Answer: wrap-up
Explanation: since every project needs to end the wrap-up aims to resolve any pending project-related issues, critique the overall effort of the project, and draw conclusions about how to improve the project management process for the future. Doing this ensures that all stakeholders of the project are satisfied, and that all acceptance criteria for the project have been met. The wrap-up is simply the concluding action of the project.
A publisher is deciding whether or not to invest in a new printer. The printer would cost $900, and would increase the cash flows in year 1 by $500 and in year 3 by $800. Cash flows do not change in year 2.If the interest rate is 12% Is the investment in the new printer feasible?
Answer:
Yes, since NPV>0
Explanation:
The computation of the net present value is shown below:
= Present value of cash inflows - initial investment
where,
Present value of cash inflows is
= $500 ÷ (1 + 0.12)^1 + $800 ÷ (1 + 0.12)^3
= $446.43 + $569.42
= $1,015.85
And the intial investment is $900
So, the net present value is
= $1,015.85 - $900
= $115.85
Since the net present value comes in positive so the investment in new printer is feasible
ICOT Industries issued 28 million of its $1 par common shares for $492 million on April 11. Legal, promotional, and accounting services necessary to effect the sale cost $3 million. Required: 1. Prepare the journal entry to record the issuance of the shares. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)
Answer:
Dr Cash $492
Cr Common stock $28
Cr PIC in excess of par 464
Dr PIC in excess of par $3
Cr Cash $3
Explanation:
Preparation of the Journal entry to record the issuance of the shares
Based on the information given we were told that the Industries issued 28 million of its $1 par common shares for the amount of $492 million on April 11 which means that the Journal entry will be:
Dr Cash $492
Cr Common stock $28
(28 million x $1)
Cr PIC in excess of par 464
($492-$28)
(To record the sale of the stock)
Based on the information given we were told that the Industries had Legal, promotional, and accounting services necessary to effect the sale cost of the amount of $3 million which means that the Journal entry will be:
Dr PIC in excess of par $3
Cr Cash $3
(To record the stock issue costs)
Ink Inc. has a capital structure consisting of 25 percent debt and 75 percent common equity financing. The company has $800 million in net income and plans to pay out 40 percent of their earnings as dividends. What is the maximum amount of new financing that the company can raise without selling new common stock?
Answer:
$640 million
Explanation:
The computation of maximum amount of new financing is shown below:-
New financing from equity = $800 million × (1 - 40%)
= $480 million
New financing from debt = $480 million ÷ 75% × 25%
= $160 million
Now the maximum amount of new financing is
= $480 million + $160 million
= $640 million
Hence, the maximum amount of new financing is $640 million
After analyzing its own resources and unique abilities, a company is now trying to determine what group of customers it can satisfy with a good or service. It is in the process of choosing a
Answer: target market
Explanation: A target market is simply a group of people whose needs and preferences match the product range of a company and to whom those products are marketed, often times actively. As such, when the resources and unique abilities of a firm has been analysed, and is now in the process of determining what group of customers it can satisfy with a good or service, then it is in the process of choosing a target market.
Harwell Company manufactures automobile tires. On July 15, 2018, the company sold 1,300 tires to the Nixon Car Company for $50 each. The terms of the sale were 3/10, n/30. Harwell uses the gross method of accounting for cash discounts. Required: 1. Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and collection on July 23, 2018. 2. Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and collection on August 15, 2018
Answer and Explanation:
The Journal entry is shown below:-
1. a. Accounts Receivable Dr, $65,000 (1,300 × $50)
To Sales revenue $65,000
(Being sales revenue is recorded)
b. Cash Dr, $63,050
Sales discount Dr, $1,950 ($65,000 × 3%)
To Accounts Receivable $65,000
(Being collection is recorded)
2. a. Accounts Receivable Dr, $65,000
To Sales revenue $65,000
(Being sales revenue is recorded)
Cash Dr, $65,000
To Accounts Receivable $65,000
(Being collection is recorded)
Suppose the real risk-free rate is 3.50%,the average future inflation rate is 2.50%, a maturity premium of 0.20% per year to maturity applies, i.e., MRP = 0.20%(t), where t is the years to maturity. Suppose also that a liquidity premium of 0.50% and a default risk premium of 0.80% applies to A-rated corporate bonds.
Required:
What is the difference in the yields on a 5-year A-rated corporate bond and on a 10-year Treasury bond?
Answer:
the 5 year A-rated corporate bond yields 0.3% more than the 10-year Treasury bond
Explanation:
the yield of a 10 year treasury bond = real risk free rate + average future inflation rate + (maturity premium x number of years) = 3.5% + 2.5% + (20% x 10 years) = 8%
the yield of a 5 year A-rated corporate bond = real risk free rate + average future inflation rate + liquidity premium + default risk premium + (maturity premium x number of years) = 3.5% + 2.5% + 0.5% + 0.8% + (20% x 5 years) = 8.3%
difference in yields = 8.3% - 8% = 0.3%
The Jones Company has just completed the third year of a five-year MACRS recovery period for a piece of equipment it originally purchased for $302,000. a. What is the book value of the equipment? b. If Jones sells the equipment today for $184,000 and its tax rate is 35%, what is the after-tax cash flow from selling it? c. Just before it is about to sell the equipment, Jones receives a new order. It can take the new order if it keeps the old equipment. Is there a cost to taking the order and if so, what is it? Explain. (Assume the new order will consume the remainder of the machine's useful life.) Note: Assume that the equipment is put into use in year 1.
Answer:
a. What is the book value of the equipment?
$86,976b. If Jones sells the equipment today for $184,000 and its tax rate is 35%, what is the after-tax cash flow from selling it?
($184,000 - $86,976) x (1 - 35%) = $97,024 x 65% = $63,065.60c. Just before it is about to sell the equipment, Jones receives a new order. It can take the new order if it keeps the old equipment. Is there a cost to taking the order and if so, what is it?
the cost to taking the new order is the opportunity cost of selling the equipment, which is $63,065.60.Explanation:
MACRS depreciation rate:
Year % Depreciation expense Carrying value
1 20% $60,400 $241,600
2 32% $96,640 $144,960
3 19.20% $57,984 $86,976
4 11.52% $34,790.40 $52,185.60
5 11.52% $34,790.40 $17,395.20
6 5.76% $17,395.20 $0
Pedra, Inc. incurred direct labor costs of $54,000 for 6,000 hours. The standard labor cost was $55,200. During the month, Pedra assigned 6,000 direct labor hours costing $54,000 to production. The standard hours were 6,200. Journalize the transactions for Pedra, Inc. to account for this activity.
Answer and Explanation:
The Journal entry is shown below:-
1. Factory Labor Dr, $55,200
To Labor Price Variance $1,200
To Factory Wages Payable $54,000
(Being factory labor is recorded)
Here we debited the factory labor as it increased the expenses and we credited the labor price variance and factory wages payable as it the factory wages payable increased the liabilities
2. Work in Process Inventory $57,040 ($55,200 ÷ $6,000 × $6,200)
To Labor Quantity Variance $1,840
To Factory Labor $55,200
(Being is work in progress is recorded)
Here we debited the work in progress inventory as it increased the assets and we credited the labor quantity variance and factory labor as the factory labor decreased the expenses
If you could purchase IBM stock and simultaneously sell the stock for $5 more, you would be involved in one type of economic activity?a. indifference principleb. arbitragec. carry traded. marked to markete. none of the above
Answer:
arbitrage
Explanation:
Arbitrage can be defined as an act or process of buying buying and selling an asset simultaneously. Purchasing IBM stock and selling it for 5 dollar more simultaneously is an example of arbitrage. Such a seller is going to cash in on the price difference in buying and selling this stock. It is simply taking advantage of the difference in price that is gotten from buying and reselling this stock at 5dollars.
All of the following are considered process innovation EXCEPT A. organizational innovation. B. nonneutral technical progress. C. neutral technical progress. D. labor saving technical progress.
Answer:
B. nonneutral technical progress.
Explanation:
Why do we need to deduct gain on sale of plant assets from net income to arrive at net cash flow from operating activities
Answer:
The money received from the sale of assets is included in the net cash flows from investing activities, that is why you must adjust net income by eliminating any gain or loss resulting from these transactions.
Explanation:
E.g. net income = $50,000, and it includes a gain of $5,000 resulting from the sale of a truck. The truck had a book value of $15,000, but was sold at $20,000.
Net cash flows from operating activities:
Net income $50,000
Adjustments to net income:
- Gain on sale of asset ($5,000)
Net cash flow provided by operating activities $45,000
Net cash flows from investing activities:
Sale of truck $20,000
Net cash flow provided by investing activities $20,000
In Rooney Company, direct labor is $18 per hour. The company expects to operate at 12,000 direct labor hours each month. In January 2017, direct labor totaling $222,400 is incurred in working 12,600 hours.
Prepare a flexible budget report.
Answer:
Flexible budget Report for Rooney Company
Flexed budget Actual Variance
Labour hours 12,600 12,600
Labour cost($) 226,800 222,400 4,400 Favorable
Explanation:
A flexible budget is that which is prepared to reflect the actual activity level achieved.
It is useful for a control purpose; to compare the actual result to the expected performance. The expected performance is the the flexible budget which is a revised master budget.
Also it uses the assumptions of the static budget like standard costs and prices.
Flexed budget for labour = standard hour × actual labour cost
= $18× 12,600 = $ 226,800
Flexible budget Report for Rooney Company
Flexed budget Actual Variance
Labour hours 12,600 12,600
Labour cost($) 226,800 222,400 4,400 Favorable
"Which of the following are covered under the Securities Exchange Act of 1934? I Registration of new issues II Stabilization of new issues III Registration of exchanges IV Registration of broker/dealers"
Answer: II. stabilization of new issues
III. registration of exchanges
IV. registration of broker-dealers
Explanation:
The Securities Exchange Act of 1934 was put in place in order to be in charge of security trading.
From the options, those that are covered under the Securities Exchange Act of 1934 include the stabilization of new issues, the registration of exchanges and the registration of broker/dealers.
It should be noted that the Securities Exchange Act of 1934 does not cover the registration of new issues.
Sanders, a 62-year-old single individual, sold his principal residence for the net amount of $500,000 after all selling expenses. Sanders bought the house 15 years ago and has occupied it until it sold. On the date of sale, the house had a cost basis of $200,000. Within six months, Sanders purchased a new house for $600,000. What amount of gain should Sanders recognize from the sale of the residence g
Answer:
$50,000
Explanation:
Recognized gain can be calculated by deducting the exclusion available from the realized gain. To qualify for exclusion from the realized gain Sanders has met all the requirements of exclusion.
NOTE: Requirments for exclusion are given at the end of solution
DATA
Sale proceeds = $500,000
Cost basis = $200,000
exclusion available for single person = $250,000
Gain =?
Calculation
Realized gain on sale of home = Sale proceeds – Cost basis
Realized gain on sale of home = $500,000 - $200,000
Realized gain on sale of home = $300,000
Recognized gain = Realized gain - exclusion available
Recognized gain = $300,000 - $250,000
Recognized gain = $50,000
Requirements for exclusion
1. You've owned the home for two of the last five years.
2. You used the home as your principal residence for two of the last five years.
3. You haven't used the exclusion on another property sale within the last two years.
g If Warren Buffet can beat the market using value investing, then... Group of answer choices the market is semi-strong form efficient the market is weak form efficient the market cannot be efficient the market is strong form efficient
Answer: The market is weak form efficient
Explanation:
Weak form markets are markets in which stocks are said to incorporate all past information in their prices. Investors who believe that the market is at weak form efficiency believe that since the stock contains past information, using the current information in the company's books to determine if the company is overvalued or undervalued is possible (fundamental analysis).
Warren Buffet's Value Investing means that he invests in stocks that he believes to be undervalued and sells them for higher or holds them when they appreciate. This is consistent with fundamental analysis. If Warren Buffet is beating the market by investing in undervalued stock then the market is indeed weak form efficient.
Members of the board of directors of have received the following operating income data for the year just ended:
Safety Step Income Statement For the Year Ended May 31, 2018,
Product Line
Industrial Household
Systems Systems Total
Net Sales Revenue $310,000 $330,000 640,000
Cost of Goods Sold
Variable 33,000 48,000 81,000
Fixed 230,000 68,000 298,000
Total Cost of Goods Sold 263,000 116,000 379,000
Gross Profit 47,000 214,000 261,000
Selling and Administrative Expenses
Variable 68,000 72,000 140,000
Fixed 43,000 28,000 71,000
Total Selling and Administrative Expenses 111,000 100,000 211,000
Operating Income (Loss) $(64,000) $114,000 $50,000
Members of the board are surprised that the industrial systems product line is losing money. They commission a study to determine whether the company should discontinue the line. Company accountants estimate that dropping industrial systems will decrease the fixed cost of goods sold by $82,000 and decrease fixed selling and administrative expenses by $15,000.
Required:
a. Prepare a differential analysis to show whether Safety Step should drop the industrial systems product line.
b. Prepare contribution margin income statements to show Safety Step's total operating income under the two alternatives: (a) with the industrial systems line and (b) without the line. Compare the difference between the two alternatives' income numbers to your answer to Requirement 1.
c. What have you learned from the comparison in Requirement 2?
Answer:
a) with industrial without industrial differential
systems systems amount
sales revenue 640,000 330,000 (310,000)
variable COGS (81,000) (48,000) 33,000
fixed COGS (298,000) (216,000) 82,000
gross profit 261,000 66,000 (195,000)
variable S&A (140,000) (72,000) 68,000
fixed S&A (71,000) (56,000) 15,000
operating 50,000 (62,000) (112,000)
income
b) contribution margin income statements:
with industrial systems
Sales revenue $640,000
- Variable COGS ($81,000)
- Variable S&A ($140,000)
Contribution margin $419,000
- Fixed COGS ($298,000)
- Fixed S&A ($71,000)
Operating income $50,000
without industrial systems
Sales revenue $330,000
- Variable COGS ($48,000)
- Variable S&A ($72,000)
Contribution margin $210,000
- Fixed COGS ($216,000)
- Fixed S&A ($56,000)
Operating loss ($62,000)
c) sometimes certain product lines help to amortize fixed costs and even though they are not profitable by themselves, without them, the company's operating profits and net income could be negatively affected.
Dairy Wishes, a local ice cream store, finds
that it sells out of ice cream sandwiches at the current price of $1. It raises the price to increase its
revenues and finds that no one buys ice cream sandwiches anymore
The demand for icecream sandwiches is
a. inelastic.
b. elastic.
c. perfectly inelastic.
d. perfectly elastic.
e. unitary elastic.
Answer:
d. perfectly elastic.
Explanation:
Demand is perfectly elastic if it at the current price, the product is sold out but if there is a change in price demand falls to zero. the demand curve is horizontal
Demand in perfectly inelastic if there is no change in quantity demanded regardless of the change in price.
If the absolute value of price elasticity is greater than one, it means demand is elastic. Elastic demand means that quantity demanded is sensitive to price changes.
Demand is inelastic if a small change in price has little or no effect on quantity demanded. The absolute value of elasticity would be less than one
Demand is unit elastic if a small change in price has an equal and proportionate effect on quantity demanded.
1. In the Black-Scholes option pricing model, N(d1) is the probability that a standard normal random variable takes on a value exceeding d1.
A. True
B. False
2. In the Black-Scholes option-pricing model, if volatility increases, the value of a call option will increase but the value of the put option will decrease.
A. True
B. False
A restaurant owner just found out that his pizza bistro is losing money. What is one possible explanation for this loss
Answer:
Explanation:
There could be multiple reasons as to why the pizza bistro is losing money.
Waste not being counted accurately.
Food being replaced for wrong orders and not being accounted for.
Theft.
Orders not being entered correctly.
The before-trade domestic price of tomatoes in the United States is $500 per ton. The world price of tomatoes is $400 per ton. The U.S. is a price-taker in the tomatoes market.
If trade in tomatoes is allowed, the United States:______
a) will experience increases in both consumer surplus and producer surplus.
b) may become either an importer or an exporter of tomatoes, but this cannot be determined.
c) will become an exporter of tomatoes.
d) will become an importer of tomatoes.
Answer:
d) will become an importer of tomatoes.
Explanation:
Consumer surplus would increase because the price at which they buy tomatoes would reduce while producer surplus would reduce because the price of tomatoes would reduce as a result of international trade.
Consumer surplus is the difference between the willingness to pay of a consumer and the price of the good.Because the price of tomatoes in the US is greater than the price of tomatoes in the world, when the US begins international trade, it would import tomatoes because it is inefficient in the production of tomatoes.
Producer surplus is the difference between the price of a good and the least price the seller is willing to sell the product
Colgate-Palmolive Company reports the following balances in its retained earnings.
($ millions) 2010 2009
Retained earnings $14,329 $13,157
During 2010, Colgate-Palmolive reported net income of $2,200 million.
a. Assume that the only changes affecting retained earnings were net income and dividends. What amount of dividends did Colgate-Palmolive pay to its shareholders in 2010?
b. This dividend amount constituted what percent of its net income? (Round your answer to one decimal place.)
Answer:
a. $1,028 million
b. 46.7%
Explanation:
a. Dividends are taken from the retained earnings and net income is added to the retained earnings. The formula for ending retained earnings is;
Ending retained earnings = Opening Retained earnings + Net Income - Dividends
14,329 = 13,157 + 2,200 - Dividends
Dividends = 13,157 + 2,200 - 14,329
Dividends = $1,028 million
b. Dividends as a percentage of income
= 1,028/2,200
= 0.467
= 46.7%
An officer of a company has acquired shares of that issuer in the open market. If the officer wishes to sell the shares:
Answer: C. II and III
Explanation:
As the shares were acquired by the officer on the open market, they are considered Control Stock. Sale of Control Stock falls under the purview of Rule 144 of the SEC that governs the sale of restricted, unregistered, and control securities so a Form 144 will need to be filed with the Sec making III correct.
Furthermore, control stock are not subject to a holding period requirement so option II is correct as well. Option C is therefore the best answer.
The minimum desired rate of return for net present value analysis is 12%. The present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is 0.893, 0.797, 0.712, and 0.636, respectively. Determine the net present value. $
Answer: $18,848
Explanation:
The Net Present Value of a project is the difference between the present values of the cash outflows and inflows.
Present Values of the Cash flows;
Year 1
= 150,000 * 0.893
= $133,950
Year 2
= 130,000 * 0.797
= $103,610
Year 3
=104,000 * 0.712
= $74,048
Year 4
= 90,000 * 0.636
= $57,240
Net Present Value = Cash inflows - Outflow
= 133,950 +103,610 + 74,048 + 57,240 - 350,000
= $18,848
The manager of a savings and loan branch wants to estimate the average amount held in passbook savings accounts by the branch bank depositors. A random sample of 25 depositors is selected, and the results indicate a sample average of $4,750 and a sample standard deviation of $1,200. Given the 95% confidence interval estimates calculated above, if an individual had $4,000 ina passbook savings account, is this considered unusual?
a. Yes
b. Maybe
c. Do not know
d. No
Answer:
Correct answer:
d. No
Explanation:
This is because, from the random sample that was done, it shows that the average money held by customers falls within $3550 - $5950 which averages $4750 (Factoring in the standard deviation of $1200). Therefore, it is not considered unusual if an individual had $4000 since it falls within the range of amount held by most depositors and customers of the said bank.
_________ can give every business access to an agile workforce that is not only better suited to solving some of the problems that organizations struggle with today but in many cases will do it for free.
Complete Question:
_________ can give every business access to an agile workforce that is not only better suited to solving some of the problems that organizations struggle with today but in many cases will do it for free.
Group of answer choices
a. Crowdsourcing
b. LinkedIn
c. Social recruiting
d. Brainstorming
Answer:
a. Crowdsourcing.
Explanation:
Crowdsourcing can be defined as a process of gathering information, ideas, micro-tasks, goods and services, finances, and votes into a project or organizational task from a large group of fast growing participants, either paid or unpaid mostly through the internet. These group of participants are saddled with the responsibility of creating value by contributing significantly to an organization typically over the internet.
Crowdsourcing can give every business access to an agile workforce that is not only better suited to solving some of the problems that organizations struggle with today but in many cases will do it for free.
Fed is open to changing bond policy Fed policymakers signaled for the first time that they could increase or decrease stimulation of the economy in the future, but not now. Source: Los Angeles Times, May 1, 2013 What are the ripple effects and time lags that the Fed must consider in deciding when to increase or decrease stimulation of the economy?
Answer:
When the Fed raises the federal funds rate, the inflation rate decreases about two years later.
Explanation:
When trying to stimulate the economy either by increasing or decreasing, policymakers have to take into consideration how it would effect interest rate, amount of money available in the economy, loans that would be acquired by banks and the behavior of interest rate.
Interest rate can be impacted quickly even though the period of time it would take for such action to have a reflection on what quantity of money is available in the economy. Then also a period of 2 years would be taken for this action to take effect on inflation.
Therefore
When the Fed raises the federal funds rate, the inflation rate decreases about two years later.
Stock price is $150. You see an at-the-money call option trading at $15, and at-the-money put trading at $5. The options have the same expiration date. You decide to buy a straddle. What will be the breakeven points of the strategy, i.e., at what stock prices will your profit will be exactly zero?a. Two breakeven points, S* = 145 and S* = 165b. Two breakeven points, S* = 135 and S* = 155c. One breakeven point, S* = 150d. Two breakeven points, S* = 130 and S* = 170
Answer:
D) Two break even points, S* = 130 and S* = 170
Explanation:
option a)
if the stock price is $145,
put option ⇒ you win $5 - $5 (option price) = no gain
call option ⇒ you lose $15 (option price)
WRONG ANSWER
option b)
if the stock price is $155,
put option ⇒ you lose $5 (option price)
call option ⇒ you win $5 - $15 (option price) = -$10 loss
WRONG ANSWER
option c)
if the stock price is $150,
put option ⇒ you lose $5 (option price)
call option ⇒ you lose $15 (option price)
WRONG ANSWER
option d)
if the stock price is $170,
put option ⇒ you lose $5 = -$5 loss
call option ⇒ you win $20 - $15 (option price) = $5 gain
total gain/loss = $0
if the stock price is $130,
put option ⇒ you win $20 - $5 (option price) = $15 gain
call option ⇒ you lose $15 (option price)
total gain/loss = $0
CORRECT ANSWER
The three conditions that characterize difficult managerial decisions concerning resources, capabilities, and core competencies are
Answer:
uncertainty, complexity, and intra-organizational conflicts.
Explanation:
Managerial decisions define that any decision that can be taken for the benefit of the organization also these types of decision set targets for the income of the company moreover it decides what type of product should be sell and the hiring of employees who should be into the organization or who should not be in the organization etc.
According to the given situation, Management decisions on capital, expertise, and core competencies are disputes of uncertainty, complexity, and intra-organizational existence.
Sloan Transmissions inc.,has the following estimates for its new gear assembly project: price=$2,200 per unit., variable cost= $440 per unit., fixed costs = $1.6 million., quantity = 90,000 units. suppose the company believes all of its estimates are accurate only to
Answer:
Best case
Price 2,640
Variable cost per unit 352
Fixed cost 1.28 million
Quantity 108,000 units
Worst case
Price 1,760
Variable cost per unit 528
Fixed cost 1.92 million
Quantity 72,000 units
Explanation:
Based on the information given in the best case expenses would be 20% lower while the incomes will be 20% higher.
Calculation for the price
Price = 2,200 ×(1+0.20)
Price=2,200×1.2
Price = 2,640
Calculation for Variable cost per unit
Variable cost per unit = 440× (1-0.20)
Variable cost per unit=440×0.80
Variable cost per unit= 352
Calculation for fixed cost
Fixed cost = 1.60 million ×(1-0.20)
Fixed cost=1.60 million× 0.80
Fixed cost= 1.28 million
Calculation for the Quantity
Quantity = 90,000 × (1+0.20)
Quantity =90,000×1.2
Quantity=108,000units
Therefore, Best case will be:
Price 2,640
Variable cost per unit 352
Fixed cost 1.28 million
Quantity 108,000units
Based on the information given in the worst case expenses would be 20% higher while incomes would be 20% lower.
Calculation for the price
Price = 2,200 × (1-0.20) = 1080
Price=2,200 ×0.8
Price=1,760
Calculation for the Variable cost per unit
Variable cost per unit = 440 × (1+0.20)
Variable cost per unit=440× 1.2
Variable cost per unit= 528
Calculation for Fixed cost
Fixed cost = 1.60 million × (1+0.20)
Fixed cost=1.60 million×1.2
Fixed cost= 1.92 million
Calculation for the Quatity
Quantity = 90,000 ×(1-0.20)
Quantity=90,000×0.8
Quantity= 72,000 units
Therefore Worst case will be:
Price 1,760
Variable cost per unit 528
Fixed cost 1.92 million
Quantity 72,000 units
An insurance company will only sell its Select policy to people for whom the probability of a stroke in the next ten years is less than .01. If a smoker with a systolic blood pressure of 230 applies for a Select policy, under what condition will the company sell him the policy if it adheres to this standard?
Answer:
The insurance company would only sell the Select Policy insurance to a smoker with systolic blood pressure of 230 if after carrying out a medical test, t was found out that, the probability of him or her having a stroke is actually less than 0.01.
This is to insure that, the smoker didn't capitalise on his dying nature in-order to obtained the insurance thereby defrauding the insurance company.
Explanation:
