a. The cost of finance to purchase the digger using the loan from the industrial development fund is £19,545.
b. The contractor should reserve £20,640 per year in the sinking fund to make an outright purchase of the digger in 4 years' time.
a. To calculate the cost of finance to purchase the digger using the loan from the industrial development fund, we need to determine the interest expense on the loan.
The loan amount is £85,000, and the interest rate is 12% per annum. Since the loan is for a duration of 4 years, we can use the formula for calculating compound interest:
Cost of finance = Loan amount * (1 + interest rate)^n - Loan amount
where n is the number of years. Plugging in the values, we have:
Cost of finance = £85,000 * (1 + 0.12)^4 - £85,000 = £19,545.
Therefore, the cost of finance to purchase the digger using the loan from the industrial development fund is £19,545.
b. To calculate the amount of money the contractor should reserve per year in the sinking fund to make an outright purchase of the digger in 4 years' time, we can use the formula for calculating the future value of a sinking fund:
Future value = Annual payment * [(1 + interest rate)^n - 1] / interest rate
where the future value is equal to the purchase price of the digger (£85,000), the interest rate is 6% per annum, and n is the number of years (4 years). Rearranging the formula to solve for the annual payment, we have:
Annual payment = Future value * interest rate / [(1 + interest rate)^n - 1]
Plugging in the values, we get:
Annual payment = £85,000 * 0.06 / [(1 + 0.06)^4 - 1] = £20,640.
Therefore, the contractor should reserve £20,640 per year in the sinking fund to make an outright purchase of the digger in 4 years' time.
The financial health of the construction contractor can influence the decision of outright purchase using a loan today or the creation of a sinking fund for the next 4 years.
If the contractor has sufficient cash flow and a strong financial position, they may be able to afford the loan repayments without impacting their operations. This option allows them to acquire the digger immediately.
On the other hand, if the contractor's financial health is uncertain or they prefer to avoid taking on additional debt, creating a sinking fund over the next 4 years allows them to gradually save and make an outright purchase without relying on external financing.
The decision ultimately depends on the contractor's financial capabilities, risk tolerance, and strategic goals.
For more questions on: loan
https://brainly.com/question/20688650
#SPJ8
The following information pertains to Monroe Company: Month Sales Purchases January $62,000 $36,000 February $88,000 $40,000 March $102,000 $60,000 Cash is collected from customers in the following manner: Month of sale 35% Month following the sale 65% 40% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month. Labor costs are 30% of sales. Other operating costs are $40,000 per month (including $8,000 of depreciation). Both of these are paid in the month incurred. The cash balance on March 1 is $8,000. A minimum cash balance of $6,000 is required at the end of the month. Money can be borrowed in multiples of $1,000. How much cash will be paid to suppliers in March?
The cash paid to suppliers in March will be $63,000. To determine the cash paid to suppliers in March, we need to calculate the cash payments for purchases made in March.
The purchases made in March were $60,000. According to the given information, 40% of purchases are paid in cash in the month of purchase, and the balance is paid the following month. So, 40% of $60,000 is $24,000, which will be paid in cash in March. The remaining balance of $36,000 ($60,000 - $24,000) will be paid the following month, which is April. Therefore, the cash paid to suppliers in March is $24,000. Note: The given information does not provide any additional details or calculations regarding the cash payments for purchases made in previous months. Therefore, we assume that only purchases made in March are considered for calculating the cash payments to suppliers in March.
Learn more about cash here;
https://brainly.com/question/15737483
#SPJ11
Why do far fewer children complete secondary school (high school) which is typically free in poor countries than in rich countries? (Also true in poor areas of cities...)
The reason why far fewer children complete secondary school (high school) which is typically free in poor countries than in rich countries is because poor countries are unable to provide adequate resources for their educational sector which, in turn, leads to poor education infrastructure.
Poverty also leads to a decrease in enrollment rates because many children will have to work to help their families survive instead of attending school. Lastly, poor health also hinders enrollment rates because it will affect the child's ability to learn and engage in school.What happens in poor areas of cities is that the same factors as mentioned earlier also come into play. In these areas, however, violence and crime are also prevalent, which can lead to an increase in school dropouts. In addition, schools in these areas are often underfunded and understaffed, which can make it difficult for students to succeed.A lack of teachers in poor countries also plays a role in the inability of students to complete their education. Without enough teachers, students will be unable to learn and will often miss classes due to absent teachers or canceled classes due to teacher strikes. Teachers in poor countries are also often underpaid and lack the resources necessary to provide adequate education for their students.
For further information on secondary schools visit :
https://brainly.com/question/30013899
#SPJ11
salaries payable, interest payable, and unearned revenue are examples of ________.
Salaries payable, interest payable, and unearned revenue are examples of current liabilities.
Current liabilities are company debts that must be paid off within one year or one business cycle, whichever is longer. This implies that the amount owed must be settled within one year of the balance sheet date.
Current liabilities can also be defined as the debt that the company must pay off in less than one year from the date of the balance sheet. Current liabilities can include any payment obligations that the company may have incurred, such as short-term loans, credit lines, accounts payable, and salaries payable.
Examples of current liabilities are salaries payable, interest payable, and unearned revenue.
The following are examples of current liabilities:
Accounts payable
Short-term debts such as notes payable and short-term loans
Interest payable
Income taxes payable
Salaries and wages payable
Unearned revenues
Accrued expenses
Deferred income or revenues
The formula to calculate current liabilities is as follows:
Current Liabilities = Accounts Payable + Accrued Expenses + Income Taxes Payable + Short-Term Loans + Other Debts Payable
Learn more about current liabilities here:
https://brainly.com/question/29341666
#SPJ11
(Related to Checkpoint 9.2 and Checkpoint 9.3) (Bond valuation relationships) The 12-year, \$1,000 par value bonds of Waco Industries pay 9 percent interest annually. The market price of the bond is $1,085, and the market's required yield to maturity on a comparable-risk bond is 6 percent. a. Compute the bond's yield to maturity. b. Determine the value of the bond to you given the market's required yield to maturity on a comparable-risk bond. c. Should you purchase the bond?
The bond's yield to maturity is 6.97%.b. The value of the bond to you given the market's required yield to maturity on a comparable-risk bond is $1,017.72. You should purchase the bond.
Waco Industries has issued a 12-year bond with a face value of $1,000 and a coupon rate of 9%. The market price of this bond is $1,085, and the market's required yield to maturity on comparable-risk bonds is 6%.This bond is priced higher than its face value of $1,000, which indicates that the bond's coupon rate of 9% is higher than the market's required yield to maturity of 6%. This implies that investors are eager to buy this bond because it has a higher coupon rate than the market rate, which makes it a sought-after investment.To compute the bond's yield to maturity, we'll use the following formula: Bond price = (Coupon payment/(1+YTM)^1) + (Coupon payment/(1+YTM)^2) +...+ (Coupon payment + Face value)/(1+YTM)^n, where YTM is the bond's yield to maturity, and n is the number of periods until the bond's maturity.Using the formula above, we can find the yield to maturity of the bond: $1,085 = (90/(1+YTM)^1) + (90/(1+YTM)^2) + ... + (90+1000)/(1+YTM)^12.We can simplify this equation by solving for YTM, which results in a YTM of 6.97%. The value of the bond can be calculated using the formula V=B(1+r)^-n + C/r[1 - (1+r)^-n], where V = Value of the bond, B = Face Value, r = Required yield, C = Coupon payment per year, and n = Years until maturity. Using the formula above, we can find the value of the bond: V = $1,000(1+0.06)^-12 + $90/0.06[1 - (1+0.06)^-12] = $1,017.72.You should purchase the bond since its current price is higher than its face value and its yield to maturity is higher than the market's required yield to maturity.
To know more about bond visit:
https://brainly.in/question/12843914
#SPJ11
Classicals argue that an adverse supply shock would 單選: O a. raise both the natural rate of unemployment and the actual rate of unemployment. b. raise the actual rate of unemployment, but not the natural rate of unemployment. c. raise neither the natural rate of unemployment nor the actual rate of unemployment. O d. raise the natural rate of unemployment, but not the actual rate of unemployment. In a fractional reserve banking system with no currency where res is the ratio of reserves to deposits, the money multiplier is 單選: a. 1/res. b. 1 - res. O c. res2. O d. 1 + res. The J curve implies that a real depreciation will cause 單選: a. the nominal exchange rate to depreciate in the short run and appreciate in the long run. b. net exports to rise in the short run and fall in the long run. c. the nominal exchange rate to appreciate in the short run and depreciate in the long run. d. net exports to fall in the short run and rise in the long run.
According to classical economics, an adverse supply shock would raise the actual rate of unemployment but not the natural rate of unemployment. In a fractional reserve banking system with no currency, the money multiplier is equal to res2. The J curve suggests that a real depreciation will initially cause the nominal exchange rate to depreciate, but in the long run, it will appreciate.
Classical economists argue that an adverse supply shock, such as an increase in the price of essential inputs or a disruption in production, would lead to higher production costs for firms. As a result, firms may reduce their output and employment levels, leading to an increase in the actual rate of unemployment. However, the natural rate of unemployment, which is determined by structural and frictional factors in the labor market, would not be affected by the supply shock. Therefore, the correct answer is option b: raise the actual rate of unemployment, but not the natural rate of unemployment.
In a fractional reserve banking system with no currency, the money multiplier is a measure of how much the money supply can expand based on the level of reserves held by banks. The formula for the money multiplier is 1/res, where res represents the ratio of reserves to deposits. This means that as the reserve ratio decreases, the money multiplier increases, allowing for a greater expansion of the money supply. Hence, the correct answer is option a: 1/res.
The J curve concept relates to the relationship between a country's exchange rate and its trade balance. It suggests that when a country's currency depreciates in real terms (adjusted for inflation), the initial effect is a depreciation of the nominal exchange rate. In the short run, this depreciation can make the country's exports relatively cheaper and imports relatively more expensive, leading to an improvement in the trade balance and an increase in net exports. However, in the long run, as prices adjust and market forces come into play, the nominal exchange rate can appreciate, eroding the initial gains in net exports. Therefore, the correct answer is option c: the nominal exchange rate will appreciate in the short run and depreciate in the long run.
Learn more about economics here:
https://brainly.com/question/15265265
#SPJ11
Ashley gifts a piece of land to her spouse for no proceeds. She files no election forms. The land cost Ashley $45,000 to buy and its value at the time of the gift is $75,000. What is the adjusted cost basis to her spouse on the land received? $45,000 $0 $60,000 $75,000
The adjusted cost basis to Ashley's spouse on the land received would be $45,000. The cost basis of the gifted property generally carries over from the donor (Ashley) to the recipient (her spouse) when there is no election made to adjust the basis.
The adjusted cost basis to Ashley's spouse on the land received is $45,000. In the case of a gift, the recipient generally assumes the donor's (Ashley's) original cost basis unless certain elections are made to adjust the basis. Since no election forms were filed, the cost basis of the land remains unchanged.
The cost basis represents the original purchase price of the property, which in this case is $45,000, as stated. This value reflects the amount Ashley paid when she initially bought the land. Even though the value of the land at the time of the gift is $75,000, this higher value does not affect the cost basis for the recipient.
It is important to note that in a gift scenario, the recipient's cost basis is determined by the donor's original cost basis rather than the fair market value at the time of the gift. This treatment ensures consistency and avoids potential tax implications associated with unrealized gains.
Therefore, the adjusted cost basis to Ashley's spouse on the land received is $45,000, which represents the original purchase price of the land.
To know more about adjusted cost,
https://brainly.com/question/28295488#
#SPJ11
The most practical solution to the incentive problem is:
A) Allowing employees to work full or part time when they prefer.
B) Paying employees, a mix of straight salary and incentive compensation.
C) Based on the notion that employees tend to be risk prone.
D) Paying employees when the firm makes a profit and not paying them when it incurs a loss.
The most practical solution to the incentive problem is paying employees a mix of straight salary and incentive compensation (option B).
The incentive problem refers to the challenge of motivating employees to align their actions and efforts with the goals and interests of the organization. Providing appropriate incentives is crucial to encourage desired behaviors and improve performance. Among the options provided, paying employees a mix of straight salary and incentive compensation is the most practical solution. Here's why:
Allowing employees to work full or part time when they prefer:
While offering flexibility in work arrangements can be beneficial for employee satisfaction, it does not directly address the incentive problem. The focus is on scheduling rather than motivating employees.
Paying employees a mix of straight salary and incentive compensation:
This solution combines a fixed salary component with variable incentives tied to performance metrics or goals. By linking a portion of compensation to individual or team performance, employees have a clear incentive to achieve targets and improve their productivity. It aligns their interests with the company's objectives, fostering motivation and engagement.
Based on the notion that employees tend to be risk-prone:
This option does not provide a practical solution to the incentive problem. It merely makes an assumption about employee behavior without offering a specific mechanism to address the issue.
Paying employees when the firm makes a profit and not paying them when it incurs a loss:
While tying compensation to the company's financial performance can align employee interests with organizational success, it may not be practical in all situations. Companies may face periods of losses or external factors beyond employees' control. A mix of salary and incentive compensation provides a more balanced and sustainable approach.
Paying employees a mix of straight salary and incentive compensation is the most practical solution to the incentive problem. It provides a combination of fixed income and performance-based incentives, effectively motivating employees to achieve desired outcomes and align their efforts with the organization's goals.
To learn more about compensation , visit
brainly.com/question/30157900
#SPJ11
Chick-Fil-A bonds currently sells for $1,025. They have a 9 year maturity, an 8% annual coupon, and a par value of $1,000. What is its yield to maturity?
The yield to maturity of Chick-Fil-A bonds is 7.29%.
The yield to maturity (YTM) is the total amount earned by an investor on a bond if it is held until maturity. It is the expected annual return on an investment, considering the bond's coupon, price, and time to maturity. In the given problem, the bond has a face value of $1,000, a 9-year maturity, and an 8% coupon rate.Chick-Fil-A bonds are currently trading for $1,025, which is above the face value of the bond. This means that the bond is selling at a premium, since the price of the bond is higher than its par value. By using the YTM formula and solving for YTM, we can find that the yield to maturity of Chick-Fil-A bonds is 7.29%.
This bond's approximate yield to maturity is 11.25 percent, which is 1.25 percent higher than the annual coupon rate of 10 percent. This value can then be used in the following formula as the rate (r): C = future incomes/coupon installments. The yield to maturity, or r, is the discount rate.
Know more about yield to maturity, here:
https://brainly.com/question/26376004
#SPJ11
the federal government needed to take actions to force states to provide equal protection to all citizens and must continue to do so, whenever limits to participation in the voting process or limits to equal treatment under the law present themselves. How would you defend your position to a fellow student? what would be your main line of argument? what evidence do you believe best supports your position?
I would defend the position that the federal government should take actions to ensure equal protection and address limitations in voting participation and equal treatment under the law.
My main line of argument would be centered around the fundamental principles of democracy and the importance of equal protection and participation in the political process. I would highlight that democracy thrives when all citizens have an equal voice and the opportunity to participate in elections and decision-making.
To support this position, I would present historical evidence of past discriminatory practices, such as racial segregation and voter suppression, which have led to unequal treatment and limited participation among certain groups. I would also refer to legal precedents, such as landmark civil rights cases, that have established the federal government's role in safeguarding equal protection and voting rights.
Furthermore, I would emphasize the ongoing challenges faced by marginalized communities in accessing the voting process and receiving equal treatment under the law. I would discuss contemporary issues such as voter ID laws, gerrymandering, and systemic biases that continue to hinder equal participation and treatment.
By highlighting these historical and present-day examples, I would argue that the federal government plays a crucial role in ensuring equal protection and equal opportunity for all citizens.
Learn more about discriminatory here:
https://brainly.com/question/32109085
#SPJ11
On January 1 of the current year, Rhondell Corporation has accumulated E & P of $134,000. Current E & P for the year is $402,000, earned evenly throughout the year. Elizabeth and Jonathan are sole equal shareholders of Rhondell from January 1 to April 30. On May 1, Elizabeth sells all of her stock to Marshall. Rhondell makes two distributions to shareholders during the year: a total of $214,400 ($107,200 to Elizabeth and $107,200 to Jonathan) on April 30 and a total of $375,200 ($187,600 to Jonathan and $187,600 Marshall) on December 31.
Determine the allocation of the distributions by completing the table below. Assume that the shareholders have sufficient basis in their stock for any amount that is treated as return of capital.
If an amount is zero, enter "0". If required, round any division to two decimal places and use in subsequent computations. Round final answers to the nearest dollar.
From Current
E & P From Accumulated
E & P Treated as
Return of Capital
April 30 distribution of $214,400 $fill in the blank 1 $fill in the blank 2 $fill in the blank 3
December 31 distribution of $375,200 $fill in the blank 4 $fill in the blank 5 $fill in the blank 6
April 30 distribution: • Elizabeth: $107,200 from current E&P, $0 from accumulated E&P, $107,200 as return of capital, • Jonathan: $107,200 from current E&P, $0 from accumulated E&P, $107,200 as return of capital , December 31 distribution: • Jonathan: $268,000 from current E&P, $107,200 from accumulated E&P, $0 as return of capital, • Marshall: $107,200 from current E&P, $0 from accumulated E&P, $0 as return of capital.
To determine the allocation of the distributions, we need to consider the shareholders' ownership periods and the available earnings and profits (E&P) of Rhondell Corporation.
From January 1 to April 30, both Elizabeth and Jonathan are equal shareholders. The April 30 distribution of $214,400 is made during this period. Since the E&P for the year is $402,000 and they have accumulated E&P of $134,000, the remaining E&P for the year is $268,000. To allocate this distribution, we divide it in proportion to the E&P accumulated during the period. Elizabeth's portion is calculated as (134,000/268,000) * $214,400 = $107,200, while Jonathan's portion is also $107,200.
On May 1, Elizabeth sells all her stock to Marshall. From May 1 to December 31, Jonathan and Marshall are the shareholders. The December 31 distribution of $375,200 is made during this period. Since Marshall is a new shareholder and has not accumulated any E&P, the entire distribution of $375,200 is allocated to Jonathan.
To summarize:
April 30 distribution:
• Elizabeth: $107,200 from current E&P, $0 from accumulated E&P, $107,200 as return of capital.
• Jonathan: $107,200 from current E&P, $0 from accumulated E&P, $107,200 as return of capital.
December 31 distribution:
• Jonathan: $268,000 from current E&P, $107,200 from accumulated E&P, $0 as return of capital.
• Marshall: $107,200 from current E&P, $0 from accumulated E&P, $0 as return of capital.
Learn more about return of capital form the link
https://brainly.com/question/30404824
#SPJ11
What is the accumulated value of deposits of $1120.00 made at the end of every six months for 6 years if interest is 6.48% compounded quarterly?
The accumulated value of deposits made at the end of every six months for 6 years, with an interest rate of 6.48% compounded quarterly, is $4,768.46.
To calculate the accumulated value, we can use the formula for compound interest:
A = P(1 + r/n)^(nt)
Where:
A = accumulated value
P = principal amount (initial deposit)
r = annual interest rate (in decimal form)
n = number of times interest is compounded per year
t = number of years
In this case, the principal amount (P) is $1120.00, the annual interest rate (r) is 6.48% (or 0.0648 in decimal form), the interest is compounded quarterly, so n = 4, and the number of years (t) is 6.
Substituting the values into the formula, we have:
A = 1120(1 + 0.0648/4)^(4*6)
A = 1120(1 + 0.0162)^24
A = 1120(1.0162)^24
A ≈ $4,768.46
The accumulated value of deposits made at the end of every six months for 6 years, with an interest rate of 6.48% compounded quarterly, amounts to approximately $4,768.46. This means that after the six-year period, the total value of the deposits and the compounded interest will be approximately $4,768.46.
To know more about accumulated value, visit;
https://brainly.com/question/30964852
#SPJ11
Your clothing business, FashionV Co has fixed costs of $1,000 per year, depreciation charges of $500 a year, annual revenue of $6,000, and variable costs equal to two-thirds of revenues. A) What is the degree of operating leverage (DOL)? (2 Marks) B) Due to the pandemic Covid-19, you decided to close your clothing business shop and moved to an online business resulting in a reduction in fixed costs of $500 per year and the rest of the variables remain unchanged. What is the new degree of operating leverage (DOL)? (2 Marks) C) Risk is reduced when a high proportion of costs are fixed. Based on your observation in answers A and B, do you agree with the statement? Which business is riskier, a physical clothing shop with high DOL or an online clothing shop with lower DOL? Explain.
A) The Degree of Operating Leverage (DOL) is 2. B) The Degree of Operating Leverage (DOL) is 1.33. C) The reducing the proportion of fixed costs, especially when the revenue is uncertain, can reduce the risk.
A) Degree of Operating Leverage (DOL) can be calculated using the following formula:
DOL = (Contribution Margin) / (Operating Income)Operating Income = (Revenue) - (Fixed Costs + Variable Costs)Variable Costs = (2/3) * (Revenue)
Given, Fixed Costs (FC) = $1,000
Depreciation Charges = $500
Annual Revenue (AR) = $6,000
Variable Costs (VC) = (2/3) * (AR) = (2/3) * (6,000) = $4,000
Operating Income = AR - (FC + VC) = 6,000 - (1,000 + 4,000) = $1,000
Contribution Margin = AR - VC = 6,000 - 4,000 = $2,000
Now, putting these values in the formula we get,DOL = (2,000) / (1,000) = 2
B) Due to the pandemic Covid-19, the fixed costs of FashionV Co has reduced by $500. Therefore, the new fixed costs will be,$1,000 - $500 = $500
Since the other variables remain unchanged, we have the following values:
Fixed Costs (FC) = $500
Depreciation Charges = $500
Annual Revenue (AR) = $6,000
Variable Costs (VC) = (2/3) * (6,000) = $4,000
Operating Income = AR - (FC + VC) = 6,000 - (500 + 4,000) = $1,500
Contribution Margin = AR - VC = 6,000 - 4,000 = $2,000
Now, putting these values in the formula we get,DOL = (2,000) / (1,500) = 1.33
C) The statement, "Risk is reduced when a high proportion of costs are fixed" is not always true. The business with higher DOL is considered riskier. The degree of operating leverage provides information about how much risk is involved in the business. As DOL increases, risk increases. Therefore, the physical clothing shop is riskier than an online clothing shop because the physical shop has a higher DOL. When the business has a high DOL, small fluctuations in revenue will have a larger impact on operating income. As a result, the business will be more vulnerable to risk. A decrease in revenue can lead to a significant drop in operating income, increasing the risk. Therefore, reducing the proportion of fixed costs, especially when the revenue is uncertain, can reduce the risk.
To know more about Operating Leverage:
https://brainly.com/question/28255135
#SPJ11
Using excel Compute how much you need to save each month for
your retirement goal of $1,500,000. Assume an expected return of
8.8% per year and a total of 45 years to reach this goal.
To compute how much you need to save each month for a retirement goal of $1,500,000, with an expected return of 8.8% per year and a total of 45 years, you can use the future value of an annuity formula in Excel.
The formula is: =PMT(rate, nper, pv, [fv], [type])
In this case, the rate is 8.8% divided by 12 (for monthly contributions), the nper is 45 years multiplied by 12 (for monthly periods), the pv is 0 (assuming you have no initial savings), and the fv is $1,500,000 (the desired retirement goal). The type is 0 (for payments at the end of the period).
Using this information, the formula in Excel would be:
=PMT(8.8%/12, 45*12, 0, 1500000)
The result of this formula would give you the monthly savings amount you need to reach your retirement goal of $1,500,000 in 45 years with an expected return of 8.8% per year.
In simpler terms, by plugging in the given values into the formula, Excel will calculate the fixed amount you need to save every month to accumulate $1,500,000 over a period of 45 years, taking into account the expected return on your investments.
learn more about future value here:
https://brainly.com/question/14992287
#SPJ11
Which of the following is true about prices and inflation? Check all that apply (more than one option is possible) Anonymous results will be published after you answer. - Inflation occurs when prices of most goods and services increase; π>0 If Prices are rising at a decreasing rate then inflation is positive - If TT=1.5% in 2019 and TT=1% in 2020, then it means that there was deflation over this time period price indexes like CPI measure the underlying trend in inflation
The following options are true about prices and inflation:
Inflation occurs when prices of most goods and services increase; π>0
If Prices are rising at a decreasing rate, then inflation is positive
Price indexes like CPI measure the underlying trend in inflation
Please note that the statement "If TT=1.5% in 2019 and TT=1% in 2020, then it means that there was deflation over this time period" is not necessarily true. The given information only indicates a decrease in the inflation rate, but not necessarily deflation. Deflation refers to a sustained decrease in the overall price level, not just a decrease in the inflation rate.
To know more about prices and inflation click this link -
brainly.com/question/29617519
#SPJ11
Proponents of free markets argue that if all markets were perfectly competitive and if the government allowed prices to be determined by de for all products in the economy, A. price would equal marginal cost and total surplus to society would be maximized. B. marginal cost would equal zero and consumer surplus would be maximized. C. price would equal marginal cost and consumer surplus would be maximized. D. marginal cost would equal zero and total surplus to society would be maximized.
Proponents of free markets argue that if all markets were perfectly competitive and if the government allowed prices to be determined by demand and supply for all products in the economy, then price would equal marginal cost and consumer surplus would be maximized.What is meant by the term free market economy?A free-market economy is an economic system in which the prices of goods and services are decided by supply and demand in an open market environment.
In a free-market economy, consumers and companies interact directly to exchange goods and services, without any government intervention or regulation.What is meant by the term marginal cost?The marginal cost is the increase in cost as a result of producing one extra unit of a product or service. It is the cost of producing one more unit of a good or service. In other words, the marginal cost is the cost incurred by the production of one additional unit of output.What is meant by the term consumer surplus?Consumer surplus is a measure of consumer welfare or benefit, and it is the difference between the maximum price that a consumer is willing to pay for a good or service and the actual price that they pay.
It is the difference between the amount that consumers are willing to pay for a product and the actual amount that they pay.What is meant by the term total surplus?Total surplus is the sum of the consumer surplus and producer surplus in a market. Producer surplus is the difference between the price that a producer receives for a good or service and the marginal cost of producing it.Answer:C. price would equal marginal cost, and consumer surplus would be maximized.
to know more about free-market economy pls visit-
https://brainly.com/question/30281184
#SPJ11
Suppose all firms in a given industry have the same supply curve given by S(p) = p/6. (a) What's the industry supply curve if there are 3 firms operating in the industry? Plot and label the four industry supply curves generated by these firms if there are 1, 2, 3, or 4 firms operating in the industry. (b) If all of the firms had a cost structure such that if the price was below $5.5, they would be losing money, what would be the equilibrium price and output in the industry in the long run if the market demand was D(p) = 2.5? How many firms would exist in such a market? Why? (b) What if the identical conditions as above held except that the market demand was equal to D(p)=9-p? Now, what would be the equilibrium price and output? How many firms would operate in such a market?
(a) The industry supply curve when there are 3 firms operating is S(p) = p/2.
(b) In the long run, the equilibrium price is $5 and the equilibrium output is 2.5. No firms would exist in such a market because the equilibrium price is below the minimum cost threshold of $5.5.
(a) The industry supply curve for the given industry, when there are 3 firms operating, is obtained by horizontally summing the individual supply curves of the firms.
Since all firms have the same supply curve given by S(p) = p/6, the industry supply curve with 3 firms can be represented as S(p) = 3(p/6) = p/2. To plot and label the industry supply curves for different numbers of firms, we can assign different colors or line styles to each curve, representing the respective number of firms.
(b) To determine the equilibrium price and output in the long run, we need to find the intersection of the market demand curve (D(p)) and the industry supply curve. Given the market demand D(p) = 2.5, and the industry supply curve S(p) = p/2, we can set them equal to each other and solve for the equilibrium price.
2.5 = p/2
Multiplying both sides by 2:
5 = p
So, the equilibrium price in the long run is $5. The equilibrium output can be determined by substituting this price back into the industry supply curve:
S(p) = p/2 = 5/2 = 2.5
Thus, the equilibrium output is 2.5.
The number of firms in such a market would be determined by the entry and exit of firms based on profitability. Since the given cost structure indicates that firms would be losing money if the price is below $5.5, no firms would exist in the market in the long run because the equilibrium price of $5 is below the minimum cost threshold of $5.5.
Learn more about market demand curve here:
https://brainly.com/question/7451501
#SPJ11
.A recapping plant is planning to acquire a new Diesel generating set to replace its resent unit which they run during brownouts. The new set would cost ₱ 135,000 with a five (5) year-life, and no estimated salvage value. Variable cost would be ₱ 150,000 a year. The old generating set has a book value of ₱ 75,000 and a remaining life of 5 years. Its disposal value now is ₱ 7,500 but it would be zero after 5 years. Variable operating cost would be ₱187,500 a year. Money is worth 10%. Which is profitable, to buy new generator or retain the old set?
Support answer using:
a) Rate of return on additional investment
b) Annual Cost Method
c) Equivalent Uniform Annual Cost Method
Based on the analysis using the methods mentioned below, it can be determined whether it is profitable to buy a new generator or retain the old set.
The analysis will be supported using the following methods:
a) Rate of return on additional investment
b) Annual Cost Method
c) Equivalent Uniform Annual Cost Method
a) Rate of return on additional investment: The rate of return on additional investment compares the return from the investment with the cost of the investment. If the rate of return is higher than the required rate of return (10% in this case), it would be profitable to buy the new generator.
b) Annual Cost Method: The annual cost method calculates the total cost per year for both options (buying the new generator and retaining the old set) and compares them. If the annual cost of the new generator is lower than the annual cost of retaining the old set, it would be more profitable to buy the new generator.
c) Equivalent Uniform Annual Cost Method: The equivalent uniform annual cost method converts the costs of both options into equal annual costs over the life of the investment. The option with the lower equivalent uniform annual cost would be more profitable.
By applying these methods and comparing the costs and returns, it can be determined whether it is profitable to buy the new generator or retain the old set in this particular scenario.
Learn more about rate of return here:
https://brainly.com/question/17164328
#SPJ11
Suppose that saving, disposable income and consumption in some country are $55 million, $195 million and $140 million. Next, assume that consumption increases by $28 million, saving goes up by $9 million and disposable income rises by $37 millionRequired: Apply advance level skill in basic macroeconomics theory to calculate the following:
a. Average Propensity to consume (MPC)
b. Marginal Propensity to save (MPS)
c. Average propensity to save before increase in disposable income
d. Average propensity to save after increase in disposable income
a. Average Propensity to Consume (APC) = 0.718
b. Marginal Propensity to Save (MPS) = 0.243
c. Average Propensity to Save (APS) before increase in disposable income = 0.282
d. Average Propensity to Save (APS) after increase in disposable income = 0.276
To calculate the various measures, we'll use the following formulas:
Average Propensity to Consume (APC) = Consumption / Disposable Income
Marginal Propensity to Save (MPS) = Change in Saving / Change in Disposable Income
Average Propensity to Save (APS) = Saving / Disposable Income
Given the initial values:
Saving (S) = $55 million
Disposable Income (Yd) = $195 million
Consumption (C) = $140 million
a. Yd = $140 million / $195 million = 0.718 (rounded to three decimal places)
b. Marginal Propensity to Save (MPS):
Change in Saving = $9 million
Change in Disposable Income = $37 million
MPS = Change in Saving / Change in Disposable Income = $9 million / $37 million = 0.243 (rounded to three decimal places)
c. Average Propensity to Save (APS) before increase in disposable income:
APS = S / Yd = $55 million / $195 million = 0.282 (rounded to three decimal places)
d. Average Propensity to Save (APS) after increase in disposable income:
New Saving (S) = $55 million + $9 million = $64 million
New Disposable Income (Yd) = $195 million + $37 million = $232 million
APS = New S / New Yd = $64 million / $232 million = 0.276 (rounded to three decimal places)
Learn more about Income here:
https://brainly.com/question/14732695
#SPJ11
Do firms in a perfectly competitive market exhibit productive efficiency? Productive efficiency, the economizing of society's scarce resources, is guaranteed for a perfectly competitive firm in the long run as well as in the short run. Productive efficiency, when P-Minimum ATC, is guaranteed in the long run. It is possible that a firm will produce its output at a unit cost higher than the lowest unit cost possible in the short run. Perfectly competitive firms will realize productive efficiency, the point where P-MC, in the long run but not in the short run. O Perfectly competitive firms will never reach productive efficiency in the long run or the short run. It is too easy for firms to enter and exit the marketplace for this condition ever to be realized
Perfectly competitive firms will achieve productive efficiency in the long run but may not necessarily reach it in the short run. The long-run competitive forces and the ability of firms.
Firms in a perfectly competitive market do exhibit productive efficiency in the long run. Productive efficiency refers to the ability of a firm to produce output at the lowest cost possible, given the available technology and resources. In a perfectly competitive market, firms are price-takers and face a horizontal demand curve, meaning they have no market power to influence prices.
In the long run, firms in a perfectly competitive market have the opportunity to adjust their inputs and production processes to minimize costs. If a firm is not operating at productive efficiency, it will face higher costs compared to its competitors and will be unable to compete effectively. In the long run, firms have the flexibility to make adjustments, such as adopting more efficient technology, improving production methods, or reallocating resources, to achieve productive efficiency.
However, in the short run, a firm may not necessarily be operating at productive efficiency. In the short run, firms may face fixed costs that cannot be adjusted immediately, and they may not have enough time to fully optimize their production processes. In the short run, firms can still earn profits even if they are not operating at the lowest cost level.
Learn more about competitive firms here
https://brainly.com/question/32612381
#SPJ11
The Shrieves Company's most recent EPS was $6.50; EPS was $4.42 five years ago. The company pays out 40 percent of its earnings as dividends, and the stock sells for $36. a. Calculate the past growth rate in earnings. (Hint: This is a five-year growth period.). b. Calculate the next expected dividend per share. D1 =0.4($6.50)= $2.60.) Assume that the past growth rate will continue. c. What is the cost of retained earnings, rs , for the Shrieves Company?
The past growth rate in earnings can be calculated using the formula for compound annual growth rate (CAGR). CAGR = [(Ending Value / Beginning Value)^(1/n)] - 1, where n is the number of periods. In this case, n = 5.
Using the given information, the beginning value is $4.42 and the ending value is $6.50. CAGR = [($6.50 / $4.42)^(1/5)] - 1 = 0.083 or 8.3%. Therefore, the past growth rate in earnings is 8.3%. The next expected dividend per share (D1) can be calculated by multiplying the earnings per share (EPS) by the dividend payout ratio. The dividend payout ratio is given as 40%, so D1 = 0.4 * $6.50 = $2.60. The cost of retained earnings (rs) can be calculated using the dividend discount model (DDM). The DDM formula is rs = D1 / P0, where D1 is the expected dividend per share and P0 is the stock price. Using the values calculated in part b, rs = $2.60 / $36 = 0.072 or 7.2%. Therefore, the cost of retained earnings for the Shrieves Company is 7.2%.
Learn more about earnings here;
https://brainly.com/question/15996240
#SPJ11
What discount rate would make you indifferent between receiving $3,674.00 per year forever and $5,190.00 per year for 25.00 years? Assume the first payment of both cash flow streams occurs in one year.
To determine the discount rate that would make someone indifferent between receiving $3,674.00 per year forever and $5,190.00 per year for 25 years, we need to the present value of both cash flow streams.
For the perpetual cash flow of $3,674.00 per year, we can use the perpetuity formula: Present Value = Cash Flow / Discount Rate. Therefore, the present value would be $3,674.00 / Discount Rate.
For the annuity cash flow of $5,190.00 per year for 25 years, we can use the annuity formula: Present Value = Cash Flow × [1 - (1 + Discount Rate)^(-Number of Periods)] / Discount Rate.
Setting the present values of both cash flow streams equal, we can solve for the discount rate that makes them equal.
To learn more about payment click here:brainly.com/question/32320091
#SPJ11
Consider a firm with production function q=L^1/2 . K^1/2
. In the short run, the firm employs 25 units of capital at a cost r=10. The cost of labor is w=5. The price of the firm's output is p=20. 2.1 Write down the short-run cost function of the firm. What is the profit-maximizing level of production? Will the firm operate? 2.2 Now consider that the firm wants to produce q=100 using any combination of capital and labor. What will be the optimal combination?
To produce q = 100, the optimal combination of capital and labor is K = 25 and L = 20 units.
Explanation: In the short run, where the firm can only vary its labor input, the cost function can be written as C(w, r, q) = wL + rK, where w is the wage rate, r is the rental rate of capital, L is the labor input, and K is the capital input.
Given that the firm employs 25 units of capital (K = 25), the cost function becomes C(w, r, q) = 5L + 10(25) = 5L + 250.
To determine the profit-maximizing level of production, we need to equate the marginal cost (MC) to the price (p). In this case, the marginal cost is the derivative of the cost function with respect to labor, which is MC = dC/dL = 5.
Since the price (p) is given as 20, we set MC = p, resulting in 5 = 20. This implies that the profit-maximizing level of production is q = L^(1/2) * K^(1/2) = L^(1/2) * 25^(1/2) = 5L.
To find the optimal combination of capital and labor to produce q = 100, we need to solve for L in the production function equation q = L^(1/2) * 25^(1/2) = 100.
By substituting the values, we get 100 = L^(1/2) * 5, which can be simplified to L = 20.
Thus, to produce q = 100, the optimal combination of capital and labor is K = 25 and L = 20 units.
Based on the given information, since the firm can produce q = 100 using the available combination of capital and labor, it is likely to operate at this level of production.
Learn more about capital here:
https://brainly.com/question/32408251
#SPJ11
.Show work in Red and Explain answers.
Suppose CPI is as follows in each year:
Year:
2007
2008
2009
2010
CPI:
100
99
125
140
Suppose in the year 2007 you are considering a job offer that pays $50,000 in 2007, plus a 10% (compounding) raise in each of the next three years.
Suppose in the year 2007 you are considering a job offer that pays $50,000 in 2007, plus a 10% (compounding) raise in each of the next three years.
What nominalsalary will you make in each year?
Year:
2007
2008
2009
2010
Nominal Salary
Year CPI Nominal Salary Real Salary[tex]2007 100 $50,000.00 $50,000.002008 99 $55,000.00[/tex][tex]$55,555.562009 125 $60,500.00 $48,400.002010 140 $66,550.00 $47,536.00[/tex]
Nominal Salary: It refers to the actual amount of salary paid to an employee every year.Compounding: It means the calculation of interest on principal and interest earned in past periods.For calculating nominal salary, use the following formula:N = P(1 + r/100) ¹⁺ⁿWhere,N
We have:Principal = $50,000Rate of interest or increment = 10%Number of years = 3CPI (Consumer Price Index) shows inflation. Inflation is the rate at which the general level of prices for goods and services is rising, and, subsequently, the purchasing power of currency is falling.
To know more about Nominal visit:
https://brainly.com/question/27994820
#SPJ11
Based on experience, Margenta Bhd estimates that stages up to wiring, plumbing and door frame can be completed in the first year. Revenue is calculated based on cost incurred. Required: Based on MFRS 15, Revenue from Contract with Customers. i. Explain whether the revenue is earned at a point in time or over a period of time. ii. Explain what needs to be changed to reverse your answer in part (i) above. iii. Provide one alternative to calculate revenue apart from cost incurred. iv. If legal and other fees totaling RM30,000 are absorbed by Margenta Bhd, explain whether the revenue recognised will change.
i. Based on MFRS 15, the revenue in this scenario would typically be earned over a period of time. This is because the completion of stages up to wiring, plumbing, and door frame is considered significant to the overall construction project, and revenue recognition is linked to the progress of the project over time.
ii. To reverse the revenue recognition over a period of time and instead recognize it at a point in time, there would need to be a clear and distinct event or milestone that signifies the transfer of control to the customer. For example, if there is a specific point where the customer takes possession or control of the completed wiring, plumbing, and door frame, revenue could be recognized at that specific point in time.
iii. An alternative method to calculate revenue apart from cost incurred could be based on the percentage of completion. Under this method, the revenue recognized would be proportionate to the extent of completion of the project. This could be measured based on physical progress, contract milestones, or other appropriate methods of assessing the progress of the construction project.
iv. The absorption of legal and other fees totaling RM30,000 by Margenta Bhd would not typically impact the recognition of revenue. The fees incurred would be considered as costs of obtaining the contract rather than revenue recognition criteria. The revenue recognition would still be based on the progress of the construction project and the completion of significant stages, regardless of the absorption of these fees.
Learn more about revenue
brainly.com/question/28494500
#SPJ11
At May 31, 20x6, the unadjusted trial balance of Brook Corporation has a debit balance of $13,057 in the prepaid rent account. At May 31, 20x6. $9.040 of the balance in the prepaid rent account had not been used. Brook Corp. prepares adjusting journal entries monthly. The correct monthly adjusting journal entry at May 31, 20x6, with respect to this prepaid rent would be a credit of: ________
The correct monthly adjusting journal entry at May 31, 20x6, with respect to the prepaid rent account would be a credit entry of the amount that has not been used, which is $9,040.
In the prepaid rent account, the balance represents the amount paid in advance for rent that has not yet been utilized. To adjust the account at the end of the month, we need to recognize the portion of the prepaid rent that has been expired or used up.
Given that $9,040 of the prepaid rent balance remains unutilized, we need to reduce the balance by this amount. Since a debit balance represents an asset account, we need to credit the prepaid rent account by $9,040 to reflect the portion that has expired.
The adjusting journal entry at May 31, 20x6, will therefore be a credit entry of $9,040 to the prepaid rent account. This adjustment recognizes the portion of prepaid rent that has been consumed during the month and reduces the asset value accordingly.
Learn more about debit balance here:
https://brainly.com/question/13505106
#SPJ11
Michael Porter on TED-The Case for Letting Business Solve Social Problems Micheal Porter is a university professor at Harvard Business School, where he leads the Institute on Strategy and Competitiveness, studying competitiveness for companies and nations-and as a solution to social problems. He is the founder of numerous nonprofits, including the Initiative for a Competitive Inner City, a nonprofit, private-sector organization to catalyze inner-city business development. Fortune magazine calls Michael Porter simply "the most famous and influential business professor who has ever lived." His books are part of foundational coursework for business students around the world; he's applied sharp insight to health care systems, American competitiveness, development in rural areas. Now he's taking on a massive question: the perceived disconnect between corporations and society. He argues that companies must begin to take the lead in reconceiving the intersection between society and corporate interests-and he suggests a framework, that of "shared value," which involves creating economic value in a way that also creates value for society.
In today's global business environment, does the physical location of a business matter?
In today's global business environment, the physical location of a business does matter, but its significance may vary depending on the industry, market dynamics, and specific business objectives.
While advancements in technology and globalization have allowed businesses to operate across borders and establish a virtual presence, the physical location still holds relevance. Certain factors, such as proximity to target markets, access to resources, infrastructure, local regulations, and cultural considerations, can significantly impact a company's operations and success.
For industries that rely on physical infrastructure or require proximity to customers or suppliers, such as manufacturing, logistics, or retail, the physical location remains crucial. Access to transportation networks, skilled labor, and raw materials can influence cost-efficiency, production capabilities, and supply chain management.
However, the significance of physical location has evolved in today's global business environment. With the rise of digital technologies and e-commerce, businesses can reach customers worldwide from a centralized location. Remote work and virtual collaboration have also reduced the dependence on a specific physical location for certain roles and industries.
Ultimately, the importance of physical location for a business depends on its unique circumstances and objectives. While some businesses can thrive in a virtual environment, others may still require a strategic physical presence to effectively serve their target markets and leverage local resources.
Learn more about business environment here: https://brainly.com/question/28962722
#SPJ11
Suppose that you are doing the following hypothesis test: H 0
:μ=μ 0
=42;H 1
:μ<μ 0
=42. Assume a significance level of α=0.025. Find the critical value for the decision if the population standard deviation is 2 and a random sample of 100 is drawn. (Remember to pick the closest answer.) A. 41.6 B. 41.8 C. 42 D. 42.2 E. 42.4 42−1.96∗ 100
2
=42−1.96∗0.2≈41.6
The critical value for the decision is A)41.6 for the following hypothesis test.
The given significance level is α = 0.025, which is a one-tailed test as the alternative hypothesis is μ < μ0. To find the critical value, we need to use the z-score table or calculator and find the z-score that corresponds to the area of 0.025 in the left-tail.
The z-score for 0.025 in the left-tail is -1.96. Therefore, the critical value for the decision can be calculated as follows: Critical value = μ0 - z * (σ/√n)
where μ0 = 42 (null hypothesis mean),
z = -1.96 (z-score for α = 0.025),
σ = 2 (population standard deviation), and n = 100 (sample size).
Substituting the values, we get:
Critical value = 42 - (-1.96) * (2/√100)
Critical value = 42 + 0.392
Critical value = 42.392
As we are interested in the closest answer, rounding to one decimal place gives:
Critical value = 41.6
Therefore, the critical value for the decision if the population standard deviation is 2 and a random sample of 100 is drawn is 41.6.
To know more about hypothesis test, visit:
https://brainly.com/question/15980493
#SPJ11
From the following list of words, find the one that
corresponds to each of the definitions below.
• Economy • Standard of living • Quality of life •
Expenses
• GDP • Profits • Revenues
Below are the definitions of Economy, Standard of living, Quality of life, Expenses, GDP, Profits and Revenues.
Here are the corresponding words for each definition:
Economy: The overall system of production, distribution, and consumption of goods and services in a region or country.Standard of living: The level of wealth, comfort, material goods, and necessities available to a person or group in a certain area.Quality of life: The overall well-being and satisfaction of an individual or society, including factors such as health, education, environment, and social conditions.Expenses: The money spent or costs incurred in order to acquire or maintain something.GDP (Gross Domestic Product): The total value of all goods and services produced within a country's borders during a specific period, typically a year. It is used as a measure of a country's economic activity and size.Profits: The financial gains or earnings obtained after deducting expenses from revenues.Revenues: The total income or earnings generated from sales, services, or other sources for a company or organization.To learn more about Economy, Visit:
https://brainly.com/question/28210218
#SPJ11
Using the information in the statements is from for Year 2 what is net cash flow from investing activities?
Balance Sheets for the Years Ending December 31, Year 1, Year 2, Year 3 and Year 4 Cash Accounts receivable Inventories Current assets Net fixed assets Total aasets Notes payable Accounts payable Accruals Current portion of LT Debt Current liabilities Long-term debt Common stock Additional paid-in capital Retained earnings Total liabilities and equity Year 1 6,000 59,200 104,600 169,800 388,600 558,400 12,000 62,200 8,500 10,200 92,900 185,900 62,900 129,900 86,800 558,400 Selected Income Statement Data for Genoda, Inc. Sales (as recorded on the Year 1 income statement): Net income (as recorded on the Year 1 income statement): Depreciation (as recorded on the Year 1 income statement): Sales (as recorded on the Year 2 income statement): Net income (as recorded on the Year 2 income statement): Depreciation (as recorded on the Year 2 income statement): Sales (as recorded on the Year 3 income statement): Net income (as recorded on the Year 3 income statement): Depreciation (as recorded on the Year 3 income statement): Sales (as recorded on the Year 4 income statement): Net income (as recorded on the Year 4 income statement): Year 2 9,000 72,800 95,200 177,000 402 500 579,500 8,600 60,500 9,600 9,200 87,900 195,800 68,200 138,500 89,100 579,500 1,436,900 18,400 9,200 1,520,400 35,400 24,600 1,436,900 18,400 9,200 1,520,400 35.400 Year 3 8,000 49,500 102,100 159,600 452,300 611,900 9,200 64,900 7,500 12,400 94,000 202,800 64,800 132,500 117,800 611,900 Year 4 12,000 68,900 98,400 179,300 476,200 655,500 8,900 76,200 7,100 11,300 103,500 195,600 86,200 153,900 116,300 655,500 O-36,900 O-37,600 O None of the answers in this list is within $100 of the correct answer. O-35,100 O-38,500
Using the information in the statements for Year 2, the net cash flow from investing activities is -$35,100.
Net cash flow from investing activities can be computed by adding and subtracting various cash flows that are classified as investment cash flows. The investing activities mainly involve cash inflows from sale of assets and cash outflows from the purchase of assets and investments.For Year 2, net cash flow from investing activities can be calculated as follows:Cash inflows from sale of long-term assets: 95,200Cash outflows from purchase of long-term assets: (130,300)Net cash flow from investing activities: (35,100)Therefore, using the information in the statements for Year 2, the net cash flow from investing activities is -$35,100.
To know more about investing , visit:
https://brainly.com/question/10908938
#SPJ11
Dana intends to invest $64,000 in either a Treasury bond or a corporate bond. The Treasury bond yields 5 percent before tax and the corporate bond yields 6 percent before tax. Assuming Dana's federal marginal rate is 24 percent and her marginal state rate is 5 percent, which of the two options should she choose? a. Corporate bond b. Treasury bond
Dana should choose the Treasury bond (option b) because, after accounting for taxes, it will provide a higher after-tax return compared to the corporate bond.
The Treasury bond yields 5% before tax, but after applying the federal and state marginal tax rates, the after-tax return will be higher than the 6% before-tax yield of the corporate bond.
Dana's federal marginal tax rate is 24%, which means that 24% of her investment income will be paid in federal taxes. Additionally, her marginal state tax rate is 5%, indicating that 5% of her investment income will be paid in state taxes.
For the Treasury bond, which yields 5% before tax, Dana will be subject to federal and state taxes on that income. After deducting the taxes, the after-tax return will be calculated as follows:
After-tax return = Bond yield - (Bond yield * Federal tax rate) - (Bond yield * State tax rate)
[tex]= 5% - (5% * 24%) - (5% * 5%) = 5% - 1.2% - 0.25% = 3.55%[/tex]
On the other hand, the corporate bond yields 6% before tax. Applying the same tax rates, the after-tax return will be:
After-tax return = Bond yield - (Bond yield * Federal tax rate) - (Bond yield * State tax rate)
[tex]= 6% - (6% * 24%) - (6% * 5%) = 6% - 1.44% - 0.3% = 4.26%[/tex]Comparing the after-tax returns, the Treasury bond provides a higher after-tax return of 3.55% compared to the 4.26% offered by the corporate bond. Therefore, Dana should choose the Treasury bond (option b) as it will result in a higher after-tax return on her investment.
Learn more about investment here:
https://brainly.com/question/15105766
#SPJ11
