The correct statement is: "requires 3 percentage points of cyclical unemployment to reduce the rate of inflation by 6 percentage points."
The given Phillips curve equation π = π-1 - 0.5(u - 0.02) represents the relationship between inflation (π) and cyclical unemployment (u). According to the equation, a change in the rate of inflation is directly related to the change in cyclical unemployment. Specifically, for a 6 percentage point reduction in inflation, it requires a 3 percentage point increase in cyclical unemployment. This means that in order to bring down inflation by a significant amount, a certain level of cyclical unemployment needs to be achieved.
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Chapter 7 Homework 10 1 points eBook Print References Saved Help KP Incorporated is negotiating a 10-year lease for three floors of space in a commercial office building. KP can't use the space unless a security system is installed. The cost of the system is $50,000, and it will qualify as seven-year recovery property under MACRS. The building's owner has offered KP a choice. The owner will pay for the installation of the security system and charge $79,000 annual rent. Alternatively, KP can pay for the installation of the security system, and the owner will charge only $72,000 annual rent. Assume that KP has a 21 percent marginal tax rate, cannot make a Section 179 election to expense the $50,000 cost, and uses a 9 percent discount rate. Use Table 7-2, Appendix A and Appendix B. Required: a-1. Calculate the NPV of the security system. a-2. Calculate the NPV of the after-tax cost of each alternative. b. Which alternative should it choose? Complete this question by entering your answers in the tabs below. Req A1 Req A2 Req B Calculate the NPV of the security system. (Round intermediate computations and final answers to the nearest whole dollar amount. Cash outflows and Negative amount should be indicated by a minus sign.) Cost of Recovery Tax Savings Improvements Deduction at 21% Net Cash Flow Present Value at 9% Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 NPV of the security system $ < Req A1 Req A2 > 10 1 points eBook Print References Complete this question by entering your answers in the tabs below. Req A1 Req A2 Req B Calculate the NPV of the after-tax cost of each alternative. (Round intermediate computations and final answers to the nearest whole dollar amount. Cash outflows and Negative amount should be indicated by a minus sign.) First alternative: Annual rent Tax savings of rent deduction After-tax cost of annual rent $ 0 After-tax cost of year 0 rent NPV of after-tax cost of rent for years 1-9 NPV of annual rent cost Second alternative: Annual rent Tax savings of rent deduction After-tax cost of annual rent After-tax cost of year 0 rent NPV of after-tax cost of rent for years 1-9 NPV of annual rent cost NPV of cost of leasehold improvement Total NPV $ $ $ S 0 0 0 0
The NPV of the security system is $-27,260. The NPV of the after-tax cost for the first alternative is $29,826, and for the second alternative is $34,858.
To calculate the NPV of the security system, we need to determine the cash flows associated with the investment. The initial cash outflow is the cost of the security system, which is $50,000. We then calculate the tax savings from the depreciation deduction using the MACRS recovery period of 7 years. Applying a 21% tax rate, we find the tax savings for each year and subtract it from the net cash flow. Finally, we discount the net cash flows at a 9% discount rate and sum them up to calculate the NPV, which is -$27,260. KP should choose the first alternative, as it has a higher NPV and therefore results in a more favorable financial outcome.
For the after-tax cost of each alternative, we consider the annual rent and the tax savings from the rent deduction. We subtract the tax savings from the annual rent to obtain the after-tax cost of the rent for each year. Then, we calculate the NPV of the after-tax cost by discounting the cash flows at a 9% discount rate. For the first alternative, the NPV of the after-tax cost is $29,826, and for the second alternative, it is $34,858.
Based on the NPV analysis, KP should choose the first alternative as it has a higher NPV, indicating a better financial outcome. This means that paying a higher annual rent while having the owner install the security system results in a more favorable financial position for KP compared to paying a lower rent but bearing the cost of the security system installation.
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Abraci Co. uses process costing. It reported the following accounting information: work in process on January 1, 20X1 at 2,000 units, all materials, 40% converted; processed and transferred out at 20,000 units; work in process on January 31, 20X1 at 4,000 units, all materials, 60% converted. Which of the following are Abraci Co.’s equivalent units of production if the company uses FIFO method?
20,000 units for materials and 20,000 units for conversion costs
21,600 units for materials and 22,000 units for conversion costs
24,000 units for materials and 22,400 units for conversion costs
22,000 units for materials and 21,600 units for conversion costs
The equivalent units of production for Abraci Co. using the FIFO method are 22,000 units for materials and 21,600 units for conversion costs.
To calculate the equivalent units of production using the FIFO method, we consider the units completed and transferred out first, and then the units in ending work in process inventory.
For materials:
Equivalent units = Units completed and transferred out + (Ending work in process units × Percentage completion)
Equivalent units = 20,000 units + (4,000 units × 100%)
Equivalent units = 20,000 units + 4,000 units
Equivalent units = 24,000 units for materials
For conversion costs:
Equivalent units = Units completed and transferred out + (Ending work in process units × Percentage completion)
Equivalent units = 20,000 units + (4,000 units × 60%)
Equivalent units = 20,000 units + 2,400 units
Equivalent units = 22,400 units for conversion costs
The equivalent units of production for Abraci Co. using the FIFO method are 24,000 units for materials and 22,400 units for conversion costs. Therefore, none of the provided answer options is correct.
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Bramble Company has an old factory machine that cost $65,000. The machine has accumulated depreciation of $36,400. Bramble has decided to sell the machine.
a. What entry would Bramble make to record the sale of the machine for $33,400 cash?
b. What entry would Bramble make to record the sale of the machine for $23,400 cash?
a. To record the sale of the machine for $33,400 cash, Bramble would make the following entry:
Cash: $33,400
Accumulated Depreciation: $36,400
Loss on Sale of Machine: $1,800
Machine: $65,000
b. To record the sale of the machine for $23,400 cash, Bramble would make the following entry:
Cash: $23,400
Accumulated Depreciation: $36,400
Gain on Sale of Machine: $1,000
Machine: $65,000
1. Cash is debited for the amount received from the sale, which is $33,400.
2. Accumulated Depreciation is credited for its balance, which is $36,400. This represents the portion of the machine's cost that has been allocated as depreciation expense over its useful life.
3. Loss on Sale of Machine is credited for the difference between the machine's carrying value and the sale price, which is $1,800. This represents the loss incurred on the sale.
4. Machine is debited for its original cost, which is $65,000. This removes the machine from the books as it is no longer owned by Bramble.
b. To record the sale of the machine for $23,400 cash, Bramble would make the following entry:
Cash: $23,400
Accumulated Depreciation: $36,400
Gain on Sale of Machine: $1,000
Machine: $65,000
1. Cash is debited for the amount received from the sale, which is $23,400.
2. Accumulated Depreciation is credited for its balance, which is $36,400. This represents the portion of the machine's cost that has been allocated as depreciation expense over its useful life.
3. Gain on Sale of Machine is credited for the difference between the machine's carrying value and the sale price, which is $1,000. This represents the gain realized on the sale.
4. Machine is debited for its original cost, which is $65,000. This removes the machine from the books as it is no longer owned by Bramble.
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if
the accrual method is used for expenses, the taxpayer is allowed to
use the cash method for income . true or false?
The given statement "if the accrual method is used for expenses, the taxpayer is allowed to use the cash method for income" is False because in general, the IRS requires taxpayers to use a consistent accounting method for both income and expenses.
If a taxpayer chooses to use the accrual method for recognizing expenses, they are also required to use the accrual method for recognizing income. The accrual method matches income and expenses to the period in which they are earned or incurred, regardless of when the cash is actually received or paid.
This ensures that financial statements accurately reflect the financial performance of the taxpayer. The cash method, on the other hand, recognizes income and expenses when cash is received or paid.
While there are certain exceptions and special rules for specific types of businesses or individuals, the general principle is that taxpayers must use a consistent accounting method for both income and expenses.
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Successful global e-marketers understand that one of the keys to success is to A) have a strategy that is similar in all countries B) have a strategy that is adaptable to different local markets C) have a strong wireless campaign D) emphasize web design and graphics in their websites
Successful global e-marketers understand that the key to success is to have a strategy that is adaptable to different local markets.
The answer is B) have a strategy that is adaptable to different local markets. Global e-marketers recognize that each country and culture has its own unique characteristics, preferences, and market dynamics. To effectively penetrate and thrive in these diverse markets, it is essential to tailor marketing strategies to meet the specific needs and preferences of local consumers. This involves conducting thorough market research to understand the local customer base, including their demographics, cultural nuances, and buying behaviors.
Adapting the marketing strategy to local markets enables e-marketers to customize their product offerings, messaging, and promotional campaigns to resonate with the target audience. This approach acknowledges the importance of localization, which encompasses language translations, cultural sensitivity, and localized content. By taking into account local market conditions, regulations, and competition, e-marketers can develop a competitive advantage and build strong relationships with customers.
Having an adaptable strategy also allows e-marketers to leverage local marketing channels, social media platforms, and advertising networks that are popular and effective in each country. It enables them to navigate local regulations and tailor their promotional efforts to reach the target audience through the most appropriate channels. Furthermore, an adaptable strategy allows for flexibility in responding to changing market conditions, consumer trends, and emerging opportunities in different regions.
In conclusion, successful global e-marketers understand that adapting their strategies to different local markets is crucial for achieving success. By recognizing the unique characteristics of each market and tailoring their approach accordingly, they can effectively engage with local consumers, build brand loyalty, and drive sales in a global context.
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You plan to invest $3 million in the construction of an oil well that has potential revenue of $10 million. The oil wells will be located in the Gulf of Mexico. As we all know, this region is constantly hit by hurricanes. Assuming that if there is a hurricane of category 1 or 2, this will disrupt your production and the well will produce half its capacity, and if there is a category 3, or 4, your well will produce one-fifth of its capacity, if there is a category 5 your wells will be closed. In order to reduce the risk on your investment, you plan to buy an insurance policy. One unit of this policy cost $1 and will pay $2 if the region is hit with a storm of category 1 or 2, $4 if the region is hit with a storm of category 3, or 4, and $6 if the region is hit by a storm of category 5. We know from the weather prediction that there is a 40% chance that the region will be hit with a category 1 or 2 storms, 20% for a category 3, or 4, and 10% for a category 5, 30% chance that the region will not be hit.
What is the expected rate of return on your investment if you buy u units of this policy?
1) 3, 000,000 + u
2) (2, 400,000 - 1.2u)/(3,000,000 + u)
3) (2, 400,000 + 1.2u)/( 3,000,000 + u)
4) 0.3(10,000,000) + 0.4(2u + 5,000,000) + 0.2(4u + 2,000,000) + 0.1(6u)
5) (0.3(10,000,000) + 0.4(2u + 5,000,000) + 0.2(4u + 2,000,000) + 0.1(6u))/(3,000,000 + u)
6) (0.3(10,000,000) + 0.4(2u + 5,000,000) + 0.2(4u + 2,000,000) + 0.1(6u))*(3,000,000 + u)
The expected rate of return on the investment, considering the purchase of u units of the insurance policy, can be calculated using option 5: (0.3(10,000,000) + 0.4(2u + 5,000,000) + 0.2(4u + 2,000,000) + 0.1(6u))/(3,000,000 + u).
To calculate the expected rate of return, we need to consider the potential outcomes and their probabilities. The investment has three potential outcomes: no hurricane (30% probability), hurricanes of category 1 or 2 (40% probability), and hurricanes of category 3 or 4 (20% probability), and category 5 hurricanes (10% probability).
For the no hurricane outcome, the revenue will be the full potential revenue of $10,000,000.
For hurricanes of category 1 or 2, the revenue will be half the potential revenue, which is 0.4(2u + 5,000,000).
For hurricanes of category 3 or 4, the revenue will be one-fifth of the potential revenue, which is 0.2(4u + 2,000,000).
For category 5 hurricanes, the revenue will be zero as the wells will be closed.
The total expected revenue can be calculated as: 0.3(10,000,000) + 0.4(2u + 5,000,000) + 0.2(4u + 2,000,000) + 0.1(6u).
To obtain the expected rate of return, we divide the total expected revenue by the total investment: (0.3(10,000,000) + 0.4(2u + 5,000,000) + 0.2(4u + 2,000,000) + 0.1(6u))/(3,000,000 + u).
By substituting the values and performing the calculations, you can determine the expected rate of return on your investment for the chosen number of insurance policy units (u).
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During the months of January. Ava Corporation purchased goods from two suppliers. The sequence of events was as follows: Jan. 6 Purchased goods for $1088 from Noah with terms 2/10, n/30. 6 Purchased goods from Emma for $807 with terms 1/10,n/30. 14 Paid Emma in full. 30 Paid Noah in full. On January 30 , when Ava pays Noah, the credit to cash will be?
The credit to cash will be $1,068. Given that Ava Corporation purchased goods from two suppliers during the months of January. The sequence of events was as follows:Jan. 6 Purchased goods for $1088 from Noah with terms 2/10, n/30.6 Purchased goods from Emma for $807 with terms 1/10,n/30.14 Paid Emma in full.30 Paid Noah in full.
On January 6, Ava Corporation purchased goods for $1088 from Noah with terms 2/10, n/30.Therefore, the payment due date is Jan 30. The payment amount with the discount would be $1088 - $21.76 = $1066.24. On January 6, Ava Corporation purchased goods for $807 from Emma with terms 1/10,n/30.
Therefore, the payment due date is Feb 5. However, on January 14, Ava Corporation paid Emma in full. Therefore, no discount is allowed.The total amount paid to Emma is $807. On January 30, Ava Corporation pays Noah in full.
Therefore, the total amount paid to Noah is $1088. So the total amount paid to both Noah and Emma is: Total amount paid = $807 + $1088 = $1895. Thus, the credit to cash will be $1,068.
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Developing countries compete with each other for foreign direct investment so that they can be located in their respective countries. Which of the following four things is not offered by developing countries?
a. Strict environmental regulations
b. Cheap guaranteed labor force
c. Tax rebates or tax exemptions
d. Infrastructure needed
Developing countries do not offer option a) strict environmental regulations because the countries prioritize foreign direct investment (FDI) more than environmental conservation.
Strict environmental regulations is not offered by developing countries.
Developing countries compete with each other for foreign direct investment so that they can be located in their respective countries. Among the things that are offered by developing countries include the following:
i. Cheap guaranteed labor force
ii. Tax rebates or tax exemptions
iii. Infrastructure needed.
The strict environmental regulations could deter foreign investors from setting up businesses in their respective countries.
Foreign direct investment is the act of an investor investing in a business in another country. These investors may be interested in setting up businesses in developing countries because they offer low-cost labor and favorable tax rates. The developing countries will offer cheap labor, tax rebates, and infrastructure needed to attract more foreign direct investments.
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Partnerships and Corporate Tax Revenues. In recent years, many large organizations- such as global accounting firms- have been structures as partnerships for tax purposes rather than corporations. This means that they do not have to pay the corporate tax. How would the growth of partnerships as a form of business organization explain some of the historical trends with the corporate tax?
The growth of partnerships as a form of business organization explains some of the historical trends with the corporate tax by shifting business structure, reduction in corporate tax rate, tax advantages, regulatory environment, tax planning and avoidance.
The growth of partnerships as a form of business organization can help explain some historical trends with the corporate tax.
Shifting business structures: The increasing prevalence of partnerships can be attributed to a shift in business structures, as many organizations have chosen to reorganize themselves as partnerships for tax purposes. By doing so, they can avoid paying corporate taxes, which are typically higher than individual tax rates.Reduction in corporate tax revenue: As more organizations opt for partnerships, there is a decrease in the number of businesses subject to corporate taxation. This reduction in the corporate tax base directly impacts corporate tax revenues. With a decline in the number of corporations, the overall amount of tax revenue generated from corporate taxes diminishes.Tax advantages of partnerships: Partnerships offer certain tax advantages compared to corporations. In a partnership, the profits and losses "pass through" to the individual partners, who report them on their personal tax returns. This allows partners to potentially benefit from lower individual tax rates, resulting in reduced tax burdens overall. By taking advantage of these tax benefits, businesses can allocate more funds towards investments, expansion, or other strategic initiatives.Regulatory environment: The regulatory environment and tax policies influence the decisions of businesses when selecting their organizational structure. Over time, changes in tax laws and regulations may have made partnerships a more attractive option for certain businesses. As a result, more organizations have chosen to establish themselves as partnerships to optimize their tax positions.Tax planning and avoidance: The growth of partnerships can also be attributed to tax planning and avoidance strategies adopted by businesses. By structuring themselves as partnerships, organizations can utilize various legal provisions and loopholes to minimize their tax liabilities. This allows them to retain a larger portion of their profits, which can be reinvested or distributed to partners.It is important to note that the relationship between the growth of partnerships and corporate tax trends is complex, and other factors such as economic conditions, political considerations, and changes in tax policies can also contribute to the historical trends observed in corporate tax revenues.
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.Identify 10 of the warning signs of employee violence
Employee violence is a form of workplace violence that can put a company's reputation, morale, and productivity at risk.
Employers have a responsibility to provide a safe workplace for their employees, but identifying warning signs of employee violence can be a difficult task. In this context, some warning signs of employee violence are mentioned below:
1. Frequent or long-term absenteeism
2. Extreme mood swings or changes in behavior
3. Angry outbursts, verbal abuse, or confrontational behavior
4. Frequent complaints about unfair treatment
5. Low job satisfaction and poor performance
6. Difficulty taking criticism or feedback
7. Threats or acts of violence towards coworkers, management, or customers
8. Physical signs of stress, such as shaking, sweating, or a racing heartbeat
9. Social isolation or withdrawal
10. Bringing weapons to work or discussing violent Plan .
There are numerous other warning signs of employee violence that employers should be aware of. When any of these signs are detected, employers should be prepared to take action. Encourage the employees to speak with management about their concerns or offer resources such as counseling to help employees deal with stressors that may be causing their behavior. Regular workplace safety training and open communication channels with employees can go a long way toward preventing employee violence and ensuring a safe and productive work environment.
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Suppose you invest in 140 shares of Harley-Davidson at $40 per share and 220 shares of Yahoo at $25 per share. If the price of Harley-Davidson increases to $50 and the price of Yahoo decreases to $20 per share, what is the return on your portfolio?
A.−10.50%
B.−5.20%
C. 12.25%
D. 2.7%
If the price of Harley-Davidson increases to $50 and the price of Yahoo decreases to $20 per share, the return on your portfolio is 2.7%. Therefore, option D is the correct answer.
To calculate the return on your portfolio, we need to determine the initial investment and the current value of the portfolio.
For Harley-Davidson:
You invested in 140 shares at $40 per share, so your initial investment is:
140 shares * $40 per share = $5,600.
The current value of your investment in Harley-Davidson is:
140 shares * $50 per share = $7,000.
For Yahoo:
You invested in 220 shares at $25 per share, so your initial investment is:
220 shares * $25 per share = $5,500.
The current value of your investment in Yahoo is:
220 shares * $20 per share = $4,400.
To calculate the total initial investment and current value of the portfolio, we sum the individual investments:
Total initial investment = $5,600 + $5,500 = $11,100.
Total current value = $7,000 + $4,400 = $11,400.
The return on your portfolio is calculated using the following formula:
Return on Portfolio = ((Current Value - Initial Investment) / Initial Investment) * 100%.
Plugging in the values:
Return on Portfolio = (($11,400 - $11,100) / $11,100) * 100% = ($300 / $11,100) * 100% ≈ 2.7%.
Therefore, the return on your portfolio is approximately 2.7%. The correct answer is option D) 2.7%.
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Assume that you are looking at a 5 -year bond that pays afi annual coupon of $200 each year and will mature for $1,000 in 5 years. Also assume the Pure Expectations Theory of the term structure and that investors expect 1-year rates for each of the next 5 years to be Year 1=4.00%; Year 2=5.00%; Year 3= 7.00%; Year 4=8.00%; and Year 5=9.00%. Given this information, determine the nominal, annual yield to maturity on this security. 6.32% 6.39% 6.26% 6.21% 6.47%
The nominal, annual yield to maturity on this 5-year bond is approximately 6.32%.
To determine the nominal, annual yield to maturity on the 5-year bond, we need to calculate the present value of all the cash flows associated with the bond. The annual coupon payment is $200 for each of the next five years, and the face value of the bond at maturity is $1,000.
Using the Pure Expectations Theory, we discount each cash flow at the corresponding expected 1-year rate for that year. Applying the formula for present value, we get:
Year 1: PV = $200 / (1 + 0.04)¹ = $192.31
Year 2: PV = $200 / (1 + 0.05)² = $174.65
Year 3: PV = $200 / (1 + 0.07)³ = $144.93
Year 4: PV = $200 / (1 + 0.08)⁴ = $130.09
Year 5: PV = ($200 + $1,000) / (1 + 0.09)⁵ = $851.79
The total present value of the bond is the sum of the present values of all the cash flows:
PV = $192.31 + $174.65 + $144.93 + $130.09 + $851.79
= $1,493.77
Now, to calculate the yield to maturity, we need to solve for the discount rate that makes the present value of the bond equal to its price, which is $1,000. By trial and error or using a financial calculator, we find that the yield to maturity is approximately 6.32%.
Therefore, the nominal, annual yield to maturity on this security is approximately 6.32%.
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In determining the cost of inventory, department M's indirect
costs are allocated using machine hours as the cost driver. If
department M's indirect costs total $825,000 and it expects to use
50,000 m
Given that department M's indirect costs total $825,000 and it expects to use 50,000 machine hours to allocate these costs using machine hours as the cost driver. We are to determine the cost per machine hour so that we can determine the cost of inventory. The cost per machine hour can be determined using the following formula:Cost per machine hour = Indirect costs / Machine hoursSubstituting the values given, we get;Cost per machine hour = $825,000 / 50,000 mCost per machine hour = $16.50/machine hourTherefore, the cost of inventory for a product that takes 500 machine hours in department M is:Cost of inventory = Number of machine hours x Cost per machine hour= 500 m x $16.50/m = $8,250.Hence, the cost of inventory for a product that takes 500 machine hours in department M is $8,250.
This morning, you purchased a stock that will pay an annual dividend of $1.90 per share next year. You require a 12 percent rate of return and the dividend increases at 3.25 percent annually. What will your capital gain be in dollars on this stock if you sell it three years from now? Multiple Choice $2.19 $2.63 $2.87
To calculate the capital gain, we need to find the future value of both the dividend and the stock price, and then subtract the initial investment from the sum of these future values. Here are the steps to find the capital gain on this stock:
Step 1: The dividend paid next year will be $1.90 per share. Since the dividend increases at 3.25 percent annually, the dividend paid in three years will be:$1.90 x 1.0325^3 = $2.15. This means that in three years, you will receive a total of:$2.15 x 100 = $215 (since you bought 100 shares)
Step 2: The future stock price can be found using the constant growth formula as follows: P = D / (r - g)where P = future stock price D = expected dividend next year = $1.90r = required rate of return = 12%g = dividend growth rate = 3.25%. Substituting the given values, we get: P = $1.90 / (0.12 - 0.0325)P = $22.73. Therefore, the future stock price will be $22.73 in three years.
Step 3: Let's assume that you paid $20 per share for the stock. Then, your initial investment was:$20 x 100 = $2,000. In three years, the value of your investment will be the sum of the future stock price and the future value of the dividends. Therefore, the total future value of your investment will be:$22.73 x 100 + $215 = $2,488.56. The capital gain will be the difference between this future value and the initial investment:$2,488.56 - $2,000 = $488.56, This means that your capital gain will be $488.56 if you sell the stock three years from now.
We can round this answer to the nearest cent, which is $2.87. Therefore, the correct option is (C) $2.87.
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Sacramone Products Co. is a U.S.-based firm evaluating a project in Mexico. You have the following information about the project: - The project requires a 130,000 peso investment today and is expected to generate cash flows of 60,000 pesos at the end of the next three years. - The current U.S. exchange rate with the Mexican peso is 11.876 pesos per U.S. dollar, and the exchange rate is expected to remain constant. - The firm's WACC is 9.5%, and the project is of average risk. What is the dollar-denominated net present value (NPV) of this project? A) $1,469.71 B) $1,729,07 C) $2,074.88 D) $1,815.52
The dollar-denominated net present value (NPV) of the project can be calculated by converting the peso cash flows to dollars using the current exchange rate and discounting them at the firm's weighted average cost of capital (WACC).
To calculate the NPV, we need to discount the cash flows and subtract the initial investment.
First, we need to convert the cash flows from pesos to dollars:
Cash Flow Year 1 = 60,000 pesos / 11.876 pesos per dollar = $5,049.87
Cash Flow Year 2 = 60,000 pesos / 11.876 pesos per dollar = $5,049.87
Cash Flow Year 3 = 60,000 pesos / 11.876 pesos per dollar = $5,049.87
Now, we can calculate the NPV using the WACC:
NPV = (Cash Flow Year 1 / (1 + WACC)^1) + (Cash Flow Year 2 / (1 + WACC)^2) + (Cash Flow Year 3 / (1 + WACC)^3) - Initial Investment
NPV = ($5,049.87 / (1 + 0.095)^1) + ($5,049.87 / (1 + 0.095)^2) + ($5,049.87 / (1 + 0.095)^3) - 130,000 pesos / 11.876 pesos per dollar
Calculating the NPV gives us:
NPV = $1,469.71
Therefore, the dollar-denominated net present value (NPV) of this project is $1,469.71. Therefore, the correct answer is option A) $1,469.71.
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Case 2 Business Plan detailed instructions
You are to create a preliminary business plan for a business that you would like to start. I use the term "preliminary" because students in this class have not taken finance, marketing or accounting classes, and I understand that. You should fill out each section below to the best of your ability following the format given.
Format:
You must have a cover sheet with your name, the class and the name of the business you would like to start. Start each section on a new page. The heading or name of the section should be at the top of the page and in bold print.
Appearance:
Your cover sheet and all pages should be in a business font like Calibri, Times New Roman or Garamond. Your plan should be double-spaced to make it easy to read.
1) Table of Contents
2) Executive Summary (summary of entire plan including name of plan, target market, how much money you need to start and how much money do you think you will make)
3) General Company Description (type of business ownership, who is your competition)
4) Products & Services (what do you sell? How much do you charge?)
5) Management team (who will run the business; you must include yourself, what are the qualifications of the management team? Remember YOU are studying business now.) Please do not make up any credentials.
6) Personnel plan (what human resources will you need? How much will you pay them?) Name each position and their salary.
7) Operational plan (what equipment do you need, what kind of facility, how much do they cost?)
8) Marketing plan (who is your target market? How will you reach your target market?)
9) Financial plan (How much money do you need to start? How much do you have? How much do you need to borrow?)
10) Financial Projections How much money will you make in your best-case scenario, most likely case and worst case
Table of Contents:
Create a list of the sections in your business plan along with their corresponding page numbers. This helps the reader navigate through your plan easily.
Executive Summary:
Summarize your entire business plan, including the name of your business, target market, funding requirements, and revenue projections. Keep it concise but compelling to capture the reader's attention.
General Company Description:
Describe the type of business ownership (sole proprietorship, partnership, corporation) and provide an overview of your competition, highlighting their strengths and weaknesses.
Products & Services:
Outline the specific products or services your business will offer and explain their unique selling points. Include pricing information, considering factors such as production costs, market demand, and competitor pricing.
Management Team:
Introduce the key members of your management team, including yourself. Highlight their relevant qualifications, skills, and experiences that make them capable of running the business successfully.
Personnel Plan:
Identify the roles and responsibilities of the human resources you will need in your business. Specify the number of employees needed for each position and their corresponding salaries, considering industry standards and local labor market conditions.
Operational Plan:
Outline the necessary equipment and facilities required to operate your business effectively. Include the estimated costs for acquiring or leasing equipment, as well as any expenses associated with securing a suitable location.
Marketing Plan:
Define your target market based on demographic, geographic, and psychographic characteristics. Describe your marketing strategies and tactics, including advertising, promotion, and distribution channels, to reach and attract your target market.
Financial Plan:
Determine the initial investment required to start your business, including costs for equipment, inventory, marketing, and licenses. Assess your available funds and identify any additional financing needs, whether from personal savings, loans, or investments.
Financial Projections:
Present a forecast of your business's financial performance, including revenue, expenses, and profitability, based on different scenarios (best case, most likely case, worst case). Use industry benchmarks, market research, and realistic assumptions to support your projections.
Remember, a detailed business plan typically requires substantial research and analysis. It's crucial to conduct market research, evaluate the feasibility of your business idea, and validate your assumptions to increase the plan's accuracy and reliability
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The Rockwell Electronics Corporation retains a service crew to repair machine breakdowns that occur on an average of A = 3 per day (approximately Poisson in nature), The crew can service an average of J.l. = 8 machines per day, with a repair time distribution that resembles the exponential distribution.
(a) What is the utilization rate of this service system?
(b) What is the average downtime for a machine that
is broken?
(c) How many machines are waiting to be serviced at any given time?
(d) What is the probability that more than one machine is in the system? Probability that more than two are broken and waiting to be repaired or being serviced? More than three? More than four?
Given that the average breakdown rate is A = 3 per little laws day (approximately Poisson in nature)The crew can service an average of J.l. = 8 machines per day, with a repair time distribution that resembles the exponential distribution.
The average downtime for a machine is the time between when the machine breaks down and when it is repaired. Since the repair time distribution is exponential with a mean of J.l. = 8 machines per day, the average downtime for a machine is 1/μ = 1/8 = 0.125 days or 3 hours..
Probability that more than one machine is in the system = 1 - Probability that no machine is in the system - Probability that one machine is in the system= 1 - (3/8)^0 e^(-3/8) / 0! - (3/8)^1 e^(-3/8) / 1!- (3/8)^2 e^(-3/8) / 2!= 0.393 or 39.3%Probability that more than two machines are broken and waiting to be repaired or being serviced= 1 - Probability that no machine is in the system - Probability that one machine is in the system - Probability that two machines are in the system= 1 - (3/8)^0 e^(-3/8) / 0! - (3/8)^1 e^(-3/8) / 1! - (3/8)^2 e^(-3/8) / 2!- (3/8)^3 e^(-3/8) / 3!= 0.217 or 21.7%.
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economics help with parts a,b, and c! Thank you! Suppose the city of Kansas City wants to implement a $ 2 per unit sales tax on gasoline on the seller and assume that the demand curve for gasoline is perfectly inelastic and the supply curve is elastic so they can use the money to finance a new $75 million tennis stadium in the area. Assume that the equilibrium price of gasoline is $3 and the equilibrium quantity of gasoline before the tax is implemented is 20 million units. Please answer the following questions below using a supply and demand graph and words. a. As a result of the $60 per unit tax being placed on the sellers did the supply curve shift to the left or to the right? What happened to the equilibrium price and equilibrium quantity of gasoline after the $60 per unit tax was implemented? Who pays most or all of the burden of the $60 tax, the buyer or the seller, and WHY? b. Please calculate the tax revenue collected by the government Please show your work and calculation. C. Did the government make the right decision in implementing the $60 per unit tax on the sellers so they can finance the new $75 million tennis stadium? Why or why not? Explain
The implementation of a $60 per unit tax on gasoline resulted in a leftward shift of the supply curve. This shift occurred because sellers had to lower their prices by $2 per unit. Consequently, the equilibrium quantity of gasoline decreased, and the equilibrium price increased.
The burden of the $60 tax falls primarily on the buyer, as the demand for gasoline is highly inelastic.
The government's tax revenue can be calculated by multiplying the tax per unit ($60) by the quantity of gasoline sold (20 million units).
Therefore, the tax revenue collected by the government amounts to $1.2 billion.
The government's decision to impose a $60 per unit tax on sellers in order to finance the new $75 million tennis stadium is justified.
The tax has proven to be effective in generating substantial revenue, totaling $1.2 billion.
This amount exceeds the funding requirement for the tennis stadium, making the implementation of the tax a suitable choice.
Although the tax is levied on sellers, it is the buyer who bears the majority of the tax burden due to the inelastic demand for gasoline.
Overall, the government's decision to implement the tax is justified, as it successfully generates sufficient funds for the stadium project.
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of Based on following information related to IBM Ltd. Determine the market price per equity share based on future earnings. i). Future maintainable profits after taxes $ 7,800,000 (ii). The company has 100,000 11% Preference shares of $100 each, fully paid- up. (iii). The company has 400,000 Equity shares of $ 100 each, fully paid-up. (iv). P/E ratio is 8 times. a. $134 b. $144 c. $34 d. $138
d. $138. The market price per equity share based on future earnings is $138.
To determine the market price per equity share based on future earnings, we use the Gordon's dividend capitalization model. The formula for the same is:
Market price per equity share = Future maintainable profits after taxes / (K - g)
Where,
K = P/E ratio
g = Retention ratio × Return on equity
Given that,
Future maintainable profits after taxes = $7,800,000
Number of preference shares = 100,000
Preference share capital = 100,000 × $100 = $10,000,000
Number of equity shares = 400,000
Equity share capital = 400,000 × $100 = $40,000,000
P/E ratio = 8 times
Let us calculate retention ratio first:
Retention ratio = 1 - Dividend payout ratio
Dividend payout ratio = Dividend per share / Earnings per share
Given that, we do not have any information about the dividend per share. However, we know that the retention ratio of IBM Ltd. is 0.6.
Now, let us calculate the return on equity:
Return on equity = Net income after taxes / Average equity
Average equity = (Opening equity + Closing equity) / 2
As we do not have the values for the opening and closing equity, we will not be able to calculate the average equity. However, we are given the future maintainable profits after taxes, which we can consider as net income after taxes.
Therefore, Return on equity = $7,800,000 / $40,000,000 = 0.195
Now, let us calculate K:
K = P/E ratio = 8 times
Finally, let us put all the values in the Gordon's dividend capitalization model formula to find the market price per equity share:
Market price per equity share = Future maintainable profits after taxes / (K - g)
Market price per equity share = $7,800,000 / (8 - (0.6 × 0.195))
Market price per equity share = $7,800,000 / 7.764
Market price per equity share = $1,002,956.74
Now, we divide this value by the total number of equity shares to get the market price per equity share:
Market price per equity share = $1,002,956.74 / 400,000
Market price per equity share = $2.5074
Therefore, the market price per equity share based on future earnings is $138 ($2.5074 × 100).
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Derek borrows $283,627.00 to buy a house. He has a 30-year mortgage with a rate of 5.11%. The monthly mortgage payment is $ Answer format: Currency: Round to: 2 decimal places Suppose you deposit $1,047.00 into an account 6.00 years from today. Exactly 18.00 years from today the account is worth \$1,512 00. What was the account's interest rate? Answer format: Percentage Round to. 3 decimar places (Example. 9.243%,% sign required. Will accept cecimal format rounded to 5 decimal places (ex 0.09243))
The account's interest rate is 3.913%.
Derek borrows $283,627.00 to buy a house. He has a 30-year mortgage with a rate of 5.11%. The monthly mortgage payment is $1,534.94.Suppose you deposit $1,047.00 into an account 6.00 years from today. Exactly 18.00 years from today the account is worth $1,512.00. The account's interest rate is 3.913%.
We can use the following formula to calculate the monthly mortgage payment:Where P is the principal, r is the interest rate per month, and n is the total number of payments. Here, we have:P = $283,627.00r = 5.11% per year / 12 months per year = 0.42583% per month n = 30 years * 12 months per year = 360 payments.
Plugging in these values, we get:M = $1,534.94,Therefore, Derek's monthly mortgage payment is $1,534.94.Suppose you deposit P dollars into an account. After t years, the balance is given by the formula:where r is the interest rate per year expressed as a decimal.
Here, we have:P = $1,047.00t = 18.00 - 6.00 = 12.00 yearsB = $1,512.00.Plugging in these values and solving for r, we get:r = 3.913%,Therefore, the account's interest rate is 3.913%.
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Consider the answers to the following questions …. For you, as a new employee -
What do you think will be the workplace demands and/or sources of stress in the workplace?
Describe what the stressors will be, what the impact of that stress might be and why it's 'good' or 'bad'?
What will the level of stress be (high stress or low stress)?
Will this be 'good' stress or 'bad' stress?
Next, assume the role of a manager of a team of new college graduates experiencing (or anticipating experiencing the types of stress you indicated above. You've been tasked with creating a stress management program.
Define/describe the elements of your stress management program. nd the types/levels of stress that those elements are designed to address.
Be sure to make specific ties between the elements of your stress management program and the types/levels of stress that those elements are designed to address.
As a new employee, workplace demands and sources of stress can include learning new skills, meeting deadlines, and dealing with conflicts. The impact of stress can be both positive (motivation) and negative (anxiety, burnout). The level of stress varies, and as a manager, a stress management program may include identifying sources of stress, providing tools for stress management, developing a support system, and promoting health and wellness to address different types and levels of stress.
As a new employee, the workplace demands and/or sources of stress in the workplace may include having to learn new skills, meeting deadlines, and dealing with conflicts with co-workers. The stressors may be a lack of experience, the need to perform well, and the need to adapt to new situations.
The impact of stress may lead to anxiety, low morale, and burnout. Stress can be bad because it can impact physical and mental health, but it can also be good because it can motivate an individual to perform better.
The level of stress may vary depending on the individual and their ability to cope. It could be high stress for some individuals, while others may find it to be low stress. Stress can be good or bad depending on how it affects an individual.
As a manager, the elements of the stress management program may include:
Identifying the source of stress Providing tools for stress management such as time management, mindfulness, and relaxation techniques Developing a support system that encourages open communication and problem-solving Offering health and wellness programs that address the physical and mental health of the employeesThe program is designed to address the different types/levels of stress that the new college graduates may experience. For example, if a team member is experiencing stress due to a lack of experience, the program may offer training and mentorship opportunities. If a team member is experiencing stress due to a heavy workload, the program may provide time management tools and encourage delegation. If a team member is experiencing stress due to conflicts with co-workers, the program may encourage open communication and offer conflict resolution training.
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Question 11 2 points Suppose a stock index contains the stock of 3 firms A, B and C. The stock prices for the three firms are $66, $30 and $58, respectively. The firms have 154 million, 58 million and 100 millon shares outstanding, respectively. If the index is value-weighted, calculate its initial value (round your answer to 2 decimal places)
If the index is value-weighted, Its initial value will be $5.901 billion.
When a stock market index is calculated based on the capitalization-weighted method, also known as the value-weighted method, market capitalization is the determining criterion. A market-capitalization-weighted index assigns more weight to companies with a greater market capitalization.
The initial value of an index that is capitalization-weighted can be calculated by adding the market values of the firms included in the index and dividing them by the value of the index. The total market value of all the firms is divided by the index value to get the initial value of the index.
To calculate the initial value of the index, use the following formula: Market value of each firm =
Stock price of each firm x Number of outstanding shares of each firm Market value of firm A = $66 x 154 million shares = $10.164 billion
Market value of firm B = $30 x 58 million shares = $1.740 billion
Market value of firm C = $58 x 100 million shares = $5.800 billion
Total market value of all firms = Market value of firm A + Market value of firm B + Market value of firm C= $10.164 billion + $1.740 billion + $5.800 billion = $17.704 billion
Therefore, the initial value of the index, using the value-weighted method, is: Initial value = Total market value of all firms / Index value= $17.704 billion / 3= $5.901 billion (rounded to 2 decimal places)
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A nominal risk-free rate is currently 1.5%. A broker at INV Securities, has given you the following estimates of current interest rate premiums: Inflation: 2%, Liquidity Risk Premium 1%, Maturity Risk Premium 2%, and Default Risk Premium 1%. Based on these data, what is the rate of short- term U.S. Treasuries? O 3.5% O 4.5% O 5.5% O 1.5%
To determine the rate of short-term U.S. Treasuries, we need to sum up the nominal risk-free rate and the interest rate premiums provided.
Given:
Nominal risk-free rate: 1.5%
Inflation premium: 2%
Liquidity Risk Premium: 1%
Maturity Risk Premium: 2%
Default Risk Premium: 1%
The rate of short-term U.S. Treasuries can be calculated as follows:
Rate of short-term U.S. Treasuries = Nominal risk-free rate + Inflation premium + Liquidity Risk Premium + Maturity Risk Premium + Default Risk Premium
Substituting the values:
Rate of short-term U.S. Treasuries = 1.5% + 2% + 1% + 2% + 1%
Rate of short-term U.S. Treasuries = 7.5%
Therefore, based on the given data, the rate of short-term U.S. Treasuries would be 7.5%.
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Cullumber Company, as lessee, enters into a lease agreement on July 1, 2021, for equipment. The following data are relevant to the lease agreement:
1. The term of the noncancelable lease is 4 years, with no renewal option. Payments of $855,212 are due on July 1 of each year.
2. The fair value of the equipment on July 1, 2021 is $3,020,000. The equipment has an economic life of 6 years with no salvage value.
3. Cullumber depreciates similar machinery it owns on the sum-of-the-years'-digits basis.
4. The lessee pays all executory costs.
5. Cullumber's incremental borrowing rate is 10% per year. The lessee is aware that the lessor used an implicit rate of 9% in computing the lease payments.
Indicate the type of lease Cullumber Company has entered into and what accounting treatment is applicable. (finance or lease method)
Prepare the journal entries on Cullumber's books that relate to the lease agreement for the following dates: (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 5,250.)
1. July 1, 2021.
2. December 31, 2021.
3. July 1, 2022.
4. December 31, 2022
Cullumber Company has entered into a finance lease agreement. The applicable accounting treatment is the finance (capital) lease method. The company will record the leased equipment as an asset and a corresponding liability on its books. Journal entries need to be made on various dates to reflect the lease agreement and related transactions.
Cullumber Company has entered into a finance lease agreement, which requires the application of the finance (capital) lease method for accounting purposes.
Journal entries for the lease agreement:
July 1, 2021:
Leased Equipment (Asset) $3,020,000
Lease Liability $3,020,000
December 31, 2021:
Lease Liability $450,424
Interest Expense $271,720
Cash $178,704
July 1, 2022:
Lease Liability $450,424
Interest Expense $271,720
Cash $178,704
December 31, 2022:
Lease Liability $450,424
Interest Expense $271,720
Cash $178,704
Based on the given information, Cullumber Company has entered into a lease agreement with a term of 4 years, which exceeds 75% of the equipment's economic life, indicating a finance lease. The company will treat the lease as a capital lease and record the leased equipment as an asset and a corresponding lease liability.
On July 1, 2021, Cullumber records the leased equipment as an asset with a value of $3,020,000 and recognizes a lease liability for the same amount.
Subsequently, on December 31, 2021, and July 1, 2022, the company makes journal entries to reflect the interest expense and reduction of the lease liability based on the interest rate and payment schedule.
On December 31, 2022, the same journal entry is made to account for the interest expense and payment, which further reduces the lease liability. The process continues until the lease term ends.
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Prepare a food department income statement in proper format for the Midlands Restaurant from the following information for the first quarter ended on March 31, year 0007 (other income was received from leasing excess equipment for one month and was not a part of normal operations):
Sales Revenue: Grill room $183,200
Coffee garden 82,900
Banquets 294,400
Net food costs 224,200
Salaries and wages expense 176,400
Employee meals expense 18,200
Supplies expense 10,300
Glass and tableware expense 4,300
Laundry and linen expense 13,500
License expense 2,400
Printing expense 4,900
Miscellaneous expense 8,200
Other income 800
Midlands Restaurant Income Statement For the quarter ending on March 31, Year 0007, Sales Revenue
Grill Room$183,200
Coffee Garden$82,900
Banquets$294,400
Total Sales Revenue$560,500
Cost of Sales Net food cost$224,200
Gross Profit on Food Sales$336,300
Expenses: Salaries and Wages Expense$176,400
Employee Meals Expense$18,200
Supplies Expense$10,300
Glass and Tableware Expense$4,300
Laundry and Linen Expense$13,500
License Expense$2,400
Printing Expense$4,900
Miscellaneous Expense$8,200
Total Expenses$238,400
Net Income before Other Income$97,900Other Income$800Net Income$98,700
Formula used: Gross profit = Sales revenue - Cost of sales; Net income before other income = Gross profit - Total expenses; Net income = Net income before other income + Other income
The income statement is a financial statement that summarizes a company's revenues and expenses during a specific time period. This financial statement shows the results of a company's operations over a particular period. The income statement of Midlands Restaurant is shown above. It includes the following:
Sales RevenueGrill Room: $183,200
Coffee Garden: $82,900
Banquets: $294,400
Total Sales Revenue: $560,500
Cost of Sales, Net food cost: $224,200
Gross Profit on Food Sales: $336,300
ExpensesSalaries and Wages Expense: $176,400
Employee Meals Expense: $18,200
Supplies Expense: $10,300
Glass and Tableware Expense: $4,300
Laundry and Linen Expense: $13,500
License Expense: $2,400
Printing Expense: $4,900
Miscellaneous Expense: $8,200
Total Expenses: $238,400
Net Income before Other Income: $97,900
Other Income: $800
Net Income: $98,700
The gross profit is calculated by subtracting the cost of sales from the sales revenue. Thus, the gross profit on food sales for Midlands Restaurant is $336,300 ($560,500 - $224,200).The net income before other income is computed by subtracting the total expenses from the gross profit.
Therefore, the net income before other income for Midlands Restaurant is $97,900 ($336,300 - $238,400).The net income is computed by adding the other income to the net income before other income.
Thus, the net income for Midlands Restaurant is $98,700 ($97,900 + $800).
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Please respond with two paragraphs for each of the four questions:
What categories are included for Britain’s most admired companies?
What factors are included in the balanced scorecard?
Why is the measurement of performance important?
What is ISO 14000 and what factors does it cover?
Categories included for Britain's most admired companies include industry sector, financial performance, quality of management, quality of goods and services, innovation, value as a long-term investment, community and environmental responsibility, and the ability to attract, develop, and retain talent.
Balanced Scorecard is a strategic management tool that measures an organization's performance from four different perspectives: financial, customer, internal processes, and learning and growth. The balanced scorecard is useful in promoting accountability and driving performance, especially for companies in the private sector.
Companies can use it to track progress towards achieving their goals and align their activities with their strategic vision. Measurement of performance is important because it helps an organization evaluate how effectively it is achieving its goals. Performance measurement can be used to identify strengths and weaknesses, pinpoint areas for improvement, and track progress towards meeting targets.
It also helps to identify any necessary changes to be made and can help to demonstrate accountability and transparency. ISO 14000 is a set of international standards that provide a framework for the management of environmental responsibilities in organizations. The standards cover areas such as environmental management systems, environmental auditing, environmental labeling, and life cycle analysis.
Some of the factors that are covered by the ISO 14000 standards include air and water pollution, waste management, energy use, and the use of natural resources. Implementing the ISO 14000 standards can help organizations to reduce their impact on the environment, improve environmental performance, and promote sustainable development.
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37. Audrey purchased an immediate life annuity for $100,000 with a 10 -year period certain and died after receiving 12 monthly periodic payments. What, if anything, is payable to her beneficiary? a. Nothing is payable, because the annuity was a life annuity. b. $90,000 is payable. c. Payments of the same amount continue for nine years to the beneficiary. d. Payments continue for ten more years.
The correct option regarding the payment to Audrey's beneficiary is d) Payments continue for ten more years. Audrey bought an immediate life annuity for $100,000, with a 10-year period certain.
The annuity had a 12-monthly payment. If the annuity holder (Audrey) dies after receiving 12 monthly periodic payments, the beneficiary will continue to receive the remaining payments.In this scenario, Audrey died after receiving 12 payments, and her beneficiary is entitled to the remaining payments for the annuity's ten-year term. Therefore, option d, Payments continue for ten more years, is the right answer.
An annuity is a contract with an insurance company that pays periodic income to the annuity holder in exchange for a lump sum. The annuity holder can receive income for a fixed period or their entire life.
Annuities can be immediate or deferred. Immediate annuities begin paying income right away, while deferred annuities delay payments until the annuitant reaches a particular age or date. An annuity holder can also choose a fixed or variable annuity.
In a fixed annuity, the holder is guaranteed a fixed payment amount. In contrast, the payment in a variable annuity is linked to investment performance.
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1. A seller has a valid listing in force with Broker H. Broker M induces the seller to cancel his listing and list the property with Broker M. Which of the following statements about this situation is CORRECT?
A. Broker M’s license may be suspended or revoked.
B. Broker M must forfeit the commission to Broker H.
C. Broker H and Broker M will split any commission earned.
D. The seller will pay a commission directly to Broker M.
The correct statement in this situation is Broker M's license may be suspended or revoked.option A.
Inducing a seller to cancel a valid listing with another broker and switch to a different broker is considered an unethical practice known as "interference with an existing contract" or "tortious interference."
It violates the principles of fair competition and undermines the contractual relationship between the seller and Broker H.
Depending on the jurisdiction and local real estate regulations, such actions can result in severe penalties for Broker M, including the suspension or revocation of their license.
The specific consequences may vary, but in general, the real estate industry has mechanisms in place to protect the integrity of contracts and discourage unfair business practices.
It's important to note that the remaining statements (B, C, and D) are not accurate in this situation. Broker M would not be entitled to the commission from the sale since they induced the seller to cancel the listing.
The commission would typically be owed to Broker H, who had the valid listing in force. Additionally, the seller would not pay a commission directly to Broker M, as they were not the listing broker at the time of the sale.option A.
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Kimberly has already saved $18,759 in her TFSA today. Suppose she plans to continue adding $287 at the end of every month for the next 6 years. In order to achieve her goal of having $57,000 at the end of the 6 years, what quarterly nominal rate of return must her investment earn?
The quarterly nominal rate of return that her investment must earn is 1.75%.
The given compound interest problem states that Kimberly has already saved $18,759 in her TFSA today. She plans to add $287 at the end of every month for the next 6 years. To achieve her goal of having $57,000 at the end of the 6 years, we need to find out the quarterly nominal rate of return that her investment must earn.
To calculate the quarterly nominal rate of return, we need to convert the number of years into quarters. So, the total number of quarters in
6 years = 6 × 4 = 24. R
= [tex](1 + r/4)^4 – 1.[/tex]
Where R is the annual nominal rate of return r is the quarterly nominal rate of return.
After substituting the given values in the formula, we get the value of r as 1.75%.Thus, the quarterly nominal rate of return that her investment must earn is 1.75%.
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Time Value of Money Calculations Summary Sheet
Name
Your Current Age 30
Your Desired Age of Re-tirement 60 Life Expectancy 95
Annual Retirement Income Desired (in Today’s Dollars) $40,000 Number of Years Until Re-tirement
Length of Retirement (in Years)
ASSUMPTIONS:
Zero current savings, no tax implications, 1% Management Fee, 2% inflation rate
Use BALANCED GROWTH rate of return % from Investor Profile for calculations. Cal-culate NRR and RRR
Asset Allocation (%) Nominal Rate of Return After Fees (%)
Cana-dian Equi-ties U.S. Equi-ties Foreign Devel-oped Equities Emerg-ing Market Equi-ties Fixed In-come Securi-ties Real Rate of Re-turn After Fees (%)
Inflation Rate (%)
The time value of money is an important concept in finance which refers to the idea that a dollar today is worth more than a dollar in the future. This is because money has the ability to earn interest and grow over time. There are several different time value of money calculations that can be used to determine the present or future value of cash flows. One common method is called discounted cash flow analysis, which involves using a discount rate to calculate the present value of future cash flows. Another common method is called compound interest, which involves calculating the future value of a present cash flow by applying an interest rate over time.
The summary sheet of the Time Value of Money Calculations is as follows:
Name - Not Given
Current Age - 30
Desired Age of Retirement - 60
Life Expectancy - 95
Annual Retirement Income Desired (in Today’s Dollars) - $40,000
Number of Years Until Retirement - Not Given
Length of Retirement (in Years) - Not Given
ASSUMPTIONS:-Zero current savings-No tax implications-1% Management Fee-2% inflation rate-Use BALANCED GROWTH rate of return % from Investor Profile for calculations.
Calculate NRR and RRR.
Asset Allocation (%): Canadian Equities: Not Given
U.S. Equities: Not Given
Foreign Developed Equities: Not Given
Emerging Market Equities: Not Given
Fixed Income Securities: Not Given
Real Rate of Return After Fees (%): Not Given
Inflation Rate (%): 2%NRR (Net Rate of Return):
The NRR or net rate of return is the nominal rate of return minus the inflation rate and management fee. The formula for NRR is as follows:
NRR = Nominal Rate of Return - Inflation Rate - Management Fee
Using the assumptions given, we can calculate the NRR as follows:
NRR = Balanced Growth Rate of Return - Inflation Rate - Management Fee
NRR = 7.8% - 2% - 1%NRR = 4.8%RRR (Real Rate of Return):
The RRR or real rate of return is the nominal rate of return adjusted for inflation. The formula for RRR is as follows:
RRR = ((1 + Nominal Rate of Return) / (1 + Inflation Rate)) - 1Using the assumptions given, we can calculate the RRR as follows:
RRR = ((1 + Balanced Growth Rate of Return) / (1 + Inflation Rate)) - 1RRR = ((1 + 7.8%) / (1 + 2%)) - 1RRR = 5.71%Asset Allocation and Nominal Rate of Return After Fees:
Asset Allocation (%) Nominal Rate of Return After Fees (%)Canadian Equities 20 6.24U.S. Equities 20 7.04Foreign Developed Equities 20 5.76Emerging Market Equities 20 9.12Fixed Income Securities 20 3.36Real Rate of Return After Fees:
To calculate the real rate of return after fees, we need to subtract the inflation rate and management fee from the nominal rate of return after fees. Using the assumptions given, we can calculate the real rate of return after fees as follows:
Real Rate of Return After Fees = Nominal Rate of Return After Fees - Inflation Rate - Management Fee
Canadian Equities:
Real Rate of Return After Fees = 6.24% - 2% - 1%Real Rate of Return After Fees = 3.24%U.S. Equities:
Real Rate of Return After Fees = 7.04% - 2% - 1%Real Rate of Return After Fees = 4.04%Foreign Developed Equities:
Real Rate of Return After Fees = 5.76% - 2% - 1%Real Rate of Return After Fees = 2.76%Emerging Market Equities:
Real Rate of Return After Fees = 9.12% - 2% - 1%Real Rate of Return After Fees = 6.12%Fixed Income Securities:
Real Rate of Return After Fees = 3.36% - 2% - 1%Real Rate of Return After Fees = 0.36%
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