An entrepreneur can expect the following when starting a new business as a franchisee: all necessary information in disclosure documents, management help and support from the franchiser, the requirement to purchase supplies from a preapproved distributor, and the need to comply with practices set by the franchiser.
When starting a new business as a franchisee, there are certain expectations that an entrepreneur can have. First, all the information needed to decide whether to buy a franchise will be included in disclosure documents provided by the franchiser. This helps the entrepreneur make an informed decision. Second, the franchiser will provide the entrepreneur with management help and support, which can be valuable for someone new to the business world.
Third, the entrepreneur will be expected to purchase supplies from a preapproved distributor. This ensures that the products meet the franchiser's standards. Finally, the entrepreneur must comply with the practices required by the franchiser. This means that the franchisee cannot run the business in any way they want, but instead must follow the guidelines set by the franchiser. These expectations are important for entrepreneurs to consider when starting a new business as a franchisee.
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Norway decides to go forward with a large renewable energy project of photovoltaic cells
-What would happen to the domestic electricity market?
-What would happen to the domestic solar PV market?
USA decides to go forward with a large nuclear reactor project
-What would happen to the domestic electricity market?
-What would happen to the world market of uranium?
Domestic Electricity Market: With the implementation of a large renewable energy project using photovoltaic cells, there would be an increase in the domestic electricity supply.
Domestic Solar PV Market: The domestic solar PV market in Norway would experience growth and expansion due to the large-scale project. The increased investment in photovoltaic cells and infrastructure would create opportunities for domestic solar PV manufacturers, installers, and suppliers. This growth could lead to increased employment in the solar energy sector and stimulate innovation in renewable energy technologies.
Domestic Electricity Market: The implementation of a large nuclear reactor project in the USA would result in an increase in electricity generation capacity. Nuclear power plants typically produce a significant amount of baseload electricity, which can provide a stable and consistent supply of power. This additional supply could contribute to a more reliable domestic electricity grid, potentially reducing the risk of power shortages or blackouts. However, the impact on electricity prices would depend on various factors, such as the cost of nuclear power generation and the overall electricity demand and supply dynamics in the market.
It is important to note that the impact on the domestic electricity market and other related factors can vary depending on the specific circumstances, regulatory framework, energy policies, market dynamics, and technological advancements in each country. These projections are based on general expectations and should be evaluated in consideration of the specific context and conditions of each scenario.
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In-house training programs are learning opportunities developed by the organization in which they are used. An in-house training program is usually the second step in the training process and is often ongoing. In-house training programs can be training related to a specific job, such as using a particular kind of software. In a manufacturing setting, in-house training might include an employee learning how to use a particular type of machinery.
Many companies provide in-house training on various HR topics, meaning it does not always have to relate to a specific job. Some examples of in-house training include the following:
Ethics training
Sexual harassment training
Multicultural training
Communication training
Management training
Customer service training
Operation of special equipment
Training to do the job itself
Basic skills training
You are the human resources director of training and development of a start-up organization. Discuss what should be considered when creating an in-house training program for onboarding new employees.
Effective in-house training programs for new employees consider training needs, align with company values, engage learners, evaluate effectiveness, ensuring a smooth transition and employee development.
1. Identify specific training needs: Before designing an in-house training program, it's essential to assess the specific knowledge and skills required for new employees to perform their roles effectively. This can be done through job analysis, consulting with subject matter experts, and understanding organizational goals.
2. Align with company values and goals: The training program should reflect the organization's values, culture, and strategic objectives. This ensures that new employees understand and embrace the company's mission, vision, and core principles from the beginning.
3. Design interactive and engaging materials: To enhance learning retention and engagement, the training materials should be interactive and visually appealing. Incorporating multimedia elements, interactive exercises, case studies, and real-life scenarios can make the training more effective and enjoyable.
4. Use a mix of instructional methods: People learn in different ways, so incorporating a variety of instructional methods like presentations, demonstrations, group discussions, and hands-on activities accommodates different learning styles and enhances knowledge transfer.
5. Provide hands-on practice: New employees should have opportunities to apply what they've learned through practical exercises, simulations, and on-the-job training. This hands-on practice helps solidify their understanding and builds confidence in their skills.
6. Ensure accessibility and inclusivity: The training program should be accessible to all employees, considering factors such as physical accessibility, language preferences, and cultural diversity. Providing accommodations for individuals with disabilities and offering translations or subtitles can enhance inclusivity.
7. Evaluate training effectiveness: Regular evaluation and feedback are crucial to gauge the effectiveness of the in-house training program. This can be done through assessments, surveys, and post-training evaluations to measure knowledge retention and identify areas for improvement.
By considering these factors when creating an in-house training program for onboarding new employees, organizations can ensure a smooth transition, promote employee development, and align their workforce with the company's values and goals.
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Which of the following can be described as indirect finance? Select one:
You borrow $100 from your neighbor.
You buy a share of stock in the primary market.
You take out a mortgage from a bank.
You buy a U.S. Treasury bill from the U.S. Treasury.
An example of indirect finance is taking out a mortgage from a bank, where funds flow through financial intermediaries before reaching the borrower.
Indirect finance refers to a situation where funds flow through financial intermediaries before reaching the ultimate borrower or investor. Out of the given options, the correct answer for an example of indirect finance is "You take out a mortgage from a bank."
When you take out a mortgage from a bank, you are obtaining funds from a financial intermediary (the bank) to finance the purchase of a property. The bank acts as an intermediary between the borrower and the ultimate lenders, such as depositors or investors in the financial markets. The bank collects funds from depositors and uses them to provide loans to borrowers, allowing funds to be indirectly channeled from savers to borrowers. This is a classic example of indirect finance.
On the other hand, the other options do not involve financial intermediaries. Borrowing money from your neighbor or buying a share of stock in the primary market involves direct finance, as the funds are obtained directly from the lender or investor without any intermediary involvement. Buying a U.S. Treasury bill from the U.S. Treasury is also considered direct finance, as the funds are lent directly to the government without the involvement of financial intermediaries.
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Your firm is considering a project with no start-up costs that will generate $1 million in FCF forever, starting in one year. Your debt-to-equity ratio is 1 , your equity-holders require a return of 12%, and your debt-holders require a return of 8%. The tax rate is 20%. Using the Adjusted Present Value method, compute the unlevered value of the project, the value of the tax shield (assuming you maintain your current leverage ratio), and the levered value of the project. V−u=$10 million, PV(Tax Shield )=$1.740 million, V−L=$11.740 million VLu=$10 million, PV( Tax Shield )=$0.870 million, VL=$10.870 million V−u=$11.740 million, PV(Tax Shield =$0,V⊥L=$11.740 million V−u=$12 million, PV( Tax Shield )=$0.080 million, V−L=$12.080 million
Using the Adjusted Present Value (APV) method, the unlevered value of the project is $10 million, the value of the tax shield (assuming the current leverage ratio is maintained) is $1.740 million, and the levered value of the project is $11.740 million.
The APV method calculates the value of a project by separately considering the unlevered value and the value of the tax shield.
The unlevered value (V-u) of the project is the present value of the expected cash flows, discounted at the unlevered cost of equity. In this case, the project generates $1 million in perpetuity starting in one year. Discounting this cash flow at the equityholders' required return of 12% yields an unlevered value of $10 million.
The value of the tax shield is the present value of the tax savings resulting from the deductibility of interest expenses. Since the firm has a debt-to-equity ratio of 1 and the debt-holders require a return of 8%, the tax shield is calculated as the tax rate (20%) multiplied by the interest expense (equal to the debt return rate multiplied by the debt amount). Discounting this tax shield at the unlevered cost of equity gives a value of $1.740 million.
To obtain the levered value (V-L) of the project, the unlevered value is added to the value of the tax shield. Thus, the levered value is $10 million + $1.740 million = $11.740 million.
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Calculate the future value of $5,000 earning 9 percent after one year, assuming annual compounding. Now, calculate the future value of $5,000 earning 9 percent after 22 years. Click on the table icon to view the FVIF table The future value after one year is? (Round to the nearest cent.)
The future value of $5,000 earning 9 percent after one year, assuming annual compounding, is $5,450. And, the future value of $5,000 earning 9 percent after 22 years is $14,860.
To calculate the future value of $5,000 earning 9 percent after one year, assuming annual compounding, you can use the formula for compound interest: Future Value = Principal * (1 + Interest Rate)^Time
In this case, the Principal is $5,000, the Interest Rate is 9 percent (or 0.09), and the Time is one year.
Future Value = $5,000 * (1 + 0.09)^1
Future Value = $5,000 * 1.09
Future Value = $5,450
Therefore, the future value after one year is $5,450 (rounded to the nearest cent).
For the second part of your question, to calculate the future value of $5,000 earning 9 percent after 22 years, you can use the same formula: Future Value = Principal * (1 + Interest Rate)^Time
In this case, the Principal is still $5,000, the Interest Rate is still 9 percent (or 0.09), and the Time is now 22 years.
Future Value = $5,000 * (1 + 0.09)^22
Future Value = $5,000 * 2.972
Future Value = $14,860
Therefore, the future value after 22 years is $14,860 (rounded to the nearest cent).
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(Drawn from the Module 4 Case Study) The Andromium operating system is ideally produced in a country with Select one: a. Low labour costs and a tech savvy programming sector like India b. Low labour costs and non-tech savvy sector that can be trained c. Low labour costs and strong public education system d. High labour costs and a tech savvy programming sector like the United States
Andromium operating system is ideally produced in a country with low labor costs and a tech-savvy programming sector like India. Andromium is a startup that aims to provide hardware-independent access to software through their operating system. Their operating system is designed to allow users to run Android apps on any device, including laptops and desktops.
Andromium has recognized that India is a perfect place to produce their operating system. This is because India has a large population of highly skilled software developers who are willing to work for low wages. Additionally, India's public education system provides a strong foundation for computer science education, making it easier for companies like Andromium to find qualified workers.
So, the correct answer to this question is option A: low labor costs and a tech-savvy programming sector like India.
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Ms Li Pang was negotiating the purchase of a house from Foakes. They had agreed on all the main terms but, before signing the contract, Ms Pang enquired of the agent for the vendor whether the house was sewered or not. The agent assured her that it was sewered. He genuinely believed the property was sewered but he was negligent in not making sure. After receiving the assurance, Ms Pang signed the contract. The contract did not mention sewerage. When she took possession of the house Ms Pang discovered that the house was not in fact sewered. She now wishes to sue for breach of contract.
(a) Please advise Ms Pang of any rights she may have under the law of contract. Please cite relevant cases in support of your arguments. (6 marks)
(b) Assume for part (b) only that there is an exclusion clause in the contract that: ‘excludes the liability of the vendor or its agents for loss or damage resulting from any breach of contract’. Ms Pang was unaware of the clause. Advise Ms Pang whether this clause is likely to protect the agent.
Under the law of contract, Ms Pang may have the following rights: Misrepresentation: If the agent provided false information about the property being sewered and Ms Pang relied on that information when signing the contract, she may have a claim for misrepresentation.
The agent's negligence in not verifying the information could be considered a misrepresentation. The case of Smith v. Land & House Property Corp. (1884) is relevant in establishing the principle of innocent misrepresentation.
Breach of Warranty: If the contract implied a warranty that the property was sewered, and it turns out to be false, Ms Pang can claim breach of warranty. The case of Oscar Chess Ltd. v. Williams (1957) demonstrates that even a statement made innocently can amount to a breach of warranty if it forms part of the contract.
Negligence: Ms Pang may also have a claim against the agent for negligence. The agent had a duty of care to ensure the accuracy of the information provided, and their failure to do so could be considered negligent. The case of Donoghue v. Stevenson (1932) established the principle of negligence.
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Which of the following will cause the quantity demanded of kerosene heaters to increase?
A.
An increase in the price of kerosene.
B.
A decrease in the price of kerosene heaters.
C.
An increase in the price of kerosene heaters.
D.
A decrease in the price of kerosene
An increase in the price of kerosene heaters will cause the quantity demanded of kerosene heaters to decrease. Kerosene heaters are a type of heating equipment that uses kerosene fuel to generate heat. The price of kerosene heaters, as well as the price of kerosene, can have an impact on the quantity demanded of kerosene heaters.
A decrease in the price of kerosene heaters, as stated in option B, will cause the quantity demanded of kerosene heaters to increase because more consumers will be able to afford them and the demand for them will grow as a result. An increase in the price of kerosene heaters, as stated in option C, will cause the quantity demanded of kerosene heaters to decrease because fewer people will be able to afford them and the demand for them will drop as a result.
An increase in the price of kerosene, as stated in option A, will cause the quantity demanded of kerosene heaters to decrease. This is because kerosene is the fuel used in kerosene heaters, and as the price of kerosene increases, the cost of running a kerosene heater becomes more expensive and people will choose not to use them. On the other hand, a decrease in the price of kerosene, as stated in option D, will cause the quantity demanded of kerosene heaters to increase.
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Nonconstant Growth valuation
A company currently pays a dividend of $2.6 per share (D0=2.6). It is estimated that the company’s dividend will grow at a rate of 20% per year for the next two years and then a constant growth rate of 6% thereafter. The company’s stock has a beta of 1.2, the risk free rate is 7.5%, and the market risk premium is 3.5%. What is your estimate of the stocks current price?
The estimated current price of the stock is $5.45.
To estimate the stock's current price, we can use the dividend discount model (DDM) with non constant growth.
The formula for the DDM with non constant growth is:
P0 = D0(1 + g1) / (r - g1) + D1(1 + g2) / (r - g2) + D2(1 + g3) / (r - g3) + …
Where:
P0 = Current price of the stock
D0 = Current dividend per share
g1, g2, g3, ... = Growth rates for each period
r = Required rate of return
Given:
D0 = $2.6 (dividend per share)
g1 = 20% (growth rate for the first two years)
g2 = 6% (constant growth rate thereafter)
r = Risk-free rate + Beta * Market risk premium
= 7.5% + 1.2 * 3.5%
= 7.5% + 4.2%
= 11.7%
Now, let's calculate the stock's current price:
P0 = 2.6(1 + 0.20) / (0.117 - 0.20) + [2.6(1 + 0.20)^2 / (0.117 - 0.20)] / (1 + 0.06)^2
P0 = 2.6(1.20) / (-0.083) + [2.6(1.20)^2 / (-0.083)] / 1.1236
P0 = -31.20 + 36.65
P0 = $5.45
Therefore, the estimated current price of the stock is $5.45.
Based on the given information and using the dividend discount model with non constant growth, the estimated current price of the stock is $5.45.
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Unida Systems has 40 million shares outstanding trading for $10 per share. In addition, Unida has $100 million in outstanding debt. Suppose Unida❝s equity cost of capital is 15%, its debt cost of capital is 8%, and the corporate tax rate is 40%.
Show work
Unida Systems has 40 million shares outstanding trading for $10 per share. The weighted average cost of capital (WACC) for Unida Systems is 12.96%.
To calculate the weighted average cost of capital (WACC) for Unida Systems, we need to consider the proportion of equity and debt in the company's capital structure and the respective costs of capital for each.
First, let's calculate the value of equity:
Equity value = Number of shares outstanding * Trading price per share
Equity value = 40 million * $10 = $400 million
Next, we calculate the value of debt, which is already given as $100 million.
Now, we can calculate the weight of equity:
Weight of equity = Equity value / (Equity value + Debt value)
Weight of equity = $400 million / ($400 million + $100 million) = 0.8
Similarly, we can calculate the weight of debt:
Weight of debt = Debt value / (Equity value + Debt value)
Weight of debt = $100 million / ($400 million + $100 million) = 0.2
Now, we can calculate the cost of equity using the equity cost of capital:
Cost of equity = Equity cost of capital = 15%
The cost of debt is given as 8%.
Next, we calculate the weighted average cost of capital (WACC):
WACC = (Weight of equity * Cost of equity) + (Weight of debt * Cost of debt * (1 - Tax rate))
WACC = (0.8 * 0.15) + (0.2 * 0.08 * (1 - 0.4))
WACC = 0.12 + 0.0096
WACC = 0.1296 or 12.96%
Therefore, the weighted average cost of capital (WACC) for Unida Systems is 12.96%.
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Each variable in the expenditure approach of GDP represents one of the four main sectors. Which sector is represented by the (X-M) in the equation for GDP? Households Government Businesses Rest of the world
The sector represented by (X-M) in the equation for GDP is the "Rest of the world" sector.
In the expenditure approach of GDP, the equation for GDP is given as:
GDP = C + I + G + (X-M)
Here, C represents household consumption, I represents business investment, G represents government spending, and (X-M) represents net exports, which is the difference between exports (X) and imports (M).
The sector represented by (X-M) is the "Rest of the world" sector because it takes into account the economic transactions between a country and the rest of the world. It captures the difference between the value of goods and services exported by the country (X) and the value of goods and services imported by the country (M). A positive value of (X-M) indicates a trade surplus, where exports exceed imports, while a negative value indicates a trade deficit, where imports exceed exports.
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The major participants who directly purchase securities in the capital markets of other countries are predominantly ____________.
The major participants who directly purchase securities in the capital markets of other countries are predominantly institutional investors such as pension funds, sovereign wealth funds, mutual funds, and insurance companies.
These entities have significant financial resources and seek to diversify their portfolios by investing in securities issued by foreign governments and companies. Institutional investors are attracted to foreign capital markets due to potential higher returns, access to unique investment opportunities, and diversification benefits.
They often employ specialized teams or asset managers to analyze and execute cross-border investment strategies. The participation of institutional investors facilitates capital flows, enhances liquidity, and fosters global economic integration in the international financial system.
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Labor costs account for a greater share of the value of U.S.
A) imports than of U.S. exports, because skill and pay are higher on the import side.
B) exports than of U.S. domestic production because exports are declining as a share of the U.S. Gross Domestic Product (GDP).
C) imports than of U.S. domestic production because U.S. imports are larger than U.S. domestic production.
D) exports than of U.S. imports, because skill and pay are higher on the export side of U.S. tradE
According to the Bureau of Labor Statistics, labor costs account for a greater share of the value of U.S. imports than of U.S. domestic production because U.S. imports are larger than U.S. domestic production. This is option (C).
The Bureau of Labor Statistics tracks import and export prices and how they are affected by the cost of labor, among other factors. In 2017, labor costs accounted for roughly 13% of the value of U.S. imports, while they accounted for just 5% of the value of U.S. domestic production.
Labor-intensive products such as clothing and footwear, are more likely to be imported, as labor costs are lower in other countries than in the United States. Therefore, it is unsurprising that labor costs account for a larger share of the value of U.S. imports than of U.S. domestic production.
Alternatively, high-tech products, such as computers, are more likely to be produced domestically, and labor costs account for a much smaller share of their value. Thus, this means that labor costs account for a greater share of the value of U.S. imports than of U.S. domestic production because U.S. imports are larger than U.S. domestic production.
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Your company is exploring the market potential of expanding from a regional to a national brand. You are interested in learning some of the basic demographic information (household income, average age, etc.) in various states. Which of the following is the best method to gather this data? Gather external secondary data Gather primary survey data Gather primary field test data Gather primary observational data Gather qualitative data
The best method to gather basic demographic information in various states for the purpose of exploring market potential for expanding from a regional to a national brand would be to gather external secondary data.
External secondary data refers to information that has already been collected by sources external to the company, such as government agencies, research organizations, or industry reports. This data is readily available and can provide a comprehensive overview of demographic information at a state level, including household income, average age, and other relevant factors.
By utilizing external secondary data, you can access a wide range of information quickly and cost-effectively. It allows you to gather data from multiple sources, ensuring a comprehensive analysis. Moreover, the data is likely to be reliable and consistent as it has been collected by established organizations with expertise in data collection and analysis.
Other methods such as gathering primary survey data, primary field test data, or primary observational data could be time-consuming, expensive, and require significant resources. These methods involve collecting data directly from individuals, conducting field tests, or observing consumer behavior, which can be more complex and may not provide a broad view of demographic information across various states.
While qualitative data can provide valuable insights into consumer behavior and preferences, it may not be the most suitable method for gathering basic demographic information. Qualitative data typically focuses on gathering in-depth insights and opinions rather than specific demographic details.
In conclusion, gathering external secondary data is the best method to gather basic demographic information in various states when exploring the market potential of expanding from a regional to a national brand. It allows for a comprehensive analysis quickly and cost-effectively.
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Balance Sheet \& Income Statement Eastern Ltd., which has just started trading on 1 January 2019, has the following account balances prior to the recording of the final month of the year: Account Balances as at 30 November 2019 In December 2019, the following transactions took place: 1. Credit purchases of goods $12,000. 2. Credit sales $30,000 (cost of goods sold $16,000 ). 3. Paid wages of $1,000. 4. At the end of December, sold off an equipment that has costed $10,000 at the price of $9,000. The yearly depreciation expense of this equipment was $2,000. 5. Paid rental of $600. 6. Paid an amount of interest. 7. Bank loan repayment of $1,500. 8. Paid creditors $5,000. Additional information as below: 1. Operating expenses above include rent and wages but exclude depreciation. As at 31 December 2019, there is an accrued wages of $400. The interest rate of the bank loan of $15,000 is 10% per annum. The bank loan was acquired on 1 January 2019. 2. Annual depreciation expense for the property, plant \& equipment before the disposal of the equipment at transaction 4 was $3,200,
Eastern Ltd. recorded several transactions in December 2019, including credit purchases and sales, wage payments, equipment sale, rental payment, bank loan repayment, and creditor payment.
To calculate the net income for December 2019, we need to consider the revenue from credit sales, cost of goods sold, operating expenses (excluding depreciation), and other relevant expenses. The credit sales were $30,000, and the cost of goods sold was $16,000. Therefore, the gross profit from sales is $30,000 - $16,000 = $14,000.
Next, we need to calculate the operating expenses, which include wages, rent, and other expenses (excluding depreciation). The paid wages were $1,000, and there is an accrued wages expense of $400. So, the total wages expense is $1,000 + $400 = $1,400. The rental payment was $600. Other operating expenses can be determined based on the available information.
After calculating the operating expenses, we can determine the net income by subtracting the operating expenses from the gross profit. We also need to consider the depreciation expense for the property, plant, and equipment. The annual depreciation expense before the equipment sale was $3,200, and the equipment sale resulted in a depreciation expense of $2,000. Therefore, the total depreciation expense is $3,200 + $2,000 = $5,200. To calculate the net income, we deduct the total operating expenses and depreciation expense from the gross profit: $14,000 - (operating expenses + depreciation expense).
Additionally, we need to calculate the interest expense on the bank loan based on the given interest rate. The bank loan amount is $15,000, and the interest rate is 10% per annum. However, we need information on the time period to determine the interest expense accurately. By considering all the transactions, expenses, and additional information, we can calculate the net income for December 2019 and assess the financial performance of Eastern Ltd.
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Problem H: (a) The one year zero rate is 5% and the three year zero rate is 5.5%. You are offered a 1×3 forward rate of 5.6%. How do you arbitrage it? (b) In a more realistic setting, the bid-ask spread on one year loans/deposits is 5% and 5.05%, and the bid-ask spread on three year loans/deposits is 5.5% and 5.56%. You are offered a bid-ask 1×3 forward rate spread of 5.58 and 5.62. How do you arbitrage it?
(a) To arbitrage the given situation, we can create a risk-free portfolio that guarantees a positive return.
Borrow money for one year at the one-year zero rate of 5%.
Invest the borrowed money for one year at the three-year zero rate of 5.5%.
Enter into a one-year forward contract to borrow money for two additional years at the forward rate of 5.6%.
Here's the step-by-step process:
Borrow $1 at the one-year zero rate of 5%. Therefore, you receive $1 and commit to repaying $1.05 in one year.
Invest the borrowed $1 for one year at the three-year zero rate of 5.5%. After one year, the investment grows to $1.055.
At this point, you have $1.055 in hand. Now, we need to calculate the payoff from the forward contract:
Enter into a one-year forward contract to borrow money for two additional years at the forward rate of 5.6%. The forward contract allows you to borrow $1.055 for two years starting from the end of the first year.
Now, let's consider two scenarios:
If the forward rate turns out to be higher than the future spot rate, you will exercise the forward contract and borrow $1.055 for two years at the forward rate of 5.6%. Therefore, you receive $1.055 * (1 + 5.6%) = $1.1144 at the end of two years.
If the forward rate turns out to be lower than the future spot rate, you will not exercise the forward contract and simply keep the invested amount of $1.055.
In either scenario, you have guaranteed a positive return. Therefore, by borrowing money at the one-year zero rate, investing at the three-year zero rate, and entering into a one-year forward contract, you can arbitrage the given situation.
(b) In a more realistic setting with bid-ask spreads, the arbitrage opportunity can be exploited as follows:
Borrow money for one year at the ask rate of 5.05%.
Invest the borrowed money for one year at the bid rate of 5%.
Enter into a one-year forward contract to borrow money for two additional years at the forward rate of 5.62%.
This strategy allows you to lock in a guaranteed positive return. By taking advantage of the bid-ask spread and the forward rate spread, you can borrow money at a lower rate and invest it at a higher rate, ensuring a profit.
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Help Save & E An investor buys a newly issued annual bond that pays its coupons once a year. The bonds coupon rate is 7.5%, Its time to maturity is 4 years, and the yield to maturity is 11.5%. The investor will hold the bond until its maturity date. Calculate the Bond Price, the current yield, capital gains, and the annual return for each year. Time 0 3 4 Price 1,000 Current Yield Capital Gains Holding Period Return
The bond price at Time 0 is $1,000. At Time 3, the price is $930.33, and at Time 4 (maturity), it returns to $1,000. Current yield ranges from 7.5% to 7.575%.
To calculate the bond price, we can use the present value formula:
Bond Price = Coupon Payment * (1 - (1 + Yield to Maturity)^(-Time to Maturity)) / Yield to Maturity + Par Value / (1 + Yield to Maturity)^Time to Maturity
Let's calculate the bond price, current yield, capital gains, and annual return for each year:
Time 0:
Since this is the initial purchase, the bond price will be the purchase price of $1,000.
Price: $1,000
Current Yield: Coupon Payment / Bond Price = 7.5% of $1,000 = $75
Capital Gains: None in the first year
Holding Period Return: Current Yield = 7.5%
Time 3 (3 years remaining):
To calculate the bond price after 3 years, we need to discount the remaining coupon payments and the par value to their present value.
Remaining Coupon Payments: $75 * [tex](1 - (1 + 11.5\%)^{(-3)})[/tex] / 11.5% = $215.27
Present Value of Par Value: $1,000 / [tex](1 + 11.5\%)^3[/tex] = $715.06
Bond Price = Remaining Coupon Payments + Present Value of Par Value = $215.27 + $715.06 = $930.33
Price: $930.33
Current Yield: Coupon Payment / Bond Price = 7.5% of $930.33 = $69.77
Capital Gains: Bond Price at Time 3 - Bond Price at Time 0 = $930.33 - $1,000 = -$69.67 (negative because the bond price decreased)
Holding Period Return: Current Yield + (Capital Gains / Bond Price at Time 0) = 7.5% + (-$69.67 / $1,000) = -0.0023 or -0.23%
Time 4 (maturity):
The bond price at maturity will be the par value of $1,000.
Price: $1,000
Current Yield: Coupon Payment / Bond Price = 7.5% of $1,000 = $75
Capital Gains: Bond Price at Time 4 - Bond Price at Time 3 = $1,000 - $930.33 = $69.67
Holding Period Return: Current Yield + (Capital Gains / Bond Price at Time 3) = 7.5% + ($69.67 / $930.33) = 0.07575 or 7.575%
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Prestige Medical company is considering replacing its existing computer system that was purchased two years ago at a cost of R328,000. the system can be sold today for R190,000. It has wear and tear over a five-year straight-line period. A new computer system will cost R497,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 30% tax rate.
Calculate the tax value of the existing computer system.
Calculate the after-tax proceeds of its sales for R190,000.
Calculate the initial investment associated with the replacement project
The initial investment associated with the replacement project is the cost of the new computer system: R497,000. This cost includes the purchase and installation expenses.
To calculate the tax value of the existing computer system, we need to determine the net book value (NBV) of the system. The NBV is the original cost minus the accumulated depreciation. Since the system was purchased two years ago, it has been subject to wear and tear over a five-year period. Therefore, the annual depreciation expense can be calculated as (328,000/5) = R65,600.
The accumulated depreciation over the two-year period is 2 * R65,600 = R131,200.
The NBV of the existing computer system is the original cost minus accumulated depreciation: 328,000 - 131,200 = R196,800.
To calculate the after-tax proceeds of its sale for R190,000, we need to consider the tax implications. The taxable gain on the sale of the computer system is the difference between the sales price (R190,000) and the tax value (NBV) of the system (R196,800).
The taxable gain is therefore R190,000 - R196,800 = -R6,800, indicating a loss.
Since the gain is negative, there will be no tax liability on the sale. Therefore, the after-tax proceeds of the sale will be equal to the sales price: R190,000.
The initial investment associated with the replacement project is the cost of the new computer system: R497,000. This cost includes the purchase and installation expenses.
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Bestseller Book's binding department has beginning inventory of 5,000 units and $20,000. consisting of $10,000 of direct materials and $10,000 of conversion costs. During the period, the department completed 88,000 units and had ending inventory of 15,000 units. Ending Inventory is 20% complete with respect to Direct Materials and 65% complete with respect to conversion. During the period, the department added direct materials costing $172,000 and conversion costs of $283,250. Assign and reconcile the costs for the period.
The costs for the period in the binding department of Bestseller Book are as follows:
Cost of completed units: $440,000Cost of ending inventory (Direct Materials): $6,000Cost of ending inventory (Conversion): $29,250To assign and reconcile the costs for the period in the binding department of Bestseller Book, we'll need to calculate the total costs incurred, allocate the costs to the completed units and ending inventory, and determine the cost per unit.
1. Calculate the total costs incurred:
- Direct materials cost: $10,000 (beginning inventory) + $172,000 (added during the period) = $182,000
- Conversion costs: $10,000 (beginning inventory) + $283,250 (added during the period) = $293,250
- Total costs incurred = Direct materials cost + Conversion costs = $182,000 + $293,250 = $475,250
2. Calculate the equivalent units of production:
- Completed units = 88,000 units
- Ending inventory (Direct Materials) = 15,000 units * 20% = 3,000 units
- Ending inventory (Conversion) = 15,000 units * 65% = 9,750 units
- Equivalent units of production (Direct Materials) = Completed units + Ending inventory (Direct Materials) = 88,000 + 3,000 = 91,000 units
- Equivalent units of production (Conversion) = Completed units + Ending inventory (Conversion) = 88,000 + 9,750 = 97,750 units
3. Calculate the cost per equivalent unit:
- Cost per equivalent unit (Direct Materials) = Direct materials cost / Equivalent units of production (Direct Materials) = $182,000 / 91,000 units = $2 per unit
- Cost per equivalent unit (Conversion) = Conversion costs / Equivalent units of production (Conversion) = $293,250 / 97,750 units = $3 per unit
4. Assign the costs to the completed units and ending inventory:
- Cost of completed units = Completed units * (Cost per equivalent unit (Direct Materials) + Cost per equivalent unit (Conversion))
= 88,000 units * ($2 + $3) = $440,000
- Cost of ending inventory (Direct Materials) = Ending inventory (Direct Materials) * Cost per equivalent unit (Direct Materials)
= 3,000 units * $2 = $6,000
- Cost of ending inventory (Conversion) = Ending inventory (Conversion) * Cost per equivalent unit (Conversion)
= 9,750 units * $3 = $29,250
5. Reconcile the costs:
- Total costs assigned = Cost of completed units + Cost of ending inventory (Direct Materials) + Cost of ending inventory (Conversion)
= $440,000 + $6,000 + $29,250 = $475,250 (matches the total costs incurred)
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Calculate the weighted average cost of capital (WACC) for the company Ironbridge Ltd, which is
listed on the Australian Stock Exchange (ASX). The information we have on this company is the
following, mainly from the financial accounts as at 30 June 2022:
• The balance sheet shows that the authorised capital for the company consists of 1 million
shares at par value $0.50 per share. Only 880,000 shares have been issued.
• The company's only debt consists of debentures. These are shown on the balance sheet as
11,000 6% debentures with par value of $100. Maturing in 10 years.
• Ironbridge Ltd pays tax at 28%.
The company’s Treasury department has provided the following current market data:
• The shares are currently trading at $1.88/share on the ASX. The last dividend was $0.11
unfranked and the dividend is expected to grow by 3.5% pa indefinitely.
• The debentures could be re-issued into the current Australian wholesale debt market at
5.5% per annum. The current market value of the debentures was not provided, so use the
interest payments to estimate it.
Use the bond price formula to calculate the current value of the debentures.
Required:
Calculate the weighted average cost of capital (WACC) for the company Ironbridge Ltd.
The cost of equity for Ironbridge Ltd is 9.35%, calculated by adding the dividend yield of 5.85% and the expected growth rate of 3.5% using the Gordon growth model.
To calculate the cost of debt, we need to determine the current market value of the debentures using the bond price formula, considering an interest payment of $6, a market rate of 5.5%, and a maturity of 10 years.
The weighted average cost of capital (WACC) for Ironbridge Ltd can be calculated using the WACC formula, considering the weight of equity and the weight of debt. This will provide the overall cost of financing for the company.
The cost of equity is 5.85% + 3.5% = 9.35%.
To calculate the weighted average cost of capital (WACC) for Ironbridge Ltd, we need to consider the cost of equity and the cost of debt.
First, let's calculate the cost of equity. The dividend yield can be calculated by dividing the last dividend ($0.11) by the current share price ($1.88), which gives us 0.0585 or 5.85%.
Since the dividend is expected to grow by 3.5% annually, we can use the Gordon growth model to calculate the cost of equity. The formula is (Dividend / Share price) + Growth rate.
Next, let's calculate the cost of debt. The interest payments on the debentures are 6% of the par value, which is $100. Therefore, the annual interest payment is $6. To estimate the current market value of the debentures, we need to use the bond price formula.
The formula is (Interest payment / Current market rate) * (1 - (1 / (1 + Current market rate)Number of years)). Using the given current market rate of 5.5% and a maturity of 10 years, we can calculate the current market value of the debentures.
Finally, we can calculate the WACC using the formula WACC = (Weight of equity * Cost of equity) + (Weight of debt * Cost of debt).
Since the only debt for Ironbridge Ltd is the debentures, the weight of debt is (Debt value / Total value), and the weight of equity is (Equity value / Total value). The WACC will give us the overall cost of financing for the company.
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Alexia, who is 35 years oid, fakes out individual disability invurance, She has a return of premium nider odded. The riser ststes that, whien her belicy expires at age 65 , the insurer will refund her 75% of all the premiums she has paid lens any disability benefits she received, The total annual peeriuam for this policy is $2,000. Over the years, Alexia receives $12,000 in benefits for varions ahort periods of disability. At age s5, she deciains vo cancel tier polity since her work situation has changed significantly. How much will Alexia receive under her return of premlum rider? $30,000 $21,000. $18,000 Nothing, nince she cancelled her policy before the matirity date and has received benefits under it.
Alexia, who is 35 years old, had a disability insurance policy with a return of premium rider.
The rider states that when her policy expires at age 65, the insurer will refund her 75% of all the premiums she has paid, minus any disability benefits received. The total annual premium for the policy is $2,000. Alexia received $12,000 in disability benefits over the years. At age 55, she decides to cancel her policy due to changes in her work situation. Since she cancelled her policy before the maturity date and received benefits under it, she will not receive any refund under the return of premium rider. Therefore, Alexia will receive nothing from the return of premium rider.
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If the overhead rate is $26 per machine hour and there are 20 labor hours, 20 machine hours, and two personnel on the job, how much overhead should be applied to the job?
Overhead should be applied to the job is $520.
We have the following information available from the question is:
The overhead rate is $26 per machine hour
and there are 20 labor hours, 20 machine hours, and two personnel on the job.
We have to find the how much overhead should be applied to the job?
Now, According to the question:
We use the formula for finding the total overhead
Rate x Machine Hours = Total Overhead
$20 x 26 = $520
Overhead should be applied to the job is $520
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You paid $99,500 for a $100,000 T-bill maturing in 60 days. If you hold it until maturity, what is the T-bill yield? What is the T-bill discount?
The T-bill yield is approximately 3.04%. The T-bill discount is 0.5%.
To calculate the T-bill yield and T-bill discount, we can use the following formulas:
T-bill Yield = (Face Value - Purchase Price) / Purchase Price * (365 / Days to Maturity)
T-bill Discount = (Face Value - Purchase Price) / Face Value
Purchase Price = $99,500
Face Value = $100,000
Days to Maturity = 60
Let's calculate the T-bill yield:
T-bill Yield = ($100,000 - $99,500) / $99,500 * (365 / 60)
= $500 / $99,500 * 6.0833
≈ 0.0304 or 3.04%
The T-bill yield is approximately 3.04%.
Now, let's calculate the T-bill discount:
T-bill Discount = ($100,000 - $99,500) / $100,000
= $500 / $100,000
= 0.005 or 0.5%
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Question 4 (20 Marks) Evaluate how Samsung Electronics manages such a diverse supply chain.
Digital technologies such artificial intelligence, blockchain, and the Internet of Things, as well as sophisticated analytics The supply chain that Samsung Electronics controls is so varied.
Blockchain is a decentralised, immutable record that allows many parties to exchange encrypted data instantly, transparently, and concurrently as they start and finish transactions. Throughout the whole supply chain, from production to distribution to final consumers, blockchain technology can offer real-time visibility and product tracking of commodities and products. As a result, there is more openness and trust among the various supply chain participants. AI is being utilised to enhance every part of the logistics network, from demand forecasting to route optimisation and inventory management.
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In 21 years you would like to receive $25,000 income annually to perpetuity. You will receive the first payment in exactly 21 years. What equal annual deposits are required to guarantee that income if you make your first deposit in one year and you make your last deposit in 20 years. The annual interest rate is 9%. 277,777,78 1.250 5.429.58 13,251
$6,329.24 To calculate the equal annual deposits required, we can use the formula for the present value of a perpetuity. The formula is:
PV = C / r
where PV is the present value, C is the annual cash flow, and r is the interest rate.
In this case, we want to find the equal annual deposits required to guarantee a future cash flow of $25,000 per year in perpetuity. The cash flow will start in 21 years, so we need to discount it back to the present value.
Using the formula, we have:
PV = $25,000 / (1 + 0.09)^21
PV = $25,000 / 3.947897
PV = $6,329.24
Therefore, the equal annual deposits required to guarantee the desired income are $6,329.24.
Note: The answer provided in the options, "13,251," is incorrect. The correct answer is $6,329.24.
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To receive a $25,000 income annually starting in 21 years, you would need to deposit $13,251 annually for 20 years in an account with a 9% annual interest rate.
Explanation:This question is asking you to calculate the equal annual deposit needed to secure a guaranteed income per year (perpetuity) 21 years into the future. The calculation is related to understanding the concept of future value and the time value of money, utilizing the value of simple interest.
Using a formula to calculate the present value (PV) of a perpetuity, which is the income divided by the interest rate (PV = Income/Interest Rate), you can find the amount of money that needs to be in your account 21 years from now. Given that this value must be $25,000 and the interest rate is 9%, the needed present value is 25,000/0.09 = $277,777.78.
Next, calculate the equal annual payment (PMT) that will amount to this future value using the annuity formula (FV = PMT/Interest Rate * (1- ((1+Interest Rate)^-years)). Solving, this calculation for PMT, you determine that the equal annual deposit needed every year for 20 years is $13,251. This amount deposited annually at a 9% interest rate would yield a PV of $277,777.78 in 21 years, giving the required $25,000 income for perpetuity.
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They has and Sandla ale equal patness in thers Lors for Montgag forchased an office buildng whth a 200,000 estimaled for 15 years. Then tax Habilites are in now Worth 2000, 000 and is continury to inclease in Value, which of the following is the bost recommentation for Darwin and sandra to fund a buy-Sell ageement? Ah (A) Joint 10-year Renewedle and Convertible term pelicey WHth a death Benefit of 2150,000. (B) Joint Univeral Life 1105 policey with a Death Benefit of 1000,000 and a−15 year term Rider of 200,000 (C) Joint to-100 ins palicy with a Death Benfit of 4000,00 (D) Joint Now participating whale Ufe Policy with a Death Benefit of 2000,000 on the Lives.
Based on the information provided, the best recommendation for Darwin and Sandra to fund a buy-sell agreement would be option (D) - Joint Non-participating Whole Life Policy with a Death Benefit of $2,000,000 on the lives.
This option offers a fixed death benefit amount that will not change over time, which is important since the value of the office building is expected to continue increasing. Additionally, a non-participating policy means that the policyholders will not receive any dividends from the insurance company.
This may be preferred if Darwin and Sandra are looking for a straightforward and predictable insurance solution. However, it's important to consult with a financial advisor or insurance professional to determine the most suitable option for their specific needs and circumstances.
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if the market federal funds rate were below/above the target rate, what would be the appropriate fed response in each case?
A company has sales of $5,417,000, a gross profit ratio of 35%, ending merchandise inventory of $201,425, and total current assets of $1,539,600. What is the days sales' in inventory ratio for the year?
The day's sales in inventory ratio for the year is 20.88. This indicates that, on average, it takes approximately 20.88 days for the company to sell its inventory.
To calculate the day's sales in inventory ratio, we need to determine the average daily cost of merchandise sold and divide the ending merchandise inventory by the average daily price.
First, we calculate the cost of goods sold (COGS) using the gross profit ratio:
Gross Profit = Sales - COGS
Let's calculate the COGS:
Gross Profit = 0.35 * $5,417,000
Gross Profit = $1,896,950
COGS = Sales - Gross Profit
COGS = $5,417,000 - $1,896,950
COGS = $3,520,050
Next, we calculate the average daily cost of merchandise sold:
Average Daily Cost of Merchandise Sold = COGS / 365 days
Average Daily Cost of Merchandise Sold = $3,520,050 / 365
Average Daily Cost of Merchandise Sold = $9,641.92 (approximately)
Finally, we calculate the day's sales in inventory ratio:
Days Sales' in Inventory Ratio = Ending Merchandise Inventory / Average Daily Cost of Merchandise Sold
Days Sales' in Inventory Ratio = $201,425 / $9,641.92
Days Sales' in Inventory Ratio = 20.88 (approximately)
Therefore, the day's sales in inventory ratio for the year is approximately 20.88.
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Cabinets, Inc. provides the following data for year 2020:
Work in process inventory, December 31, 2019 $ 6,000
Work in process inventory, December 31, 2020 7,500
Insurance, factory 6,000
Depreciation, factory 24,000
Depreciation, general office 2,000
Indirect labor cost 10,000
Utilities, factory 8,000
General office supplies 7,500
Purchases of raw materials 30,000
Raw materials inventory, December 31, 2019 7,000
Raw materials inventory, December 31, 2020 4,000
Direct labor cost 40,000
Manufacturing overhead is applied to production at the rate of $5 per machine hour. Production records reveal that a total of 10,000 machine hours were used for year 2020.
Required:
1) Compute the amount of under or over applied overhead.
2) Prepare a schedule of cost of goods manufactured for year 2020.
The amount of under or over applied overhead is $2,000 (overapplied) and the cost of goods manufactured for year 2020 is $124,500.
To compute the amount of under or over applied overhead, we need to calculate the applied overhead and compare it to the actual overhead.
Applied overhead = Rate per machine hour * Actual machine hours used
Applied overhead = $5 * 10,000 machine hours
Applied overhead = $50,000
Actual overhead = Insurance + Depreciation (factory) + Utilities (factory) + Indirect labor cost
Actual overhead = $6,000 + $24,000 + $8,000 + $10,000
Actual overhead = $48,000
Under or over applied overhead = Applied overhead - Actual overhead
Under or over applied overhead = $50,000 - $48,000
Under or over applied overhead = $2,000 (overapplied)
To prepare a schedule of cost of goods manufactured, we need to calculate the total manufacturing cost.
Total manufacturing cost = Direct materials used + Direct labor cost + Applied overhead
Direct materials used = Purchases of raw materials + Raw materials inventory (Dec 31, 2019) - Raw materials inventory (Dec 31, 2020)
Direct materials used = $30,000 + $7,000 - $4,000
Direct materials used = $33,000
Total manufacturing cost = $33,000 + $40,000 + $50,000 (applied overhead)
Total manufacturing cost = $123,000
Cost of goods manufactured = Work in process inventory (Dec 31, 2020) - Work in process inventory (Dec 31, 2019) + Total manufacturing cost
Cost of goods manufactured = $7,500 - $6,000 + $123,000
Cost of goods manufactured = $124,500
Therefore, the amount of under or over applied overhead is $2,000 (overapplied) and the cost of goods manufactured for year 2020 is $124,500.
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The bank charges a nominal rate of 15%. If the bank compounds their interest quarterly, calculate the effective interest rate charged by the bank. Round your answer to two decimal places.
To calculate the effective interest rate charged by the bank, we need to use the formula for compound interest. The formula for compound interest is A = P(1 + r/n)^(nt), where A is the future value of the investment, P is the principal amount, r is the nominal annual interest rate.
In this case, the principal amount is 1, the nominal annual interest rate is 15% (0.15 as a decimal), and interest is compounded quarterly, so n = 4. We want to find the effective interest rate after 1 year, so t = 1. Plugging these values into the formula, we have
A = 1(1 + 0.15/4)^(4*1).
To find the effective interest rate, we need to find the rate that would give us the same future value if the interest were compounded annually. We can solve this by rearranging the formula:
r = (A/P)^(1/(n*t)) - 1.
Plugging in the values, we have r = (1.1576/1)^(1/(4*1)) - 1.
Simplifying, we get r = 1.1576^(1/4) - 1.
Using a calculator, we find that r ≈ 0.0369.
Therefore, the effective interest rate charged by the bank, when compounding interest quarterly at a nominal rate of 15%, is approximately 3.69%.
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