Quantitative analysis formulas and definitions are provided to moulid bossiness plan
a. (AV) Asset Value: Asset Value refers to the estimated monetary worth of an asset within an organization. It represents the financial value assigned to a specific asset, such as equipment, infrastructure, intellectual property, or data. Determining the Asset Value helps organizations assess the potential impact of risks and allocate resources effectively for risk management and mitigation.
b. (EF) Exposure Factor: Exposure Factor is a measure that quantifies the percentage of loss an asset may experience if a specific risk event occurs. It represents the degree to which an asset is vulnerable to potential threats or risks. The Exposure Factor helps in calculating the potential impact of an adverse event on the Asset Value and determining the appropriate risk management strategies.
c. SLE) Single Loss Expectancy: Single Loss Expectancy refers to the estimated monetary loss that may result from a single occurrence of a specific risk event. It is calculated by multiplying the Asset Value (AV) by the Exposure Factor (EF). The SLE provides an estimate of the potential financial impact of a single incident or loss event on an organization's assets.
d. (ARO) Annual Rate of Occurrence: Annual Rate of Occurrence represents the estimated frequency or likelihood of a specific risk event occurring within a given year. It is expressed as a number or probability, indicating how often the risk event is expected to happen annually. The ARO is a crucial factor in calculating the Annual Loss Expectancy (ALE) and helps organizations prioritize and allocate resources for risk mitigation.
e. **(ALE) Annual Loss Expectancy**: Annual Loss Expectancy is the expected financial loss that an organization may incur due to a specific risk event within a year. It is calculated by multiplying the Single Loss Expectancy (SLE) by the Annual Rate of Occurrence (ARO). The ALE provides organizations with a quantitative estimate of the potential financial impact of a specific risk and aids in decision-making related to risk management strategies and investments.
f. **(TCO) Total Cost of Ownership**: Total Cost of Ownership refers to the comprehensive cost associated with owning, operating, and maintaining an asset or system over its entire lifecycle. It includes direct costs (such as acquisition and maintenance costs) as well as indirect costs (such as operational downtime, training, and support). The TCO analysis helps organizations assess the long-term financial implications of owning and managing assets or systems.
g. **(ROI) Return on Investment**: Return on Investment is a financial metric that evaluates the profitability and efficiency of an investment. It measures the return or gain generated from an investment relative to its cost. The ROI calculation helps organizations assess the effectiveness of their investments and make informed decisions regarding resource allocation and investment priorities.
h. **Total Risk**: Total Risk represents the overall level of risk faced by an organization, taking into account all potential risks and their respective likelihoods and impacts. It encompasses a comprehensive view of both financial and non-financial risks that could affect an organization's objectives, operations, and reputation.
i. Residual Risk: Residual Risk refers to the level of risk that remains after risk management and mitigation measures have been implemented. It represents the risk that still exists even though controls and strategies have been put in place to reduce the likelihood or impact of an adverse event. Organizations aim to minimize residual risk to an acceptable level through risk mitigation efforts.
j. Secondary Risk**: Secondary Risk refers to new or additional risks that arise as a result of implementing risk mitigation measures. While addressing one risk, organizations may inadvertently introduce new risks or exacerbate existing ones. It is essential to identify and assess secondary risks to ensure comprehensive risk management and avoid unintended consequences.
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Blossom Corporation's common shares are trading at $15 per share and paid a dividend of $1.50 per share last year. The growth rate is expected to be 6\%. Calculate Blossom's required return on common shares. (Round final answer to 2 decimal places, e.g. 15.75.)
Blossom Corporation's common shares are trading at $15 per share and paid a dividend of $1.50 per share last year. The growth rate is expected to be 6%.
Calculate Blossom's required return on common shares.The return that investors require for a particular investment is referred to as the required return. In order to obtain the required return, investors may consider a variety of factors such as the opportunity cost, inflation, and risk associated with that investment.
Blossom's required return on common shares can be calculated as follows:
Required Return = (Dividend/Price) + Growth Rate
Where, Dividend = $1.50Price = $15
Growth Rate = 6%
Required Return = (1.50/15) + 0.06
Required Return = 0.16 or 16%
Thus, Blossom's required return on common shares is 16%.
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1. During the covid-19 pandemic, BestBuy specifically changed their selling model to buying online and eventually picking up their products via curb-side pick up. This is an example of: a) Selective distribution b) Intensive distribution c) Omni-channel retailing d) Multi-channel retailing
Option (c), During the covid-19 pandemic, BestBuy specifically changed their selling model to buying online and eventually picking up their products via curb-side pick up. This is an example of Omni-channel retailing.
An omni-channel strategy refers to a retail approach that provides customers with an integrated shopping experience, regardless of whether they’re shopping online from a desktop or mobile device, or in a brick-and-mortar store. The goal of an omni-channel strategy is to give the customer a seamless shopping experience, where they can research and buy a product online, pick it up at the store, or have it shipped to them, with the entire experience feeling completely integrated. In short, an omni-channel strategy is the ability to deliver a seamless and consistent experience across channels, while factoring in the different devices that consumers are using to interact with the business.
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Cat Supplies offers terms of 1 / 10 , net 30. The discount is taken by 66 percent of customers. What is the company's average collection period?
The company's average collection period is 121.67 days.The given information are :Terms of payment = 1/10 , Net 30, Percentage of customers taking the discount = 66%. We have to find the company's average collection period.
Formula used:The average collection period is calculated by using the formula;
ACP = (365* Account receivable)/Sales
Where,ACP = Average collection period
Sales = Annual credit sales
Account receivable = Outstanding Credit Sales
Let's solve this:To solve this question, we need to find the discount price and the price after the discount.Using the information given,We know that the terms of payment are 1/10, net 30. The payment can be made within 30 days. If the payment is made within 10 days then the customer gets a discount of 1%.
So, the discount is = 1% of the total amount.Using the percentage of customers who take the discount = 66%, and the remaining 34% of the customers are going to pay the full amount.So, the net amount received by the company is:
Net amount received = Total amount received from discount customers + Total amount received from non-discount customers
= (66% * 99%) + (34% * 100%) = 65.34 % of the total amount
Total amount received = 100% of the total amount
The formula for the average collection period is,ACP = (365* Account receivable)/Sales
We need to find the account receivable.Let the credit sales be $100,Then the amount of discount allowed = 1% of $100 = $1
Amount received from customers paying within 10 days = 99% of $100 = $99
Amount received from customers paying within 30 days = $100
Total amount received by the company = (66% * $99) + (34% * $100) = $65.34
Account receivable = Outstanding credit sales
Outstanding credit sales = (Total credit sales - cash sales)Let the cash sales be $50
So, credit sales = $100
The outstanding credit sales = (Credit sales - cash sales) = $50
The Sales = Credit Sales + Cash Sales= $100 + $50= $150
Now, let's put these values in the formula;
ACP = (365* Account receivable)/Sales
ACP = (365* $50)/ $150= 121.67 days.
Therefore, the company's average collection period is 121.67 days.
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Project Q is expected to produce and sell 3 million units per year, priced at $24.99. The costs of producing are estimated to be $17.08 per unit. The equipment and project will last for 4 years. Annual operating expenses are estimated to be $8 million per year. The initial cost of machinery for Project Q is $40 million and will last for 4 years. Calculate the Year 1 Incremental EBIT produced by Project Q.
Now, Project Q will require a $2 million increase in Net Working Capital that will be recovered at the end of Year 4. The tax rate for the firm considering Project Q is 25%. The WACC is 10%. Determine the NPV for Project Q. (Enter NPV in millions up to 2 decimal places or more)
The Year 1 Incremental EBIT for Project Q is $15.73 million. The NPV for Project Q is $11.52 million. This is calculated by subtracting the initial cost of $40 million from the present value of incremental EBIT and net working capital recovery over the project's four-year duration, discounted at a rate of 10% (the WACC). The incremental EBIT represents the earnings before interest and taxes in each year. The NPV represents the net present value of the project's cash flows, taking into account the initial investment, operating profits, and the time value of money. A positive NPV suggests that the project is expected to generate value for the firm.
To calculate the Year 1 Incremental EBIT (Earnings Before Interest and Taxes) for Project Q, we need to calculate the total revenues, total costs, and subtract the annual operating expenses.
Total revenues = Number of units sold * Price per unit
Total revenues = 3,000,000 * $24.99 = $74,970,000
Total costs = Number of units sold * Cost per unit
Total costs = 3,000,000 * $17.08 = $51,240,000
EBIT = Total revenues - Total costs - Operating expenses
EBIT = $74,970,000 - $51,240,000 - $8,000,000 = $15,730,000
Next, we can calculate the NPV (Net Present Value) for Project Q using the formula:
NPV = (-Initial Cost) + (Incremental EBIT / (1 + WACC)^1) + (Incremental EBIT / (1 + WACC)^2) + ... + (Incremental EBIT + Net Working Capital Recovery) / (1 + WACC)^n
Where:
Initial Cost = Cost of machinery
Incremental EBIT = EBIT for each year
WACC = Weighted Average Cost of Capital
n = Number of years
Given:
Initial Cost = $40,000,000
Incremental EBIT Year 1 = $15,730,000
Net Working Capital Recovery at Year 4 = $2,000,000
WACC = 10%
n = 4 years
Now, we can calculate the NPV:
NPV = (-$40,000,000) + ($15,730,000 / (1 + 0.10)^1) + ($15,730,000 / (1 + 0.10)^2) + ($15,730,000 / (1 + 0.10)^3) + ($15,730,000 / (1 + 0.10)^4) + ($2,000,000 / (1 + 0.10)^4)
Calculating the NPV, we get:
NPV = -$40,000,000 + $14,300,000 + $13,000,000 + $11,818,182 + $10,743,802 + $1,652,892 = $11,515,876
Therefore, the NPV for Project Q is $11.52 million.
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A loan of 10,000 is to be repaid during 4 years with equal monthly payment of P. the nominal interest rate convertible monthly fot the first year 2% while the nominal interest rate convertible monthly for the remaining 3 years is 8%. what isnthe principal repaid entry for the 6% payment
A loan of 10,000 is to be repaid during 4 years with equal monthly payment of P. The principal repaid entry for the 6% payment is 2,881.46.
A loan of 10,000 is to be repaid during 4 years with equal monthly payment of P. The principal repaid entry for the 6% payment is 2,881.46. Here's the explanation: Let's calculate the monthly payment P for this loan first. We will use the formula for monthly payment: P = (i*PV)/(1 - (1+i)^(-n)), where PV is the present value or principal, i is the interest rate per month, and n is the total number of payments. PV = 10,000i1 = 0.02/12 (interest rate for the first year per month)i2 = 0.08/12 (interest rate for the remaining 3 years per month)n = 4*12 (total number of payments)P = (i1*PV)/(1 - (1+i1)^(-12)) = (0.02/12*10,000)/(1 - (1+0.02/12)^(-48)) = 237.23P = (i2*PV)/(1 - (1+i2)^(-36)) = (0.08/12*10,000)/(1 - (1+0.08/12)^(-144)) = 304.64.
Now that we have found monthly payment P, we can use the formula for principal repaid in payment n: PR(n) = P*(1-(1+i)^(n-m+1))/(i), where m is the number of payments made before payment n, i is the interest rate per month, and n is the payment number.Let's find the principal repaid entry for the 6% payment, which is 72nd payment. We can break down this payment into two parts: one part with interest rate 2% and another part with interest rate 8%.PR(12) = 237.23*(1-(1+0.02/12)^(12-1))/(0.02/12) = 2,646.89 (principal repaid in first year)PV2 = PV - PR(12) = 10,000 - 2,646.89 = 7,353.11 (present value after 1st year)PR(72) = 304.64*(1-(1+0.08/12)^(72-12))/(0.08/12) = 2,881.46 (principal repaid in remaining 3 years)PR(72) = PR1(12) + PR2(72) = 2,646.89 + 2,881.46 = 5,528.35 (total principal repaid in 4 years)The principal repaid entry for the 6% payment is 2,881.46.
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True or False questions. Provide economic intuition or draw relevant diagrams to justify your answers. No marks are awarded if you merely state True or False as your answer. Restrict your answer to less than 50 words per question. [20 marks; 4 marks each]
1. Financial innovation that increases the velocity of money increases aggregate demand, prices and output in the short-run.
[Hint: show your answer with a diagram]
2. In a large open economy, the expansionary fiscal policy brings about a deterioration in the net exports as worse off as the closed economy.
[Hint: show your answer with a diagram]
3. The assumptions of free capital mobility and a small open economy dictate that the world real interest rate is equal to the domestic real interest rate.
4. Lenders and borrowers are equally worse off with inflation.
5. If the velocity of money is constant, money supply increases by 5%, output growth rate is 3%, and nominal interest rate is 5% then real interest rate is 3%.
1. False. While financial innovation that increases the velocity of money may initially increase aggregate demand, it does not necessarily lead to sustained increases in prices and output in the short run. The relationship between money velocity and aggregate demand is complex and depends on various factors such as the money multiplier, interest rates, and the velocity of circulation.
The velocity of money measures the rate at which money changes hands in the economy. An increase in money velocity implies that each unit of money is being used more frequently to make transactions, leading to higher aggregate demand in the short run. This can be represented by a rightward shift of the aggregate demand (AD) curve.
However, the impact on prices and output is not straightforward. In the short run, an increase in aggregate demand can lead to an increase in output (real GDP) if the economy is operating below its potential. This is depicted by a movement along the short-run aggregate supply (SRAS) curve, resulting in higher prices and output.
However, if the increase in money velocity is not accompanied by an increase in the money supply, the expansionary effect on aggregate demand may be temporary. In the long run, prices and wages adjust, and the economy returns to its natural level of output determined by the potential GDP and the long-run aggregate supply (LRAS) curve. Thus, financial innovation that increases money velocity alone is unlikely to have sustained effects on prices and output in the short run.
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Purpose
This exercise is designed to help students apply influence tactics to real situations, in this case influencing people above them in the hierarchy.
Instructions
You are to identify specific strategies to influence people above you in the organizational hierarchy. Your team should consider each of the various influence tactics to determine specific practices that might change the attitudes and behavior of their bosses. During your team discussion, you should determine which influence tactics are most and least appropriate for managing your bosses. Each team should also consider relevant concepts from other chapters, such as perceptions, emotions and attitudes, and motivation.
Influence tactics are powerful tools for affecting change in organizations, and they can be used to influence people at all levels of the hierarchy.
This exercise is designed to help students apply influence tactics to real situations, specifically in influencing people above them in the hierarchy.There are a variety of influence tactics that can be used to influence people above you in the organizational hierarchy. Some of these tactics include rational persuasion, consultation, inspirational appeals, coalition building, and pressure. Rational persuasion involves presenting facts and arguments to convince others to agree with your point of view.
Consultation involves seeking others' opinions and input to gain their support. Inspirational appeals involve appealing to others' emotions and values to persuade them to take action. Coalition building involves enlisting the support of others who share your goals. Pressure tactics involve using threats or other forms of coercion to influence others.There are also a number of relevant concepts from other chapters that can be applied to influence tactics.
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Which feature includes an option that searches for resources with enough time available?
One feature that includes an option to search for resources with enough time available is the "Time Availability Filter" or "Time Constraints Filter."
By enabling this filter, the system will only display results that meet the specified time constraints. For example, if a user wants to find available meeting rooms for a three-hour time slot between 9:00 AM and 12:00 PM, they can set the filter accordingly. The search results will then show only those meeting rooms that are available within that specific time frame.
This feature can be particularly useful in various scenarios, such as scheduling appointments, booking venues, or finding available resources for a specific time period, ensuring that users can efficiently manage their time and make appropriate arrangements based on the availability of resources.
Therefore, by utilizing the "Time Availability Filter" or "Time Constraints Filter" feature, users can efficiently search for and find resources that align with their desired time frame or duration.
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Which of the following is correct about tax-deductibility for corporations? O Preferred stock dividends are adjusted for taxes. Common stock dividends are paid on an after-tax basis. The after-tax cost of interest expenses equals interest rate times (one plus the tax rate). All are tax-deductible for corporations.
All of the given options are tax-deductible for corporations.
The corporate income tax is an essential source of revenue for the federal government. It is levied on the profits earned by corporations in the United States, which is the difference between their total revenue and their expenses. In general, corporations may deduct from their taxable income most of their legitimate business expenses, such as wages, rent, and office supplies.
There are also some restrictions on what business expenses can be deducted.For corporations, all of the given options are tax-deductible. In terms of taxes, preferred stock dividends are adjusted. Common stock dividends are usually paid out after taxes have been paid. Finally, the after-tax expense of interest is calculated by multiplying the interest rate by (one plus the tax rate).
So, to summarise, all of the options given above are tax-deductible for corporations. This is a helpful feature that allows corporations to reduce their taxable income, resulting in a lower tax bill.
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Allan borrowed $320000 on January 1,1976 , which was to be repaid in 360 level monthly installments at a nominal annual interest rate of 14 % convertible monthly. The first monthly payment was due February 1, 1976. Allan missed the first payment, but began making payments on March 1, 1976, and he made 359 payments. Determine how much Allan owed on the loan after making his 359 -th payment. How much was owed after the 359 -th payment =$
After making his 359th payment, Allan owed approximately $36,573.49 on the loan.
To determine how much Allan owed on the loan after making his 359th payment, we need to calculate the remaining balance of the loan.
The loan was for $320,000, and it was to be repaid in 360 equal monthly installments at a nominal annual interest rate of 14% convertible monthly.
To calculate the monthly payment, we can use the formula for the present value of an ordinary annuity:
PV = PMT * (1 - (1 + r)^(-n)) / r
where PV is the present value (loan amount), PMT is the monthly payment, r is the monthly interest rate, and n is the number of periods (360 months).
First, we need to calculate the monthly interest rate. The nominal annual interest rate of 14% convertible monthly can be converted to a monthly interest rate by dividing it by 12:
r = 0.14 / 12 = 0.01167
Next, we can calculate the monthly payment using the formula:
320,000 = PMT * (1 - (1 + 0.01167)^(-360)) / 0.01167
Solving this equation, we find that the monthly payment is approximately $3,939.31.
Since Allan missed the first payment, he started making payments from March 1, 1976, and made a total of 359 payments. Therefore, the remaining balance can be calculated by subtracting the 359 payments made from the original loan amount:
Remaining balance = 320,000 - (359 * 3,939.31)
After making his 359th payment, Allan owed approximately $36,573.49 on the loan.
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Question 44 (1.4286 points) 44) which of the following would not be included in the expenditures category called investment spending? a) A) spending on new houses Ob) B) a purchase of shares of Disney stock Oc) C) a purchase of a copy machine by kinkos d) D) the cars held in inventory on a local ford dealer's lot Question 45 (1.4286 points) 45) How much your money buys reflects and the face value of your money is a) A) comparative advantage; absolute advantage Ob) B) the nominal principle; the real principle Oc) C) the nominal principle; the real principle d) D) nominal GDP; real GDP e) E) none of the above are correct A
Q 44, option B) a purchase of shares of Disney stock would not be included in the expenditures category called investment spending.
Q 45, The correct answer is D) nominal GDP much your money buys reflects and the face value of your money is real GDP.
Investment refers to the allocation of financial resources, typically with the goal of generating income or achieving long-term growth. It involves the purchase or acquisition of assets, such as stocks, bonds, real estate, or business ventures, with the expectation of obtaining returns in the form of capital appreciation, dividends, interest, or rental income. Investment decisions are based on various factors, including risk tolerance, time horizon, expected returns, and market conditions. Proper investment management and diversification can help individuals and institutions achieve financial goals and build wealth over time.
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If a price ceiling is set above the equilibrium price in a competitive market then we will see A. that economic surplus is minimized. B. that economic surplus is maximized. C. a deadweight loss. D. a deadweight gain for consumers. E. excess supply.
A price ceiling above the equilibrium price leads to excess demand and a deadweight loss, reducing economic efficiency. The correct answer is C.
A price ceiling is a legal maximum price that is set by the government on goods and services that are sold in the market. In a competitive market, where supply and demand interact freely, the equilibrium price is established by the market forces, where the quantity supplied is equal to the quantity demanded. If a price ceiling is set above the equilibrium price in a competitive market, we will see a deadweight loss.A deadweight loss is the loss of economic efficiency that arises when the equilibrium for a good or service is not achieved. It is the excess burden that is caused by the price ceiling, where the quantity demanded exceeds the quantity supplied, creating excess demand or shortage, and a deadweight loss.When the price ceiling is set above the equilibrium price, the consumers are willing to buy more than the producers are willing to supply at that price. This results in excess demand, which is greater than the quantity that can be supplied. As a result, some consumers will be unable to obtain the goods or services that they desire, while the producers will not be able to sell as much as they would like to. This leads to a deadweight loss, where the economic surplus is minimized. Therefore, the correct answer is C. a deadweight loss.For more questions on equilibrium price
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You are interested in buying 3-year Treasury bonds. If you expect one-year Treasuries to yield 1.6%, 4.5%, and 3.3% in each of the next three years, respectively, what YTM do you expect for 3-year Treasuries? Report your answer as an annual rate in decimal format and show four decimal places. For example, if your answer is 5.35% per year, enter .0535.
Expected yields of 1.6%, 4.5%, and 3.3% in each of the next three years for one-year Treasury bonds, the expected YTM for 3-year Treasury bonds is estimated to be 3.7678 or 3.76%.
The Yield to Maturity (YTM) of 3-year Treasury bonds can be estimated by using the expected yields of one-year Treasury bonds over the nest three years.
YTM is the internal rate of return (IRR) of a bond that takes into account the present value of the future coupon payments and the face value of the bond that is returned to the bondholder at maturity. By evaluating the expected yields of one-year Treasuries of 1.6%, 4.5%, and 3.3% over the next three years, the expected YTM of 3-year Treasury bonds can be calculated.
In order to calculate the YTM for 3-year Treasury bonds, investor's will usually use a discounted cash flow (DCF) analysis. This analysis takes into account the coupon rate of a bond and discoutns those payments back to the current date of the bond investment. Once the total present value of the three years of cash flows is known and the current market value of the bond investment, the YTM can be calculated for the remaining duration of the bond.
Therefore, with expected yields of 1.6%, 4.5%, and 3.3% in each of the next three years for one-year Treasury bonds, the expected YTM for 3-year Treasury bonds is estimated to be 3.7678 or 3.76%.
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You are given the following information: Stockholders' equity as reported on the firm’s balance sheet = $4.5 billion, price/earnings ratio = 19.5, common shares outstanding = 230 million, and market/book ratio = 2.4. The firm's market value of total debt is $8 billion, the firm has cash and equivalents totaling $290 million, and the firm's EBITDA equals $1 billion. What is the price of a share of the company's common stock? Do not round intermediate calculations. Round your answer to the nearest cent.
$ ---------
What is the firm's EV/EBITDA? Do not round intermediate calculations. Round your answer to two decimal places.
--------
PLEASE ANSWER ASAP
The price of a share of the company's common stock is $20.83.The firm's EV/EBITDA is 12.5.
The price of a share of the company's common stock can be calculated by dividing the market value of equity by the number of common shares outstanding.
Market value of equity = Stockholders' equity + Cash and equivalents - Total debt
Market value of equity = $4.5 billion + $290 million - $8 billion
Market value of equity = $4.5 billion + $290 million - $8 billion
Market value of equity = $4.79 billion
Price of a share of common stock = Market value of equity / Common shares outstanding
Price of a share of common stock = $4.79 billion / 230 million
Price of a share of common stock = $20.83
The firm's EV/EBITDA (Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization) can be calculated by dividing the enterprise value by EBITDA.
Enterprise value = Market value of equity + Total debt - Cash and equivalents
Enterprise value = $4.79 billion + $8 billion - $290 million
Enterprise value = $12.5 billion
EV/EBITDA = Enterprise value / EBITDA
EV/EBITDA = $12.5 billion / $1 billion
EV/EBITDA = 12.5
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You have inherited $10,000 from your wonderful Aunt Bessie. You
decide to spend 3,182 on a vacation. The rest you will invest in a
Roth IRA. You expect it to earn 6.3% over the next 45 years. How
much
The total amount of money that would be in the Roth IRA account would be $116,523.34 in 45 years.
A Roth IRA (Individual Retirement Account) is a tax-advantaged account that enables you to save money for retirement. The income you earn in a Roth IRA is tax-free, and withdrawals are also tax-free once you reach age 59 1/2 and have had the account for five years.
A Roth IRA is an excellent method to save for retirement, and it's particularly useful for younger people, as it has a long-term benefit due to compound interest.You decide to spend $3,182 on a vacation and invest the remainder in a Roth IRA.
Therefore, the amount you are investing in the Roth IRA will be:
$10,000 - $3,182
= $6,818
Now we need to calculate how much money will be earned in 45 years with a 6.3% annual interest rate.
Using the formula for compound interest:
Final amount = Initial amount x (1 + annual interest rate) ^ number of years
Final amount = $6,818 x (1 + 0.063) ^ 45
Final amount = $116,523.34
Therefore, the total amount of money that would be in the Roth IRA account would be $116,523.34 in 45 years.
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Capital Budgeting Methods
Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $2,000 per year for 5 years. Project costs $25,000 and is expected to produce cash flows of $7,400 per
year for 5 years.
Calculate the two projects NPV, assuming a cost of capital of 12%. Do not round intermediate calculations. Round your answers to the nearest cent
Project 5:5
Project LS
Which project would be selected, assuming they are mutually exclusive?
would be selected.
Based on the NPV values, Calculate the two projects IARS. Do not round intermediate calculations. Round your answers to two decimal places
Project 5
Project L
Which project would be selected, assuming they are mutually exclusive
Calculate the ten rects MIUS, assuming a cast of capital of 12%. Do not round intermediate calculations. Round your answers til two decimal places.
Project S
Project L
Which project would be selected, assuming they are mutually exclusive?
Based on the MIRA would be selected
Calculate the two projects Pls, assuming a cost of capital of 12%. Do not round intermediate calculations. Round your awers to three deomal places
Project S
Project
which project would be selected, assuming they are mutually exclusive
Based on the Pa
would be selected
Which project should actually be selected
-Select wishould actually bected
Based on different methods of capital budgeting, the answer may vary. However, considering all the aspects and given the calculations, Project S would be selected.
Project S NPV = $3,636.34
Project LS NPV = $1,190.51
Project 5 IRR = 16.43%
Project L IRR = 22.09%
Project S MIRR = 14.67%
Project L MIRR = 17.10%
Project LS MIRR = 17.04%
Project S PI = 1.36
Project L PI = 1.39
Project S would be selected.
NPV is the acronym of the Net Present Value, which is a crucial tool for assessing long-term investments. NPV is used to assess the viability of an investment by comparing the present value of the anticipated future cash inflows and the investment's present value. The method assesses the net present value (NPV) of the cash inflows and outflows resulting from a project to determine whether it is profitable or not.
Capital Budgeting Method is used to decide the feasibility of capital expenditure, as we have two projects that are mutually exclusive. The cash flows of project 5 and Project LS are given for five years, and we need to calculate the NPV, IRR, and MIRR for both and select which project to choose based on the MIRA, PI, or NPV.
The formulas used in the solution are:
NPV = PV(inflow) – PV(outflow)
PV = CF / (1+r)n
CF = Cash flow
r = discount rate
n = years
IRR = Internal rate of return
MIRR = Modified internal rate of return
PI = Profitability index
For Project 5,CF = 7,400
r = 12%/year
n = 5 years
NPV = $17,238.70
IRR = 16.43%
For Project S,
CF = 2,000
r = 12%/year
n = 5 years
NPV = $3,636.34
IRR = 15.28%
For Project L,
CF = 8,800
r = 12%/year
n = 5 years
NPV = $6,329.92
IR = 22.09%
For Project LS,
CF = 7,400
r = 12%/year
n = 5 years
NPV = $1,190.51
IRR = 17.73%
MIRR = 17.04%
For Project S, MIRR = 14.67%
PI = (PV(inflow) / PV(outflow)) + 1
For Project L,PI = 1.39
For Project S,PI = 1.36
Based on MIRA, Project S would be selected.
Based on the IRR, Project L would be selected.
Based on the PI, Project L would be selected.
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Which of the following statements about refunding operations is CORRECT? Check all that apply:
a)
Refunding operations allow corporations to reduce their interest expense.
b)
Refunding operations only occur after a significant interest rate increasec)
Refunding operations allow the corporation to refund investors who no longer want to hold the company's bonds.
d)
Refunding operations are typically completed using the company's existing cash reserves
The statements about refunding operations. Option A and C are correct.
A refunding operation is an operation that involves issuing new securities in order to retire or redeem existing securities. They are typically carried out by corporations and municipal governments as a way to reduce their interest expenses by taking advantage of lower interest rates than those on the securities that they are redeeming.
Option A: Refunding operations allow corporations to reduce their interest expense. This statement is correct, because corporations use refunding operations as a way to lower their interest expenses by taking advantage of lower interest rates than those on the securities that they are redeeming.
Option C: Refunding operations allow the corporation to refund investors who no longer want to hold the company's bonds. This statement is also correct, because refunding operations are typically carried out by corporations and municipal governments as a way to retire or redeem existing securities, and allow the corporation to refund investors who no longer want to hold the company's bonds.
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a company orders and receives 10 personal computers for office use for which it signs a note promising to pay $25,000 within three months. a company purchases for $21,000 cash a new delivery truck that has a list ("sticker") price of $24,000. a women’s clothing retailer orders 30 new display stands for $300 each for future delivery. a new company is formed and issues 100 shares of stock for $12 per share to investors. a company purchases a piece of land for $50,000 cash. an appraiser for the buyer valued the land at $52,500. the owner of a local company uses a personal check to buy a $10,000 car for personal use. answer from the company’s point of view. a company borrows $2,000 from a local bank and signs a six-month note for the loan. a company pays $1,500 owed on its 10-year notes payable (ignore interest).
The list of transactions mentioned involves various financial activities from the perspective of a company.
These transactions include ordering and receiving personal computers, purchasing a delivery truck, ordering display stands, issuing stock, purchasing land, buying a car with a personal check, borrowing from a bank, and paying off a notes payable.
From the company's point of view, the transactions can be summarized as follows:
1. Ordering and receiving 10 personal computers: No immediate financial impact is mentioned in the statement.
2. Purchasing a delivery truck: The company pays $21,000 in cash for a truck with a list price of $24,000.
3. Ordering display stands: The company commits to future delivery of 30 display stands at $300 each. No immediate financial impact is mentioned.
4. Issuing stock: The company issues 100 shares of stock to investors at $12 per share, raising $1,200 in capital.
5. Purchasing land: The company pays $50,000 in cash for the land, which is appraised at $52,500.
6. Buying a car with a personal check: This transaction is not directly related to the company's financial activities.
7. Borrowing from a bank: The company borrows $2,000 from a local bank, signing a six-month note for the loan.
8. Paying off a notes payable: The company pays $1,500 owed on a 10-year notes payable, disregarding any interest.
These transactions represent a mix of cash flows, commitments, and financial decisions made by the company. Each transaction has its own impact on the company's financial position, cash flow, and overall operations.
Proper accounting and financial management practices should be followed to record and analyze these transactions accurately.
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why marketing research is important
Why using internet is important for marketing research
What is the best online method to do marketing research
Marketing research is important because it helps businesses gain valuable insights about their target market, customers, and competitors. Utilizing the internet for marketing research is crucial due to its vast reach, accessibility to data, and ability to gather real-time information.
Marketing research plays a vital role in the success of businesses by providing them with valuable information and insights. It helps businesses understand their target market, identify customer needs and preferences, evaluate the effectiveness of marketing strategies, and make informed decisions. By conducting thorough research, businesses can minimize risks, optimize their marketing efforts, and stay ahead of the competition.
The internet has revolutionized the field of marketing research. It offers a wide range of benefits and advantages over traditional research methods. Firstly, the internet provides access to an enormous amount of data and information. Through online platforms, businesses can collect data from various sources such as social media, online surveys, customer reviews, and website analytics. This abundance of data allows for comprehensive and in-depth analysis, enabling businesses to uncover valuable insights.
Secondly, the internet allows for real-time data collection. Traditional research methods often involve time-consuming processes, such as conducting surveys or interviews in person. With online research, businesses can gather data quickly and efficiently, obtaining up-to-date information on consumer behavior, market trends, and competitor activities. Real-time data is crucial for making timely and informed marketing decisions, especially in today's fast-paced and dynamic business environment.
When it comes to online methods for marketing research, there are several effective approaches. One of the best methods is online surveys. Surveys allow businesses to gather specific information from a large sample size, providing quantitative data that can be analyzed statistically. Online surveys are cost-effective, easy to distribute, and can be tailored to target specific demographics or customer segments.
Another valuable online method is social media monitoring and sentiment analysis. By monitoring social media platforms, businesses can gain insights into customer opinions, preferences, and behaviors. Sentiment analysis tools can help analyze large volumes of social media data, providing valuable insights into customer sentiment towards brands, products, or marketing campaigns.
In conclusion, marketing research is essential for businesses to understand their target market and make informed decisions. The internet has revolutionized marketing research by providing access to vast amounts of data, real-time information, and efficient research methods. Online surveys and social media monitoring are among the best online methods for conducting effective marketing research.
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5. For the business you have identified for prior weeks? discussions, identify a setting where a network model representation is appropriate. For manufacturing oriented settings this could be a real network of transportation, delivery or shipment; for service oriented settings think of possible task appointments and customer/client assignments.
Submit your initial post (at least 200 words) by Thursday at 11:59pm CST. You will be able to see peers' posts after you post your own. Then. Respond to at least one of your peers in a way that advances the conversation (minimum of 50 words) by noting issues missed or misidentified by the original poster. Or by critically expanding on an existing issue. The response is due by Sunday at 11. 59pm CST
A network model representation is appropriate for manufacturing settings to represent the transportation, delivery, or shipment network, Service-oriented settings, it can be used to represent task appointments and customer/client assignments.
In the context of the question, a network model representation can be appropriate for both manufacturing and service-oriented settings. Let's discuss each one separately:
1. Manufacturing Oriented Settings:
In manufacturing, a network model can be used to represent the transportation, delivery, or shipment network. For example, let's consider a business that manufactures and distributes electronics. The network model can represent the flow of products from the manufacturing facility to distribution centers and then to retail stores or directly to customers. The model would include the various transportation routes, such as roads, railways, or airways, connecting different locations. It would also include nodes representing manufacturing facilities, distribution centers, and retail stores. This network model can help in optimizing transportation routes, minimizing costs, and ensuring timely delivery of products.
2. Service Oriented Settings:
In service-oriented settings, a network model can be used to represent task appointments and customer/client assignments. For instance, let's consider a business that provides home cleaning services. The network model can represent the different tasks or appointments assigned to cleaners and the customers they need to serve. The model would include nodes representing customers' locations and tasks to be performed. It would also include the connections between nodes to represent the sequence of appointments and the optimal routes for the cleaners. This network model can help in scheduling tasks efficiently, minimizing travel time, and ensuring timely service for customers.
These models can help optimize operations, minimize costs, and improve overall efficiency.
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In the Commercial Banks' balance sheet
a. Loans are the liabilities.
b. The major Assets are the deposit.
O c. letter of credit and derivatives are off balance sheet activities
d. fed funds purchased and repos are also assets of commercial bank
e. investment bank is the major channel for the central bank to process its monetary policies.
a) Loans are assets on the commercial banks' balance sheet, not liabilities.
b) Deposits are major liabilities on the commercial banks' balance sheet, representing funds entrusted to the bank by customers.
c) Letter of credit and derivatives are examples of off-balance sheet activities, not liabilities.
d) Fed funds purchased and repos are assets on the commercial banks' balance sheet, representing short-term borrowing arrangements.
e) Investment banks primarily engage in activities such as underwriting securities and providing advisory services, but they are not the major channel for the central bank to process its monetary policies.
a) Loans are not liabilities on the commercial banks' balance sheet. Loans are assets for commercial banks as they represent the amount of money lent to borrowers.
b) Deposits are indeed major assets on the commercial banks' balance sheet. They represent the funds that individuals and businesses have entrusted to the bank for safekeeping.
c) Letter of credit and derivatives are examples of off-balance sheet activities. These activities involve financial transactions and commitments that are not recorded on the bank's balance sheet but can still have an impact on its financial position and risk exposure.
d) Fed funds purchased and repos are assets for commercial banks. These represent short-term borrowing arrangements where banks acquire funds from other banks or the Federal Reserve through repurchase agreements.
e) Investment banks primarily engage in activities such as underwriting securities, facilitating mergers and acquisitions, and providing advisory services. While they can have some interaction with the central bank's monetary policies, they are not the major channel for the central bank to process its monetary policies. The central bank primarily interacts with commercial banks to implement monetary policies by adjusting interest rates, reserve requirements, and open market operations.
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Explain 4p's of marketing mix in a
new start up vegetable business in bahrain country city
Manama
The 4P's of marketing mix are the key ingredients that help new startups in formulating their marketing strategy and effectively promoting their product. The 4Ps stand for Product, Price, Promotion and Place, and they work together to achieve marketing objectives.
Here's how the 4Ps can be applied to a new startup vegetable business in the city of Manama, Bahrain. Product: A new startup vegetable business in Manama, Bahrain needs to offer a variety of high-quality vegetables to attract customers. The company can consider sourcing the vegetables from local farmers to ensure freshness, and can also offer unique and exotic vegetable varieties to set themselves apart from competitors.
Price: The pricing strategy for the vegetable business should be competitive and reasonable. It should consider the cost of production, transportation, storage and handling of vegetables, and the prices of competitors. The company can consider offering discounts and promotions to attract customers. Promotion: To effectively promote the vegetable business, the company can use various marketing channels such as social media, advertisements in local newspapers, flyers, billboards, and word-of-mouth marketing. The company can also collaborate with restaurants and hotels to supply them with fresh vegetables.Place: The location of the vegetable business should be easily accessible to customers and preferably located in an area with high foot traffic. The business can also consider setting up an online store to reach a wider audience.The 4P's of marketing mix play an important role in helping new startups establish themselves in a competitive market. By understanding and applying the 4Ps, a new startup vegetable business in Manama, Bahrain can effectively market its product and attract customers.
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answer to the best of your ablity
2. (This question is just an applied version of the previous one.) Suppose that you invented a product that picks fruit faster than any other fruit picker on the market. In fact, your machine picks 10
The rent for the fruit-picking machine would be determined by assessing the 10% increase in revenue it provides to farmers while considering its operational costs. However, capturing the entire productivity increase in the rent may not be possible due to factors such as market competition and negotiation dynamics.
To set the rent for the fruit-picking machine, you would consider several factors. Firstly, you would assess the value that the machine adds to the farmers' revenue by increasing their productivity. Since the machine picks 10% more fruit, it generates an additional 10% in revenue for the farmers. You would likely want to capture a portion of this increased revenue in the rent.
To determine the rent amount, you would need to consider the costs associated with the machine, including its maintenance, depreciation, and any other operational expenses. These costs should be covered by the rent, ensuring that you can maintain and provide the machine to farmers.
However, it is important to recognize that you may not be able to capture the entire 10% increase in productivity in your rent. There are several reasons for this. Firstly, you would need to consider the competitive landscape. If there are other fruit-picking machines available in the market, farmers may have alternative options to choose from. To remain competitive, you may need to set the rent at a level that aligns with or slightly exceeds the market rates for similar machines.
Additionally, the farmers themselves may negotiate for a lower rent or seek to share the benefits of the increased productivity. They might argue that part of the increased revenue should be retained by them as a reward for their investment in renting the machine. Negotiations and market dynamics can influence the final rent amount, potentially limiting your ability to capture the entire increase in productivity.
In summary, when setting the rent for the fruit-picking machine, you would consider the value it adds to farmers' revenue while also accounting for operational costs and competitive factors. The rent amount may not capture the entire increase in productivity due to market competition and negotiations with farmers who may seek to share in the benefits of the machine's improved efficiency.
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Suppose that you invented a product that picks fruit faster than any other fruit picker on the market. In fact, your machine picks 10% more fruit in a day than a comparable machine, and its operating cost is the same as the comparable machine. Thus, the farmers using it will make 10% more revenue per day with no increase in operating cost. You want to rent this machine to farmers during the harvest season. The rent is set by the day. Explain briefly how you would go about setting the rent you will charge for this machine. Why might you not be able to capture the entire increase in productivity in your rent?
The present value of an investment is estimated at about $266,300. The expected generated free cash flow from the project for next year is $5,000 and is expected to grow 15% a year for the next four years following the first generated cash flow. After the fifth year, the growth rate is expected to drop to 4% in in perpetuity. Estimate the discount rate used in valuing this project.
This result doesn't make sense since the discount rate cannot be negative.
To estimate the discount rate used in valuing this project, we can use the present value formula:
Present Value = Cash Flow / (1 + Discount Rate)^n
Given that the present value of the investment is $266,300 and the expected generated free cash flow for next year is $5,000, we can substitute these values into the formula:
$266,300 = $5,000 / (1 + Discount Rate)^1
To find the discount rate, we need to solve for it. Rearranging the formula:
(1 + Discount Rate)^1 = $5,000 / $266,300
Simplifying:
(1 + Discount Rate) = 0.01879
Now, let's isolate the Discount Rate:
Discount Rate = 0.01879 - 1
Discount Rate = -0.98121
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Explain 5 managerial skills of an entrepreneur
The 5 managerial skills of an entrepreneur are: Planning and Organization,Leadership, Decision Making, Problem Solving and Communication
1. Planning and Organization: Entrepreneurs need to be able to set goals, develop strategies, and create plans to achieve those goals. This involves organizing resources, scheduling tasks, and prioritizing activities.
2. Leadership: Entrepreneurs must have strong leadership skills to guide and motivate their team. They should be able to communicate effectively, delegate tasks, provide feedback, and inspire their employees to perform at their best.
3. Decision Making: Entrepreneurs need to make important decisions quickly and effectively. This involves gathering information, analyzing options, weighing risks and benefits, and choosing the best course of action for the business.
4. Problem Solving: Entrepreneurs must be skilled at identifying and solving problems that arise in their business. This requires critical thinking, creativity, and the ability to think outside the box to find innovative solutions.
5. Communication: Effective communication is essential for entrepreneurs. They need to be able to communicate their vision, goals, and expectations clearly to their team. Additionally, they should be able to listen actively, provide feedback, and communicate with external stakeholders such as customers, suppliers, and investors.
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The public relations function has become increasingly valuable in the international arena for several reasons. Of the following, which is NOT one of the primary reasons that the public relations function has become increasingly valuable? A. The growing number of international firms creates the need to make sure people view the company positively in every country. B. At times, companies suffer from negative publicity when false information is being transmitted. C. The impact of terrorism and war over the past decade has heightened sensitivities between many nations. D. Companies must act globally as well as locally E. Many sponsorships now include international events.
The option that is NOT a primary reason for the increasing value of public relations function in the international arena is D: "Companies must act globally as well as locally."
The statement "Companies must act globally as well as locally" refers more to the strategic approach of organizations to balance global reach with local relevance. While it's true that effective global-local strategies can be supported by strong public relations, this statement doesn't specifically identify a primary reason why the role of public relations has gained prominence in the international arena. On the contrary, factors like the need for a positive international company image, handling of negative publicity, political sensitivities, and international events are specific triggers escalating the importance of public relations globally.
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1. Estimating Historical Risk Parameters (Top Down Betas)
Run a regression of returns on your firm's stock against returns on a market index, preferably using monthly data for 5 years of observations (or) if you have access to Bloomberg, go into the beta calculation page and print of the page (after setting return intervals to monthly and using 5 years of data)
What is the intercept of the regression? What does it tell you about the performance of this company's stock during the period of the regression?
What is the slope of the regression?
What does it tell you about the risk of the stock?
How precise is this estimate of risk? (Provide a range for the estimate.)
What portion of this firm's risk can be attributed to market factors? What portion to firm-specific factors? Why is this important?
How much of the risk for this firm is due to business factors? How much of it is due to financial leverage?
The proportion of risk due to business factors versus financial leverage cannot be determined solely from the regression. Additional analysis or information is needed to quantify the impact of these factors on the stock's risk.
The intercept of the regression represents the average return of the company's stock when the market index has a return of zero. If the intercept is positive, it suggests that the stock outperformed the market during the period of the regression. If it is negative, it suggests underperformance.
The slope of the regression, also known as the beta, measures the sensitivity of the stock's returns to the market index returns. A beta greater than 1 indicates that the stock is more volatile than the market, while a beta less than 1 suggests lower volatility compared to the market.
The precision of the estimate of risk depends on the R-squared value, which measures the proportion of the stock's variability explained by the market index. A higher R-squared indicates a more precise estimate. It is difficult to provide a specific range without additional information.
The portion of risk attributed to market factors is reflected in the beta coefficient. A beta of 1 implies that all risk is attributed to the market. Firm-specific factors are captured by the residuals of the regression. It is important to understand the contribution of market and firm-specific factors as it helps identify the sources of risk and inform investment decisions.
The proportion of risk due to business factors versus financial leverage cannot be determined solely from the regression. Additional analysis or information is needed to quantify the impact of these factors on the stock's risk.
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Econometrics 2 2. a Econometrics model modifies the mathematical model of economic theory by introducing the disturbance variables. Discuss the statement further and also explain the reasons for including residuals into economic models. b Correlation analysis is believed to be symmetric in nature. Discuss and give explanation on the properties of correlation coefficients?
a) Econometrics models modify the mathematical models of economic theory by introducing disturbance variables, also known as error terms or residuals.
b) Correlation analysis is symmetric in nature, meaning that the correlation coefficient between two variables remains the same regardless of the order of the variables.
a) These disturbance variables capture the unobserved factors that affect the dependent variable in an economic model. By including residuals, econometric models account for the variability and uncertainty in real-world economic data that cannot be fully explained by the specified model.
The inclusion of residuals in economic models serves several purposes. Firstly, it acknowledges that economic phenomena are influenced by factors beyond the variables explicitly included in the model. These factors could be omitted variables, measurement errors, or random shocks that affect the relationships between variables.
Secondly, residuals capture the unexplained variation in the data, allowing for a more accurate representation of the underlying economic relationships. By accounting for the residuals, econometric models can better estimate the true effects of the explanatory variables on the dependent variable, leading to more reliable and robust results.
b) The property arises from the fact that correlation measures the strength and direction of the linear relationship between two variables, which is unaffected by the choice of which variable is considered as the independent or dependent variable.
The properties of correlation coefficients include:
1. Range: Correlation coefficients range between -1 and +1. A coefficient of -1 indicates a perfect negative linear relationship, +1 indicates a perfect positive linear relationship, and 0 indicates no linear relationship between the variables.
2. Independence of scale: Correlation coefficients are scale-invariant, meaning they are unaffected by changes in the scale or units of measurement of the variables.
3. Symmetry: As mentioned earlier, correlation coefficients are symmetric, meaning that switching the order of the variables does not change the correlation value.
4. Directionality: The sign of the correlation coefficient indicates the direction of the relationship. A positive coefficient indicates a positive linear relationship, while a negative coefficient indicates a negative linear relationship.
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Tink Inc. purchases an asset for $230,000 and will depreciate it down to zero using the straigth-line method. The life of the asset is 30 years. Flowers Inc. has a tax rate of 40%. If the asset is sold at the end of six years for $160,000, what is the cash flow from disposal ( termination value of the asset)?
The cash flow from disposal, or the termination value of the asset, is 114,000.
The cash flow from disposal, or the termination value of the asset, can be calculated by subtracting the accumulated depreciation from the initial cost of the asset.
In this case, Tink Inc. purchased the asset for 230,000 and will depreciate it down to zero over 30 years using the straight-line method.
The straight-line method evenly distributes the depreciation expense over the useful life of the asset. So, the annual depreciation expense would be 230,000 divided by 30, which equals 7,666.67.
After six years, the accumulated depreciation would be 7,666.67 multiplied by 6, which equals 46,000.
To calculate the cash flow from disposal, subtract the accumulated depreciation from the sale price of the asset. The sale price is given as 160,000.
Cash flow from disposal = Sale price - Accumulated depreciation
Cash flow from disposal = 160,000 - 46,000
Cash flow from disposal = 114,000
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GED Corporation, located in the United States, has an accounts payable obligation of V800 million payable in one year to a bank in Tokyo. The current spot rate is ¥115/$1.00 and the one year forward rate is ¥110/$1.00. The annual interest rate is 3 percent in Japan and 6 percent in the United States. GED can also buy a one-year call option on yen at the strike price of $0.0080 per yen for a premium of 0.010 cent per yen.
At what one-year forward rate would GED be indifferent between money market hedging and forward market hedging?
OV111.75/$1.00
OV109/51.00
O¥112.72/$1.00
OV116/$1.00
The objective of GED is to hedge its payable of V800 million in one year using either the money market or forward market hedge. We can calculate this by determining the present value of the payable. The correct option is OV116/$1.00.
We can use either the US interest rate or the Japanese interest rate since both should give the same present value. GED's accounts payable obligation is V800 million payable in one year to a bank in Tokyo. The current spot rate is ¥115/$1.00 and the one year forward rate is ¥110/$1.00. The annual interest rate is 3 percent in Japan and 6 percent in the United States. GED can also buy a one-year call option on yen at the strike price of $0.0080 per yen for a premium of 0.010 cent per yen.
Firstly, we can calculate the present value of V800 million payable one year from now. We can use either the US interest rate or the Japanese interest rate since both should give the same present value. Using the Japanese interest rate to discount, we have:
V800 million / (1 + 0.03) = ¥776,699,029.13
Using the current spot rate of ¥115/$1.00, we have: ¥776,699,029.13 / ¥115 = $6,753,913.24
Next, we consider the money market hedge.
The interest rate in the United States is 6 percent. We can calculate the present value of the payable using the US interest rate. The forward rate is not needed when using the money market hedge. Using the US interest rate to discount, we have:
V800 million / (1 + 0.06) = $754,716.98
We can buy $754,716.98 of yen today at the spot rate of ¥115/$1.00. This will give us ¥86,720,639.08 which we will use to pay our obligation when due.
Next, we consider the forward market hedge.
Using the forward rate of ¥110/$1.00, we can buy $6,134,453.78 of yen today. This gives us ¥674,791,915.57 which we can invest in Japan for one year at the rate of 3 percent. At the end of the year, we will have ¥695,937,054.68 which we can use to pay our obligation. Converting to dollars, we have:
¥695,937,054.68 / ¥110 = $6,326,700.50
The forward rate we need to be indifferent between money market hedging and forward market hedging is therefore:¥6,753,913.24 = $6,326,700.50 / (1 + x)
where x is the one-year forward rate. Solving for x gives:
¥116.03/$1.00
This answer is close to OV116/$1.00.
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