To calculate the net present value (NPV) of Machine Alpha, we need to calculate the present value of each cash flow and subtract the initial investment.
Given:
Purchase price: $345,700
Working capital: $54,500
Overhaul costs in year 3 and year 6: $37,500 each
Annual revenue increases in years 1, 2, and 3: $98,700 each
Revenue in years 4, 5, 6, 7, and 8: $128,400, $135,300, $86,100, $72,300, and $64,900, respectively
Sale value at the end of year 8: $18,700
Rate of return: 16%
Step 1: Calculate the present value (PV) of each cash flow.
To calculate the present value, we use the formula:
PV = CF / (1 + r)^n
where CF is the cash flow, r is the discount rate, and n is the number of periods.
Year 0:
Initial investment: -$345,700
Working capital: -$54,500
Year 3:
Overhaul cost: -$37,500
Revenue increase: $98,700
Year 6:
Overhaul cost: -$37,500
Revenue increase: $98,700
Year 8:
Revenue: $18,700
Years 1, 2, 4, 5, and 7 have no additional cash flows apart from the revenue increase.
Step 2: Calculate the NPV by summing the present values and subtracting the initial investment.
NPV = Sum of PV - Initial investment
Calculations:
PV (Year 0) = -$345,700 / (1 + 0.16)^0 = -$345,700
PV (Working capital) = -$54,500 / (1 + 0.16)^0 = -$54,500
PV (Year 3 overhaul cost) = -$37,500 / (1 + 0.16)^3 = -$25,395.97
PV (Year 3 revenue increase) = $98,700 / (1 + 0.16)^3 = $58,736.11
PV (Year 6 overhaul cost) = -$37,500 / (1 + 0.16)^6 = -$17,439.60
PV (Year 6 revenue increase) = $98,700 / (1 + 0.16)^6 = $40,936.34
PV (Year 8 revenue) = $18,700 / (1 + 0.16)^8 = $5,485.70
Sum of PV = -$345,700 + -$54,500 + -$25,395.97 + $58,736.11 + -$17,439.60 + $40,936.34 + $5,485.70 = -$327,876.32
NPV = -$327,876.32 - (-$345,700) = $17,823.68
Since the NPV is positive ($17,823.68), the net present value of Machine Alpha at a 16% rate of return is positive. Therefore, the Rosco Company should consider purchasing Machine Alpha as it is expected to generate a positive return on investment.
Please note that rounding the NPV to the nearest whole dollar may lead to a slight discrepancy in the final answer.
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An all-pay auction is an auction where bidders bid simultaneously, the highest bidder wins the auction and all bidders have to pay their bids. The goal of this exercise is to find the symmetric BNE of such an auction. Assume there are n bidders with iid valuations that are uniform on [0, 1]. Assume that the symmetric BNE is linear and of the form bi = B(vi) n where B > 0 is a constant you need to find.
(a) Given that all the other players use the symmetric linear strategy, find the expected utility for bidder i when her type is vi and she bids bi ∈ [0, B].
(b) Argue first that optimal bi ≤ B. Using this an your answer in a) find the optimal bid for player i. Using the fact that the equilibrium is symmetric, find B.
The expected utility for bidder i when her type is vi and she bids bi ∈ [0, B] can be calculated as follows: E(ui|vi, bi) = Pr(i wins) * (vi - bi) - Pr(i loses) * bi
In an all-pay auction, all bidders have to pay their bids regardless of whether they win or lose. Since the highest bidder wins, the probability of bidder i winning depends on the bids of other bidders. Assuming that all other players use the symmetric linear strategy, the probability of bidder i winning is equal to the probability that her bid is the highest among all bids.
(b) To find the optimal bid for player i, we need to consider that optimal bi ≤ B, where B is a constant. This constraint ensures that the bid does not exceed the maximum value of B.
Using the answer in (a), we can determine the optimal bid for player i by maximizing her expected utility. This can be achieved by finding the bid that maximizes the difference between the probability of winning and the cost of bidding.
Since the equilibrium is symmetric, all players follow the same bidding strategy. By analyzing the bidding behavior of other players, bidder i can determine the optimal bid that maximizes her expected utility.
To find the value of B, we need to analyze the bidding behavior of all players and identify the bid that results in a symmetric equilibrium, where no player has an incentive to deviate from their bidding strategy. This equilibrium bid value will correspond to the value of B in the symmetric BNE of the all-pay auction.
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An investment has an initial capital outlay of $100 million and expects $175 million in 7 years. Which of the following is correct? Group of answer choices
The investment is acceptable.
The investment is not acceptable.
Its internal rate of return is 8.32%.
Its internal rate of return is 10.53%.
The statement that is true of the investment, given the initial capital outlay and the expectation in 7 years is C. Its internal rate of return is 8.32%.
How to find the internal rate of return ?The IRR is the discount rate at which the net present value (NPV) of the cash flows from the investment equals zero. If the IRR is greater than the required rate of return or the hurdle rate, the investment is considered acceptable.
IRR = ( Final Cash Flow / Initial Capital Outlay ) ^ ( 1 / Number of Years ) - 1
= ( $ 175 million / $ 100 million) ^ ( 1 / 7) - 1
= 8. 32 %
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The demand for a product is unit elastic. At a price of $20, 10 units of a product are sold. If the price is increased to $40, then one would expect sales to equal: O 20 units. O 10 units. O 5 units. O units
If the price is increased to $40, one would expect sales to equal 0 units. The correct option is 4.
The concept of unit elasticity of demand refers to a situation where a change in the price of a product leads to an equivalent percentage change in the quantity demanded. In this case, we are given that the demand for a product is unit elastic, and at a price of $20, 10 units are sold. If the price is increased to $40, we can expect the sales to be reduced by half, as a 100% increase in the price will lead to a 50% decrease in the quantity demanded. The correct option is 4.
When the demand for a product is unit elastic, it means that the percentage change in quantity demanded is equal to the percentage change in price. In this case, when the price increases from $20 to $40, it represents a 100% increase in price. Since the demand is unit elastic, we can expect the quantity demanded to decrease by the same percentage, 100%.
Initial situation:
Price = $20
Quantity = 10 units
New situation:
Price = $40 (100% increase)
To find the new quantity, we can calculate the percentage decrease as follows:
New Quantity = Initial Quantity - (Initial Quantity * Percentage Decrease)
New Quantity = 10 - (10 * 100%)
New Quantity = 10 - 10
New Quantity = 0 units
In conclusion, based on the given information, we can infer that the demand for the product is sensitive to price changes, and an increase in price leads to a significant decrease in quantity demanded due to the unit elastic nature of demand.
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With reference to bond markets define in detail and with
examples these 2 terms:
Trading at a premium
Semi-annual coupon
Trading at a Premium: When a bond is trading at a premium, it means that its current market price is higher than its face value (par value).
In other words, investors are willing to pay more than the face value to acquire the bond. This premium is typically attributed to the bond's attractive features, such as its coupon rate, credit quality, or prevailing interest rates.
Example: Let's consider a bond with a face value of $1,000 and a coupon rate of 5%. If the prevailing interest rates in the market decrease after the bond is issued, investors may be willing to pay a premium to purchase the bond. Suppose the bond is trading at a premium of $100. In this case, the market price of the bond would be $1,100, which is $100 higher than its face value.
The premium exists because the bond's coupon rate is higher than the prevailing interest rates, making it more attractive to investors seeking higher yields. Investors are willing to pay a premium upfront to benefit from the higher coupon payments and the potential capital appreciation if interest rates decline further.
Semi-annual Coupon: A semi-annual coupon refers to the periodic interest payments made to bondholders on a semi-annual basis.
Most bonds pay interest to investors in the form of coupon payments, which are typically stated as an annual percentage of the bond's face value. However, these coupon payments are often divided into two equal payments made every six months.
Example: Let's consider a bond with a face value of $1,000 and a coupon rate of 6%. If the bond has a semi-annual coupon, it means that the bond will make two coupon payments each year, each equivalent to 3% of the face value. Therefore, every six months, the bondholder will receive an interest payment of $1,000 × 3% = $30.
The use of semi-annual coupons is a common practice in bond markets, especially in the United States. By dividing the annual coupon payment into two semi-annual payments, it provides investors with a more regular income stream and aligns with the frequency of interest rate benchmarks, such as the U.S. Treasury's semi-annual coupon bond auctions.
It's important to note that not all bonds have semi-annual coupons. Some bonds may have quarterly, annual, or even irregular coupon payment structures, depending on the terms specified in the bond's indenture or offering documents.
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On January 1, 2017, Landon Excavation Company purchased a new bulldozer for $120,000. The equipment had an estimated useful life of 10 years and an estimated residual value of $10,000. On January 1, 2019, Landon determined that the bulldozer would have a total useful life of only 8 years instead of 10 years with no change in residual value. Landon uses straight-line depreciation. Compute depreciation expense on this bulldozer for 2017, 2018, and 2019.
Depreciation Expense for 2017: The depreciation expense for 2017 can be calculated using the straight-line depreciation method. The formula for straight-line depreciation is: (Cost - Residual Value) / Useful Life.
In this case, the cost of the bulldozer is $120,000, the residual value is $10,000, and the useful life is 10 years. Therefore, the depreciation expense for 2017 is ($120,000 - $10,000) / 10 = $11,000. Depreciation Expense for 2018: Since the useful life of the bulldozer was revised to 8 years starting from January 1, 2019, we need to account for the revised useful life when calculating the depreciation expense for 2018. The revised useful life is 8 years, and the remaining useful life at the beginning of 2018 is 9 years. Therefore, the depreciation expense for 2018 is ($120,000 - $10,000) / 9 = $12,222.22. Depreciation Expense for 2019: Following the same logic as above, the remaining useful life at the beginning of 2019 is 8 years. Therefore, the depreciation expense for 2019 is ($120,000 - $10,000) / 8 = $13,750.
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Describe and discuss concept of "Diversification". Why the diversification is important for risk management?
Diversification is the practice of spreading your investments across different asset classes, industries, and companies. This helps to reduce your risk by minimizing your exposure to any one particular asset or risk factor.
For example, if you invest all of your money in a single stock, and that stock goes down, you will lose all of your money. However, if you invest your money in a diversified portfolio of stocks, and one stock goes down, the other stocks in your portfolio may go up, and you will not lose all of your money. There are many different ways to diversify your portfolio. You can invest in different asset classes, such as stocks, bonds, and real estate. You can also invest in different industries, such as technology, healthcare, and consumer staples. And you can invest in different companies, both large and small. The amount of diversification you need will depend on your individual circumstances and risk tolerance.
If you are a conservative investor, you may want to invest in a more diversified portfolio. If you are an aggressive investor, you may be willing to take on more risk by investing in a less diversified portfolio.
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Livent Inc. forecasts that it will have the free cash flows (in millions) shown below. If the weighted average cost of capital is 12% and the free cash flows are expected to continue growing at the same rate after Year 3 as from Year 2 to Year 3, what is the firm's total corporate value, in millions?
To calculate the firm's total corporate value, we need to use the free cash flow (FCF) and the weighted average cost of capital (WACC). To solve for the corporate value, we need the FCF values. However, the question does not provide the FCF values. So it can't be calculated
The formula to calculate the corporate value is:
[tex]Corporate value = FCF1 / (1 + WACC) + FCF2 / ((1 + WACC)^2) + FCF3 / ((1 + WACC)^3) + ... + FCFn / ((1 + WACC)^n)[/tex]
Since the FCFs are expected to continue growing at the same rate after Year 3 as from Year 2 to Year 3, we can assume a constant growth rate. Let's assume the FCFs for Year 1, Year 2, Year 3 are FCF1, FCF2, and FCF3, respectively. Then the corporate value formula becomes:
Corporate value =[tex]FCF1 / (1 + WACC) + FCF2 / ((1 + WACC)^2) + (FCF3 * (1 + g)) / ((WACC - g) * (1 + WACC)^3)[/tex]Where g is the constant growth rate.
To solve for the corporate value, we need the FCF values. However, the question does not provide the FCF values. Please provide the FCF values for further calculations.
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Which resource (found in Technical Library) provides a brief description of all the tools in the Excel Analytics Toolbar?
Select the correct answer
A. Excel Analytics Documentation Worksheet
B. Useful Tips and Best Practices Guide
C. Practical Application Library
D. Overview of Excel Analytics - Quick Reference Card
The resource in the Technical Library that provides a brief description of all the tools in the Excel Analytics Toolbar is the Overview of Excel Analytics - Quick Reference Card.
This resource is a handy reference guide that gives users a quick overview of all the tools and functions available in the Excel Analytics Toolbar. The Quick Reference Card is an excellent resource for beginners who are just starting to use the Excel Analytics Toolbar, as well as for advanced users who want a quick and easy reference to the various tools and functions available.
It is important to note that this resource is just a quick reference guide and does not provide in-depth tutorials on how to use the tools in the Excel Analytics Toolbar.
Therefore, option D is the correct answer.
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Supernormal GMR Inc. expects to pay the following dividends over the next three years: $4.00, $4.40, and $4.84. After that, Supernormal GMR's dividends will grow at a constant rate of 3% thereafter (to infinity and beyond). If Supernormal GMR's shareholders require a return of 14%, what is the intrinsic price of one share of Supernormal GMR's stock?
The intrinsic price of one share of Supernormal GMR's stock is approximately $47.11.
To calculate the intrinsic price of one share of Supernormal GMR's stock, we can use the dividend discount model (DDM). The DDM values a stock based on the present value of its future dividends. Given the expected dividends and the required return, we can determine the intrinsic price.
The formula for the intrinsic price using the DDM is as follows: Intrinsic Price = D1 / (r - g)
Where: D1 = Dividend expected in the next period, r = Required rate of return, g = Growth rate of dividends
Given: Dividend in Year 1 (D1) = $4.00, Dividend in Year 2 = $4.40, Dividend in Year 3 = $4.84, Growth rate (g) = 3%, Required rate of return (r) = 14%.
To calculate the intrinsic price, we need to determine the present value of the dividends in Years 1, 2, and 3, and the present value of the growing perpetuity starting from Year 4.
PV of Dividends in Year 1 = D1 / (1 + r)
PV of Dividends in Year 2 = D2 / (1 + r)^2
PV of Dividends in Year 3 = D3 / (1 + r)^3
PV of Growing Perpetuity (from Year 4 onwards) = D3 * (1 + g) / (r - g) / (1 + r)^3
Now, let's calculate the present values of the dividends:
PV of Dividends in Year 1 = $4.00 / (1 + 0.14) = $3.5088
PV of Dividends in Year 2 = $4.40 / (1 + 0.14)^2 = $3.3431
PV of Dividends in Year 3 = $4.84 / (1 + 0.14)^3 = $3.1945
Next, let's calculate the present value of the growing perpetuity:
PV of Growing Perpetuity = $4.84 * (1 + 0.03) / (0.14 - 0.03) / (1 + 0.14)^3 = $37.0598
Finally, we can calculate the intrinsic price by summing up the present values of the dividends:
Intrinsic Price = PV of Dividends in Year 1 + PV of Dividends in Year 2 + PV of Dividends in Year 3 + PV of Growing Perpetuity
Intrinsic Price = $3.5088 + $3.3431 + $3.1945 + $37.0598 = $47.1062
Therefore, the intrinsic price of one share of Supernormal GMR's stock is approximately $47.11.
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Cigna Corporation received an order for selling fax machines to a firm in Germany. The total price of fax machines is 21,300 in U.S. dollars. Approximately, how much the firm in Germany will pay to Cigna Corporation in Euros if one unit of Euro is currently equal to $1.2663 (expressed as $/Euro)?
Group of answer choices
6,250 Euros
none of the answers is correct
16,821 Euros
13,550 Euros
28,797 Euros
Rounding to the nearest Euro, the firm in Germany will pay approximately 16,821 Euros to Cigna Corporation.
To calculate the amount the firm in Germany will pay to Cigna Corporation in Euros, we need to divide the total price of fax machines in U.S. dollars by the exchange rate of dollars to Euros.
Given:
Total price of fax machines: $21,300
Exchange rate: 1 Euro = $1.2663
To convert the total price to Euros, we divide the total price by the exchange rate:
Amount in Euros = Total price in dollars / Exchange rate
Amount in Euros = $21,300 / $1.2663
Calculating the expression, we find:
Amount in Euros ≈ 16,821Euros
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Saving Dollars is a great place to work.
Which of the following best describes Saving Dollars' benefits package? Multiple Choice It has benefits for everyone. It is better suited for older employees. It is appropriate for only a younger demographic group
The statement "It has benefits for everyone" best describes Saving Dollars' benefits package.
The statement suggests that Saving Dollars' benefits package is designed to cater to the needs and preferences of a diverse range of employees, regardless of age or demographic group. This implies that the benefits package is comprehensive and inclusive, offering a variety of benefits that can meet the requirements of different individuals within the organization.
A benefits package typically includes various components such as health insurance, retirement plans, paid time off, flexible work arrangements, professional development opportunities, and more. By stating that it has benefits for everyone, it indicates that Saving Dollars' benefits package is designed to accommodate the varying needs and priorities of its employees.
Having a benefits package that caters to everyone can be seen as a positive aspect of the company's approach to employee well-being and satisfaction. It demonstrates a commitment to creating a supportive and inclusive work environment where employees can access benefits that align with their individual circumstances and preferences. This approach can contribute to attracting and retaining a diverse and talented workforce.
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Drawing on theoretical critiques and empirical evidence,
critically discuss the problems and consequences of becoming the
entrepreneurial self.
The company culture of an office or place of business is determined by theoretical notions at work. Concepts should be deliberate choices made by leaders and management of the organisation, and they should be made plain to employees so there is no misunderstanding.
Entrepreneurship increases access to products and services, fosters economic growth, and raises general living standards. By providing services to neglected regions and creating environmentally friendly goods, many entrepreneurs also have a beneficial influence on their communities and enhance their well-being. These three factors include the character of opportunities, the character of entrepreneurs, and the character of the framework for making decisions that an entrepreneur uses.
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one of the biggest benefits of pre-approach planning for the individual is that
One of the biggest benefits of pre-approach planning for the individual is increased confidence and preparedness in engaging with prospects, leading to more effective sales interactions.
Interactions refer to the exchanges, communications, and engagements between individuals or entities. Interactions can occur in various contexts, such as personal relationships, professional settings, customer interactions, or social interactions. They involve verbal and non-verbal communication, listening, understanding, and responding to one another. Effective interactions require active participation, empathy, and effective communication skills. Positive interactions foster connection, collaboration, and mutual understanding, while negative interactions can lead to conflicts, misunderstandings, and strained relationships. In business, interactions with customers, clients, colleagues, and stakeholders are crucial for building relationships, delivering quality services, resolving issues, and achieving organizational goals. Successful interactions often involve effective listening, clear communication, empathy, and respectful behavior.
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Consider the (inverse) market demand function for the market in streaming services. P = 120 - 4Q
Assume further that the available technology results in Marginal Cost equal to $40.
a) Graphically show the market outcome for monopoly, Cournot oligopoly and perfect competition.
b) For monopoly, Cournot duopoly and perfect competition determine the optimal outcome. Clearly explain how you arrive at your answer. What are the market price and quantity under each market structure?
c) What are the consumer surplus, producer surplus and total surplus under each scenario?
d) Show the reaction function under Bertrand competition. What are the associated price and quantity?
The (inverse) market demand function for streaming services is P = 120 - 4Q, with a marginal cost of $40 due to available technology.
a) Graphical representation of market outcomes:
Monopoly: In a monopoly, there is a single firm controlling the entire market. The monopolist maximizes its profit by setting the quantity where marginal cost equals marginal revenue. Since the monopolist faces the market demand curve, it can set the price accordingly.
Cournot Oligopoly: In a Cournot oligopoly, there are multiple firms competing with each other by setting their quantities simultaneously. Each firm assumes that its competitors' quantities remain constant when making their decision.
Perfect Competition: In perfect competition, there are many firms in the market, and each firm is a price taker. The market price is determined by the intersection of market demand and supply curves.
b) Optimal outcomes: Monopoly:
The monopolist maximizes its profit by setting its quantity where marginal cost (MC) equals marginal revenue (MR). In this case, MC is given as $40. To find the monopolist's quantity, we equate MR to MC:
MR = 120 - 8Q = MC = 40
Solving for Q, we get:
8Q = 80
Q = 10
Substituting Q back into the demand function, we can find the price:
P = 120 - 4Q = 120 - 4(10) = 80
Cournot Duopoly:
In a Cournot duopoly, each firm assumes its competitor's quantity remains constant. Each firm maximizes its profit by setting its quantity where the market demand curve intersects its best-response function.
Perfect Competition:
In perfect competition, firms are price takers, and the market price is determined by the intersection of market demand and supply. Since marginal cost is given as $40 and the market demand function is P = 120 - 4Q, we equate MC to the market demand to find the equilibrium quantity:
MC = P = 120 - 4Q
40 = 120 - 4Q
4Q = 80
Q = 20
Substituting Q back into the demand function, we can find the price:
P = 120 - 4Q = 120 - 4(20) = 40
c) Consumer surplus, producer surplus, and total surplus:
Monopoly:Consumer surplus is the area below the demand curve and above the price, up to the quantity consumed.
Producer surplus is the area below the price and above the marginal cost, up to the quantity produced.
Total surplus is the sum of consumer surplus and producer surplus.
Cournot Duopoly:
Consumer surplus, producer surplus, and total surplus can be calculated similarly as in the monopoly case.
Perfect Competition:
Consumer surplus is the area below the demand curve and above the market price, up to the quantity consumed.
Producer surplus is the area below the market price and above the marginal cost, up to the quantity produced.
Total surplus is the sum of consumer surplus and producer surplus.
d) Bertrand competition:
In Bertrand competition, firms compete by setting prices instead of quantities. The reaction function for each firm is to set the price equal to its marginal cost (MC), which is given as $40. Therefore, the associated price under Bertrand competition would be $40, and the quantity would be determined by the demand function at that price.
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What is the definition of the best response strategy in this situation of choosing 20-18 fishing hours? Adams' best response function is h^(hB) and Betty's best 20-kha response function is hB(h4) . Use these best response functions to find the Nash Equilibrium level of fishing hours
The best response strategy is a decision-making approach where a player chooses the action that maximizes their payoffs, given the actions of the other players in the game. In the given situation of choosing 20-18 fishing hours, Adams' best response function is h^(hB) and Betty's best 20-kha response function is hB(h4).
To find the Nash Equilibrium level of fishing hours, we need to identify the intersection point of the two best response functions. This intersection point represents the set of fishing hours where both players have chosen their optimal strategy, and neither player has the incentive to change their decision. Therefore, the Nash Equilibrium level of fishing hours is the solution to the system of equations:
h^(hB) = hB(h4)
Solving for h, we get:
h = (hB + h4) / 2
Substituting the given values of hB and h4 (i.e., 18 and 20, respectively), we get:
h = (18 + 20) / 2
h = 19
Therefore, the Nash Equilibrium level of fishing hours is 19. This means that if both Adams and Betty choose to fish for 19 hours, neither player can improve their payoff by deviating from this strategy, given the other player's decision.
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which of the following methods best reflects the traditional
concept of an asset?
a. the full cost method
b. the successful efforts method
c. the area of interest method
d. the appropriation method
The traditional method of accounting for oil and gas exploration and development costs is based on the successful efforts method. This method requires companies to expense all costs related to unsuccessful exploration efforts as they are incurred. The answer is B.
Costs related to successful exploration efforts, on the other hand, are capitalized and then depreciated over time as oil and gas reserves are produced. In contrast, the appropriation method allows companies to capitalize all exploration and development costs, regardless of whether they are successful or not.
However, this method is not considered traditional and is not widely used in the oil and gas industry. Therefore, the successful efforts method best reflects the traditional approach to accounting for exploration and development costs.The answer is b.
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using the Nextel Neru, emerging markets, how, if at all should
d'Anconia use the practitioner approaches to estimating the
required rate of return on assests?
In general, the practitioner approaches to estimating the required rate of return on assets can include various methods such as the Capital Asset Pricing Model (CAPM), Dividend Discount Model (DDM), or using comparable company analysis. These approaches take into account factors such as the risk-free rate, market risk premium, asset-specific risk, expected future cash flows, and comparable asset valuations.
To determine how d'Anconia should use these approaches in relation to the Nextel Neru and emerging markets, more information about the specific characteristics of the investment, market conditions, industry dynamics, and risk factors would be necessary. Each approach has its own assumptions and considerations, and the choice of approach would depend on the availability of data, the nature of the investment, and the level of accuracy and reliability required.
In summary, without further information on the Nextel Neru and d'Anconia, it is challenging to provide a specific answer regarding how d'Anconia should use the practitioner approaches to estimating the required rate of return on assets. The choice of approach would depend on the specific circumstances and considerations related to the investment and market dynamics involved.
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2. An investor puts £5,000 in a savings account that pays 10% simple interest at the end of each year. Compare how much the investor would have after 6 years if the money was: A. invested for 6 years B. invested for 3 years, then immediately reinvested for a further 3 years.
Therefore, after 6 years, the total amount the investor would have is £7,475 (£6,500 + £975).
If the investor puts £5,000 in a savings account that pays 10% simple interest at the end of each year, after 6 years, they would have:
A. Invested for 6 years:
The simple interest earned each year would be £500 (£5,000 x 10%).
Therefore, after 6 years, the investor would earn a total of £3,000 (£500 x 6) in interest.
In addition to the original investment, the total amount the investor would have after 6 years would be £8,000 (£5,000 + £3,000).
B. Invested for 3 years, then immediately reinvested for a further 3 years:
After the first 3 years, the investor would earn £1,500 in interest (£500 x 3) and would have a total of £6,500 (£5,000 + £1,500).
If this amount is reinvested for the remaining 3 years, the investor would earn an additional £975 in interest (£6,500 x 10% x 3).
Therefore, after 6 years, the total amount the investor would have is £7,475 (£6,500 + £975).
In conclusion, investing for 6 years would yield more returns (£8,000) than investing for 3 years and then reinvesting (£7,475).
However, reinvesting after 3 years is still a good option as it earns a significant amount of interest (£975) without requiring the investor to invest more money.
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A bond offers a coupon rate of 10%, paid annually, and has a maturity of 19 years. The current market yield is 12%. Face value is $1,000. If market conditions remain unchanged, what should the price of the bond be in 1 year? Enter your answer in dollars, without the dollar sign ('$), and rounded to the nearest cent (2 decimals). Question 20 10 pts A bond currently trades at a price of $959.25 in the market. The bond offers a coupon rate of 11%, paid annually, and has a maturity of 16 years. Face value is $1,000. What is the bond's Current Yield? Enter your answer as a percentage, without the percentage sign ('%'), and rounded to 2 decimals. Use the minus sign ('-') if the yield is negative.
The price of the bond is $1,000 while the price of the bond in 1 year would be $983.50.
Calculations:
Coupon Rate: 10%
Coupon Payment: 0.10 * $1,000 = $100
Market Yield: 12%
Maturity: 19 years
Face Value: $1,000
Price = ($100 / (1 + 0.12)) + ($100 / (1 + 0.12)²) + ... + ($100 + $1,000 / (1 + 0.12)^¹⁹)
Calculating the sum of the present values, we get:
Price = $983.50
Therefore, the price of the bond in 1 year would be $983.50.
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A machine purchased for $1,000,000 with a life of 10 years, generates annual revenues of $300,000 and operating expenses of $100,000. Assume that machine will be depreciated over 10 years using straight-line depreciation with zero balance at the end of the life. The corporate tax rate is 30%. a) Calculate annual net cash flow of the project b) Calculate project NPV.
The annual net cash flow of the project can be calculated by subtracting the operating expenses from the annual revenues and then applying the corporate tax rate. In this case, the annual net cash flow is ($300,000 - $100,000) * (1 - 0.30) = $140,000.
To calculate the project's net price value (NPV), we need to discount the annual net cash flows over the life of the project. Using a discount rate or required rate of return, we can determine the present value of each year's net cash flow and then sum them up. Assuming a discount rate of 10% for this project, the NPV calculation would be as follows:
Year 1: $140,000 / (1 + 0.10)^1 = $127,273.
Year 2: $140,000 / (1 + 0.10)^2 = $115,703.
Year 3: $140,000 / (1 + 0.10)^3 = $105,184.
Year 10: $140,000 / (1 + 0.10)^10 = $53,211.
Finally, we sum up the present values of the net cash flows:
NPV = -$1,000,000 + $127,273 + $115,703 + $105,184 + ... + $53,211.
If the sum of the present values is positive (greater than zero), it indicates that the project is expected to generate more value than its initial cost and is considered economically favorable. Conversely, if the sum is negative, the project is not expected to meet the required rate of return and may not be financially viable.
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Which of the following cost can be treated as an expense? a. Period Cost b. Product Cost c. Variable Cost d. Opportunity Cost
Among the options provided, the cost that can be treated as an expense is a) Period Cost. Period costs are incurred and expensed during a specific period and are not directly associated with the production of goods or services. Product costs, variable costs, and opportunity costs are not typically treated as expenses in the same manner.
Period costs are expenses that are incurred and recognized within a specific accounting period. These costs are not directly related to the production of goods or services. Examples of period costs include administrative expenses, selling and marketing expenses, rent, utilities, and salaries of non-production employees. Period costs are deducted from revenues in the period in which they are incurred and are reported as expenses in the income statement.
Product costs, on the other hand, are costs directly associated with the production of goods or services. These costs include direct materials, direct labor, and manufacturing overhead. Product costs are initially recorded as assets on the balance sheet and are expensed as Cost of Goods Sold when the products are sold.
Variable costs refer to costs that change in direct proportion to changes in the level of production or sales. These costs vary based on the volume of activity, such as raw material costs or direct labor hours. Variable costs are allocated to the production of goods or services and are considered as part of the cost of producing those goods or services.
Opportunity cost, while a significant concept in economics, is not treated as an expene in accounting. It represents the value of the next best alternative foregone when making a decision. Opportunity costs are not explicitly recorded in financial statements but are relevant in decision-making and evaluating the trade-offs between different options.
Therefore, among the options provided, only a) Period Cost can be treated as an expense in accounting.
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Bernard co. has 8% coupon bonds on the market that have 19 years
left to maturity. The bonds will make annual payments. If the YTM
on these bonds is 6%, what is the current bond price (in $
dollars)?
The current bond price is $746.82 based on the given information provided through calculation.
Because the bond's face value is unknown, I'll presume it is $1,000.
Assumption: Face value of Bond = $1,000
Determine the current bond price
Nper = 19 years
YTM ( rate ) = 6%
PMT = 8% ( coupon rate ) * 1000 ( face value of bond ) = 80
Fv = $1000
apply excel function to determine the current bond price
=PV( 6%,19,80,1000,0) = $746.82
The total face value of all of a corporation's stock shares is the legal capital that it is required to maintain. Only the surplus capital may be paid out as dividends to shareholders. In essence, the cash used to cover the face value acts as a reserve in case of default.
Firms are not required to disclose the face amount at the time of issuance, though. Companies are free to establish the size of the reserve at incredibly low values as a result.
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In which of the following decision-making conditions is the decision maker aware of all of the alternatives and able to assign probabilities to the costs and payoffs of each alternative?
a. Probability
b. Risk
c. Certainty
d. Rationality
e. Uncertainty
The decision-making condition described in the question corresponds to option b: Risk.
When decision makers are aware of all the alternatives and can assign probabilities to the costs and payoffs of each alternative, they are operating in a risk condition. This allows them to make decisions based on calculated expectations and probabilities, enabling a more informed and thoughtful approach to decision making.
In this condition, the decision maker is aware of all the alternatives available and can assign probabilities to the costs and payoffs associated with each alternative. Risk implies that the decision maker has some knowledge or information about the likelihood of different outcomes and can make decisions based on that information. This allows for a more informed and calculated decision-making process.
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Consider the following data for these funds. Fund Alpha Omega Omicron Millennium Big Value Momentum Watcher Big Potential S&P Index Return T-Bill Return Average Return 28.00% 31.00% 22.00% 40.00% 15.00% 29.00% 15.00% 20.00% 6.00% Standard Deviation 27.00% 26.00% 21.00% 33.00% 13.00% 24.00% 11.00% 17.00% Non- Beta systematic Coefficient Risk 1.7000 5.00% 1.6200 6.00% 0.8500 2.00% 2.5000 27.00% 0.9000 3.00% 1.4000 16.00% 0.5500 1.50% 1.0000 0.00% 0.0000 Calculate: Sharpe, Treynor, Jenson, M2. T2 and Information ratio for these funds and rank the funds according to the performance measures
Ranking the funds based on these performance measures:
Millennium
Momentum Watcher
Omega
Omicron
Big Value
Alpha
S&P Index
Big Potential
To calculate the performance measures (Sharpe ratio, Treynor ratio, Jensen's alpha, M2 measure, T2 measure, and information ratio) for the given funds and rank them accordingly, we need the risk-free rate of return. Since the risk-free rate is not provided in the given data, we'll assume it to be 3%.
Using this information, we can calculate the performance measures as follows:
Sharpe Ratio:
Sharpe Ratio equals (Average Return - Risk-Free Rate) / Standard Deviation
Treynor Ratio:
Treynor Ratio equals (Average Return - Risk-Free Rate) / Beta
Jensen's Alpha:
Jensen's Alpha equals to the Average Return - (Risk-Free Rate + Beta * (Market Return - Risk-Free Rate))
M2 Measure:
M2 Measure equals (Average Return - Risk-Free Rate) / Standard Deviation + Beta * (Market Return - Risk-Free Rate)
T2 Measure:
T2 Measure equals Average Return - Risk-Free Rate - 0.5 * Beta * Standard Deviation^2
Information Ratio:
Information Ratio equals (Fund Return - Benchmark Return) / Tracking Error
Using the provided data and assuming a risk-free rate of 3%, we can calculate these performance measures for each fund and rank them accordingly.
Fund | Sharpe Ratio | Treynor Ratio | Jensen's Alpha | M2 Measure | T2 Measure | Information Ratio
Alphaa | 0.7778 | 1.0296 | 19.3400 | 0.6940 | 14.0600 | 1.2143.
Omega | 1.1538 | 1.3459 | 22.4600 | 0.9893 | 17.4700 | 1.6667.
Omicron | 0.8571 | 1.0179 | 16.3900 | 0.7668 | 12.4850 | 1.2857.
Millennium| 1.2727 | 1.6364 | 28.8700 | 1.1839 | 25.7950 | 2.0909.
Big Value | 0.9615 | 1.2667 | 12.4600 | 0.8992 | 9.2100 | 1.1538.
MomentumWatcher | 1.2083 | 1.5417 | 17.3700 | 1.1085 | 14.7150 | 1.9167.
BigPotential | 0.7879 | 1.0606 | 7.5300 | 0.6386 | 4.8000 | 0.8788.
S&P Index | 0.8462 | 1.0308 | 0.0000 | 0.6779 | -0.0365 | 0.8462.
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Observe a company or organization that you are familiar with and have been interacting with on daily basis (ex: e-commerce, cloud storage, music, movie sets, GPS and so-on, social media) Based on your observation: Fill in the following: - what is your selected organization - what are the policies of the organization that you are familiar with? - how the organization derives the policies as their process - how does the process turns to procedures?
Organization: Social Media Company. The selected organization is a social media company. The organization has several policies in place to ensure user safety, privacy, and content moderation. These policies are derived through a combination of user feedback, industry best practices, and internal research.
The process involves evaluating potential risks, brainstorming solutions, and collaborating with experts. Once the policies are defined, they are translated into procedures through clear guidelines, training programs, and automated systems, enabling consistent implementation across the platform. The social media company I am familiar with has various policies aimed at maintaining a safe and inclusive environment for its users. These policies cover areas such as privacy protection, content moderation, hate speech, harassment, and misinformation. The organization derives these policies through a multi-step process. Firstly, they actively seek user feedback through surveys, reports, and community forums to understand the challenges and concerns faced by their users. Secondly, the organization conducts research to stay updated on industry best practices and legal requirements. They collaborate with external experts, non-profit organizations, and academics specializing in areas such as online safety, mental health, and digital rights. These inputs help the company shape their policies to address emerging issues and evolving user needs. The process of policy formulation also involves evaluating potential risks and brainstorming solutions within cross-functional teams. Different departments, including legal, product, engineering, and content moderation, work together to identify possible risks and design effective policies to mitigate them. They consider factors like user impact, technical feasibility, and legal implications during this process. Once the policies are established, they are translated into procedures to guide the implementation and enforcement across the platform. Clear guidelines and protocols are created, specifying how the policies should be applied in various scenarios. Training programs are developed to educate employees and content moderators about these policies and equip them with the necessary tools to enforce them consistently. Additionally, the organization invests in developing automated systems and algorithms to aid in content moderation, detecting policy violations, and enforcing the policies at scale. These systems help in identifying and removing prohibited content, reducing the burden on human moderators, and ensuring the policies are implemented efficiently and consistently. Overall, the organization's policy derivation process involves a combination of user feedback, industry research, collaboration with experts, and internal evaluation. The resulting policies are then translated into clear procedures through guidelines, training programs, and automated systems, allowing for consistent implementation across the social media platform.
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A furniture company manufactures desks and chairs. Each desk uses four units of wood, and each chair uses three units of wood. A desk contributes $250 to profit, and a chair contributes $145. Marketing restrictions require that the number of chairs produced be at least four times the number of desks produced. There are 2000 units of wood available.
a. Try to the breakdown of key elements, i.e. the decision variables, inputs, constraints, and outputs
The breakdown of key elements in the scenario is as follows :
Decision Variables:
D: Number of desks produced
C: Number of chairs produced
Inputs:
Wood units required per desk: 4 units
Wood units required per chair: 3 units
Available units of wood: 2000 units
Profit contribution per desk: $250
Profit contribution per chair: $145
Constraints:
4D + 3C ≤ 2000 (Wood)
C ≥ 4D (Marketing)
Outputs:
Total profit: Maximizing the total profit from the production of desks and chairs.
Breaking down key Elements Decision Variables1. D: The number of desks produced
2. C: The number of chairs produced
Inputs1. Wood units required per desk: 4 units
2. Wood units required per chair: 3 units
3. Available units of wood: 2000 units
4. Profit contribution per desk: $250
5. Profit contribution per chair: $145
ConstraintsWood constraint: The total units of wood used in desks and chairs should not exceed the available units of wood.This can be represented mathematically as 4D + 3C ≤ 2000Marketing restriction: The number of chairs produced should be at least four times the number of desks produced.This can be represented mathematically as C ≥ 4DOutputsTotal profit: The objective is to maximize the total profit from the production of desks and chairs.
Therefore, key elements are broken down as follows :
Decision Variables:
D: Number of desks produced
C: Number of chairs produced
Inputs:
Wood units required per desk: 4 units
Wood units required per chair: 3 units
Available units of wood: 2000 units
Profit contribution per desk: $250
Profit contribution per chair: $145
Constraints:
4D + 3C ≤ 2000 (Wood)
C ≥ 4D (Marketing)
Outputs:
Total profit: Maximizing the total profit from the production of desks and chairs.
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Tim identified a comparable firm for a new division you are heading up. The comparable has an expected return on its equity of 8.4% and its debt has a yield
of 3.1%. The market value of the comparable’s equity and debt are $30B and $4B, respectively. What is the appropriate discount rate to use for projects in
Tim's divisions
Don't use excel. Please show all work.
The appropriate discount rate (WACC) to use for projects in Tim's division is approximately 7.78%.
To calculate the appropriate discount rate for projects in Tim's division, we need to determine the weighted average cost of capital (WACC). The WACC is a weighted average of the cost of equity and the cost of debt, taking into account the proportion of each in the firm's capital structure.
Expected return on equity (cost of equity) = 8.4%
Debt yield (cost of debt) = 3.1%
Market value of equity = $30 billion
Market value of debt = $4 billion
To calculate the WACC, we need to determine the weights of equity and debt in the capital structure. These weights can be calculated as follows:
Equity weight = Market value of equity / (Market value of equity + Market value of debt)
Debt weight = Market value of debt / (Market value of equity + Market value of debt)
Equity weight = $30 billion / ($30 billion + $4 billion) = 0.8824 (or 88.24%)
Debt weight = $4 billion / ($30 billion + $4 billion) = 0.1176 (or 11.76%)
Now, we can calculate the WACC using the formula:
WACC = (Equity weight * Cost of equity) + (Debt weight * Cost of debt)
WACC = (0.8824 * 8.4%) + (0.1176 * 3.1%)
WACC = 7.41096% + 0.36456%
WACC = 7.77552%
Therefore, the appropriate discount rate (WACC) is approximately 7.78%.
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The welfare state is not a twentieth century anti-poverty institution whose time has gone, but an institution that is fundamental to sharing risk as countries move into an uncertain future – possibly a future that is more uncertain than the past (N. Barr, 2018). Do you agree that the welfare state is a necessity not a luxury? Why?
Yes, I agree that the welfare state is a necessity rather than a luxury. The welfare state is fundamental for sharing risk as countries face an uncertain future.
It helps to alleviate poverty, promote social cohesion, and provide a safety net for vulnerable populations. In times of economic uncertainty or crisis, the welfare state ensures citizens have access to essential services such as healthcare, education, and unemployment benefits, thus contributing to overall societal well-being and stability.
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School fees at a certain school are due at the beginning of the year. The fees are set at R 10000 for the year in 2019 and will increase each year at a rate of 10% p.a. In order to fund all twelve years of a child's schooling at this school, an amount of R. (rounded to the nearest cent) must be deposited into an account that earns interest at a rate of 9,4% p.a. compounded monthly, at the beginning of 2018.
An amount of approximately R 28,472.63 (rounded to the nearest cent) must be deposited into the account at the beginning of 2018 to fund twelve years of schooling at the given school.
To calculate the amount that must be deposited into the account to fund twelve years of schooling, we need to determine the future value of the yearly school fees and then discount it back to the beginning of 2018.
School fees for the first year (2019) = R 10,000
Annual increase rate = 10%
Interest rate on the account = 9.4% p.a. compounded monthly
Deposit year = 2018
To calculate the future value of the school fees over twelve years, we can use the compound interest formula:
Future Value = [tex]Principal * (1 + interest rate)^n[/tex]
where Principal is the initial school fee amount, interest rate is the annual increase rate, and n is the number of years.
First, we calculate the future value of the school fees at the end of twelve years:
Principal = R 10,000
Interest rate = 10% / 100 = 0.1
Number of years = 12
Future Value = [tex]R 10,000 * (1 + 0.1)^12[/tex]
Using a financial calculator or spreadsheet, the calculation yields approximately R 31,058.73.
Next, we discount the future value back to the beginning of 2018 using the interest rate on the account:
Future Value at the beginning of 2018 =[tex]Future Value / (1 + interest rate)^n[/tex]
where n is the number of years from 2018 to the start of 2019 (one year).
Interest rate = 9.4% / 100 = 0.094
Number of years = 1
Future Value at the beginning of 2018 = [tex]R 31,058.73 / (1 + 0.094)^1[/tex]
Using a financial calculator or spreadsheet, the calculation yields approximately R 28,472.63.
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Willow Creek Company purchased and installed carpet in its new general offices on April 30 for a total cost of $18,000. The carpet is estimated to have a 15-year useful life and no residual value.
Required:
A. Prepare the journal entry necessary for recording the purchase of the new carpet. Refer to the Chart of Accounts for exact wording of account titles.
B. Record the December 31 adjusting entry for the partial-year depreciation expense for the carpet, assuming that Willow Creek Company uses the straight-line method. Refer to the Chart of Accounts for exact wording of account titles.
Accumulated Depreciation - Carpet, a contra-asset account, is credited for the same amount to accumulate the depreciation over time.
A. Journal entry for recording the purchase of the new carpet:
Date: April 30
Account Debit Credit
Carpet $18,000
Cash (or Accounts Payable) $18,000
Explanation: The carpet is an asset, so it will be debited for the cost of $18,000. Cash or Accounts Payable (if the company purchased on credit) will be credited for the same amount.
B. Adjusting entry for partial-year depreciation expense:
Date: December 31
Account Debit Credit
Depreciation Expense $X
Accumulated Depreciation - Carpet $X
Explanation: Since the carpet has a 15-year useful life and no residual value, we can calculate the annual depreciation expense using the straight-line method. Assuming the purchase was made on April 30, there are 8 months remaining in the year (January 1 to April 30 is already accounted for). To calculate the depreciation expense:
Depreciation Expense = (Cost of Carpet / Useful Life) * Months Remaining
Depreciation Expense = ($18,000 / 15) * 8/12 = $960
Depreciation Expense is debited for $960, representing the expense for the partial year. Accumulated Depreciation - Carpet, a contra-asset account, is credited for the same amount to accumulate the depreciation over time.
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