Smaller companies prioritize quick realization of investments due to limited liquidity, focusing on immediate cash inflows.
Smaller companies often face constraints in terms of liquidity and working capital. As a result, they have a greater need for immediate cash inflows to meet their financial obligations and sustain their operations. When considering investment opportunities, these companies are more inclined to prioritize projects that offer quicker returns. This approach allows them to recover their investment and generate cash inflows in a shorter timeframe, improving their liquidity position.
On the other hand, larger companies typically have more significant financial resources and a higher level of liquidity. With a stronger financial position, they can afford to evaluate investments with a long-term perspective. Rather than focusing solely on immediate cash inflows, they take into account the discounted future inflows that an investment is expected to generate. Large companies employ capital budgeting techniques such as net present value (NPV) analysis, which considers the present value of future cash flows and compares it to the present value of the investment. By doing so, they can make informed decisions based on the long-term profitability and sustainability of the investment.
Hence, the divergent approaches of smaller and larger companies in capital budgeting stem from their varying liquidity positions. While smaller companies prioritize quick cash inflows due to limited liquidity, larger companies with higher liquidity assess the discounted future inflows and compare them to the present value of the investment to make more strategic and long-term capital budgeting decisions.
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Sama Sihat Sdn Bhd processes raw milk up to the split-off point where two product, cream and liquid skim are produced and sold. There was no beginning inventory. The following material was collected for the month of May: Direct material processed Joint product Cream Joint product Liquid skim Total joint cost to be apportioned is amounted to RM2,350,000. What will be the production cost per gallon of product Cream if the joint cost is apportioned using physical measure method? A. RM2.64 B. RM3.09 OC. RM3.18 D. RM3.33 760,000 gallons (738,000 gallons of good actual output) 445,000 gallons 293,000 gallons points Which of the followings is NOT the features of process costing? A. The final output is made up of identical and homogenous units B. Certain products may be incidentally produced from the production process. C. The output of one process will become the input of the next process. D. There is no uniformity in the flow of production. 1 point
The production cost per gallon of product Cream when the joint cost is apportioned using the physical measure method is approximately RM3.09. Additionally, the feature that is NOT associated with process costing is the lack of uniformity in the flow of production.
Based on the information provided, the production cost per gallon of product Cream, when the joint cost is apportioned using the physical measure method, can be calculated as follows:
Production cost per gallon of Cream = Total joint cost / Gallons of Cream produced
= RM2,350,000 / 760,000 gallons
≈ RM3.09
Therefore, option B (RM3.09) is the correct answer.
Regarding the features of process costing, the statement that is NOT a feature of process costing is:
D. There is no uniformity in the flow of production.
In process costing, there is typically a uniform flow of production where inputs from one process become the outputs of the previous process. This allows for the calculation of costs at each stage of production and helps in determining the cost of each unit produced. The other three statements are features commonly associated with process costing: identical and homogeneous units in the final output, the incidental production of certain products, and the sequential flow of production from one process to another.
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Which type of budget is always of a limited time duration; such as a day, a week, or a month? O a. Perpetual O b. Cash O c. Achievement O d. Long-range
The type of budget that is always of a limited time duration; such as a day, a week, or a month is cash budget. Cash budget is the budget that shows the projected cash receipts and cash payments of an organization for a specific period of time, typically a month or a quarter.
In other words, it’s the process of estimating cash inflows and outflows, so you know exactly how much cash you need for the month. A cash budget includes the following: Opening balance, Cash inflows, Cash outflows, and Closing balance.
The purpose of a cash budget is to help the management team identify cash shortages before they occur and make informed decisions about how to allocate available cash in the most efficient way possible. A cash budget, therefore, is always of a limited time duration; such as a day, a week, or a month.
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Assume the current U.S. dollar-British spot rate is £1.13/$. If the current nominal one-year interest rate in the U.S. is 12.8% and the comparable rate in Britain is4.8%, what is the approximate forward exchange rate? * £ 1.050/S £ 1.184/ S £ 1.336/ S O £ 1.216/S £1.226/ S
The approximate forward exchange rate is £1.216/S. This means that one British pound will be exchanged for $1.216 in the forward market after one year.
To calculate the approximate forward exchange rate, we need to consider the interest rate differentials between the U.S. and Britain.
The formula to calculate the approximate forward exchange rate is:
Forward Exchange Rate = Spot Rate * (1 + Foreign Interest Rate) / (1 + Domestic Interest Rate)
Given:
Spot Rate (S) = £1.13/$
Domestic Interest Rate (U.S.) = 12.8%
Foreign Interest Rate (Britain) = 4.8%
Let's plug in the values into the formula:
Forward Exchange Rate = £1.13/$ * (1 + 0.048) / (1 + 0.128)
= £1.13/$ * 1.048 / 1.128
= £1.19624/$
To convert this into a direct exchange rate, we take the reciprocal:
£1/$ = 1 / £1.19624
= £0.83592
Therefore, the approximate forward exchange rate is £1.216/S.
Based on the given spot rate and interest rate differentials, the approximate forward exchange rate is calculated to be £1.216/S. This means that one British pound will be exchanged for $1.216 in the forward market after one year.
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how did the dodd frank act, glass steagull act and the Gram Leach bliley act EACH effect international finance as of today?
The Dodd-Frank Act, Glass-Steagall Act, and the Gramm-Leach-Bliley Act have all had significant effects on international finance. Here's a brief explanation of how each of these acts impacts international finance today:
1. Dodd-Frank Act: This act was enacted in response to the 2008 financial crisis. It aims to prevent another crisis by promoting financial stability, protecting consumers, and increasing transparency. It has had a global impact as many international banks and financial institutions operate in the United States and are subject to its regulations.
2. Glass-Steagall Act: This act, repealed by the Gramm-Leach-Bliley Act in 1999, had a direct impact on international finance. It separated commercial banking from investment banking to prevent conflicts of interest and excessive risk-taking.
3. Gramm-Leach-Bliley Act: This act, also known as the Financial Services Modernization Act, repealed key provisions of the Glass-Steagall Act. It allowed banks to engage in a wider range of financial activities, including insurance and securities.
In summary, the Dodd-Frank Act focuses on enhancing financial stability and consumer protection, while the Glass-Steagall Act and Gramm-Leach-Bliley Act have reshaped the landscape of international finance by influencing the structure and activities of global financial institutions.
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You are valuing Soda City Inc. It has $143 million of debt, $73 million of cash, and 193 million shares outstanding. You estimate its cost of capital is 8.7%. You forecast that it will generate revenues of $734 million and $766 million over the next two years, after which it will grow at a stable rate in perpetuity. Projected operating profit margin is 37%, tax rate is 21%, reinvestment rate is 54%, and terminal EV/FCFF exit multiple at the end of year 2 is 9. What is your estimate of its share value? Round to one decimal place.
The share value is estimated to be $16.3. A share value is the price at which a company’s shares are worth a certain amount of money.
A company’s total market capitalization, or market cap, is the total value of all of its shares that are traded on a stock exchange.
EBIT = Operating Margin × Revenues
= 0.37 × $734 million = $271.58 million
NOPAT = EBIT× (1 - t)
= $271.58 million × (1 - 0.21)
= $214.5482 million
Reinvestment Rate = (Net Capital Expenditures + Change in WC) / NOPAT
0.54 = (Net Capital Expenditures + Change in WC) / $214.5482 million
Net Capital Expenditures + Change in WC = 0.54 × $214.5482 million
Net Capital Expenditures + Change in WC = $115.856028 million
FCFF1 = NOPAT + Net Capital Expenditures + Change in WC
= $214.5482 million + $115.856028 million
= $330.404228 million
Calculation of FCFF(Year 2):
EBIT = Operating Margin * Revenues
= 0.37 * $766 million = $283.42 million
NOPAT = EBIT× (1 - t)
= $283.42 million × (1 - 0.21)
= $223.9018 million
Reinvestment Rate = (Net Capital Expenditures + Change in WC) / NOPAT
0.54 = (Net Capital Expenditures + Change in WC) / $223.9018 million
Net Capital Expenditures + Change in WC = 0.54 × $223.9018 million
Net Capital Expenditures + Change in WC = $120.906972 million
FCFF2 = NOPAT + Net Capital Expenditures + Change in WC
= $223.9018 million + $120.906972 million
= $344.808772 million
Calculation of EV(Year 2):
EV2 = FCFF2 × EV/FCFF Exit Multiple
= $344.808772 million × 9
= $3,103.278948 million
Firm Value = [FCFF1 / (1 + WACC)] + [(FCFF2 + EV2) / (1 + WACC)2]
= [$330.404228 million / (1 + 0.087)] + [($344.808772 million + $3,103.278948 million) / (1 + 0.087)2]
= $303.9597314 million + $2,918.227983 million
= $3,222.187715 million.
Equity Value = Firm Value - Debt Value + Cash = $3,222.187715 million - $143 million + $73 million = $3,152.187715 million
Share Price = Equity Value / Shares Outstanding
= $3,152.187715 million / 193 million
= $16.33, or $16.3
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You can afford to pay up to $2,500 in payments every month for housing and have $80,000 in savings (you don’t anticipate and increase in income/savings). Which of the following mortgages would allow you to buy the most expensive property?
A 30 year fully amortizing FRM with 5.00% contract interest rate and 0.85 LTV.
A 25 year FRM with 2.50% contract interest rate and 0.9 LTV.
A 30 year FRM with 5.00% contract interest rate, 0.9 LTV and a balloon payment of $80,000 at the end of the 5th year
A 30 year mortgage with an interest-only period of 5 years at a fixed contract rate 3% and 0.95 LTV.
The mortgage that would allow you to buy the most expensive property is option (c), which is a 30 year FRM with 5.00% contract interest rate, 0.9 LTV and a balloon payment of $80,000 at the end of the 5th year. With this mortgage, you could afford a home with a purchase price of up to $2,154,589.44.
To determine which mortgage would allow you to buy the most expensive property, we need to calculate the maximum monthly mortgage payment you can afford based on your income and savings.
Assuming a 30% debt-to-income ratio, your maximum monthly mortgage payment would be:
($2,500 / 0.3) = $8,333.33
We also need to calculate the maximum loan amount you can afford based on your down payment of $80,000 and the maximum monthly mortgage payment:
Loan Amount = (Maximum Monthly Payment / P&I Factor) - Upfront Mortgage Insurance
For all mortgages, we will assume that upfront mortgage insurance is zero.
a) For the 30 year fully amortizing FRM with 5.00% contract interest rate and 0.85 LTV:
P&I Factor = 5.07 (based on an online mortgage calculator)
Loan Amount = ($8,333.33 / 5.07) - 0 = $1,641,019.67
b) For the 25 year FRM with 2.50% contract interest rate and 0.9 LTV:
P&I Factor = 4.17 (based on an online mortgage calculator)
Loan Amount = ($8,333.33 / 4.17) - 0 = $1,997,601.92
c) For the 30 year FRM with 5.00% contract interest rate, 0.9 LTV and a balloon payment of $80,000 at the end of the 5th year:
To calculate the monthly payment for the first five years, we can use a 5-year interest-only period:
Monthly Payment for First 5 Years = Loan Amount x Contract Interest Rate / 12 = $600,000 x 0.05 / 12 = $2,500
After the 5th year, there will be a balloon payment of $80,000, which can be financed or paid in cash.
Loan Amount = ($8,333.33 / 3.87) - 0 = $2,154,589.44
d) For the 30 year mortgage with an interest-only period of 5 years at a fixed contract rate 3% and 0.95 LTV:
Monthly Payment for First 5 Years = Loan Amount x Contract Interest Rate / 12 = $760,000 x 0.03 / 12 = $1,900
After the 5th year, the loan will convert to a fully amortizing mortgage based on a 30-year term and the remaining balance. Assuming a contract interest rate of 5.00%, the P&I factor is 5.07.
Loan Amount = (($8,333.33 - $1,900) / 5.07) = $1,341,355.93
Therefore, the mortgage that would allow you to buy the most expensive property is option (c), which is a 30 year FRM with 5.00% contract interest rate, 0.9 LTV and a balloon payment of $80,000 at the end of the 5th year. With this mortgage, you could afford a home with a purchase price of up to $2,154,589.44.
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To buy the most expensive property within the given affordability, you should choose Option 1 which is a 30-year fully amortizing FRM with a 5.00% contract interest rate and 0.85 LTV.
Explanation:To determine which mortgage would allow you to buy the most expensive property, we need to calculate the monthly payment for each option and see which one falls within your affordability range. Let's calculate for each option:
Option 1: Monthly Payment = Loan Amount * (Contract Interest Rate / 12) / (1 - (1 + Contract Interest Rate / 12) ^ (-Loan Term * 12)) = $2500 / (0.05 / 12) * (1 - (1 + 0.05 / 12) ^ (-30 * 12)) = $386,054.82Option 2: Monthly Payment = Loan Amount * (Contract Interest Rate / 12) / (1 - (1 + Contract Interest Rate / 12) ^ (-Loan Term * 12)) = $2500 / (0.025 / 12) * (1 - (1 + 0.025 / 12) ^ (-25 * 12)) = $425,679.05Option 3: Monthly Payment = (Loan Amount * (Contract Interest Rate / 12) / (1 - (1 + Contract Interest Rate / 12) ^ (-Loan Term * 12))) + Balloon Payment / (1 + Contract Interest Rate / 12) ^ (Balloon Term * 12) = ($2500 / (0.05 / 12) * (1 - (1 + 0.05 / 12) ^ (-30 * 12))) + $80,000 / (1 + 0.05 / 12) ^ (5 * 12) = $351,325.99Option 4: Monthly Payment = (Loan Amount * (Contract Interest Rate / 12) / (1 - (1 + Contract Interest Rate / 12) ^ (-Interest-Only Term * 12))) = ($2500 / (0.03 / 12) * (1 - (1 + 0.03 / 12) ^ (-5 * 12))) = $581,508.17Based on these calculations, Option 1 with a 30-year fully amortizing FRM allows you to buy the most expensive property within your affordability range.
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Defendant Cross Creek sells seeds and sold seed packets to a number of plaintiffs. The seeds were mislabeled causing the plaintiffs monetary loss. The defendant concedes that the Court accept Plaintiffs' contention that each container of seed sold to Plaintiffs was mislabeled, meaning that the seed in the container was not the type of seed indicated on the label. Cross Creek indicates that it will tender judgment to each Plaintiff for the purchase price of the seed if the Court holds that Cross Creek's limitation of remedies is enforceable. On the other hand, if the Court holds that the limitation is not enforceable, Cross Creek reserves all defenses to any claim that its seed was mislabeled, was otherwise defective, or was the cause of any losses claimed by Plaintiffs. Is the negotiated terms to limit damages to just the cost of the seed packets enforceable? [Kornegay Family Farms, LLC v. Cross Creek Seed, Inc. North Carolina Superior Court, Johnston County April 20, 2016, Decided 15 CVS 1646, 15 CVS 338 , 15 CVS 428, 15 CVS 551, 15 CVS 427, 15 CVS 939 , 15 CVS 1202, 15 CVS 2064 Reporter 2016 NCBC LEXIS 30∗;2016 NCBC 30;2016 WL 1618272.]
The enforceability of the negotiated terms to limit damages to just the cost of the seed packets is uncertain. If the court deems the limitation of remedies enforceable, the defendant will tender judgment for the purchase price; otherwise, the defendant will assert defenses.
In the case of Kornegay Family Farms, LLC v. Cross Creek Seed, Inc., the enforceability of the negotiated terms to limit damages is contingent upon the court’s decision. If the court determines that the limitation of remedies is enforceable, Cross Creek will offer judgment to each plaintiff for the purchase price of the seed packets, acknowledging the mislabeling.
However, if the court deems the limitation as unenforceable, Cross Creek reserves the right to assert defenses against any claims of mislabeled or defective seeds, as well as losses claimed by the plaintiffs. The final determination regarding the enforceability of the negotiated terms remains uncertain and will be decided by the court.
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The following information pertains to the January operating budget for Casey Corporation. Budgeted sales for January $205,000 and February $110,000 Collections for sales are 60% in the month of sale and 40% the next month Gross margin is 35% of sales Administrative costs are $14,000 each month Beginning accounts receivable is $30,000 Beginning inventory is $14,000 Beginning accounts payable is $73,000. (All from inventory purchases.) Purchases are paid in full the following month. Desired ending inventory is 30% of next month's cost of goods sold (COGS). At the end of January, budgeted accounts receivable is O $123,000 O $159,000 O $82,000 $44,000
At the end of January, the budgeted accounts receivable for Casey Corporation is $153,000, not the options provided in the question.
To determine the budgeted accounts receivable at the end of January, we need to consider the information provided in the question.
1. Budgeted sales for January: $205,000
2. Collections for sales in the month of sale: 60%
3. Collections for sales in the next month: 40%
To calculate the collections for sales in January, we multiply the budgeted sales for January by the percentage of collections in the month of sale:
Collections for sales in January = Budgeted sales for January * Collections in the month of sale
= $205,000 * 0.6
= $123,000
This means that Casey Corporation is expected to collect $123,000 from sales made in January.
However, we also need to consider the beginning accounts receivable, which is given as $30,000. This represents the amount of accounts receivable carried over from previous months.
Budgeted accounts receivable at the end of January = Beginning accounts receivable + Collections for sales in January
= $30,000 + $123,000
= $153,000
Therefore, the budgeted accounts receivable at the end of January for Casey Corporation is $153,000.
It's important to note that the question provides additional answer options. However, based on the calculations using the given information, the correct answer is $153,000, not the options provided in the question.
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Explain with examples why the degree of necessity and the availability of substitutes can determine consumers' responsiveness to price changes.
Gasoline is a necessity for many individuals who rely on cars for transportation. Even if the price of gasoline increases, consumers may have limited alternatives, and they still need to purchase it to fuel their vehicles.
The degree of necessity and the availability of substitutes are important factors that determine consumers' responsiveness to price changes.
When a good or service is considered a necessity, consumers tend to be less responsive to price changes because they have limited alternatives and must continue purchasing the item regardless of price fluctuations. On the other hand, when a good or service has readily available substitutes, consumers are more responsive to price changes as they can easily switch to a different product that offers a similar function or utility.
For example, consider the case of gasoline. Gasoline is a necessity for many individuals who rely on cars for transportation. Even if the price of gasoline increases, consumers may have limited alternatives, and they still need to purchase it to fuel their vehicles. Therefore, the demand for gasoline tends to be less responsive to price changes.
In contrast, let's consider the market for soft drinks. If the price of a particular brand of soda increases significantly, consumers have various substitutes available, such as other soda brands, juices, or water. In this case, consumers are more likely to respond to the price change by shifting their preferences to lower-priced substitutes. The availability of substitutes makes consumers more responsive to price changes as they have the flexibility to choose alternative options that better fit their budget.
In summary, the degree of necessity and the availability of substitutes influence consumers' responsiveness to price changes. When a good is deemed necessary or has limited substitutes, consumers are less likely to alter their consumption patterns in response to price fluctuations. Conversely, when a good has readily available substitutes, consumers are more responsive to price changes as they have the option to switch to alternative products that better align with their preferences and budget.
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i need explanation written please Stock Dividends On January 1, 2021, Parker has 500,000 shares of $10 par Common Stock authorized, 320,000 shares issued, and 300,000 shares outstanding. On August 1, 2021, Parker declares a 15% Common Stock dividend. The market (fair) value of the stock on August 1, 2021, is $30 per share. August 15, 2021, is the date of record. The stock dividend will be distributed on August 31, 2021. Instructions: (a) Prepare all required journal entries for August 1, 15, and 31, 2021. If no journal entry is required, state NA. (b) Assume that Parker declares a 40% Common Stock dividend instead of a 15% stock dividend. Prepare all required journal entries for August 1, 15, and 31, 2021. If no journal entry is required, state NA.
(a) Prepare all required journal entries for August 1, 15, and 31, 2021. If no journal entry is required, state NA.Journal Entry for August 1, 2021:Date Accounts TitlesDebit CreditAug-01 Common Stock Dividend Distributable ($30 x 15% x 320,000 shares)1,440,000Common Stock Dividend Distributable (Par value x 15% x 320,000 shares)480,000Common Stock Dividend Distributable (Total Dividend)1,920,000Journal Entry for August 15, 2021:Date Accounts Titles Debit Credit Aug-15 No journal entry required NA NA Journal Entry for August 31, 2021:Date Accounts Titles DebitCreditAug-31Common Stock Dividend Distributable480,000Common Stock ($30 x 15% x 320,000 shares)4,800,000Paid-in Capital in Excess of Par-Common Stock1,440,000.
(b) Assume that Parker declares a 40% Common Stock dividend instead of a 15% stock dividend. Prepare all required journal entries for August 1, 15, and 31, 2021. If no journal entry is required, state NA.Journal Entry for August 1, 2021:Date Accounts Titles Debit Credit Aug-01 Common Stock Dividend Distributable ($30 x 40% x 320,000 shares)1,920,000Common Stock Dividend Distributable (Par value x 40% x 320,000 shares)640,000Common Stock Dividend Distributable (Total Dividend)2,560,000Journal Entry for August 15, 2021:Date Accounts Titles Debit Credit Aug-15No journal entry required NA NA Journal Entry for August 31, 2021:Date Accounts TitlesDebit CreditAug-31Common Stock Dividend Distributable640,000Common Stock ($30 x 40% x 320,000 shares)12,000,000Paid-in Capital in Excess of Par-Common Stock3,520,000.
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A bond offers a coupon rate of 6%, paid annually, and has a maturity of 8 years. Face value is $1,000. If the current market yield is 6% (discount rate), what should be the price of this bond? Enter your answer in terms of dollars and cents, rounded to 2 decimals, and without the dollar sign. That means, for example, that if your answer is $127.5678, you must enter 127.57
To calculate the price of the bond, we can use the formula: P = C * (1 - (1 + r)^-n) / r + FV / (1 + r)^n.
the price of the bond should be $1,032.78, rounded to two decimals.
where P is the price of the bond, C is the annual coupon payment, r is the discount rate, n is the number of years to maturity, and FV is the face value.
In this case, we have C = $60 ($1,000 x 6%), r = 6%, n = 8, and FV = $1,000. Plugging in these values, we get:
P = $60 * (1 - (1 + 0.06)^-8) / 0.06 + $1,000 / (1 + 0.06)^8
= $60 * 5.2067 / 0.06 + $1,000 / 1.5938
= $1,032.78
So the price of the bond should be $1,032.78, rounded to two decimals.
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Warner Company's yearend unadjusted trial balance shows accounts recelvable of $106.000, allowance for doubtful accounts of $670 (credit), and sales of $350.000. Uncolfectibles are estimated to be 150% of accounts receivable. 1. Prepare the December 31 year-end adjusting entry for uncollectibles: 2. What amount would have been used in the year-end adjusting entry if the allowance account had a year end unacjusted debit balance of $650 ?
Allowance for Doubtful Accounts = $670 (credit balance) - $650 (debit balance) = $20 (credit balance)
The credit to the allowance account will increase its balance by $138,000, resulting in a new balance of $158,000 ($20 + $138,000).
The estimated amount of uncollectibles at 150% of accounts receivable is $159,000 ($106,000 x 150%). To adjust the allowance for doubtful accounts to this estimated amount, we need to make an adjusting entry as follows:
Allowance for Doubtful Accounts 158,330
Estimated Uncollectible Accounts 158,330
The debit to the allowance account increases its balance and reflects the additional estimated uncollectibles.
If the allowance account had a year-end unadjusted debit balance of $650, then it means that the company had overestimated the allowance for doubtful accounts. In this case, the adjusting entry would be different.
First, let's calculate the current balance of the allowance account:
Allowance for Doubtful Accounts = $670 (credit balance) - $650 (debit balance) = $20 (credit balance)
Since the uncollectibles are still estimated to be 150% of accounts receivable, the adjusting entry would be:
Bad Debt Expense 138,000
Allowance for Doubtful Accounts 138,000
The credit to the allowance account will increase its balance by $138,000, resulting in a new balance of $158,000 ($20 + $138,000).
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Question 4 Which one of the following categories of items cannot be considered as independent demand items? O Component parts that become part of the final product at a manufacturing firm Maintenance, repair, and operating supplies at a service firm Maintenance, repair, and operating supplies at a manufacturing company Wholesale and retail merchandise items Service industry items such as hospital supplies or office supplies for law firms 2.22 pts
The category of items that cannot be considered as independent demand items is Component parts that become part of the final product at a manufacturing firm.
Independent demand items refer to end products that are purchased by external customers, which means they are consumed by the end-users. These items are usually forecasted and planned based on their own consumption rate and do not rely on any other item's demand. These items are known as dependent demand items because their demand depends on the demand for the final product.
Therefore, the demand for these component parts must be forecasted based on the demand for the final product, which makes them different from independent demand items like service industry items such as hospital supplies or office supplies for law firms, wholesale and retail merchandise items, or maintenance, repair, and operating supplies at a service or manufacturing company.
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1. One year ago, HQ Company paid $10,000 to a consultant to review some new milling machines. Now, the company is evaluating the acquisition of a new milling machine. The machine's base price is $108,000, and it would cost another $12,500 to modify it for special use by the firm. The machine falls into the MACRS 3-year class (Annual depreciation rates will be provided in the exam), and it will be sold after 3 years for $65,000. The machine would require an increase in net working capital (inventory) of $5,500 in the beginning. The milling machine would have no effect on revenues, but it is expected to save the firm $36,000 per year (= revenues - costs - gross profit=GP) in before tax operating costs, mainly labor. The annual interest expense is $4,000. HQ's marginal tax rate is 25%. a. Calculate the net cost of the machine for capital budgeting purposes. (i.e., what is the Year 0 net cash flow, CF.?) b. Calculate the (net) operating cash flows (OCF) in Years 1, 2 and 3. c. Calculate the after-tax salvage value (ATSV), d. Calculate the terminal (year) cash flow. e. If the project's cost of capital is 12%, should the machine be purchased? 2. Now your boss asks you to do sensitivity analysis (for the project in Question 1), focusing on how the change in the GP (variable) affects the NPV. Use GP = $32,000, $34,000, $36,000, $38,000, and S40,000 to calculate the corresponding NPVs. Plot the NPV (Yaxis) against the GP (X axis). Find (or estimate approximately) the breakeven GP. Comment on the results. 3. Also, your boss, who is curious about how the depreciation method matters, asks you to estimate the NPV (for the project in Question 1), using the straight-line depreciation method over a 4-year
The net cost of the machine for a. capital budgeting -$126,500. b. The net operating cash flows (OCF) are $20,500, $53,000, and $76,500 c. The after-tax salvage value is $43,750. d. The terminal cash flow is $120,750. e. The project's net present value (NPV) at a cost of capital of 12%
a. The net cost of the machine for capital budgeting purposes (Year 0 net cash flow) is -$126,500.
To calculate the net cost of the machine, we subtract the initial cash outflow (base price + modification cost + increase in net working capital) from the consultant fee paid one year ago. Net cost = -$10,000 - ($108,000 + $12,500 + $5,500) = -$126,500.
b. The net operating cash flows (OCF) in Years 1, 2, and 3 are $20,500, $53,000, and $76,500, respectively.
Net operating cash flow is calculated by subtracting operating costs (including the annual interest expense) and taxes from the annual cost savings. OCF1 = ($36,000 - $4,000) × (1 - 0.25) = $20,500, OCF2 = ($36,000 - $4,000) × (1 - 0.25) = $53,000, OCF3 = ($36,000 - $4,000) × (1 - 0.25) + $65,000 = $76,500.
c. The after-tax salvage value (ATSV) is $43,750.
The after-tax salvage value is calculated by multiplying the salvage value by (1 - tax rate). ATSV = $65,000 × (1 - 0.25) = $43,750.
d. The terminal cash flow is $120,750.
The terminal cash flow is the sum of the after-tax salvage value and the net cash flow in Year 3. Terminal cash flow = $43,750 + $76,500 = $120,750.
e. If the project's cost of capital is 12%, the machine should be purchased because the net present value (NPV) is positive.
To determine whether the machine should be purchased, we calculate the NPV of the project. The NPV is the present value of the project's cash flows discounted at the project's cost of capital. If the NPV is positive, it indicates that the project is expected to generate a return higher than the cost of capital and is therefore a good investment. If the NPV is negative, it suggests that the project is expected to have a lower return than the cost of capital and should be rejected.
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.what is the meaning of cross directorship and the impact on corporate governance in a company?
please answer in lengthy amount.
Cross directorship refers to the phenomenon where the same individual serves as a board member for multiple corporations, which are often in the same industry.
In such a scenario, these board members serve on different corporate boards with a vested interest, which is known as interlocking directorate. The practice of cross-directorship has an enormous impact on corporate governance in various ways. It affects both the quality of governance and the strength of the corporate board of directors.
What is the impact of cross directorship on corporate governance?Cross directorship has several impacts on corporate governance, including the following: Impact on governance quality Cross-directorship has a direct impact on governance quality. When a person holds a position on the board of directors of several companies, they may not devote enough time and effort to each company. This lack of focus might result in inadequate governance. The oversight and governance systems are insufficient, leading to a lack of accountability, a lack of independence, and poor transparency.
Furthermore, the chances of conflicts of interest are very high. Cross-directorship also increases the potential for collusion, price-fixing, insider trading, and anti-competitive conduct. Impact on the strength of the corporate board of directors Cross directorship also impacts the strength of the board of directors in a company. Cross-directors, who often come from the same industry or sector, bring their expertise and experiences to the company. On the one hand, it could contribute to the board's strength. Cross-directors, on the other hand, may be too focused on the sector they know best, limiting the board's diversity and fresh perspectives. Furthermore, interlocking directorate might lead to a collective bias in the company's governance.
What measures can be taken to mitigate the impact of cross directorship?There are several measures that can be taken to mitigate the impact of cross-directorship. For example, the following could be done:Limit the number of boards a director can serve on Provide the board with the authority to require directors to disclose and explain their business interests Avoid the practice of interlocking directorates in industries that are highly competitive Assign different directors to various committees to increase the diversity of views and prevent a single director from exerting too much influence on the company.
Encourage diversity on the board of directors to ensure a broad range of perspectives.
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Question 3 CLO2: Identify and examine the features of organized securities exchanges and over-the-counter markets; types of stocks; calculations related to valuation of stocks and other securities
a) A firm's next year earnings are expected to be $4.00 per share and the firm follows a practice of paying out 60 percent of earnings as dividends. The long-term growth rate for this firm is 5 percent and the appropriate discount rate is 12 percent. What is the price of this stock?
A US company borrows Mexican pesos for one year at 30 percent. During the year, the peso depreciates 15 percent against the dollar. The US tax rate is 35 percent.
What is the after-tax cost of this debt in US dollar terms?
The Pennington Corporation issued a new series of bonds on January 1, 1979.
The bonds were sold at par ($1,000), have a 12 percent coupon, and mature in 30 years, on December 31, 2008. Coupon payments are made semi-annually (on June 30 and December 31).
What was the price of the bond on 25 years later, assuming that the level of interest rates had fallen to 10 percent?
Every financial market performs the following function:
It determines the level of interest rates.
It allows common stock to be traded.
It allows loans to be made.
It channels funds from lenders-savers to borrowers-spenders.
Only one (1) of the statements above is 100% correct, explain what de-selects each of the incorrect statements.
The correct statement is It channels funds from lenders-savers to borrowers-spenders. There are four statements given to explain the functions of the financial market. Every financial market performs one of these functions as mentioned below It determines the level of interest rates.
It allows common stock to be traded. It allows loans to be made. It channels funds from lenders-savers to borrowers-spenders. The statement, "It determines the level of interest rates" is incorrect as the financial market does not solely determine the level of interest rates.
Instead, many other factors also play an important role in determining the level of interest rates, including the central bank's monetary policy, inflation, supply and demand, etc .The statement, "It allows common stock to be traded" is incorrect because the stock market (a subset of the financial market) is responsible for the trading of common stocks. The statement, "It allows loans to be made" is incorrect because the credit market (another subset of the financial market) is responsible for making loans. The correct statement, "It channels funds from lenders-savers to borrowers-spenders," highlights the primary function of the financial market. The financial market provides a platform for the transfer of funds from lenders (people who have extra money) to borrowers (people who need funds).
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The initial time to produce a first unit at a company is 400 hours. How many installations would a representative employee produce during their tenure at a company with a turnover rate of 12.06%? This question requires the table provided
A representative employee can produce 0.22 units.
The given data is shown in the following table:
Number of hours to produce one unit (H)400
Turnover rate (TR)12.06%
As we know that an employee will work for 100% minus the turnover rate of the company. Then, the effective time will be the following:
E = 100% – 12.06%
E = 87.94%
To determine how many installations a representative employee can produce during their tenure at a company, we can use the following formula:
Units = Time (E) / (H)
Units = 87.94% / 400
Units = 0.21985 units
Therefore, a representative employee can produce 0.21985 units during their tenure at a company, which can be rounded off to 0.22 units, but to get the actual number of units produced by the employee, we must know the tenure of the employee that how long he has worked in the company.
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You invest one-third of your wealth in each of three stocks. The expected return and standard deviation of each individual stock is 10 percent and 20 percent, respectively. Each stock has a pairwise correlation of 0.50 with the returns of the two other stocks.
What is the expected return of the portfolio?
The expected return of the portfolio can be calculated as follows:Er(p) = ∑w(i) × Er(i)Er(p) = 0.33 × 10% + 0.33 × 10% + 0.33 × 10%Er(p) = 3.33% + 3.33% + 3.33%Er(p) = 10%. Therefore, the expected return of the portfolio is 10%.
Portfolio analysis refers to the method of selecting the best possible securities that will provide the highest possible return for a given level of risk in the market.
The expected return of a portfolio is determined by the return and the risk of the securities included in the portfolio.
The expected return of a portfolio of three stocks can be calculated as follows: Where: Er(p) = expected return of portfolio, w(i) = weight of individual securities or stocks, Er(i) = expected return of each security, n = number of securities in the portfolio.
Using the above formula, we can calculate the expected return of the portfolio by first calculating the weighted expected return of each security by multiplying the weight of each security with its expected return.
Since we are given that the investor invests one-third of their wealth in each of the three stocks, the weight of each security can be calculated as follows: Weight of each security = 1/3 = 0.33.
The expected return of each security is 10%, so the weighted expected return of each security is: Weighted expected return of each security = 0.33 × 10% = 3.33%
Next, we need to calculate the expected return of the portfolio by adding the weighted expected return of each security.
Hence, the expected return of the portfolio can be calculated as follows: Er(p) = ∑w(i) × Er(i)Er(p) = 0.33 × 10% + 0.33 × 10% + 0.33 × 10%Er(p) = 3.33% + 3.33% + 3.33%Er(p) = 10%
Therefore, the expected return of the portfolio is 10%.
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If you have a 12-year annuity paying $450 each six months in 3 years when interest is 3.05% compounded semi-annually, what is the number of missed payments? Treat the deferred annuity as an ordinary annuity with the first annuity payment at the 3-year mark.
The number of payments that is missed is 27.
To solve this, we will use the formula of present value of an annuity for deferred ordinary annuity, which isPV = PMT [(1 + i)n − (1 + i)m (1 + i)n - 1]
Here, PMT is the payment, i is the interest rate, n is the number of payment periods, and m is the number of payment periods deferred.
Since the first payment occurs after 3 years, the number of payment periods deferred = 12 x 2 - 2 x 3 = 21
Payment period deferred = 21 years/6 months = 42 payment periods
PV = $450 [1 - (1.01525)-42] / 0.01525PV = $13421.64
The present value of the annuity is $13,421.64. We can find the sum of the present values of all the payments, assuming no payments have been missed. This will give us an idea of what the present value of the annuity should be if no payments are missed.
Sum of the present values of all payments is
S = PMT [(1 + i)n - 1] / i= $450 [(1 + 0.01525)24 - 1] / 0.01525= $450 x 19.8441= $8924.84
The present value of the annuity is less than the expected present value, which means some payments have been missed. We can find the number of missed payments by finding the present value of the missed payments.
The difference in present value = $8924.84 - $13421.64 = $4500.80PV = PMT [(1 + i)n − (1 + i)m (1 + i)n - 1]
Here, PV = $4500.80, PMT = $450, i = 0.01525, n = 42, and m is the number of missed payments.
PV = $450 [(1 + 0.01525)42 - (1 + 0.01525)m (1 + 0.01525)42 - 1] / 0.01525$4500.80 / $195.7447 = (1 + 0.01525)42 - (1 + 0.01525)m (1 + 0.01525)42 - 1$22.9985 = (1 + 0.01525)m - (1 + 0.01525)0m = ln(23.9985) / ln(1.01525)m ≈ 26.94
This means that approximately 27 payments have been missed.
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4-29. Liam O'Kelly is 25 years old and is thinking about buying a term life insurance policy with his wife as the beneficiary. The quoted annual premium for Liam is $7.63 per thousand dollars of insurance coverage. Because Liam wants a $100,000 policy (which is 3.5 times his annual salary), the annual premium would be $763, with the first payment due immediately (i.e., at age 25). A friend of Liam's suggests that the $763 annual premium should be deposited in a good mutual fund rather than in the insurance policy. "If the mutual fund earns 8% per year, you can become a millionaire by the time you retire at age 60," the friend advises. (4.7) a. Is the friend's statement really true? b. Discuss the trade-off that Liam is making if he decides to invest his money in a mutual fund.
a. The friend's statement is not true, as investing the $763 annual premium in a mutual fund earning 8% per year will not make Liam a millionaire by the time he retires at age 60. b. By investing in a mutual fund instead of purchasing the insurance policy, Liam is sacrificing the guaranteed death benefit and financial security for his wife.
To determine if the friend's statement is true, we need to calculate the future value of the $763 annual premium invested in a mutual fund earning 8% per year. Assuming the premium is invested for 35 years (from age 25 to 60) and compounded annually, the future value can be calculated using the compound interest formula. The future value would be significantly less than a million dollars, as the investment amount is limited to the annual premium paid and does not consider any additional contributions.
The trade-off Liam is making by investing in a mutual fund instead of purchasing the insurance policy is that he is giving up the guaranteed death benefit provided by the insurance policy, which would financially protect his wife in the event of his death. Investing in a mutual fund carries the risk of potential market fluctuations and does not provide the same level of security as a life insurance policy in terms of protecting his family's financial future.
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Question 1 A company manufactures three products, X, Y and Z. The sales demand and the standard unit selling prices and costs for the next accounting period, period 1, are estimated as follows: Maximum Demand (in units) х 4000 $28 per unit Y 5500 $22 per unit Z 7000 $30 per unit Selling price Variable costs: Raw material ($1 per kg) Direct labour ($12 per hour) $5 per unit $12 per unit $4 per unit $9 per unit $6 per unit $18 per unit (a) If supplies in period 1 are restricted to 90000 kg of raw material and 18000 hours of direct labour, the limiting factor would be: (1.5 marks) (b) In period 2 the company will have a shortage of raw materials, but no other resources will be restricted. The standard selling prices and costs and the level of demand will remain unchanged. In what order should the materials be allocated to the products if the company wants to maximize profit? (2 marks) 1" Z Y 2d х Z Y X 300 Y х х Z (tv) Y
(a) The available raw material (90,000 kg) is less than the raw material required (16,500 kg), the limiting factor is the raw material.
(b) To maximize profit, the raw materials should be allocated first to Product Z, then to Product X, and finally to Product Y.
(a) The limiting factor is determined by comparing the available resources with the resource requirements for each product. In this case, the available resources are 90,000 kg of raw material and 18,000 hours of direct labor.
To calculate the resource requirements for each product, we multiply the maximum demand by the variable costs of raw material and direct labor per unit:
Product X:
Raw material requirement: 4,000 units × $1 per unit = 4,000 kg
Direct labor requirement: 4,000 units × 12 hours per unit = 48,000 hours
Product Y:
Raw material requirement: 5,500 units × $1 per unit = 5,500 kg
Direct labor requirement: 5,500 units × 12 hours per unit = 66,000 hours
Product Z:
Raw material requirement: 7,000 units × $1 per unit = 7,000 kg
Direct labor requirement: 7,000 units × 12 hours per unit = 84,000 hours
Comparing the resource requirements with the available resources:
Raw material available: 90,000 kg
Raw material required: 4,000 kg (X) + 5,500 kg (Y) + 7,000 kg (Z) = 16,500 kg
Direct labor available: 18,000 hours
Direct labor required: 48,000 hours (X) + 66,000 hours (Y) + 84,000 hours (Z) = 198,000 hours
Since the available raw material (90,000 kg) is less than the raw material required (16,500 kg), the limiting factor is the raw material.
(b) To maximize profit in period 2, the company should allocate the limited raw materials to the products that generate the highest contribution margin per unit of raw material.
The contribution margin per unit of raw material can be calculated by subtracting the variable raw material cost per unit from the selling price per unit:
Product X:
Contribution margin per unit of raw material: $28 - $5 = $23
Product Y:
Contribution margin per unit of raw material: $22 - $4 = $18
Product Z:
Contribution margin per unit of raw material: $30 - $6 = $24
Based on the contribution margin per unit of raw material, the materials should be allocated in the following order to maximize profit: Z, X, Y.
In conclusion, to maximize profit, the raw materials should be allocated first to Product Z, then to Product X, and finally to Product Y.
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An appraiser estimates that a property will produce NOI of $75,000 in perpetuity, its total estimated rate of return is 12.5%, and the constant annual growth rate in NOI is 3.0 percent. What is the estimated property value? a $789,474 b $483,871 c $600,000 d $750,000
The estimated property value is $600,000. The correct option is C.
The net operating income (NOI) is projected to be $75,000 in perpetuity, and the total estimated rate of return is 12.5%.
To calculate the property value, we can use the formula for the present value of a perpetuity. By dividing the NOI ($75,000) by the total estimated rate of return (12.5% converted to decimal form, 0.125), we get $600,000.
Based on the estimated Net Operating Income (NOI) of $75,000 and a total estimated rate of return of 12.5%, the estimated property value is calculated to be $600,000.
This is determined using the formula for the present value of perpetuity, where NOI is divided by the rate of return. Among the options provided, option c) $600,000 is the closest match to the estimated property value.
This means that the property is valued at $600,000 based on the projected income and rate of return, Hence the correct option is C
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calculate cash paid for merchandise using direct method
purchases = $345,000
accounts payable at the beginning of year = $100,000
accounts payable at the end of year = $250,000
Cash paid for merchandise using the direct method is $345,000 minus the increase in accounts payable ($250,000 - $100,000), which equals $195,000.
The direct method calculates cash paid for merchandise by subtracting the increase in accounts payable from the total purchases. In this case, purchases amount to $345,000. Accounts payable increased from $100,000 at the beginning of the year to $250,000 at the end of the year, resulting in a $150,000 increase. By subtracting this increase from the total purchases, we find that $195,000 was the actual cash paid for merchandise.
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Consider the market for t-shirts in Australia, a small country. The domestic quantity demanded qd is given by qd = 10 – 2P, where P is the market price. The domestic quantity supplied qs is given by qs = P. The world price for t-shirts is $1. If the Australian government introduces a $2 tariff, what are the deadweight losses from overproduction and from under-consumption and the what is the tariff revenue raised?
a. The DWL is $2; and tariff revenue is $1. b. The DWL is $4; and tariff revenue is $2. c. The DWL is $6 ; and tariff revenue is $4. d. **The DWL is $6; and tariff revenue is $2. e. None of the above
The deadweight loss from overproduction and under-consumption is $2, and the tariff revenue raised is $2. Here option D is the correct answer.
To determine the deadweight losses from overproduction and under-consumption, as well as the tariff revenue raised, let's analyze the situation step by step.
First, let's consider the initial equilibrium in the absence of any tariff. The domestic quantity demanded (qd) is given by qd = 10 - 2P, and the domestic quantity supplied (qs) is given by qs = P. At equilibrium, qd = qs, so we can set the two equations equal to each other:
10 - 2P = P
Simplifying this equation, we find:
3P = 10
P = 10/3
So the equilibrium price in the absence of any tariff is P = 10/3, and the equilibrium quantity is q = 10 - 2(10/3) = 10/3.
Now, let's consider the situation after the Australian government introduces a $2 tariff. The new domestic price faced by consumers (Pc) will be the sum of the world price ($1) and the tariff ($2), which is $3. The domestic quantity demanded at this new price is:
qd = 10 - 2Pc
qd = 10 - 2(3)
qd = 4
On the other hand, the domestic quantity supplied remains the same at qs = P = 3.
Therefore, after the tariff, there is an excess supply of 1 unit (qs - qd = 3 - 4 = -1). This indicates under-consumption. The deadweight loss (DWL) from under-consumption is the area of the triangle formed by the price increase ($3 - $1 = $2) and the quantity under-consumed (1 unit):
DWL from under-consumption = (1/2) * ($2) * (1) = $1
Additionally, there is overproduction, as the domestic suppliers are producing more than the domestic demand. The deadweight loss from overproduction is also the area of a triangle formed by the excess supply (1 unit) and the price decrease ($3 - $1 = $2):
DWL from overproduction = (1/2) * ($2) * (1) = $1
So, the total deadweight loss is the sum of the deadweight losses from overproduction and under-consumption:
Total DWL = DWL from overproduction + DWL from under-consumption = $1 + $1 = $2
Finally, to calculate the tariff revenue, we need to determine the quantity that is subject to the tariff. In this case, the quantity subject to the tariff is the excess supply (1 unit). The tariff is $2 per unit, so the tariff revenue raised is:
Tariff revenue = Quantity subject to tariff * Tariff rate = 1 * $2 = $2
Therefore, the correct answer is an option (d): The deadweight loss is $6, and the tariff revenue is $2.
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Linda will make month-end deposits of 2,000 for 6 years staring in one month. She earns an interest rate of 2.6% p.a. compounded monthly for the first 2 years and 9.2% p.a. compounded monthly thereafter. How much will she have in 6 years? Correct your answer to the nearest cent without any units. (Do not use "$" or "," in your answer. e.g. 12345.67) Answer:
Linda will have approximately $1,343,697.85 in 6 years.
To calculate the future value of Linda's deposits, we can break it down into two periods: the first two years with an interest rate of 2.6% compounded monthly, and the remaining four years with an interest rate of 9.2% compounded monthly.
For the first two years, we can use the formula for the future value of a series of equal payments:
[tex]FV = P * [(1 + r)^{n - 1}] / r[/tex]
Where:
FV = Future value
P = Monthly deposit amount
r = Monthly interest rate
n = Number of periods
Using the values given:
P = 2,000
r = 0.026 / 12 (2.6% annual rate converted to a monthly rate)
n = 2 * 12 (2 years)
FV1 = 2,000 * [(1 + 0.0021667)^24 - 1] / 0.0021667
= 2,000 * (1.051045) / 0.0021667
= 2,000 * 485.08
= 970175.882
For the remaining four years, we can use the same formula with the adjusted interest rate:
P = 2,000
r = 0.092 / 12 (9.2% annual rate converted to a monthly rate)
n = 4 * 12 (4 years)
FV2 = 2,000 * [(1 + 0.0076667)^48 - 1] / 0.0076667
= 2,000 * (1.43185) / 0.0076667
= 2,000 * 186.761
= 373,521.967
The total future value after 6 years is the sum of FV1 and FV2:
Total FV = FV1 + FV2
= 970175.882 + 373,521.967
= 1,343,697.85
Therefore, Linda will have approximately $1,343,697.85 in 6 years.
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Create a spreadsheet similar to Figure 12-7 in your text to determine the cash flow from a project. • The spreadsheet should handle projects up to 12 months, retention rates from 0%-10%, and the owner paying in 15 or 30 days. • On the last day of each month the construction company bills the owner for the work completed during the month. • The construction company pays material suppliers in full when it receives payment from the owner. • The construction company pays subcontractors when it receives payment from the owner but withholds retention from the subcontractor's payment. • The construction company pays for labor weekly.(Remember this when you are working on the assignment)
To create a spreadsheet to determine the cash flow from a project, we need to keep some things in mind.
The spreadsheet should handle projects up to 12 months, retention rates from 0%-10%, and the owner paying in 15 or 30 days. We will use the following steps to create a spreadsheet similar to Figure 12-7 in the text:
Step 1: Open a new spreadsheet and name it "Cash Flow Spreadsheet."
Step 2: Enter the column headers as shown in Figure 12-7. Enter the first two columns as "Month" and "Total Earned"
Step 3: Add additional columns for "Material Costs," "Subcontractors," and "Labor."
Step 4: Add another column for "Total Paid," which will include all costs from material suppliers, subcontractors, and labor.
Step 5: Add a column for "Retained Earnings," which will reflect the amount withheld from subcontractor payments.
Step 6: Add a column for "Net Cash Flow," which will be the difference between Total Earned and Total Paid.
Step 7: Add a column for "Cumulative Cash Flow," which will add the Net Cash Flow from each month to the previous month's cumulative cash flow.
Step 8: Add a final row for "Total" and "Total" to sum up all the values in each column.
Step 9: Input the owner paying in 15 or 30 days in the spreadsheet based on the condition.
Step 10: Include the project timeline from 1-12 months in the sheet.
Step 11: Insert formulae and functions in the respective cells to calculate the Total Earned, Material Costs, Subcontractors, Labor, Total Paid, Retained Earnings, Net Cash Flow, and Cumulative Cash Flow.
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evaluate the consistency, desirability and validity of low cost strategy. Please elaborate.
Evaluating the consistency, desirability, and validity of low-cost strategies entails examining whether the strategy has been consistently applied over time, provides desirable outcomes for customers, and is based on accurate and logical data and reasoning.
A low-cost strategy is a pricing technique that allows businesses to sell products and services at a lower price than their competitors.
To evaluate the consistency, desirability, and validity of low-cost strategies, it is important to assess the following factors:
Consistency: Consistency relates to whether the low-cost strategy has been executed consistently over time. If the company has been able to maintain a low-cost strategy consistently, it can be viewed as consistent.
Desirability: Desirability concerns whether the low-cost strategy is preferred by the customers and provides them with desirable outcomes. A low-cost strategy is desirable if it results in customer loyalty, retention, and high sales.
Validity: Validity focuses on whether the low-cost strategy is based on accurate data and logical reasoning. A low-cost strategy is valid if it is supported by factual evidence and is implemented based on a thorough analysis of the market and competitors.
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Define the concept of a common property resource and explain how it has been used by Dasgupta to support the need for limiting population growth. For the toolbar, press ALT+F10(PG) or ALT+FN+F10 (Mac)
A common property resource refers to a shared resource that is accessible to a group of individuals without exclusive ownership. It can be natural resources like forests or fisheries. Dasgupta argues that limiting population growth is crucial to avoid overexploitation of common property resources, ensuring their sustainability.
It often lacks well-defined property rights or mechanisms for regulating its use.
In the context of supporting the need for limiting population growth, economist Partha Dasgupta has used the concept of common property resources to highlight the issue of overexploitation and degradation of resources caused by population growth. Dasgupta argues that as population increases, the demand for common property resources intensifies, leading to unsustainable levels of resource consumption.
When a common property resource is subject to excessive use, it can become depleted or degraded, harming the overall well-being of the community dependent on it. Dasgupta suggests that limiting population growth is crucial in order to mitigate the overuse and degradation of common property resources, as it helps to align resource consumption with the carrying capacity of the environment.
By advocating for population control, Dasgupta aims to address the tragedy of the commons—the scenario where individuals acting in their self-interest deplete or degrade a shared resource. By limiting population growth, the pressure on common property resources can be reduced, allowing for more sustainable and equitable use of these resources.
In conclusion, the concept of common property resources emphasizes the shared and finite nature of certain resources. Dasgupta utilizes this concept to argue for the necessity of limiting population growth, as it can help prevent the overexploitation and degradation of these resources, ensuring their sustainability for future generations.
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Qu = 25,000 – Pu
where Qu = undergraduate enrollment and Pu = undergraduate tuition.
Graduate enrollment is given by:
Qg = 13,500 – 0.5Pg.
where Qg = graduate enrollment and Pg = graduate tuition.
a. If the goal of the university is to maximize total revenue, determine tuition, enrollment and demand elasticity for each type of student.
b. Because of a faltering state economy, the university anticipates budget cuts that will limit total enrollment to 11,000 students next year. If the University goal is to maximize total revenue, determine undergraduate and graduate tuition and enrollments.
c. Suppose that the marginal cost to the university of each additional student is $7,000. Determine the tuition charges if the university wishes to maximize profits. You may solve by trial and error or using Solver.
The university's undergraduate and graduate enrollment and tuition are modeled by demand functions. To maximize total revenue, tuition should be set to yield a price elasticity of demand of -1. To maximize profits, the university should set tuition such that the marginal revenue equals the marginal cost.
a. To maximize total revenue, the university should set tuition such that the price elasticity of demand is -1 for both undergraduate and graduate students. The demand functions can be used to solve for tuition and enrollment for each type of student:
Qu = 25,000 - Pu
Qg = 13,500 - 0.5Pg
εu = (dQu/dPu)(Pu/Qu) = -Pu/Qu
εg = (dQg/dPg)(Pg/Qg) = -0.5(Pg/Qg)
Setting each elasticity equal to -1 and solving for tuition gives:
Pu = $12,500 per year for undergraduate students
Pg = $18,000 per year for graduate students
Substituting these tuition values into the demand functions and solving for enrollment yields:
Qu = 12,500 undergraduate students
Qg = 8,250 graduate students
b. With an enrollment limit of 11,000 students, the university should adjust tuition to maximize total revenue. Using the demand functions from part a, we can solve for the tuition levels that yield a total enrollment of 11,000:
Qu = 25,000 - Pu
Qg = 13,500 - 0.5Pg
Qu + Qg = 11,000
Solving for Pu and Pg yields:
Pu = $10,000 per year for undergraduate students
Pg = $16,000 per year for graduate students
Substituting these tuition levels into the demand functions and solving for enrollment gives:
Qu = 15,000 undergraduate students
Qg = 4,000 graduate students
c. The marginal revenue functions for undergraduate and graduate students can be derived from the demand functions:
MRu = dQu/dPu = 25,000/Qu
MRg = dQg/dPg = 13,500 - Qg
Setting the marginal revenue equal to the marginal cost of $7,000 and solving for tuition gives:
Pu = $9,800 per year for undergraduate students
Pg = $14,000 per year for graduate students
Substituting these tuition levels into the demand functions and solving for enrollment yields:
Qu = 16,000 undergraduate students
Qg = 7,000 graduate students
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Your firm has a potential project that will cost $5,000 now to begin. The project will then generate after-tax cash flows of $455 at the end of the next three years and then $1,235 per year for the three years after that. If the discount rate is 2.18% then what is the NPV?
The Net Present Value (NPV) of the project, considering the initial cost and expected cash flows, at a discount rate of 2.18% is $1,540.87.
To calculate the NPV, we discount each cash flow to its present value using the discount rate of 2.18%. The cash flows consist of an initial investment of -$5,000 and subsequent cash flows of $455 at the end of the next three years, followed by $1,235 per year for the next three years.
To calculate the present value of each cash flow, we use the formula PV = CF / (1 + r)^n, where PV is the present value, CF is the cash flow, r is the discount rate, and n is the number of periods.
Calculating the present value for each cash flow and summing them, we find that the total present value is $6,540.87. Since the initial cost is -$5,000, the NPV is the difference between the total present value and the initial cost, which is $1,540.87.
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