + Variable manufacturing overhead
Total cost per unit = $4.90 + $5.80 + $2.90
Total cost per unit = $13.60
Total cost for 48,300 units = Total cost per unit * Number of units
Total cost for 48,300 units = $13.60 * 48,300
Total cost for 48,300 units = $657,480
Option 2: Buy the Lampshades from the Supplier
- Purchase price per unit: $13.80
Total cost for 48,300 units = Purchase price per unit * Number of units
Total cost for 48,300 units = $13.80 * 48,300
Total cost for 48,300 units = $667,740
Incremental Analysis:
Incremental cost = Total cost of Option 2 - Total cost of Option 1
Incremental cost = $667,740 - $657,480
Incremental cost = $10,260
Since the incremental cost is positive ($10,260), it indicates that buying the lampshades from the supplier would result in higher costs compared to manufacturing them in-house. Therefore, based on this analysis, it would be more cost-effective for Blue Spruce Inc. to continue making the lampshades rather than buying them from the supplier.
The incremental analysis compares the costs of two options: making the lampshades in-house and buying them from the supplier. It considers the direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead costs for each option. By calculating the total costs for each option and finding the incremental cost, we can determine which option is more financially favorable.
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A monopoly will expand its production until Marginal Revenue = Marginal Cost and that is determined by a. Average total cost curve b. Average variable cost curve c. Marginal cost curve d. Demand curve e. Supply curve Clear my choice
A monopoly will expand its production until Marginal Revenue (MR) is equal to Marginal Cost (MC) and that is determined by the option C) Marginal cost curve.
A monopoly is a situation in which one company has exclusive control over the production and distribution of a product or service. The monopoly firm has complete control over the price of the product, which it can use to maximise its profits.The Marginal Revenue (MR) curve is a downward sloping curve that reflects the price that the company receives for each additional unit of output sold.
The Marginal Cost (MC) curve is the cost of producing each additional unit of output. When the Marginal Revenue (MR) is equal to the Marginal Cost (MC), the company is maximising its profits and therefore has no incentive to produce more or less than the quantity at which MR = MC.
This is why the monopoly firm will expand its production until Marginal Revenue (MR) is equal to Marginal Cost (MC) and that is determined by the Marginal cost curve.The correct option is c. Marginal cost curve.
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Some companies use a strategy of "everyday low pricing" for their products. How does such an approach reduce the bullwhip effect? Edit View Insert Format Tools Table 12pt Paragraph
Everyday low pricing is a pricing strategy adopted by companies where they offer consistent and stable prices for their products over time. This approach can help reduce the bullwhip effect in the supply chain.
The bullwhip effect refers to the phenomenon where small fluctuations in consumer demand result in amplified variations in orders and inventory levels along the supply chain. This distortion can lead to inefficiencies, increased costs, and inventory imbalances.
y implementing everyday low pricing, companies provide a predictable pricing environment for both customers and suppliers. This stability in pricing helps to stabilize consumer demand, as customers do not feel compelled to make excessive purchases during promotional periods or when prices are expected to rise. As a result, the variation in demand is reduced, leading to a smoother flow of information and more accurate demand forecasting throughout the supply chain.
Moreover, with everyday low pricing, suppliers can better plan their production and inventory management since they have a clearer understanding of the expected demand patterns. This reduces the need for excessive stockpiling and the subsequent order fluctuations.
n summary, the everyday low pricing strategy reduces the bullwhip effect by promoting stable consumer demand, improving information sharing, and facilitating more accurate demand forecasting across the supply chain.
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In which the ad uses central and/or peripheral persuasion attempts?
To identify whether an ad uses central or peripheral persuasion attempts, it requires analyzing the specific content and elements of the ad. Central persuasion focuses on logical arguments and factual information, appealing to rational thinking and decision-making. Peripheral persuasion, on the other hand, relies on emotional appeals, social influences, and superficial cues to influence attitudes and behavior. Without a specific ad example, it is difficult to determine the exact persuasion approach employed. To identify central or peripheral persuasion attempts in an ad, one should examine factors such as the use of logical reasoning, factual information, statistical data (central), or emotional appeals, endorsements, and visually appealing elements (peripheral). Analyzing these elements will help assess which persuasion approach is predominant in the ad's messaging and strategy.
To determine whether an ad uses central or peripheral persuasion attempts, we would need to analyze the content and elements of the ad. Central persuasion focuses on the logical and rational arguments presented in the ad, while peripheral persuasion appeals to emotions, social influences, or superficial aspects. Without a specific ad example, it is difficult to identify the exact persuasion approach used. However, I can provide an explanation of central and peripheral persuasion in advertising to help you identify these attempts in an ad.
Central persuasion attempts in an ad would involve presenting factual information, logical arguments, and highlighting the benefits, features, and attributes of the product or service. It appeals to the audience's rational thinking and decision-making process by providing substantive reasons to believe in the message.
Peripheral persuasion attempts, on the other hand, rely on peripheral cues such as emotional appeals, social endorsements, celebrity endorsements, or attractive visuals. These cues aim to influence the audience's attitudes and behavior by leveraging peripheral aspects rather than providing extensive information or logical arguments.
To determine which persuasion attempts are used in a specific ad, it is important to analyze the ad's content, tone, visuals, and overall message. Look for cues such as statistics, logical reasoning, comparisons, endorsements, emotional appeals, or appealing visuals that can help identify whether the ad primarily uses central or peripheral persuasion techniques.
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From 1730 To 1919, The United Kingdom Experienced Eight Wars And The Military Spending Rose Substantially During These Wars. Using The Loanable Fund Market Theory, Explain How A Rise In Military Spending Affects National Savings, Real Interest Rate And Investment Of The United Kingdom In The Long Run. No Graph Is Required.
An increase in military spending during wars reduces national savings, raises the real interest rate, and reduces private investment in the long run.
During times of war, an increase in military spending affects the United Kingdom's national savings, real interest rate, and investment in the long run.
According to the loanable fund market theory, an increase in military spending reduces national savings. This is because resources that could have been saved and invested in other sectors of the economy are diverted towards military expenditures.
With a decrease in national savings, the supply of loanable funds available for investment decreases. This leads to an increase in the real interest rate, which is the cost of borrowing funds.
Higher interest rates discourage private investment since borrowing becomes more expensive.
As a result, the rise in military spending crowds out private investment in the United Kingdom.
This means that there is less funding available for businesses and entrepreneurs to invest in productive ventures. Consequently, this can have negative implications for economic growth and development.
To summarize, an increase in military spending during wars reduces national savings, raises the real interest rate, and reduces private investment in the long run.
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READ THE CASE STUDY BELOW AND ANSWER THE
QUESTIONS THAT FOLLOW
CASE STUDY – Universal Plastic Bag Ltd
Universal Plastic Bag Ltd [UPB Ltd] has since 1990 operated as a manufacturer of plastic carrier bags supplying them on a contract-manufacturing basis to well-known supermarket chains, fast-food outlets, pharmacies and department stores in Ghana. Lately, Universal Plastic Bag Ltd exports customized plastic carrier bags to Marks n Spencer and Boots Pharmacy in South Africa.
During the Ghanaian financial crisis some years ago, Universal Plastic Bag Ltd had difficulties in meeting its term loan repayment, and had to restructure the term loan last year. The term loan was restructured by way of a debt moratorium of 24 months on the principal and an extension of the tenor from five years to eight years.
Currently, Universal Plastic Bag Ltd’s turnover is about GHc3 million per month with an average net profit margin of 7%. Lately, with the increase in world oil prices, raw materials for plastic bag production have increased by over 15% to USD1,200 per tonne. Universal Plastic Bag Ltd’s capacity utilization is still low at only 40%, after it expanded rapidly pre-crisis. Universal Plastic Bag Ltd’s production capacity increased from 200,000 tonnes per annum to 350,000 tonnes per annum during the pre-crisis period. This was when the company borrowed a term loan of GHc10 million to finance the machinery. The raw materials, PE resins, are purchased mainly from Nigeria and Cote d’Ivoire, whilst only 15% is sourced domestically.
Universal Plastic Bag is prepared to provide collateral in the form of two three-storey executive mansions at East Legon, as well as, give you charge over the machinery of the company. The total value of all the collateral is US$20 million. The company has made it clear that it intends to go in for a working capital loan of GHc3 million from another Bank and that the two banks will share the collateral provided on a pari pasu basis.
Universal Plastic Bag’s debt-equity ratio after taken the two loans will be under 40%, which is still acceptable under your Bank’s credit policy. Your Bank’s Board of Director’s has earlier agreed to set aside the policy of 20% equity contribution for term loans in the case of the Universal Plastic Bag’s restructured term loan.
QUESTIONS
As the Risk Analyst of your bank, which is about to make a decision on granting a loan to Universal Plastic Bag Ltd:
1. identify FIVE (5) specific key qualitative risks in the above case study;
2. Discuss why you see each of them as a risk;
3. For each of the identified risks indicate and explain whether it is a firm-specific risk or market-wide risk; and
4. Explain each of the following terms, as used in the Case above:
a. contract manufacturing
b. debt moratorium
c. capacity utilization
d. collateral
e. pari passu
f. equity contribution
The five specific key qualitative risks in the case study are:
1. Uncertain market conditions
2. High competition
3. Regulatory changes
4. Technological obsolescence
5. Economic instability
Debt moratorium refers to a temporary suspension of debt payments, usually agreed upon by creditors and debtors. It allows the debtor to restructure their finances and avoid default. Debt moratorium can have both positive and negative impacts. On one hand, it provides relief to the debtor by allowing them to manage their debt burden more effectively. On the other hand, it can negatively affect creditors as they may experience delays in receiving payments or face potential losses if the debtor fails to recover.
Equity contribution refers to the portion of funds that shareholders invest in a company. It represents ownership in the company and is often used to finance business operations, expansions, or projects. Equity contribution can be a source of risk, especially if shareholders are not able or willing to contribute additional funds when needed. This can lead to financial strain, liquidity issues, or even bankruptcy if the company cannot meet its financial obligations. However, a sufficient equity contribution can provide stability and enhance the company's financial position.
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Exercise 9-4 (Algo) Lower of cost or market [LO9-1] Herman Company has three products in its ending inventory. Specific per unit data at the end of the year for each of the products a as follows: Required: What unit values should Herman use for each of its products when applying the lower of cost or market (LCM) rule to ending inventory?
To apply the lower of cost or market (LCM) rule to ending inventory, Herman Company should determine the unit values for each of its products. The LCM rule states that the inventory should be valued at the lower of its cost or market value.
For each product, the unit value to be used would be the lower of the cost or market value. Cost refers to the original purchase cost of the product, while market value refers to the current selling price in the market.
To calculate the unit value, Herman Company should compare the cost per unit with the market value per unit for each product. Whichever value is lower should be used as the unit value for that product.
It's important to note that the question does not provide specific cost or market values for each product. Therefore, without this information, I am unable to provide the exact unit values that Herman Company should use for each product. Please refer to the given data or provide the specific values in order to determine the unit values accurately.
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21
Which of below describes demand elasticity under monopolistic competition a. Very elastic b. Unit elasticity c. Perfectly inelastic d. Perfectly elastic e. Very inelastic Clear my choice
The correct choice to describe demand elasticity under monopolistic competition is: a. Very elastic
In monopolistic competition, demand elasticity is high, indicating a high level of responsiveness in quantity demanded to changes in price. This means that even a small change in price can result in a relatively large change in the quantity of goods or services demanded by consumers. In monopolistic competition, firms differentiate their products through branding, marketing, or product features, creating a certain degree of product differentiation.
As a result, consumers have a range of substitute options available to them. If one firm raises its price, consumers can easily switch to a competitor offering a similar product, leading to a significant decrease in demand for the original firm's product.
Therefore, demand is considered very elastic in monopolistic competition.
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You estimate that the net income for a company next year is a uniform distribution with a minimum of $101 million and a maximum of $126 million. What is the probability that the company's net income is less than or equal to $114 million? Enter answer in percents, to two decimal places.
The probability that the company's net income is less than or equal to[tex]$114[/tex] million is 52% approximately.
The net income for a company next year is a uniform distribution with a minimum of 101 million and a maximum of 126 million.
The probability density function of uniform distribution is given by:
[tex]$$f(x) = \begin{cases} \frac{1}{b-a},& \text{for } a \leq x \leq b\ 0, & \text{otherwise}\end{cases} $$[/tex]
* Where:
* a = minimum value
* b = maximum value
Here, a = 101 million, b = 126 million
The probability density function becomes:
[tex]$$f(x) = \begin{cases} \frac{1}{126-101},& \text{for } 101 \leq x \leq 126\ 0, & \text{otherwise}\end{cases} $$[/tex]
Or:
[tex]$$f(x) = \begin{cases} \frac{1}{25},& \text{for } 101 \leq x \leq 126\ 0, & \text{otherwise}\end{cases} $$[/tex]
Now, we need to find the probability that the company's net income is less than or equal to $114 million.
P(X ≤ 114) = 13/25⋅100%=52%
The probability that the company's net income is less than or equal to[tex]$114[/tex] million is 52% approximately.
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In a cash against documents transaction:
The draft is payable on presentation to the drawer by the remitting bank.
The draft is payable on presentation to the drawee by the presenting bank.
The draft is payable on presentation to the drawee by the remitting bank.
The draft is payable on presentation to the drawer by the presenting bank.
The correct statement in a cash against documents transaction is:
The draft is payable on presentation to the drawer by the presenting bank.
In a cash against documents transaction, the presenting bank is responsible for presenting the draft to the drawer (the party who issued the draft) in exchange for payment. The drawer is required to make the payment upon presentation of the draft by the presenting bank.
In a cash against documents transaction, the draft refers to a written order or demand for payment issued by the drawer (the party who initiates the transaction) to the drawee (the party who owes the payment). The purpose of this transaction is to ensure that the payment is made before the documents related to the transaction are released.
The correct statement states that the draft is payable on presentation to the drawer by the presenting bank. Here's an explanation of how this process works:
1. The remitting bank, which is typically the bank of the seller or exporter, sends the draft along with other relevant documents to the presenting bank. These documents could include invoices, bills of lading, or other shipping documents.
2. The presenting bank acts as an intermediary and presents the draft to the drawer, who is the party responsible for making the payment. The presenting bank may be the bank of the buyer or importer.
3. Upon presentation of the draft, the drawer is obligated to make the payment to the presenting bank. The presenting bank verifies the draft and collects the payment from the drawer.
4. Once the payment is received, the presenting bank releases the documents to the drawer, allowing them to take possession of the goods or complete the transaction.
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Ed has a long forward at price $100. Bob has a short forward on a different asset but the same expiration date, and F(0,T)=$110. Both assets have the same spot price S(T) at expiration. Ed's profit is $20. What is Bob's profit?
When Ed's profit is $20 then Bob's profit is -$20.
Bob's profit can be calculated by considering the relationship between the forward price, spot price, and the profit of the long position.
In this case, Ed's long forward position has a profit of $20. This means that at the expiration date, the spot price S(T) is $20 higher than the forward price. Since Ed's forward price is $100, the spot price S(T) is $120.
For Bob, who has a short forward position on a different asset but with the same expiration date, the profit is the opposite of Ed's profit. In other words, if Ed gains $20, Bob will lose $20.
Therefore, Bob's profit is -$20.
The negative sign indicates that Bob has a loss because the spot price at expiration is higher than the forward price. This is expected for a short position since the short seller is obligated to sell the asset at a predetermined price (the forward price), and if the spot price is higher, they will incur a loss.
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The public power company is an example of which market structure? O Monopoly O Oligopoly O Monopolistic Competition O Perfect Competition 4 D Question 6 What is the difference between perfect competition and monopolistic competition? 1 pts O In perfect competition, firms produce identical goods. while in monopolistic competition, firms produce slightly different goods. O Perfect competition has a large number of small firms while monopolistic competition does not. O Perfect competition has no barriers to entry, while monopolistic competition does. 1 pts O Perfect competition has barriers to entry while monopolistic competition does not. O In monopolistic competition, firms produce identical goods, while in perfect competition, firms produce slightly different goods.
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The public power company is an example of a Monopoly.
The difference between perfect competition and monopolistic competition is that in perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly different goods.
competition has a large number of small firms, while monopolistic competition does not. Perfect competition has no barriers to entry, while monopolistic competition does.
The public power company represents a monopoly market structure as it holds exclusive control over the supply of electricity in a specific area, with no direct competition.
In perfect competition, firms produce identical goods or services. This means that there is no differentiation among the products offered by different firms in the market. On the other hand, in monopolistic competition, firms produce slightly different goods or services. They differentiate their products through branding, quality, packaging, or other factors, aiming to capture a specific segment of the market.
Perfect competition is characterized by a large number of small firms, each having no significant market power. This means that no single firm can influence the market price, and they are price takers. In contrast, monopolistic competition does not necessarily have a large number of firms. It can have fewer firms compared to perfect competition, and each firm has some degree of market power, allowing them to have control over the price to a certain extent.
Regarding entry barriers, perfect competition typically has no barriers to entry. New firms can easily enter the market, ensuring a free flow of competition. In monopolistic competition, there may be barriers to entry, such as brand loyalty, patents, or economies of scale, making it relatively harder for new firms to enter and compete directly.
To summarize, the public power company represents a monopoly market structure. Perfect competition involves identical goods, a large number of small firms, and no barriers to entry. Monopolistic competition includes slightly differentiated goods, some market power, and potential barriers to entry.
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businessfinancefinance questions and answerssuppose angie would like to purchase a new car today for $45,000. she will pay $5,000 as down payment towards this purchase and finance the balance over 5 years at an annual interest rate of 7.5%. the first payment will be made in exactly one month from the purchase date. payments are made every month over the next 5 years. what is the loan amount? (2) what
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Question: Suppose Angie Would Like To Purchase A New Car Today For $45,000. She Will Pay $5,000 As Down Payment Towards This Purchase And Finance The Balance Over 5 Years At An Annual Interest Rate Of 7.5%. The First Payment Will Be Made In Exactly One Month From The Purchase Date. Payments Are Made Every Month Over The Next 5 Years. What Is The Loan Amount? (2) What
Suppose Angie would like to purchase a new car today for $45,000. She will pay $5,000 as down payment towards this purchase and finance the balance over 5 years at an annual interest rate of 7.5%. The first payment will be made in exactly one month from the purchase date. Payments are made every month over the next 5 years.
What is the loan amount? (2)
What is the monthly interest rate? (2)
How many monthly payments will be made? (2)
Calculate the monthly payment required to fully pay off the loan in 5 years using both the formula and the function method. (8)
Show that the present value of all the monthly payments is equal to the loan amount. Use the timeline method for this. (14)
The loan amount for Angie's car purchase is $40,000 after deducting the down payment of $5,000 from the total car price of $45,000.The monthly interest rate for the loan is 0.625% (7.5% divided by 12 months).
Over the course of 5 years, there will be a total of 60 monthly payments (5 years x 12 months/year).
Monthly Payment Calculation (Formula Method):
Using the formula for calculating the monthly payment amount for a loan, we can determine that Angie's monthly payment will be approximately $792.59.
Monthly Payment Calculation (Function Method):
By using financial functions in spreadsheet software, such as Excel, the monthly payment can be calculated using the PMT function with the appropriate parameters. In this case, the monthly payment is approximately $792.59.
Present Value Calculation (Timeline Method):
To demonstrate that the present value of all the monthly payments is equal to the loan amount, we can discount each monthly payment to its present value using the monthly interest rate and sum them up. The present value of all the monthly payments will be equal to the loan amount of $40,000.
These calculations and methods help determine the loan amount, monthly interest rate, number of monthly payments, monthly payment amount, and the equivalence between the present value of monthly payments and the loan amount.
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On January 20, Whalen Inc., sold 9 million shares of stock in an SEO. The market price of Whalen at the time was $40.00 per share. Of the 9 million shares sold, 5 million shares were primary shares being sold by the company, and the remaining 4 million shares were being sold by the venture capital investors. Assume the underwriter charges 4.7% of the gross proceeds as an underwriting fee.
a. How much money did Whalen raise? b. How much money did the venture capitalists receive?
c. If the stock price dropped 2.4% on the announcement of the SEO and the new shares were sold at that price, how much money would Whalen receive?
a. Whalen Inc. raised $180 million from the sale of 5 million primary shares. ($40.00 per share × 5 million shares)
b. The venture capitalists received $160 million from the sale of 4 million shares. ($40.00 per share × 4 million shares)
c. Whalen would receive $187.2 million in total. (5 million shares × $37.44 per share)
a. To calculate the money Whalen raised, we multiply the market price per share ($40.00) by the number of primary shares sold (5 million). This gives us the total proceeds from the sale of primary shares, which is $200 million.
b. The venture capitalists sold 4 million shares, so we multiply the market price per share ($40.00) by the number of shares sold by the venture capitalists (4 million). This gives us the total proceeds received by the venture capitalists, which is $160 million.
c. If the stock price dropped 2.4% on the announcement of the SEO, the new stock price would be 97.6% of the original price. We multiply this adjusted price ($40.00 × 0.976) by the number of primary shares sold (5 million) to find the total proceeds Whalen would receive, which is $187.2 million.
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According to Jim Myers, president of the American Chamber of Commerce in South Africa, nearly 50% of the chamber’s members are Fortune 500 companies, and that over 90% operate beyond South Africa’s borders into southern Africa, sub-Saharan Africa and across the continent. "The sophisticated business environment of South Africa provides a powerful strategic export and manufacturing platform for achieving global competitive advantage, cost reductions and new market access," says Myers (Brand South Africa, 2005).
Critically analyse the above statement, taking into account the following:
What is international business, and how has it transformed the world economy?
The four trends that provide evidence for the globalisation of markets. Provide a South African case example to illustrate one of the trends.
What role do other factors play such as Covid 19 and the reduction of South African companies?
International Business refers to the transactions that take place across the borders between firms or individuals.
How does it transform?It has transformed the world economy in many ways, including:
International trade has allowed countries to specialize in the production of goods and services that they are efficient at producing, allowing them to compete on a global scale.
The exchange of ideas, people, and technology has led to increased innovation and productivity around the world. The four trends that provide evidence for the globalization of markets include the following:
1. The emergence of global markets for standardized consumer products on a previously unimagined scale.
2. The convergence of consumer tastes and preferences across markets.
3. The increasing importance of market segments that transcend national borders.
4. The role of technology in creating global markets.
A South African case example to illustrate one of the trends is the emergence of global markets for standardized consumer products on a previously unimagined scale. One of the examples is Shoprite Holdings, which is a South African retail giant that operates in more than 15 African countries and has more than 2,800 stores. Shoprite has been able to expand its business beyond South Africa by standardizing its products and services to meet the needs of its customers in different African countries.Covid 19 has had a significant impact on international business, including South African businesses. It has led to disruptions in supply chains, a decline in demand for certain products and services, and changes in consumer behavior.This has led to a reduction in the number of South African companies operating beyond South Africa's borders as businesses have had to focus on their domestic operations to survive.
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Which of the following is not key to a successful six sigma program? a. Have managment lead your improvement efforts b. Actively support a focus on delighting your customers c. Help employees work effectively by providing a team-based, co-operative environment d. Ensure you have at least 5 certified green belts in each department
d. Ensure you have at least 5 certified green belts in each department.
Having at least 5 certified green belts in each department can indeed be beneficial for a successful Six Sigma program as they are trained professionals who can lead improvement projects.
However, it is not necessarily a key factor for success. The other s mentioned, a, b, and c, are generally considered more critical to the success of a Six Sigma program. These include having management lead improvement efforts, actively supporting a customer-focused approach, and creating a team-based and cooperative work environment. These factors contribute to the overall effectiveness and sustainability of a Six Sigma program, as they promote a culture of continuous improvement and customer satisfaction.
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Question 3 Whenever average cost exceeds marginal cost, marginal cost is fatling. average cost is rising. marginal cost is rising. average cost is falling: Question 4 Regarding the relationship between marginal profit and average profit, which of the following statements is NOT true? All of these statements are true. If marginal profit is lower than average profit, then average profit must decrease when profit increases. If marginal profit is below average profit, the average profit decreases. If the average profit is rising, the marginal profit figure must be rising.
If marginal profit is below average profit, the average profit decreases. If the average profit is rising, the marginal profit figure must be rising.
When the average cost exceeds the marginal cost, it implies that each additional unit produced adds more to the average cost than it does to the marginal cost. In this scenario, the average cost is rising. Therefore, the correct answer is: "average cost is rising."
To understand this concept, let's break it down:
Marginal cost refers to the cost of producing one additional unit. If the marginal cost is falling, it means that producing one more unit is relatively cheaper than the previous units.
Average cost is the total cost divided by the quantity produced. When the average cost is rising, it means that the cost of producing each unit is increasing.
When the average cost exceeds the marginal cost, it indicates that the additional units produced are more expensive than the existing ones on average. This leads to an increase in the average cost.
The correct answer for the statement that is NOT true regarding the relationship between marginal profit and average profit is: "If marginal profit is lower than average profit, then average profit must decrease when profit increases."
This statement is not true because the relationship between marginal profit and average profit can be influenced by various factors. It is not necessary that if marginal profit is lower than average profit, the average profit must decrease when profit increases.
The relationship between marginal profit and average profit depends on the overall profit pattern and the behavior of marginal profit as additional units are produced. Marginal profit can be lower or higher than average profit, and it can change independently of average profit.
In some cases, if marginal profit is below average profit, the average profit can decrease if the marginal profit continues to decrease at an even faster rate. However, it is also possible for the average profit to increase even if the marginal profit is lower, as long as it remains positive and contributes positively to the overall profit.
Therefore, the statement mentioned above is not universally true, and the relationship between marginal profit and average profit requires a more nuanced analysis.
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Create a Journal Entry, general ledger, trial balance sheet for the following:
During its first month of operation, the Plumbing Repair Company, which, specializes in plumbing repair services, completed the following transactions.
September Transactions
Date Transaction Description
September 1 Started a plumbing repair business by making a $100,000 deposit in a company bank account, in exchange for 20,000 shares of $5 par value common stock.
September 1 Purchased insurance for the year and paid $3,000 cash.
September 2 Paid monthly rent with $3,500 cash on a warehouse to store the plumbing equipment.
September 5 Purchased plumbing equipment for $25,000, making a $5,000 down payment and placing $20,000 on account.
September 6 Purchased supplies for $2,000 on account.
September 7 Paid $750 cash for advertising in local newspapers.
September 10 Received $15,000 in cash for plumbing services provided.
September 12 Paid $5,000 for plumbing equipment previously purchased on account on September 5th.
September 15 Provided plumbing services on account for $2,500.
September 23 Received $22,000 in cash for plumbing services provided.
September 25 Received $1,500 cash for plumbing services performed on account on September 15th.
September 28 Paid $500 cash for a utility bill.
September 30 Paid cash dividends of $1,000.
September 30 One month's insurance expired.
September 30 The inventory of supplies showed a balance of $1,200 on hand at the end of the month.
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Answer
1 Journal Entries
September 1 - Investment made in business
Date
Account
Dr
Cr
Cash
$100,000
Common Stock
$100,000
To record issue of stock for cash
September 1 - Paid for insurance
Date
Account
Dr
Cr
Insurance Expense
$3,000
Cash
$3,000
To record insurance expense paid
September 2 - Payment made for Rent
Date
Account
Dr
Cr
Rent Expense
$3,500
Cash
$3,500
To record payment of rent
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Final answer
In the first month of operation, the Plumbing Repair Company had several transactions. On September 1, the company started its business by depositing $100,000 in a bank account in exchange for 20,000 shares of $5 par value common stock. The company also purchased insurance for the year for $3,000 and paid cash for it. On September 2, the company paid $3,500 in cash for monthly rent on a warehouse. These are the main journal entries for the given transactions.
Here is a breakdown of the journal entries, general ledger, and trial balance sheet for the September transactions of the Plumbing Repair Company:
1. Journal Entries:
- September 1: Cash (Dr) $100,000 and Common Stock (Cr) $100,000 to record the investment made in the business by issuing common stock for cash.
- September 1: Insurance Expense (Dr) $3,000 and Cash (Cr) $3,000 to record the payment for insurance.
- September 2: Rent Expense (Dr) $3,500 and Cash (Cr) $3,500 to record the payment of monthly rent.
The remaining journal entries for the other transactions can be completed using similar principles and the given information.
2. General Ledger:
The general ledger would include separate accounts for each type of transaction, such as Cash, Common Stock, Insurance Expense, Rent Expense, Plumbing Equipment, Supplies, Accounts Payable, Accounts Receivable, Revenue, Dividends, etc. Each account would be updated with the corresponding debit and credit entries from the journal entries.
3. Trial Balance Sheet:
The trial balance sheet is a summary of all the accounts and their balances. It lists the debit and credit balances of each account to ensure that they balance out. The total debits should equal the total credits. This provides a snapshot of the company's financial position at the end of the month.
It's important to note that the full answer including all the journal entries, general ledger, and trial balance sheet for the September transactions would be extensive and detailed.
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given market the equilibrium quantity increased, yet the price remained the same. Which of the
following could have happened?
The price of key input rose and the price of a compliment good fell.
There was a technological advance and the price of a compliment good rose.
The price of key input rose and the price of a compliment good rose.
There was a technological advancement and the price of a compliment good fell
Any combination of changes in the price of key inputs, the price of complementary goods, and technological advances can result in an increase in equilibrium quantity while the price remains constant.
Given the market equilibrium quantity increased, yet the price remained the same, there are a few possible scenarios that could have occurred.
1. The price of a key input rose and the price of a complementary good fell: In this case, if the price of a key input used in the production of the good increased, it would generally lead to a decrease in supply.
However, if the price of a complementary good fell, it could potentially increase the demand for the good, offsetting the decrease in supply and resulting in an increase in equilibrium quantity while keeping the price constant.
2. There was a technological advance and the price of a complementary good rose: A technological advance can lead to an increase in production efficiency, which can increase the supply of the good.
If at the same time, the price of a complementary good rose, it could increase the demand for the good. The combined increase in supply and demand would result in an increase in equilibrium quantity while the price remains unchanged.
3. The price of a key input rose and the price of a complementary good rose: If both the price of a key input and the price of a complementary good rose, it would generally lead to a decrease in supply.
However, if the increase in demand due to the rise in the price of a complementary good is greater than the decrease in supply, it could result in an increase in equilibrium quantity while the price remains constant.
4. There was a technological advance and the price of a complementary good fell: A technological advance can increase the supply of a good.
If at the same time, the price of a complementary good fell, it could lead to an increase in demand for the good. The combined increase in supply and demand would result in an increase in equilibrium quantity while the price remains the same.
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Libscomb Technologies' annual sales are $5,223,062 and all sales are made on credit, it purchases $3,575,756 of materials each year (and this is its cost of goods sold). Libscomb also has $576,797 of inventory, $542,091 of accounts receivable, and $488,029 of accounts payable. Assume a 365 day year.
What is Libscomb's Operating Cycle (in days)?
It takes 58.99 days to convert inventory into sales and 37.89 days to collect the payment from customers. The operating cycle can be defined as the duration of time that is required for a company to turn its current assets into cash. For the calculation of the operating cycle, we have to take into account the accounts receivable period and inventory period of a company.
Given the following data of Libscomb Technologies:
Annual sales = $5,223,062
Materials cost = $3,575,756
Inventory = $576,797
Accounts receivable = $542,091
Accounts payable = $488,029
Days of the year = 365
Operating Cycle is given by the following formula: Operating cycle = Accounts Receivable period + Inventory period. The formula of the inventory turnover ratio is Inventory turnover ratio= Cost of goods sold /Average inventory. The cost of goods sold for Libscomb Technologies is $3,575,756. The inventory of Libscomb Technologies is $576,797.
Using these values, we can calculate the inventory turnover ratio as follows: Inventory turnover ratio = $3,575,756 / $576,797 = 6.19.The formula of the receivables turnover ratio is Receivables turnover ratio= Sales/Average accounts receivable. The annual sales for Libscomb Technologies is $5,223,062. The average accounts receivable for Libscomb Technologies is $542,091. Using these values, we can calculate the receivables turnover ratio as follows: Receivables turnover ratio = $5,223,062 / $542,091 = 9.63.
Now we can calculate the operating cycle. Operating cycle = Days of the year/ Inventory Turnover Ratio + Days of the year/ Receivables Turnover Ratio. Operating cycle = 365 / 6.19 + 365 / 9.63 = 58.99 days + 37.89 days ≈ 96 days. Therefore, the operating cycle of Libscomb Technologies is 96 days. Libscomb Technologies takes around 96 days to convert its current assets into cash. It takes 58.99 days to convert inventory into sales and 37.89 days to collect the payment from customers.
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Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $2.00 million and create incremental cash flows of $525,833.00 each year for the next five years. The cost of capital is 11.82%. What is the internal rate of return for the J-Mix 2000?
The Internal Rate of Return (IRR) for the J-Mix 2000 is 11.02%. Using the formula of Internal Rate of Return (IRR) to solve for the given problem:
CF1 = $525,833.00
CF2 = $525,833.00
CF3 = $525,833.00
CF4 = $525,833.00
CF5 = $525,833.00
Initial Investment (CF0) = -$2,000,000.00
Where,
IRR = Internal Rate of Return
NPV = Net Present Value
CF = Cash Flows
From the given data, calculate the NPV, as follows:
NPV = [tex](\frac{525,833}{ 1.1182} )^{1}[/tex] + [tex](\frac{525,833}{ 1.1182} )^{2}[/tex] + [tex](\frac{525,833}{ 1.1182} )^{3}[/tex] + [tex](\frac{525,833}{ 1.1182} )^{4}[/tex] + [tex](\frac{525,833}{ 1.1182} )^{5}[/tex] - $2,000,000.00
NPV = [tex]\frac{525,833 }{1.1182}[/tex] +[tex]\frac{525,833 }{1.2495}[/tex] + [tex]\frac{525,833 }{1.4016}[/tex] + [tex]\frac{525,833 }{1.5771}[/tex] + [tex]\frac{525,833 }{1.7784}[/tex] - $2,000,000.00
NPV = $469,665.47
Using the formula of IRR, calculate the Internal Rate of Return (IRR), as follows:
IRR = CF0 + [(NPV / CF1 - CF0) * (CF1 - CF0)]
IRR = -$2,000,000.00 + [( [tex]\frac{469,665.47}{525,833.00 }[/tex]- (-$2,000,000.00) ) * ( $525,833.00 - (-$2,000,000.00) )]
IRR = 11.02%
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An Individual Retirement Account (IRA) has $20,000 in it, and the owner decides not to add any more money to the account other than interest earned at 8% compounded daily. How much will be in the account 30 years from now when the owner reaches retirement age? There will be $ in the account. (Round to the nearest cent. Use a 365-day year.)
The account will have approximately $174,494.06 in it when the owner reaches retirement age.
To calculate the future value of the IRA, we can use the compound interest formula:
FV = P * [tex](1 + r/n)^(^n^*^t^)[/tex]
Where FV represents the future value, P is the initial principal amount ($20,000), r is the annual interest rate (8%), n is the number of compounding periods per year (365 for daily compounding), and t is the number of years (30).
Substituting the values into the formula, we get:
FV = $20,000 * [tex](1 + 0.08/365)^(^3^6^5^*^3^0^)[/tex]
Calculating the expression, we find:
FV ≈ $174,494.06
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