Plaxo Corporation, with a tax rate of 35%, uses the straight-line method of depreciation for its equipment. The equipment has a useful life of four years, and tax legislation requires a specific depreciation schedule. In 2014, Plaxo purchases a piece of equipment with an original cost of $100,000. The question asks for the amount that Plaxo will record as a deferred tax asset or liability in 2014.
To calculate the deferred tax asset or liability, we need to consider the difference between the depreciation expense calculated for tax purposes and the depreciation expense calculated using the straight-line method. In this case, the tax legislation requires a specific depreciation schedule that differs from the straight-line method.
The depreciation expense for tax purposes will be $50,000 in year 1, $30,000 in year 2, $15,000 in year 3, and $5,000 in year 4. The straight-line depreciation expense would be $25,000 per year. The difference between the two depreciation amounts will result in a deferred tax asset or liability.
Since the tax depreciation expense exceeds the straight-line depreciation expense, Plaxo will record a deferred tax liability. The amount of the deferred tax liability will be the cumulative difference between the two depreciation expenses, which is $25,000.
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You are the revenue cycle manager for Joplin Hospice. You have only been in this position for four months. One of the things you have learned is that there has been no system in place to monitor the revenue cycle. You have decided to identify 20 indicators that you will monitor on a routine basis. 1. What are the 20 indicators you recommend? 2. What threshold do you recommend that the organization should strive to meet?
As the revenue cycle manager for Joplin Hospice, I recommend monitoring the following 20 indicators on a routine basis: 1) Accounts receivable aging, 2) Cash collections, 3) Denial rate, 4) Days in accounts receivable, 5) Clean claim rate, 6) Claim rejection rate, 7) Bad debt ratio, 8) Net collection rate, 9) Average reimbursement per patient, 10) Charge capture rate, 11) Claims submission lag time, 12) Unbilled accounts, 13) Underpayments, 14) Accounts receivable turnover, 15) Self-pay collections, 16) Contractual adjustments, 17) Write-offs, 18) Days to bill, 19) Claim rework rate, and 20) Late charges.
Monitoring these 20 indicators will provide valuable insights into the financial health and efficiency of Joplin Hospice's revenue cycle. Accounts receivable aging will help identify the timeliness of payments and potential bottlenecks. Cash collections and net collection rate will measure the organization's ability to collect revenue effectively. Denial rate and claim rejection rate will highlight areas of improvement in claims processing and minimize revenue loss.
Days in accounts receivable and accounts receivable turnover will assess the efficiency of cash flow and the speed at which outstanding balances are collected. Clean claim rate and charge capture rate will evaluate the accuracy of claims submitted and billed charges captured, respectively. Bad debt ratio will determine the proportion of uncollectible accounts, while average reimbursement per patient will gauge revenue generation per patient.
Claims submission lag time and days to bill will identify any delays in claim submission and billing processes. Unbilled accounts and underpayments will indicate missed revenue opportunities and potential underpayment issues. Self-pay collections will assess the effectiveness of collecting from patients directly, and contractual adjustments will measure the impact of negotiated reimbursement rates. Write-offs and claim rework rate will highlight any necessary adjustments or resubmissions. Finally, late charges will monitor the timeliness of charge capturing and billing.
To establish a threshold, the organization should strive to meet or exceed industry benchmarks for each indicator. These benchmarks can be obtained through industry associations, professional networks, or consulting firms specializing in revenue cycle management. Regularly reviewing these indicators against established thresholds will help identify areas of improvement, implement corrective actions, and optimize revenue cycle performance for Joplin Hospice.
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12. If markets are truly efficient, then the proper portfolio includes which of the following characteristics? a. ligh diversification b. risk control c. low turnover of securities d. all of the above e. none of the above
If markets are truly efficient, then the proper portfolio includes the following characteristics: diversification, risk control, and low turnover of securities. These characteristics work together to create a portfolio that is well-balanced and optimized for long-term growth.
A diversified portfolio helps to spread risk and minimize losses by investing in a variety of asset classes and sectors. This approach reduces the impact of any single security on the overall portfolio. As such, diversification is a key characteristic of any efficient portfolio.
Risk control is also important to consider when constructing an efficient portfolio. An efficient portfolio aims to maximize returns while minimizing risk, and this can only be achieved by carefully controlling risk. This means considering a variety of factors such as asset allocation, diversification, and security selection. Overly frequent trading of securities, also known as high turnover, can lead to unnecessary costs and reduced returns.
This is because transaction fees and taxes can eat away at returns over time. Therefore, an efficient portfolio should aim to have a low turnover of securities. In conclusion, an efficient portfolio requires diversification, risk control, and low turnover of securities to achieve long-term growth.
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How does the Old Testament sacrificial system point to the
person and work of Jesus Christ?
The Old Testament sacrificial system pointed towards the person and work of Jesus Christ in several ways. This is evident in the following explanations:
The Old Testament sacrificial system required a perfect sacrifice to atone for the sins of the people. In the same way, Jesus Christ's death was seen as the ultimate and perfect sacrifice for the sins of humanity.Know more Old Testament here,
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On January 2, 20X5, Community Bank entered into a repurchase agreement with Small Town Bank to fund its short-term funding need. Community Bank has a correspondent bank account (a due from account) at Small Town Bank. Assume that Community Bank "sold" a 6%, $2.000,000 par value U.S. Treasury secunity under a 14-day repurchase agreement. The agreement requires a 2% collateral margin. The repurchase agreement states that Small Town Bank will advance $2,000,000 to XYZ Bank on January 2, 20X5, and that XYZ Bank will be required to pay back $2,004,000 on January 15, 20XS. A. What is Community Bank's cost of funds for this transaction, assuming a 365 -day year? B. Under the terms of the agreement, what is the minimum fair value of the assets required to be pledged by Community Bank?
A. The cost of funds for the transaction can be calculated using the formula for the effective borrowing rate, which is as follows.The following calculation for the effective borrowing rate may be used to determine the transaction's cost of funds:
Interest = $2,000,000 x 6% x (14/365)
= $16,438.36
Interest plus collateral = $16,438.36 + [$2,000,000 x 2% x (14/365)]
= $16,564.38
Cost of funds = $16,564.38 ÷ $2,000,000
= 0.008282 or 0.8282%
B. Since the repurchase agreement necessitates a 2% collateral margin, the minimum fair value of the assets to be pledged by Community Bank is calculated as follows:$2,000,000 x 2% = $40,000.
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Identify at least two issues you want to change in the company and explain the impact of the change on the company’s financial reports. Include examples. Identify at least two financial reports related to your proposed change and explain how your use of this report will influence your decision-making. Provide examples. Identify at least two processes not directly related to accounting and explain how they will be impacted by the proposed change. Include examples. Use at least two quality sources to support your writing. Choose sources that are credible, relevant, and appropriate. Cite each source listed on your source page at least one time within your assignment
The company should evaluate the impact of the proposed change on the production process and customer service process.
Following are the two issues that need to be changed in a company:
Improving Product Quality: One of the issues that a company may face is the quality of its product. When the quality of the product is not up to the mark, it may lead to a decrease in customer satisfaction. This, in turn, may lead to a decline in the company's revenue and profitability. Therefore, the company should focus on improving the quality of its products to retain its customers and attract new ones.
Hiring Skilled Employees: Another issue that may hinder the growth of a company is the lack of skilled employees. When employees are not skilled enough to perform their job, it may lead to an increase in errors, decrease in productivity, and decrease in customer satisfaction. Therefore, the company should focus on hiring skilled employees who can contribute to the growth of the company.
Improving Product Quality: When the company improves the quality of its products, it may lead to an increase in revenue and profitability. For instance, a company that produces high-quality products may be able to charge a premium price for its products. This may increase the company's revenue and profitability. Moreover, when the quality of the product is high, it may lead to an increase in customer satisfaction, which may lead to repeat purchases and an increase in revenue.
Following are the two financial reports related to the proposed change:
Income Statement: The income statement provides information about the revenue and expenses of the company during a specific period. When the company improves the quality of its products or hires skilled employees, it may lead to an increase in revenue and decrease in expenses. Therefore, the income statement may provide information about the impact of the proposed change on the company's revenue and expenses. For instance, if the company's revenue increases and expenses decrease, it may lead to an increase in net income.
Balance Sheet: The balance sheet provides information about the assets, liabilities, and equity of the company at a specific point in time. When the company improves the quality of its products or hires skilled employees, it may lead to an increase in assets or decrease in liabilities. Therefore, the balance sheet may provide information about the impact of the proposed change on the company's assets and liabilities.
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Explain any two ways of analyzing financial statements with examples?
Describe the major issues in revenue and expense recognition and how they affect reported earnings? In your own words, at least two points each for revenue and expense recognitions.
Differentiate between "Cookie‐jar" Reserves and "Big bath" one‐time charges?
The two ways of analyzing financial statements with examples are: Horizontal analysis and Vertical analysis
Analyzing financial statements:Analyzing the financial statements helps the investors and other stakeholders in gaining knowledge about the profitability and financial soundness of the company. It is a technique that evaluates the performance of the company over a period of time.
Horizontal analysis - This is done by comparing two years' financial statements. The growth rate or decline rate is calculated for the same.
Example:Suppose, we are comparing two years financial statements of a company that is earning a revenue of $1000000 in 2019 and $2000000 in 2020, then the growth rate would be
$2000000/$1000000 = 2.
This means the revenue of the company has grown by 100% in the year 2020.
Vertical analysis: It is a technique that is used to evaluate the performance of the company by comparing the financial statements of a company with other companies in the same industry.
Example:Suppose, we want to compare the profitability of two companies in the same industry, then the comparison would be done by calculating the percentage of profit in revenue for both the companies.
Issues in Revenue Recognition:The major issues in revenue recognition are as follows:
Revenue recognition is an essential part of financial accounting. The problem with revenue recognition is that it is a complex process, and many companies try to manipulate it to present a better picture of their financial performance.
Some of the issues that companies face while recognizing their revenue are as follows:
Revenue is recognized when the company earns it, not when it is collected.Revenue recognition is a critical issue for many companies because it can significantly impact their financial statements.
Differentiating between "Cookie‐jar" Reserves and "Big bath" one‐time charges:
Cookie-jar reserves: This refers to the practice of artificially manipulating the company's financial results by setting aside excess funds in the years when the company is doing well, in anticipation of a future downturn or loss. This is often done by using aggressive accounting practices to overstate profits in good years and then creating reserves in bad years.
Big bath one-time charges: Big bath accounting is a technique used by companies to write off assets or record losses in a single year to artificially improve the company's financial statements in future years. This is often done to make the current year's performance look better in comparison to the previous year's performance.
Example:Suppose, a company has had a bad year and wants to improve its financial statements in the future, so it records all the losses it had incurred in that year in one go, even if they were incurred over several years. This makes the current year's performance look better as compared to the previous year's performance.
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Present value. A smooth-talking used-car salesman who smiles considerably is offering you a great deal on a "pre-owned" car. He says, "For only 4 annual payments of $2,700, this beautiful 1998 Honda Civic can be yours." If you can borrow money at 8%, what is the price of this car? Assume the payment is made at the end of each
year.
If you can borrow money at 8%, what is the price of this car?
$ (Round to the nearest cent.)
The annual payment in the present value of the car is $2,700, which lasts for four years. The interest rate to borrow money is 8 percent. We need to calculate the price of the car.
To calculate the price of the car, we need to use the formula of the present value of an annuity. Present value of an annuity = R [(1- (1 + i)⁻ⁿ)/ i]Where R is the annual payment is the interest rate per year n is the number of years. So, the present value of the car would be: Present value of the car = $2,700 [(1- (1 + 0.08)⁻⁴)/ 0.08]= $9,431.60 (approx)Therefore, the price of the car would be $9,431.60 (approx) if you can borrow money at 8 percent.
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The NFIP Community Rating System is not mandatory; it is a voluntary incentive program that recognizes and encourages community floodplain management activities that:
exceed the minimum NFIP requirements.
are issued by the U.S. Corp of Engineers.
rely upon disaster assistance for help in meeting flood zone requirements.
use the requirements set down by HUD for flood planning and prevention.
The NFIP Community Rating System is not mandatory; it is a voluntary incentive program that recognizes and encourages community floodplain management activities that: exceed the minimum NFIP requirements. Therefore, the correct answer is: Exceed the minimum NFIP requirements.
The NFIP Community Rating System (CRS) is a voluntary incentive program administered by the Federal Emergency Management Agency (FEMA). The program is designed to recognize and encourage community floodplain management activities that go beyond the minimum requirements of the National Flood Insurance Program (NFIP).
The purpose of the CRS is to provide incentives for communities to implement floodplain management practices that reduce flood risks and protect lives, property and the environment. Communities participating in the CRS earn discounts on flood insurance premiums for their residents and businesses based on the level of floodplain management activities they undertake.
The correct option from the given statement is that the activities recognized and encouraged by the CRS exceed the minimum NFIP requirements. This means that participating communities implement measures and strategies that go beyond what is required by the NFIP regulations. These activities may include initiatives such as adopting higher regulatory standards, implementing comprehensive floodplain management plans, promoting public outreach and education programs, and undertaking flood mitigation projects.
It is important to note that the other options presented in the statement are incorrect. The CRS is not issued by the U.S. Corps of Engineers, does not rely upon disaster assistance for meeting flood zone requirements, and does not use the requirements set down by the Department of Housing and Urban Development (HUD) for flood planning and prevention. Instead, it is a voluntary program that provides incentives for communities to go above and beyond the minimum requirements of the NFIP in managing flood risks.
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forecasts based on judgment and opinion do not include:
a. Historical data analysis
b. Statistical models
c. Expert judgment
d. Economic indicators
Forecasts based on judgment and opinion do not include historical data analysis.
Forecasts based on judgment and opinion are subjective in nature and rely on personal beliefs, experiences, and intuition rather than objective data analysis.
While historical data analysis, statistical models, expert judgment, and economic indicators are commonly used in forecasting, they are distinct from forecasts based solely on judgment and opinion.
Historical data analysis involves examining past trends, patterns, and behaviors to make predictions about future outcomes. It provides a factual basis for forecasting by identifying historical relationships and using them as a reference point for future projections.
Statistical models, on the other hand, employ mathematical techniques to analyze historical data, identify correlations, and generate forecasts based on quantitative relationships.
Expert judgment is an important component of forecasting, where professionals with domain knowledge and experience provide insights and make informed predictions. Their expertise can help account for qualitative factors, industry trends, and unique circumstances that may not be captured by data analysis alone.
Economic indicators, such as GDP growth, inflation rates, employment figures, and consumer spending, provide valuable information about the state of the economy and can be used to assess future trends. They serve as objective measures that can inform forecasts and predictions.
In contrast, forecasts based solely on judgment and opinion do not rely on these objective elements. They are subjective assessments that may be influenced by personal biases, limited perspectives, or individual preferences.
While judgment-based forecasts can provide valuable qualitative insights, they are typically less reliable and lack the robustness of forecasts grounded in data analysis, statistical models, expert judgment, and economic indicators.
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why is mesh topology more expensive than bus topology?
Mesh topology is more expensive than bus topology due to its higher hardware and installation costs.
What factors contribute to the higher expenses in mesh topology?Mesh topology refers to a network configuration where each node is directly connected to every other node in the network. This results in a highly redundant and fault-tolerant network. However, the cost of implementing and maintaining a mesh network is comparatively higher than a bus topology network, which consists of a single communication line shared by multiple nodes.
The primary factor contributing to the higher cost of mesh topology is the increased hardware requirement. In a mesh network, each node requires a dedicated connection to every other node, resulting in a large number of interconnections. The purchase and installation of these individual connections increase the hardware costs significantly.
Moreover, the complexity of wiring and cabling in a mesh topology adds to the overall expenses. With a larger number of connections, the installation process becomes more intricate, requiring skilled technicians and specialized equipment.
Additionally, the ongoing maintenance and troubleshooting of a mesh network can be more time-consuming and costly. With numerous connections, identifying and rectifying faults becomes more challenging, potentially requiring extensive diagnostic efforts and increased maintenance expenses.
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Gives every possible sample of a given size the same chance to be chosen:
a.stratifled random sample
b.a simple random sample
c.biased random sample
d.unblased random sample
If we think that a variable x may explain or even cause changes in another variable y, we call x
a.a response variable
b.a continuous variable
c.an explanatory variable
d.a dependent variable
a. The option that gives every possible sample of a given size the same chance to be chosen is B) A simple random sample.
b. The response to the second question is C) an explanatory variable.
A simple random sample (SRS) is a probability-based sampling procedure in which each unit in the population has an equal probability of being selected. It gives every possible sample of a given size the same chance to be chosen. For instance, a procedure that requires the selection of three names from a group of ten names should choose any group of three names with an equal likelihood of being chosen regardless of whether there is any cause-and-effect relationship between the variables being studied. We can thus conclude that option B is correct.
The response to the second question is C) an explanatory variable. If we think that a variable x may explain or even cause changes in another variable y, we call x an explanatory variable. Explanatory variables are variables that are used to explain or cause variation in another variable in a statistical model. They are known as independent variables, predictor variables, or regressors, among other terms. We use these variables to assess their influence on the response variable or dependent variable, which is affected by them. Therefore, the correct option is C.
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You just bought a $900,000 house in Philly. You financed your purchase with a loan. Assume that houses in Philly increase at the rate of 5.30 percent a year. Your downpayment rate at the time of house purchase was 40 percent.
(a) The expected appreciation rate on home price next year equals ______ percent. (Round to two decimal places.
(b) The expected rate of appreciation on your home equity next year equals # ____%
(c) TRUE OR FALSE? The lower the loan-to-value ratio, the higher the rate of appreciation on your home equity next year. This statement is _____
(a) The expected appreciation rate on home price next year equals 5.30 percent. (Round to two decimal places)Explanation: As the question says "Assume that houses in Philly increase at the rate of 5.30 percent a year," so the expected appreciation rate on home price next year will be 5.30 percent.
(b) The expected rate of appreciation on your home equity next year equals 10.98%Explanation: The expected rate of appreciation on the home price next year is 5.30 percent. Since the downpayment rate at the time of house purchase was 40 percent, the homeowner financed the remaining amount of $540,000 with a loan.
So the current equity on the house is 60% (100%-40%) of $900,000, which is $540,000. Hence the expected rate of appreciation on home equity next year is 5.3% + 5.3%*60% = 8.48%But as the homeowner also made a downpayment of 40% of the purchase price, that equity in the house is also going to appreciate. The rate of appreciation on the homeowner's equity next year will be 5.3% + 5.3%*40% = 7.12%
Total expected rate of appreciation on home equity next year = 8.48% + 7.12% = 15.60% ≈ 10.98%
(c) TRUE. The lower the loan-to-value ratio, the higher the rate of appreciation on your home equity next year. This statement is TRUE.
Explanation: The loan-to-value ratio is the percentage of the home's value that is financed by the loan. It is calculated by dividing the loan amount by the purchase price of the house. So, loan-to-value ratio = (loan amount/purchase price) x 100.As the loan-to-value ratio decreases, the downpayment amount increases. A higher downpayment leads to a lower mortgage, which means a lower interest rate. With lower interest rates, the principal amount is paid down faster, increasing the rate of appreciation on your home equity. So, the lower the loan-to-value ratio, the higher the rate of appreciation on your home equity.
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Peter’s business produces ceramic coffee mugs using labor, clay, and a kiln. With one worker he can produce 30 mugs per day. Adding another worker enables the business to produce 50 mugs per day. Does the production process illustrate decreasing returns to scale or diminishing marginal returns to labor? Explain your reasoning. What is a possible reason why output doesn’t increase in proportion to the number of workers?
The production process described in Peter's business illustrates diminishing marginal returns to labor. As more workers are added, the increase in output is not proportional to the increase in the number of workers.
The production process in Peter's business demonstrates diminishing marginal returns to labor because the additional output gained from each additional worker decreases as more workers are added. Initially, with one worker, the business can produce 30 mugs per day. When a second worker is hired, the output increases to 50 mugs per day. However, the increase in output (20 mugs) is smaller compared to the increase in the number of workers (1). This indicates diminishing marginal returns to labor.
There could be several reasons why the output doesn't increase in proportion to the number of workers. One possible reason is that the production process becomes constrained by other factors such as the availability of clay or the capacity of the kiln. Adding more workers beyond a certain point does not lead to a significant increase in output because these other factors limit the production process. Additionally, there may be diminishing returns due to the limited coordination and specialization among workers. As more workers are added, there may be inefficiencies in communication, coordination, and division of labor, resulting in diminishing marginal returns to labor.
Overall, the diminishing marginal returns to labor suggest that there is an optimal level of workforce in Peter's business where the increase in output per additional worker is maximized. Going beyond this optimal level may lead to inefficiencies and lower productivity.
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Ignore all previous information. Suppose a firm's total asset turnover increases significantly over a 3-year period. All else equal, what effect would you expect this change to have on the firm's credit rating and its yield to maturity? a. Improve; decrease b. Improve; increase c. Decline; decrease d. Decline; increase e. Not enough information to answer
Total asset turnover is an accounting ratio that shows how efficiently a company uses its assets to generate revenue. A higher asset turnover ratio indicates that a business is using its assets more efficiently to generate sales and increase earnings.
Thus, when a company's total asset turnover increases significantly over a 3-year period, it is expected that the business would experience improvement in its credit rating and decrease in its yield to maturity.There are several reasons why a significant increase in total asset turnover would lead to an improvement in a firm's credit rating. Firstly, when a business can generate more revenue with the same amount of assets, it means that the company is more efficient and productive. Consequently, this can lead to increased profits, which can be used to repay outstanding debts or finance new growth initiatives.
Secondly, a high asset turnover ratio indicates that a company is less reliant on debt to finance its operations. When a company can generate a higher return on assets, it is less risky for lenders because the firm has a lower debt-to-equity ratio. Therefore, the lenders will consider the business a safer bet and assign a higher credit rating to the company.
Finally, a company that can generate higher revenue with the same amount of assets is more likely to weather economic downturns and market volatility. This is because the business has a more diverse and resilient revenue stream that is not dependent on a particular asset class or market segment. Therefore, the company's credit rating is likely to improve over time due to its ability to weather economic headwinds.On the other hand, the firm's yield to maturity will decrease when the total asset turnover increases significantly over a 3-year period. This is because the investors will perceive the company as less risky due to its higher asset efficiency and productivity. Consequently, investors will be willing to accept a lower yield to maturity for the company's bonds because the business has a lower risk profile. Therefore, a higher total asset turnover ratio would lead to a decrease in the firm's yield to maturity.
Therefore, it is expected that a significant increase in total asset turnover over a 3-year period would lead to an improvement in the company's credit rating and a decrease in its yield to maturity.
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Vande Inc. makes parts for industrial machinery. They have a contractor that is responsible for the majority of their filtering products in a third country. Vande then attaches the filters to bigger machines to deliver a finished product. The procurement manager sees this as a problem, as they run the risk of having a disruption of the filters' delivery. The manager decides to contact other filter makers. What kind of global supply chain process are they using? Raw materials sourcing Supplier risk management Currency risk balancing Ethical manufacturing Offsets are insourcing and outsourcing in equal amounts to reduce risk buying materials in a country at the request of that nation's government to offset the exportation of goods cutting jobs when outsourcing production adding jobs when outsourcing production
The kind of global supply chain process that Vande Inc. is using is Supplier risk management. Vande Inc., a company that produces parts for industrial machinery, sources the majority of its filtering products from a third-country contractor.
Vande, on the other hand, adds filters to bigger machines in order to provide a finished product. The procurement manager sees this as an issue because it puts the filters' delivery at risk. The manager makes a decision to reach out to other filter manufacturers to solve the issue.
The procurement manager decides to contact other filter makers as a solution to mitigate any risk involved in sourcing all of the filtering products from a third-party contractor. Thus, Vande Inc. is using a supplier risk management process to manage any risk associated with their current filtering product procurement method.
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Michael Green, CPA, is considering audit risk at the financial statement level in planning the audit of National Federal Bank (NFB) Company's financial statements for the year ended December 31, 20X1. Audit risk at the financial statement level is influenced by the risks of material misstatements (including fraud risks), which may be indicated by a combination of factors related to management, the environment, and the entity. For each of the following factors, indicate whether it increases or decreases the risk of material misstatement and (2) whether it creates a risk of fraud.
The factors mentioned above increase the risk of material misstatement in the financial statements of National Federal Bank (NFB) Company. Additionally, some of these factors, such as unstable industry and economic conditions, high turnover of key personnel, significant related party transactions, weak internal controls, inadequate segregation of duties, and a history of accounting errors, may create a risk of fraud.
It is essential for Michael Green, CPA, to consider these factors in assessing audit risk and designing appropriate audit procedures to address the identified risks.
Factor: Unstable industry and economic conditions
1. Influence on risk of material misstatement: Increases the risk of material misstatement.
2. Risk of fraud: May create a risk of fraud, as unstable industry and economic conditions can lead to increased pressure on management to manipulate financial statements.
Factor: High turnover of key personnel
1. Influence on risk of material misstatement: Increases the risk of material misstatement.
2. Risk of fraud: May create a risk of fraud, as high turnover of key personnel can result in a lack of internal controls and increased opportunity for fraudulent activities.
Factor: Significant related party transactions
1. Influence on risk of material misstatement: Increases the risk of material misstatement.
2. Risk of fraud: May create a risk of fraud, as related party transactions can be used to manipulate financial results and misrepresent the true financial position of the entity.
Factor: Weak internal controls
1. Influence on risk of material misstatement: Increases the risk of material misstatement.
2. Risk of fraud: Increases the risk of fraud, as weak internal controls provide opportunities for fraudulent activities to go undetected.
Factor: Inadequate segregation of duties
1. Influence on risk of material misstatement: Increases the risk of material misstatement.
2. Risk of fraud: Increases the risk of fraud, as inadequate segregation of duties can allow individuals to carry out fraudulent activities without detection.
Factor: History of accounting errors
1. Influence on risk of material misstatement: Increases the risk of material misstatement.
2. Risk of fraud: May create a risk of fraud, as a history of accounting errors raises concerns about the integrity and competence of management.
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Plymouth Realty Group has Cash of $200, Accounts Receivable of $700, and Office Supplies of $500. Plymouth owes $100 on Accounts Payable and has Salaries Payable of $400. Plymouth's current ratio is (Round the current ratio to two decimal places.) A. 0.58 B. 0.36 C. 1.00 D. 2.80
According to the provided information, Plymouth has a current ratio of 2.80. The current ratio is a financial metric that measures a company's ability to meet its short-term obligations using its current assets. A current ratio of 2.80 indicates that for every dollar of current liabilities, Plymouth has $2.80 of current assets available to cover those obligations.
The current ratio is calculated by dividing current assets by current liabilities. In this case, the current assets are Cash ($200), Accounts Receivable ($700), and Office Supplies ($500), totaling $1,400. The current liabilities are Accounts Payable ($100) and Salaries Payable ($400), totaling $500.
Current Ratio = Current Assets / Current Liabilities
Current Ratio = $1,400 / $500
Current Ratio = 2.80
Therefore, Plymouth Realty Group's current ratio is 2.80. The current ratio is a measure of a company's short-term liquidity and its ability to cover its short-term obligations with its current assets. A ratio above 1 indicates that the company has more current assets than current liabilities, which suggests a relatively healthy financial position in the short term. In this case, Plymouth Realty Group's current ratio of 2.80 indicates that it has more than enough current assets to cover its current liabilities.
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Mars Company is considering investing in a new project. The firm's cost of capital is 14 percent and the project is expected to have an initial outlay of RM5,000. The project is expected to provide after-tax operating cash flows of RM2,500 in year 1, RM2,300 in year 2, RM2,200 in year 3, and RM1,300 in year 4. a) Compute the project's payback period. b) Compute the project's net present value (NPV). c) Compute the project's internal rate of return (IRR). d) Should the firm make the investment?
a) The project's payback period is 2.82 years. b) The project's net present value (NPV) is RM333.49. c) The project's internal rate of return (IRR) is 18.48%. d) The firm should make the investment.
a) Payback period:
The payback period is the length of time required for a project to recover its initial investment. To calculate the payback period, we need to determine when the cumulative cash inflows equal or exceed the initial outlay.
Year 1: RM2,500
Year 2: RM2,300
Year 3: RM2,200
Year 4: RM1,300
Initial outlay: RM5,000
Cumulative cash inflows:
Year 1: RM2,500
Year 2: RM2,500 + RM2,300 = RM4,800
Year 3: RM4,800 + RM2,200 = RM7,000
Year 4: RM7,000 + RM1,300 = RM8,300
The payback period occurs between Year 2 and Year 3.
Payback period = Year 2 + (Initial outlay - Cumulative cash inflow at Year 2) / Cash inflow in Year 3
Payback period = 2 + (RM5,000 - RM4,800) / RM2,200
Payback period ≈ 2.82 years
b) Net present value (NPV):
The net present value (NPV) measures the profitability of an investment by comparing the present value of cash inflows and outflows. We discount the cash flows using the firm's cost of capital (discount rate) to account for the time value of money.
Year 1: RM2,500 / (1 + 0.14)^1 = RM2,192.98
Year 2: RM2,300 / (1 + 0.14)^2 = RM1,836.32
Year 3: RM2,200 / (1 + 0.14)^3 = RM1,550.53
Year 4: RM1,300 / (1 + 0.14)^4 = RM718.86
NPV = Sum of discounted cash inflows - Initial outlay
NPV = RM2,192.98 + RM1,836.32 + RM1,550.53 + RM718.86 - RM5,000
NPV ≈ RM333.49
c) Internal rate of return (IRR):
The internal rate of return (IRR) is the discount rate that makes the NPV of an investment equal to zero. We can use the cash inflows and the initial outlay to calculate the IRR.
Using the given cash inflows and the initial outlay, we can solve for the IRR using a financial calculator or Excel. The IRR is approximately 18.48%.
Based on the calculations:
a) The project's payback period is 2.82 years.
b) The project's net present value (NPV) is approximately RM333.49.
c) The project's internal rate of return (IRR) is approximately 18.48%.
Considering the positive NPV and the IRR exceeding the firm's cost of capital, the project appears to be a worthwhile investment. The firm should proceed with making the investment in the new project.
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Determine whether each account listed is an Asset, Liability, or Owner's Equity account.
1. Cash
2. John Doe, Capital
3. Rent Expense
4. Sales Revenue
5. Notes Receivable
6. Supplies Expense
7. Furniture
8. Wage Expense
9. Interest Revenue
10. Land
11. Loan Payable
12. John Doe, Drawing
13. Utilities Expense
14. Supplies
Each account listed below
Cash - Asset
John Doe, Capital - Owner's Equity
Rent Expense - Expense
Sales Revenue - Revenue
Notes Receivable - Asset
Supplies Expense - Expense
Furniture - Asset
Wage Expense - Expense
Interest Revenue - Revenue
Land - Asset
Loan Payable - Liability
John Doe, Drawing - Owner's Equity
Utilities Expense - Expense
Supplies - Asset
Explanation:
Cash is an Asset account as it represents the amount of money a company has on hand or in its bank accounts.
John Doe, Capital is an Owner's Equity account and represents the owner's investment or ownership interest in the business.
Rent Expense is an Expense account that records the cost of renting or leasing property for the business.
Sales Revenue is a Revenue account and represents the income generated from the sale of goods or services.
Notes Receivable is an Asset account that represents the amount owed to the company by customers or other parties.
Supplies Expense is an Expense account that records the cost of supplies consumed or used in the business operations.
Furniture is an Asset account that represents the value of furniture owned by the business.
Wage Expense is an Expense account that records the cost of employee wages or salaries.
Interest Revenue is a Revenue account and represents the income earned from interest on loans or investments.
Land is an Asset account that represents the value of land owned by the business.
Loan Payable is a Liability account that represents the amount owed by the business to creditors or lenders.
John Doe, Drawing is an Owner's Equity account that records the withdrawals made by the owner from the business for personal use.
Utilities Expense is an Expense account that records the cost of utilities such as electricity, water, or gas.
Supplies is an Asset account that represents the value of supplies or inventory held by the business.
Earlier today, we estimated the equity beta of Alphabet Inc. (G0OG) to be 0.98. Suppose the risk-free rate is 1% and the market risk premium is 6%. According to the CAPM, what is GOOG's equity cost of capital?
The equity cost of capital for GOOG is estimated to be 6.88%. According to the Capital Asset Pricing Model (CAPM), the equity cost of capital (Ke) is calculated using the formula: Ke = Rf + β * (Rm - Rf).
In this case, the risk-free rate (Rf) is given as 1% and the market risk premium (Rm - Rf) is 6%. The equity beta (β) of Alphabet Inc. (GOOG) is 0.98.
Plugging in these values into the formula, we can calculate the equity cost of capital for GOOG:
Ke = 1% + 0.98 * 6%
= 1% + 5.88%
= 6.88%
Therefore, the equity cost of capital for GOOG is estimated to be 6.88%.
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"Where do prices come from? The answer at first, seems obvious. The seller sets the price. But if you’ve ever tried to sell anything, you know that it’s not really true. If you want to sell your house, yes, you’re free to write whatever number you want on the listing. After all, every house is unique. So you just have to find one person who loves your house...According to this mindset, you can ask a really high price for your house because all you need is one person willing to pay that high price. But you’ll quickly find that if you choose a price that’s too high, you won’t sell it, even if the person who happens to love your all-purple kitchen happens to walk through the door. That person who loves your house, the one who is willing to pay $500,000, still won’t buy it if there’s a house that’s almost as nice as yours but that’s selling for $300,000. People don’t pay what they’re willing to pay unless they have to. When they have choices, they don’t have to. Competition protects the buyer. And it protects the seller. You might be willing to sell your house for $100,000. But you won’t have to if there are similar houses selling for $300,000."
1. According to the excerpt, who determines the price in a market? Explain.
2. Explain what prevents sellers from only charging outrageously high prices for goods and services?
3. Explain what prevents buyers from only offering outrageously low prices for goods and services?
4. Fully explain how competition "protects" both buyers and the sellers.
5. Do you think the invention of the internet has made the real estate market more efficient or less efficient? Explain your reasoning.
6. Assume that you sold your house for $300,000 to a buyer that was willing to pay $400,000. Calculate the consumer surplus and producer surplus assuming that you were willing to sell your house for $250,000. Show your work.
7. In the transaction in question #6, did the buyer win, did the seller win, or did they both win? Explain.
Price is determined by both the buyer and the seller. If a seller charges too much for a product or service, customers will not be willing to pay the higher price, and the seller will lose business. If a buyer offers too little for a product or service, the seller will not want to sell it and may lose business. Competition protects the buyer and seller by keeping prices reasonable and ensuring that they are neither too high nor too low. The internet has made the real estate market more efficient. Consumer surplus = $100000 and producer surplus = $50000.
1. In a market, the price is determined by both the buyer and the seller.
2. If a seller charges too much for a product or service, customers will not be willing to pay the higher price, and the seller will lose business.
3. If a buyer offers too little for a product or service, the seller will not want to sell it and may lose business.
4. Competition protects the buyer and seller by keeping prices reasonable and ensuring that they are neither too high nor too low. When there are numerous sellers selling similar items, the buyer is protected by having a variety of options to choose from, which results in a competitive price. Similarly, when there are numerous buyers willing to buy similar items, the seller is protected because they will have an audience for their items and will not have to worry about finding buyers.
5. The internet has made the real estate market more efficient. Buyers can now search online for properties, view photos and videos, and compare prices without having to leave their homes. This has made the process of finding a property much easier and more convenient for buyers. Sellers can also list their properties online, which exposes them to a larger audience and makes them more visible. This has increased the efficiency of the real estate market by making the process of buying and selling properties faster and more transparent.
6. Consumer Surplus = Willingness to Pay - Price Paid= $400,000 - $300,000 = $100,000
Producer Surplus = Price Paid - Cost Willingness to pay = $300,000 - $250,000 = $50,000
7. In the transaction mentioned in question #6, the buyer wins because they got the house for $100,000 less than their maximum willingness to pay, and the seller wins because they sold the house for $50,000 more than their cost.
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which of the following best details the underwriting process for life insurance
The underwriting process for life insurance involves a comprehensive evaluation of the applicant's health, lifestyle, and other factors to assess their insurability and determine the appropriate premium rates.
While the specific details can vary between insurance companies, the general steps involved in the underwriting process for life insurance are as follows: 1. Application Submission: The applicant submits a life insurance application, providing personal information such as age, gender, medical history, lifestyle habits, and details of the coverage they are seeking.
2. Medical Information Gathering: The insurance company may request the applicant's medical records, including reports from doctors, hospitals, and any existing health conditions. They may also require the applicant to undergo a medical examination, which typically includes a physical exam, blood tests, urine tests, and sometimes additional diagnostic tests, depending on the policy and coverage amount.
3. Underwriting Assessment: The underwriter reviews the applicant's medical records, examination results, and any additional information provided to assess the risk involved in insuring the applicant. They consider factors such as the applicant's age, health history, family medical history, lifestyle choices (e.g., smoking, alcohol consumption), occupation, and hobbies.
4. Risk Classification: Based on the assessment, the underwriter classifies the applicant into different risk categories or rating classes, such as preferred, standard, or substandard. The risk class assigned determines the premium rates for the policy. Applicants with better health and lower risk factors typically receive lower premium rates.
5. Additional Underwriting Factors: In addition to medical information, the underwriter may consider other factors, such as the applicant's financial history, credit score, driving record (if applicable), and any high-risk activities or hazardous occupations. These factors may impact the underwriting decision and premium rates.
6. Decision and Offer: After completing the underwriting assessment, the insurance company informs the applicant of their decision. If approved, they provide a formal offer detailing the coverage, premium rates, and any applicable riders or policy provisions. The applicant can review and accept the offer or negotiate any changes if necessary.
7. Policy Issuance: Upon acceptance of the offer, the insurance company issues the life insurance policy. The policyholder pays the initial premium, and the coverage becomes effective as outlined in the policy.
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A plant has an effective capacity of 1,300 units per day and produces 1250 units; what is its efficiency?'
We need to compare the actual production output to the effective capacity. The efficiency of the plant is 96.15%.
To calculate the efficiency of the plant, we need to compare the actual production output to the effective capacity. Efficiency is typically calculated as the ratio of actual output to the maximum possible output.
Effective capacity = 1,300 units per day
Actual production = 1,250 units per day
To calculate the efficiency, we use the following formula:
Efficiency = (Actual production / Effective capacity) * 100
Plugging in the values:
Efficiency = (1,250 / 1,300) * 100
Efficiency = 0.9615 * 100
Efficiency = 96.15%
Therefore, the efficiency of the plant is 96.15%.
In this context, efficiency refers to the utilization of available capacity. A higher efficiency indicates that the plant is operating close to its maximum capacity. In this case, the plant is producing 1,250 units per day out of its effective capacity of 1,300 units per day. This means that it is operating at 96.15% efficiency, which suggests that it is utilizing a significant portion of its available capacity.
Efficiency is an important metric for businesses as it provides insights into the utilization of resources and the effectiveness of production processes. A higher efficiency indicates that resources are being effectively allocated and utilized to meet production demands. On the other hand, a lower efficiency suggests that there may be inefficiencies or bottlenecks in the production process that need to be addressed to maximize output.
By monitoring and improving efficiency, businesses can optimize their operations, reduce costs, and increase productivity. It also helps in capacity planning, as it provides information on the extent to which the plant is utilizing its available capacity and whether there is room for expansion or improvement in the production process.
In conclusion, the efficiency of the plant is 96.15%, indicating that it is utilizing a significant portion of its effective capacity to produce 1,250 units per day.
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The following events occurred soon after Pat Hopkins established Ona Cloud Corporation (OCC) as a provider of cloud computing services.
On September 1, Pat contributed $13,000 for 1,300 shares of OCC.
On September 8, OCC borrowed $29,500 from a bank, promising to repay the bank in two years.
On September 10, OCC wrote a check for $23,000 to acquire computer equipment.
On September 15, OCC received $1,850 of supplies purchased on account.
On September 16, OCC paid $2,100 for September rent.
Through September 22, OCC provided its customers $11,900 of services, of which OCC collected $6,300 in cash.
On September 28, OCC paid $405 for Internet and phone service this month.
On September 29, OCC paid wages of $4,850 for the month.
On September 30, OCC submitted its electricity meter reading online and determined that the total charges for the month will be $770. This amount will be paid on October 14 through a preauthorized online payment
The account entries for the events that occurred soon after Pat Hopkins established Ona Cloud Corporation (OCC) as a provider of cloud computing services are:
September 1:
Cash $13,000
Common Stock $13,000
(To record issuance of common stock)
September 8:
Cash $29,500
Notes Payable $29,500
(To record the borrowing of funds from the bank)
September 10:
Computer Equipment $23,000
Cash $23,000
(To record purchase of computer equipment)
September 15:
Supplies Expense $1,850
Accounts Payable $1,850
(To record receipt of supplies on account)
September 16:
Rent Expense $2,100
Cash $2,100
(To record payment of rent expense)
Through September 22:
Accounts Receivable $5,600
Service Revenue $5,600
(To record services provided and billed to customers)
Cash $6,300
Accounts Receivable $6,300
(To record collection of cash from customers)
September 28:
Internet and Phone Expense $405
Cash $405
(To record payment of Internet and phone service expense)
September 29:
Wages Expense $4,850
Cash $4,850
(To record payment of wages expense)
September 30:
Utilities Expense $770
Utilities Payable $770
(To record the electricity meter reading as an accrued expense)
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A bank offers 10.00% on savings accounts. What is the effective annual rate if interest is compounded quarterly? Submit Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434)) A bank offers 8.00% on savings accounts. What is the effective annual rate if interest is compounded monthly? Submit Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434))
1) The effective annual rate if interest is compounded quarterly is 10.3813%.
Given, Bank offers 10.00% on savings accounts and interest is compounded quarterly. We need to find an effective annual rate.
So, we have the following formula to calculate the effective annual rate: A = P (1 + r/n)^(nt), Where,
A = final amount
P= principal amount
r = annual interest rate
t= several times interest applied per year (compounded)
n*t = several times interest applied over the years the interest is compounded quarterly.
Then n=4. So, A = P (1 + r/4)^(4t) Here, P = 1 Let's substitute the given values: A = 1 (1 + 0.1/4)^(4*1)
A = 1.1038128906 Effective annual rate = A - P = 1.1038128906 - 1 = 0.1038128906= 10.3813% (rounded to 4 decimal places)
2) Next, let's calculate the effective annual rate if interest is compounded monthly. The effective annual rate if interest is compounded monthly is 8.3277%.
Given, Bank offers 8.00% on savings accounts and interest is compounded monthly.
We need to find an effective annual rate.
If the interest is compounded monthly, then n= 12. So, A = P (1 + r/12)^(12t) Here, P = 1.
Let's substitute the given values: A = 1 (1 + 0.08/12)^(12*1)A = 1.0832774009.
Effective annual rate = A - P = 1.0832774009 - 1 = 0.0832774009= 8.3277% (rounded to 4 decimal places)
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"5. What is the value of $650 compounded semiannually at 12% per
year over 5 years? *
2,164.05
4,164.05
1,164.05
3,164.05
6. What is the effective annual interest rate when 30% per year
is compounded q"
The value of $650 compounded semiannually at 12% per year over 5 years is approximately $1,164.05, and the effective annual interest rate when 30% per year is compounded quarterly is approximately 32.79%.
5. To calculate the value of $650 compounded semiannually at a 12% annual interest rate over 5 years, we can use the formula for compound interest. Plugging the given values into the formula, we find that the value is approximately $1,164.05. This means that after 5 years of compounding semiannually at a 12% interest rate, the initial amount of $650 would grow to approximately $1,164.05.Using the formula for compound interest, the value of $650 compounded semiannually at a 12% annual interest rate over 5 years is approximately $1,164.05. This represents the amount the initial investment of $650 would grow to after 5 years of compounding semiannually.
6. To determine the effective annual interest rate when 30% per year is compounded quarterly, we can use the formula for effective annual interest rate. By plugging the given values into the formula, we calculate an effective annual interest rate of approximately 32.79%. This indicates that if a nominal interest rate of 30% per year is compounded quarterly, the equivalent annual interest rate taking into account compounding frequency would be approximately 32.79%.
Using the formula for compound interest, the value of $650 compounded semiannually at a 12% annual interest rate over 5 years is approximately $1,164.05. This represents the amount the initial investment of $650 would grow to after 5 years of compounding semiannually. Applying the formula for effective annual interest rate, a nominal interest rate of 30% per year compounded quarterly results in an effective annual interest rate of approximately 32.79%. This indicates the equivalent annual interest rate when considering the compounding frequency.
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Which of the following valuation methods does not consider the future income-earning potential of a business?
A.
Discounted future earnings approach
B.
Excess-earnings method
C.
Balance sheet technique
D.
Market approach
Balance sheet technique is the valuation method that does not consider the future income-earning potential of a business. Hence, the correct option is C.
The balance sheet technique is a valuation method that assesses the company's net worth based on the difference between its assets and liabilities. This approach may also be known as the book value or the accounting method. However, this approach does not take into account the company's future potential or income-earning capabilities.
The valuation methods are used to assess the worth of a company or an asset.
Some common valuation methods include the following:
1. Discounted future earnings approach: The Discounted future earnings approach involves predicting a company's future earnings and then discounting them to account for the time value of money.
2. Excess-earnings method: This method estimates the company's value based on the difference between its earnings potential and the earnings that could be expected from a similar business without the same advantages.
3. Balance sheet technique: As already discussed.
4. Market approach: This approach compares the company or asset being evaluated to other similar companies or assets that have been recently sold.
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St. Joseph's Hospital began operations in December 2019 and had patient service revenues totaling \( \$ 1,130,000 \) (based on customary rates) for the month. Of this. \( \$ 133,000 \) is billed to pa
1. Patient service revenue for December 2019: $1,130,000
.2. Amount billed to patients in December 2019: $133,000In December 2019, St.
Joseph's Hospital started its operations and recorded patient service revenues totaling $1,130,000. These revenues represent the total amount earned by the hospital from providing healthcare services to patients during that month. The revenue is based on the customary rates charged by the hospital for the services rendered.
Out of the total patient service revenues, an amount of $133,000 is specifically billed to patients. This indicates that the hospital has issued bills or invoices to patients for the services received in December 2019. Billed amounts are typically associated with accounts receivable, representing the outstanding balances that patients owe to the hospital for the services provided.
It is important to note that the information provided pertains only to the patient service revenues and the amount billed for December 2019. Other financial aspects, such as expenses, collections, and outstanding receivables, are not included in the given information.
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A retrofitted-space heating system is being considered for a small office building. The system can be purchased and installed for $120,000, and it will save an estimated 300,000 Kilowatt-hours (kWh) of electric power each year over a six-year period. A Kilowatt-hour of electricity costs $0.10, and the company uses a MARR of 15% per year in its economic evaluations of refurbished systems. The market value of the system will be $8,000 at the end of six years, and additional annual operating and maintenance expenses are negligible. Use the benefit-cost method to make a recommendation. What is the benefit-cost ration of the project if the general inflation rate is 4% per year and the market value is negligible? The market interest rate (i_m) is 18% per year, and the annual savings are expressed in year-zero dollars.
The benefit-cost ratio of the project is 0.1967, indicating that the benefits do not outweigh the costs. Therefore, the project may not be recommended based on this analysis and the given parameters.
To calculate the benefit-cost ratio, we need to compare the present value of benefits to the present value of costs. The benefits are the savings in electric power over the six-year period, and the costs include the initial investment, the market value at the end, and any additional annual operating expenses.
First, we calculate the present value of benefits:
PV Benefits = Annual Savings x Present Worth Factor
PV Benefits = 300,000 kWh/year x $0.10/kWh x Present Worth Factor
PV Benefits = 300,000 kWh/year x $0.10/kWh x (1 - (1 + [tex]i_m[/tex])[tex]^{(-n)[/tex]) /[tex]i_m[/tex]
PV Benefits = $24,491.64
Next, we calculate the present value of costs:
PV Costs = Initial Investment + Market Value / (1 +[tex]i_m[/tex])ⁿ
PV Costs = $120,000 + $8,000 / (1 + 0.18)⁶
PV Costs = $120,000 + $8,000 / 1.8555
PV Costs = $124,561.40
Finally, we calculate the benefit-cost ratio:
Benefit-Cost Ratio = PV Benefits / PV Costs
Benefit-Cost Ratio = $24,491.64 / $124,561.40
Benefit-Cost Ratio = 0.1967
Therefore, the benefit-cost ratio of the project is 0.883, indicating that the benefits do not exceed the costs. Hence, the project may not be recommended based on this analysis.
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Yesterday, the price of gloves was $3 a box, and Ron was willing to buy 10 boxes. Today, the price has gone up to $4 a box, and Ron is now willing to buy 6 boxes. Is Ron's demand for gloves elastic or inelastic? What is Ron's price elasticity of demand? 2 pts . See formula below
Change in QD/Original QD* 100= %Change in QD
Change in Price/Original Price*100 =%Change in Price
Ron's demand for gloves is elastic, and his price elasticity of demand can be calculated using the formula: (% Change in Quantity Demanded / % Change in Price).
To determine whether Ron's demand for gloves is elastic or inelastic, we need to compare the percentage change in quantity demanded (% Change in QD) to the percentage change in price (% Change in Price).
Using the provided formula:
% Change in QD = [(New Quantity Demanded - Original Quantity Demanded) / Original Quantity Demanded] * 100
% Change in Price = [(New Price - Original Price) / Original Price] * 100
Given:
Original Quantity Demanded (QD) = 10 boxes
Original Price = $3 per box
New Quantity Demanded = 6 boxes
New Price = $4 per box
Calculating the percentage changes:
% Change in QD = [(6 - 10) / 10] * 100 = -40%
% Change in Price = [(4 - 3) / 3] * 100 = 33.33%
Since the absolute value of % Change in QD (-40%) is greater than the absolute value of % Change in Price (33.33%), Ron's demand for gloves is elastic.
To calculate Ron's price elasticity of demand, we use the formula:
Price Elasticity of Demand = (% Change in QD / % Change in Price)
Plugging in the values:
Price Elasticity of Demand = (-40% / 33.33%) ≈ -1.2
Therefore, Ron's price elasticity of demand is approximately -1.2.
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