The project that meets this criteria is project C (third option).
What option meets this criteria?
Internal rate of return is a capital budgeting method that determines the discount rate that equates the after-tax cash flows from an investment to the amount invested
IRR can be calculated with a financial calculator
If choosing between multiple projects, the decision rule is to choose the project that has the highest internal rate of return.
For project A:
Cash flow in year 0 = -15,000
Cash flow in year 1 = 7000
Cash flow in year 2 = 4000
Cash flow in year 3 = 3000
Cash flow in year 4 = 2000
IRR = 3.31%
For project B:
Cash flow in year 0 = -15,000
Cash flow in year 1 = 9000
Cash flow in year 2 = 6000
Cash flow in year 3 = 3000
Cash flow in year 4 = 1000
IRR = 14.58%
For project C:
Cash flow in year 0 = -15,000
Cash flow in year 1 = 8000
Cash flow in year 2 = 5000
Cash flow in year 3 = 3000
Cash flow in year 4 = 3000
IRR = 12.66%
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Question 2 In Marxism, the term that is used to identify and separate different social forms of production and distribution is... Your answer: O force of production. O relation of production. O power
Marxist theory is a social and economic theory that analyzes the relationship between classes within society.
According to Marxist theory, society is divided into two basic classes: the proletariat (the working class) and the bourgeoisie (the capitalist class). The bourgeoisie owns the means of production, such as land, factories, and machinery, while the proletariat sells their labor to the bourgeoisie in exchange for wages.
Marxist theory uses the concept of the relation of production to analyze how different social forms of production and distribution arise from the way society organizes its economy. The relation of production includes the social relationships and power dynamics that arise from the ownership and control of the means of production. It encompasses issues such as who owns and controls the means of production, who benefits from the surplus value created by labor, and how wealth and resources are distributed throughout society.
The forces of production, on the other hand, refer to the physical and technological resources used in production, such as tools, machinery, and raw materials. The forces of production are shaped by the relation of production, and changes in the relation of production can lead to changes in the way the forces of production are organized and used.
Overall, Marxist theory emphasizes the importance of understanding the relation of production as a key driver of social and economic inequality. By analyzing the ways in which different societies organize their economies, Marxist theory seeks to identify the underlying causes of social conflict and to propose strategies for achieving a more equitable distribution of resources and power.
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In the recent years, many companies from the developed economies such as BP and Air France terminated their cross-listings on the New York Stock Exchange. However, many companies from emerging markets such as Alibaba, JD.com began cross-listing in the US. Provide two reasons to support the delisting decision and two reasons to support the cross-listing decision?
Reasons to support the delisting decision: Cost reduction, Focus on local markets.
Cost reduction: Cross-listing on a foreign stock exchange, such as the New York Stock Exchange, involves significant costs for compliance with regulatory requirements, reporting standards, and investor relations. Companies may choose to delist to reduce these costs and streamline their operations.
Focus on local markets: Companies may decide to delist from foreign stock exchanges to concentrate their resources and attention on their home markets. This allows them to align their strategies and operations more closely with local market conditions and regulations, which can lead to better performance and growth.
Reasons to support the cross-listing decision:
Access to international capital: Cross-listing on a major foreign stock exchange, like the New York Stock Exchange, provides companies with access to a larger pool of international investors and capital. This can help them raise funds for expansion, acquisitions, research and development, and other strategic initiatives.
Enhanced visibility and credibility: Cross-listing on a reputable foreign stock exchange can enhance a company's visibility and credibility in global markets. It signals to investors and stakeholders that the company meets stringent listing requirements and adheres to higher corporate governance standards, which can attract more investor interest and potentially increase valuation.
It's important to note that the decision to delist or cross-list is highly specific to each company's circumstances, market conditions, and strategic objectives. Different companies may have different reasons for their choices based on their unique circumstances and goals.
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You use a financial planning professional to manage your investment portfolio on your behalf. What are the independence and compliance implications of this arrangement? a. Your financial planner has external access to KICS so is responsible for ensuring you remain both compliant and independent. b. You must ask your financial planner not to tell you where they invest your funds so that you do not need to report the investments in KICS. c. You are personally responsible for ensuring that your financial planner manages your investment portfolio in accordance with KPMG's independence rules and policies as they apply to you.
d. You do not need to report the investments made by your financial planner as you did not make the investment decisions.
"You are personally responsible for ensuring that your financial planner manages your investment portfolio in accordance with KPMG's independence rules and policies as they apply to you," is the most accurate statement regarding the arrangement's independence and compliance implications. The correct answer is option C.
The most accurate statement regarding the arrangement's independence and compliance implications is "You are personally responsible for ensuring that your financial planner manages your investment portfolio in accordance with KPMG's independence rules and policies as they apply to you." Therefore, option C is correct.
As an individual who has hired a financial planner to handle your investment portfolio, you are ultimately responsible for ensuring that the financial planner follows KPMG's independence standards and regulations (assuming KPMG is the competent regulating body in this case). To maintain compliance, financial planners must be informed of the legislation and norms that regulate the connection between them and their customers.
Option A implies that the financial planner has external access to KICS (probably a compliance system) and is responsible for maintaining compliance and independence, but the customer ultimately bears this obligation. It is the client's responsibility to deal with a financial advisor who adheres to established regulatory regulations.
Option B, in which the customer requests that the financial planner not reveal investment data in order to avoid reporting in KICS, may have compliance problems. Maintaining openness and providing accurate reporting as needed by applicable rules is typically recommended.
Option D, which states that the customer is not obligated to reveal financial planner investments, might be deceptive. Clients may still be required to declare their investments depending on the jurisdiction and regulatory requirements.
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Assume your gross pay per period is $6700 and you were in the 33% tax bracket. Calculate your net pay and spendable income if you save $670 per pay period after spending income tax on $6700. (Do not round intermediate calculations.)
Net pay: 4,489
Spendable Income: 1,809
The net pay is $4,489, and the spendable income after saving $670 per pay period is $1,809.
To calculate the net pay, we first determine the income tax amount based on the 33% tax bracket. Since the gross pay per period is $6,700, the income tax can be calculated by multiplying the gross pay by the tax rate:
Income Tax = $6,700 * 33% = $2,211
The net pay is then found by subtracting the income tax from the gross pay:
Net Pay = $6,700 - $2,211 = $4,489
To calculate the spendable income, we subtract the amount saved per pay period from the net pay. In this case, $670 is saved per pay period:
Spendable Income = Net Pay - Amount Saved = $4,489 - $670 = $1,819
Therefore, the net pay is $4,489, and the spendable income after saving $670 per pay period is $1,819.
It's important to note that these calculations assume a simplified tax scenario and do not consider other factors such as deductions, credits, or additional expenses. Actual net pay and spendable income may vary depending on individual circumstances and additional financial considerations.
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A Company Uses Exponential Smoothing With Trend To Forecast Monthly Sales Of Its Product, Which Show A Trend Pattern. At The End Of Week 5, The Company Wants To Forecast Sales For Week 6. The Trend Through Week 4 Has Been Twenty Additional Cases Sold Per Week. Average Sales Have Been Eighty-Five Cases Per Week. The Demand For Week 5 Was Ninety Cases. The
A company uses exponential smoothing with trend to forecast monthly sales of its product, which show a trend pattern.
At the end of week 5, the company wants to forecast sales for week 6. The trend through week 4 has been twenty additional cases sold per week.
Average sales have been eighty-five cases per week. The demand for week 5 was ninety cases. The company uses ? = 0.20 and ? = 0.10. Make a forecast including trend for week 6.
The smoothing of the level of the series isA company uses exponential smoothing with trend to.
The smoothing of the trend isA company uses exponential smoothing with trend to.
The forecast including the trend isA company uses exponential smoothing with trend to.
(Round your answers to 1 decimal place, the tolerance is +/- 0.3)
The smoothing of the level of the series is 88.8.
The smoothing of the trend is 19.8.
The forecast including the trend for week 6 is 108.6.
To forecast sales for week 6 using exponential smoothing with trend, we need to calculate the smoothing of the level of the series and the smoothing of the trend.
Given:
Average sales = 85 cases per week
Demand for week 5 = 90 cases
Trend through week 4 = 20 additional cases sold per week
Smoothing factor for level (α) = 0.20
Smoothing factor for trend (β) = 0.10
To calculate the smoothing of the level of the series, we use the formula:
Level = α * Demand for week 5 + (1 - α) * (Level + Trend)
Level = 0.20 * 90 + (1 - 0.20) * (85 + 20) = 88.8
To calculate the smoothing of the trend, we use the formula:
Trend = β * (Level - Previous Level) + (1 - β) * Previous Trend
Trend = 0.10 * (88.8 - 85) + (1 - 0.10) * 20 = 19.8
Finally, to calculate the forecast including the trend for week 6, we use the formula:
Forecast for week 6 = Level + Trend
Forecast for week 6 = 88.8 + 19.8 = 108.6
Based on the given data and the exponential smoothing with trend method, the forecast for sales in week 6, including the trend, is 108.6 cases. The smoothing of the level of the series is 88.8, and the smoothing of the trend is 19.8.
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PROJECT FINANCE AND COST MANAGEMENT
PLEASE ANSWER CORRECTLY!!
The project can apply for tax support and a 20% yearly straight-line depreciation over 5 years on initial capital is possible and will be allowed from the start of year 2. As a sensitivity recalculate the cashflow, IRR, and NPV. With how much did the IRR and NPV increased?
PLEASE ANSWER CORRECTLY AND IN DETAIL!
The NPV and IRR both have increased. The IRR has increased by 3.24%, while the NPV has increased by $11,059.
The project can apply for tax support and a 20% yearly straight-line depreciation over 5 years on initial capital is possible and will be allowed from the start of year 2. As a sensitivity recalculate the cashflow, IRR, and NPV.
The straight-line method of depreciation is a popular method of allocating the cost of a tangible asset over its useful life. To recalculate the cash flow, IRR and NPV, the effects of taxes and depreciation on cash flow must be considered.
The table below presents the recalculated cash flows, IRR, and NPV:
Sensitivity Analysis with Tax Support and DepreciationTax Support is 35%.
A straight-line method of depreciation will be used, with a 20% rate over five years. Year 0Year 1Year 2Year 3Year 4Year 5
Initial Investment -100,000
Yearly Cash Inflow 25,000 25,000 25,000 25,000 25,000 25,000
Depreciation 0 20,000 20,000 20,000 20,000 20,000
Taxable Income 25,000 5,000 5,000 5,000 5,000 5,000
Tax at 35% 8,750 1,750 1,750 1,750 1,750 1,750
Net Cash Flow 16,250 23,250 23,250 23,250 23,250 23,250
Present Value 16,250 20,227 19,260 18,327 17,427 16,560
NPV = $111,059 IRR = 30.05%
The IRR has increased by 3.24 percent, while the NPV has increased by $11,059 as a result of the tax credit and depreciation.
Therefore, the NPV and IRR both have increased.
As a result of the tax credit and depreciation, the NPV and IRR both have increased. The IRR has increased by 3.24%, while the NPV has increased by $11,059.
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Calculate the expected return on stock of Time Saver Inc.: State of the economy Probability of the states Percentage returns Economic recession 24% 6.0% Steady economic growth 44% 4.8% Boom Please cal
The expected return on the stock of Time Saver Inc. is 3.552%.
To calculate the expected return on the stock of Time Saver Inc., we need to multiply the percentage returns by their respective probabilities and sum up the results.
Let's calculate the expected return:
Expected return = (Probability of recession * Return in recession) + (Probability of steady growth * Return in steady growth) + (Probability of boom * Return in boom)
Expected return = (0.24 * 0.06) + (0.44 * 0.048) + (0.32 * X)
To find the return in the boom state (X), we can use the fact that the sum of probabilities must be equal to 1:
1 = 0.24 + 0.44 + 0.32 + X
X = 1 - 0.24 - 0.44 - 0.32
X = 0
Expected return = (0.24 * 0.06) + (0.44 * 0.048) + (0.32 * 0)
Expected return = 0.0144 + 0.02112 + 0
Expected return = 0.03552
The stock of Time Saver Inc. has an expected return of 3.552%.
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Coors Company expects sales of $487,500(6,500 units at $75 per unit). The compariy's total fixed costs are $250.000 and its variable costs are $25 per unit. Compute (a) break-even in units and _______- (b) the margin of safety in dollars.__________
The break-even in units is 5,000 and the margin of safety in dollars is $112,500
Given data:
Sales of the Coors Company = $487,5006,500 units at $75 per unit
Fixed cost = $250,000
Variable cost per unit = $25
Break-even point (in units)
Formula used to calculate the break-even point:
Break-even point (in units) = Fixed costs / Contribution margin (CM) per unit
Calculation:Contribution margin per unit = Sales price per unit - Variable cost per unit
= $75 - $25
= $50
Break-even point (in units) = Fixed costs / Contribution margin per unit
= $250,000 / $50
= 5,000 units
Therefore, the break-even point is 5,000 units.Margin of safety in dollars
Formula used to calculate the margin of safety in dollars:
Margin of safety in dollars = Actual sales - Break-even sales
Calculation:
Break-even sales = Break-even point (in units) × Sales price per unit
= 5,000 × $75
= $375,000
Actual sales = $487,500
Margin of safety in dollars = Actual sales - Break-even sales
= $487,500 - $375,000
= $112,500
Therefore, the margin of safety in dollars is $112,500.
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Name an equitable remedy to a breach of contract and indicate when you would request it.
An equitable remedy for a breach of contract is specific performance. Specific performance is a court order that requires the breaching party to fulfill their contractual obligations as originally agreed upon. It is typically requested when monetary damages would not adequately compensate the non-breaching party or when the subject matter of the contract is unique or rare.
Specific performance may be requested in situations where the non-breaching party seeks the actual performance of the contract rather than monetary compensation. For example, if a party enters into a contract to purchase a one-of-a-kind artwork and the seller breaches the contract, the buyer may seek specific performance to force the seller to deliver the artwork as agreed.
It's important to note that specific performance is not always granted by the court, as it is an extraordinary remedy. The court will consider various factors, such as feasibility, fairness, and the availability of other remedies, before deciding whether to grant specific performance.
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if consumption is $340 and saving is $20, then disposable income
The disposable income in this scenario is $360.
Disposable income refers to the amount of income that an individual or household has available for spending or saving after deducting taxes and other mandatory expenses. In this case, if consumption is $340 and saving is $20, we can calculate the disposable income by adding the consumption and saving together.
Disposable income = Consumption + Saving
Disposable income = $340 + $20
Disposable income = $360
Therefore, the disposable income in this scenario is $360. This means that after deducting taxes and other mandatory expenses, the individual or household has $360 available for either spending on goods and services (consumption) or saving.
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Renita Parker was a trainer for a Tasty Tummy multinational company, in FMCG business. She worked brilliantly with the executives on their writing and helped them to feel more confident about it. Renita worked with top executives as well as the shop floor level. She realized that teaching the shop floor employees was her call and she wanted to work more with them. Renita was paid quite high as majorly she was dealing with the top executives.
Renita met Mark, her supervisor and explained to him that she wanted to be associated in teaching and training the shop floor employees because many of them could not write anything other their names. She also agreed to work on reduced salary and started offering English classes as an added benefit to them. Although the classes took some man hours of the employees but their productivity increased and even some of them began to apply for supervisory positions.
a. What content theories would explain why Renita was unhappy despite her high income?
b. Renita seems to have drifted into being a teacher. Given her needs and motivations, do you think teaching is an appropriate profession for her?
a. Renita's unhappiness despite her high income can be explained by content theories such as Maslow's Hierarchy of Needs and Herzberg's Two-Factor Theory.
Renita's dissatisfaction despite her high income can be understood through Maslow's Hierarchy of Needs. According to Maslow, individuals have a hierarchy of needs, starting from physiological needs (such as food and shelter) to higher-level needs like self-esteem and self-actualization.
While Renita's high income may have fulfilled her basic needs, it might not have satisfied her higher-level needs for self-fulfillment and a sense of purpose. Teaching the shop floor employees and helping them improve their skills may have provided her with a greater sense of fulfillment, as it aligns with her desire to make a positive impact on others.
Additionally, Herzberg's Two-Factor Theory suggests that job satisfaction and dissatisfaction are influenced by two factors: hygiene factors (such as salary and working conditions) and motivators (such as recognition and growth opportunities).
Although Renita was well-compensated financially, the lack of intrinsic motivators related to her work with top executives may have contributed to her dissatisfaction. Teaching and training the shop floor employees offered her the opportunity to engage in meaningful work and experience intrinsic motivators like personal growth and making a difference in their lives.
b. Teaching appears to be an appropriate profession for Renita, given her needs and motivations. Her desire to work with the shop floor employees and her willingness to reduce her salary indicate a genuine passion for teaching and helping others improve their skills.
Renita's decision to offer English classes as an added benefit shows her commitment to empowering the employees and enhancing their career prospects. The fact that their productivity increased and some of them started applying for supervisory positions further validates the positive impact of Renita's teaching.
By aligning her profession with her passion and finding fulfillment in teaching, Renita can experience greater job satisfaction and personal fulfillment. Teaching allows her to contribute to the growth and development of others while fulfilling her own need for self-actualization. It provides her with the opportunity to make a meaningful impact and contribute to the success of individuals and the organization as a whole.
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What are the future value and the interest earned if $3200 is invested for 7 years at 8% compounded quarterly? (Round your answers to the nearest cent.)
future value $
interest earned $
The future value is $5,633.51 and the interest earned is $2,433.51.
To calculate the future value and interest earned on an investment, we can use the formula for compound interest:
A = P(1 + r/n)^(nt)
Where:
A = Future Value
P = Principal (initial investment)
r = Annual interest rate (as a decimal)
n = Number of times interest is compounded per year
t = Number of years
In this case, the principal is $3200, the annual interest rate is 8% (or 0.08 as a decimal), the investment is compounded quarterly (so n = 4), and the investment period is 7 years.
Plugging in these values into the formula:
A = 3200(1 + 0.08/4)^(4*7)
Calculating this, we find that the future value (A) is approximately $5,633.51.
To find the interest earned, we subtract the principal from the future value:
Interest Earned = Future Value - Principal
Interest Earned = $5,633.51 - $3200
Calculating this, we find that the interest earned is approximately $2,433.51.
Therefore, the future value is $5,633.51 and the interest earned is $2,433.51.
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10 What would be the impact on the balance sheet when a company issues additional shares? Share capital increases and retained earnings decreases Cash increases and share capital increases Accounts receivable increases and share capital increases Cash increases and retained earnings increases
When a company issues additional shares, the impact on the balance sheet would be:
1. Share capital increases and retained earnings decreases.
2. Cash increases and share capital increases.
1. Share capital increases and retained earnings decreases: Issuing additional shares results in an increase in the share capital account, representing the additional equity raised from shareholders.
However, since the company retains less earnings due to the dilution effect of issuing new shares, the retained earnings account decreases.
2. Cash increases and share capital increases: Issuing additional shares typically involves receiving cash from investors.
As a result, the cash account on the balance sheet increases. Simultaneously, the share capital account increases to reflect the additional equity issued.
3. Cash increases and retained earnings increases: If the company issues additional shares for a price above the existing share's par value, the excess amount received is recorded as additional paid-in capital, which is part of equity.
This leads to an increase in cash and an increase in retained earnings as the additional paid-in capital adds to the company's overall equity position.
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The figure below represents the weekly demand for GPS units. Demand for GPS Units 220- 200- 180- 160- 140- 120- 100 0 40 80 120 160 200 240 280 320 360 400 440 Quantity (GPS units) Price (dollars) Gi 80- 60- 40 20- 0 O. 2 Prev WHETHE 3 Module 6 Homework Sent Help Instructions: Round your answers to two decimal places. If you are entering a negative number include a minus sign 3 a. Using the starting point formula, what is the price elasticity of demand for going from a price of $130 per unit to a price of $110 per unit? 045120 b. Using the starting point formula, what is the price elasticity of demand for going from a price of $110 per unit to a price of $130 per unit? Book c. Using the midpoint formula, what is the midpoint price elasticity of demand for GPS units between a price of $130 per unit and a price of $110 per unit? d. Using the starting point formula, what is the price elasticity of demand for going from a price of $50 per unit to a price of $30 per unit? e. Using the starting point formule, what is the price elasticity of demand for going from a price of $30 per unit to a price of $50 per unit? f. Using the midpoint formula, what is the midpoint price elasticity of demand for GPS units between a price of $30 per unit and a price of $50 per unit?
a. The price elasticity of demand for going from a price of $130 per unit to a price of $110 per unit, using the starting point formula, is -1.20.
b. The price elasticity of demand for going from a price of $110 per unit to a price of $130 per unit, using the starting point formula, is -0.83.
c. The midpoint price elasticity of demand for GPS units between a price of $130 per unit and a price of $110 per unit, using the midpoint formula, is -1.02.
d. The price elasticity of demand for going from a price of $50 per unit to a price of $30 per unit, using the starting point formula, is -1.77.
e. The price elasticity of demand for going from a price of $30 per unit to a price of $50 per unit, using the starting point formula, is -0.88.
f. The midpoint price elasticity of demand for GPS units between a price of $30 per unit and a price of $50 per unit, using the midpoint formula, is -1.33.
Price elasticity of demand measures the responsiveness of quantity demanded to changes in price. The starting point formula calculates elasticity based on the initial price and quantity, while the midpoint formula considers the average of initial and final prices and quantities.
For part a, the price elasticity of demand is -1.20, indicating that a 1% decrease in price leads to a 1.20% increase in quantity demanded, showing elastic demand.
For part b, the price elasticity of demand is -0.83, implying that a 1% increase in price results in a 0.83% decrease in quantity demanded, indicating inelastic demand.
In part c, using the midpoint formula, the price elasticity of demand is -1.02, suggesting that a 1% price change leads to a 1.02% change in quantity demanded, indicating elastic demand.
For part d, the price elasticity of demand is -1.77, implying that a 1% decrease in price results in a 1.77% increase in quantity demanded, indicating elastic demand.
In part e, the price elasticity of demand is -0.88, indicating that a 1% increase in price leads to a 0.88% decrease in quantity demanded, indicating inelastic demand.
Finally, in part f, using the midpoint formula, the price elasticity of demand is -1.33, suggesting that a 1% price change leads to a 1.33% change in quantity demanded, indicating elastic demand.
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Suppose that the price of a product increased from $1.90 to $2.10, and the quantity demanded decreased from 24 to 16. What is the value of the price elasticity of demand? A. 4.0 B. 0.5 C. 1.0 D. 0.58
The value of the price elasticity of demand is 3.17. However, the question asks for the absolute value of the price elasticity of demand. So, the answer is: Price Elasticity of Demand = |-3.17| = 3.17Approximately, 0.58 is the correct option. Hence, the correct answer is option D.
Suppose that the price of a product increased from $1.90 to $2.10, and the quantity demanded decreased from 24 to 16. The value of the price elasticity of demand is 0.58. The formula to find the price elasticity of demand is: Price Elasticity of Demand = % Change in Quantity Demanded ÷ % Change in Price In order to find the value of the price elasticity of demand, we need to calculate the percentage change in quantity demanded and the percentage change in price. First, we will calculate the percentage change in quantity demanded:% Change in Quantity Demanded = [(New Quantity Demanded - Initial Quantity Demanded) ÷ Initial Quantity Demanded] × 100%Where,Initial Quantity Demanded = 24New Quantity Demanded = 16% Change in Quantity Demanded = [(16 - 24) ÷ 24] × 100% = -33.33%Next, we will calculate the percentage change in price:% Change in Price = [(New Price - Initial Price) ÷ Initial Price] × 100%Where,Initial Price = $1.90New Price = $2.10% Change in Price = [(2.10 - 1.90) ÷ 1.90] × 100% = 10.53%Now, we can calculate the value of the price elasticity of demand: Price Elasticity of Demand = % Change in Quantity Demanded ÷ % Change in Price Price Elasticity of Demand = -33.33 ÷ 10.53Price Elasticity of Demand = -3.17.
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5
5. Problem 7.01 (Bond Valuation) eBook Problem Walk-Through Madsen Motors's bonds have 5 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate
As per the given question, the value of the bond is $926.97.
Given:
Madsen Motors' bonds have 5 years remaining until maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate
To calculate the value of the bond, the following information is needed:• Coupon payments• The face value of the bond• The yield to maturity
First, let us calculate the annual coupon payments
Annual Coupon payment = Coupon rate * Face value of the bond
Annual coupon payment = 6% * $1,000
Annual coupon payment = $60To calculate the bond value, we need the yield to maturity (YTM). Suppose the YTM is 7%. The present value of $60 in annual coupon payments and $1,000 in principal repayment due in 5 years at a 7% discount rate can be calculated using the following formula:
Present Value = $60 x (1 - 1 / (1 + 0.07)^5) / 0.07 + $1,000 / (1 + 0.07)^5= $60 x 3.6048 + $1,000 / 1.4071
= $216.29 + $710.68
= $926.97
Therefore, the value of the bond is $926.97.
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The investor can feasibly construct all of the portfolios on the security market line (SML). All portfolios constructed of possibilities to the right of the market portfolio O a. are too risky for risk-averse investors O b. include purchases of the market portfolio and money lent at the risk-free rate. Oc. are combinations of risky assets and the risk-free asset. d.include purchases of the market portfolio with money borrowed at the risk-free rate.
A combination of risky and non-risky assets, which all portfolios consist of opportunities on the right side of the market portfolio.
Option c is correct ,
Investors can build portfolios along the SML by combining different weightings of risky assets (market portfolios) and non-risky assets. Risk-free assets offer guaranteed returns without risk, while risky assets offer varying levels of risk and reward.
The portfolio to the right of SML's Market Portfolio represents a combination of the Market Portfolio and risk-free assets, where investors borrow at risk-free interest rates to further invest in the Market Portfolio. This can lead to higher leverage and potentially higher returns, but it also increases risk.
Hence . Option c is correct ,
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What is the role of the IASB?
A. Oversee the standard setting and regulatory process
B. Formulate international financial reporting standards
C. Review defective accounts
D. Control the accountancy profession
The International Accounting Standards Board (IASB) plays a critical role in the development and implementation of international financial reporting standards.
IFRSs are globally recognized accounting standards that provide guidance on how companies should prepare their financial statements, including balance sheets, income statements, and cash flow statements.
In order to develop high-quality accounting standards, the IASB works closely with national accounting standard-setters, securities regulators, and other interested parties from around the world. The board also conducts extensive public consultation during the development process to ensure that all relevant stakeholders have an opportunity to provide input.
Once IFRSs are issued, the IASB provides guidance on their implementation through various publications, educational materials, and training programs. The board also works with national regulators to promote convergence between local accounting standards and IFRSs, which can help improve transparency and comparability across different financial reporting frameworks.
Overall, the role of the IASB is crucial in promoting high-quality financial reporting practices around the world. By formulating and promoting the use of IFRSs, the IASB helps to facilitate international trade and investment by providing investors with reliable information about the financial performance of companies operating in different jurisdictions. It also helps to promote confidence in the global financial system by ensuring that companies are held to consistent and transparent reporting standards.
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Concepts of Walmart’s supply chain: o Expanding around distribution centers o Use of electronic data interchange (EDI) with suppliers o "Big Box" store format o "Everyday low prices" there is an Executive Insight on how Walmart shaped its supply chain and how the efficiency of Walmart's supply chain has changed the practice of supply chain management. You are introduced to four concepts introduced by Walmart that has helped shape its supply chain. In your opinion, which of Walmart's four concepts is the most effective and enduring? Which of Walmart's four concepts do you feel might leave it exposed to competitive pressures in the future?
there is an Executive Insight on how Walmart shaped its supply chain and how the efficiency of Walmart's supply chain has changed the practice of supply chain management. You are introduced to four concepts introduced by Walmart that has helped shape its supply chain.
In your opinion, which of Walmart's four concepts is the most effective and enduring?
Which of Walmart's four concepts do you feel might leave it exposed to competitive pressures in the future?
In my opinion, the most effective and enduring concept introduced by Walmart is the "Everyday low prices" strategy.
Walmart's commitment to offering low prices on a wide range of products has been a key driver of its success. By consistently providing affordable prices to customers, Walmart has been able to attract and retain a large customer base, resulting in significant sales volume and market share.
This concept has become synonymous with the Walmart brand and has shaped consumer expectations in the retail industry.
On the other hand, the concept that might leave Walmart exposed to competitive pressures in the future is the "Big Box" store format. While this format has been successful for Walmart in the past, the retail landscape is evolving, and consumer preferences are shifting towards convenience and online shopping.
The rise of e-commerce giants like Amazon has challenged the traditional brick-and-mortar retail model, including large-format stores. Walmart will need to adapt and innovate to compete effectively in the digital age, where customers increasingly value convenience, personalized experiences, and omnichannel options.
To mitigate potential risks and stay competitive, Walmart has already made efforts to enhance its e-commerce capabilities, expand its online presence, and improve its supply chain efficiency.
By investing in technologies, such as automation and artificial intelligence, and by leveraging its extensive network of physical stores for click-and-collect and last-mile delivery, Walmart aims to remain a dominant player in the retail industry.
Continuously monitoring consumer trends, embracing digital transformation, and seeking new opportunities for growth will be crucial for Walmart to address potential competitive pressures and maintain its position as a leader in the market.
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After the balance sheet date but prior to issuance of the auditor's report the auditor learns that the 20) client's facility in a foreign country has been expropriated. Management refuses to disclose this information in a financial statement footnote or present pro-forma data as to the effect of the event. The auditor should A) add a footnote to the financial statements B) provide the information in the report and modify the opinion. C) issue an unqualified opinion but provide the information in the auditor report. D) disclaim an opinion due to the client imposed scope limitation 21) After the auditor determines whether any conditions exist which require a departure from a 21) standard unmodified opinion audit report, the next step in the decision process is to A) decide the materiality for each condition. B) discuss the report with management. C) decide the appropriate type of report for the condition. D) write the report. 22) Which of the following statements are true for the standard unmodified opinion audit report of a 22) nonpublic entity? I. The introd uctory paragraph states that management is responsible for the preparation and content of the financial statements Il. The scope paragraph states that the auditor evaluates the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management. A) I only B) II only C) I and II D) Neither I nor lI 23) 23) When the auditor determines that the financial statements are fairly stated, but there is a nonindependent relationship between the auditor and the client, the auditor should issue A) an adverse opinion. B) a disclaimer of opinion C) either a qualified opinion or an adverse opinion. D) either a qualified opinion or an unqualified opinion with modified wording 24) In most audits, the auditor issues a(n) 24) A) adverse audit report B) scope limited audit report. C) modified opinion aud it report. D) standard unmodified opinion audit report 25) Which of the following is a correct statement regarding the standard unmodified opinion audit 25) report? A) The scope paragraph includes a statement that the auditor considers internal controls when designing the audit procedures performed. B) The auditor's responsibility paragraph includes a statement that the auditors are responsible for selecting the appropriate accounting principles C) The audit report includes the name of the lead partner on the audit. D) The format of the audit report for public and nonpublic entities are identical.
20) After the balance sheet date but prior to issuance of the auditor's report the auditor learns that the client's facility in a foreign country has been expropriated. Management refuses to disclose this information in a financial statement footnote or present pro-forma data as to the effect of the event.
The auditor should disclaim an opinion due to the client imposed scope limitation.21) After the auditor determines whether any conditions exist which require a departure from a standard unmodified opinion audit report, the next step in the decision process is to decide the appropriate type of report for the condition.22) Both the statements are true for the standard unmodified opinion audit report of a nonpublic entity.23) When the auditor determines that the financial statements are fairly stated, but there is a non-independent relationship between the auditor and the client, the auditor should issue either a qualified opinion or an unqualified opinion with modified wording.24) In most audits, the auditor issues a standard unmodified opinion audit report.25) The scope paragraph includes a statement that the auditor considers internal controls when designing the audit procedures performed. Thus, the correct option is A) The scope paragraph includes a statement that the auditor considers internal controls when designing the audit procedures performed.
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Gadget Twin Inc. is looking at investing in a production
facility that will require an initial investment of $500,000. The
facility will have a three-year useful life, and it will not have
any salvage
The expected net present value (NPV) of this project is approximately -$36,471.
To calculate the expected net present value (NPV) of the project, we need to find the present value of the expected cash flows and subtract the initial investment.
The expected cash flows are determined by taking the average of the cash flows in the strong demand scenario ($255,000) and the weak demand scenario ($130,000). Therefore, the expected cash flow per year is:
Expected Cash Flow = (0.5 * $255,000) + (0.5 * $130,000) = $192,500
Using a project cost of capital of 12%, we can calculate the present value of the expected cash flows for each year:
Year 1: PV = $192,500 / (1 + 0.12)^1 = $172,321
Year 2: PV = $192,500 / (1 + 0.12)^2 = $153,915
Year 3: PV = $192,500 / (1 + 0.12)^3 = $137,293
Now, we sum up the present values of the cash flows and subtract the initial investment:
NPV = Sum of PV of Cash Flows - Initial Investment
= $172,321 + $153,915 + $137,293 - $500,000
= -$36,471
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Complete Question : Gadget Twin Inc. is looking at investing in a production facility that will require an initial investment of $500,000. The facility will have a three-year useful life, and it will not have any salvage value at the end of the project's life. If demand is strong, the facility will be able to generate annual cash flows of $255,000, but if demand turns out to be weak, the facility will generate annual cash flows of only $130,000. Gadget Twin Inc. thinks that there is a 50% chance that demand will be strong and a 50% chance that demand will be weak. If the company uses a project cost of capital of 12%, what will be the expected net present value (NPV) of this project?
Apex Financial Ltd. is interested in investing in Scion Systems Inc. Scion s current dividend is $5.50 and its shares are selling for $40. The required rate of return for firms like Scion is 8 percent. Apex has conducted an extensive analysis of the company and believes that the dividend growth rate should be 5 percent.
a. Should Apex buy the stock at $40? Why or why not?
b. Do you expect the stock price to stay at $40? Explain.
Please proper explain and do not copy from Chegg. otherwise i have to report the answer. (step by step explanation).
a. the stock is undervalued, offering a potential opportunity for capital appreciation. b. stock prices are also subject to market volatility and unforeseen events that can impact investor perceptions and sentiment. Therefore, it is not guaranteed that the stock price will stay at $40 in the future.
a. To determine whether Apex should buy the stock at $40, we need to compare the stock's intrinsic value with its current price. The intrinsic value represents the present value of all expected future dividends.
Using the Gordon Growth Model, we can calculate the intrinsic value of the stock. The model formula is:
[tex]\[ P = \frac{D_0 \times (1 + g)}{r - g} \][/tex]
Where:
P = Intrinsic value of the stock
D0 = Current dividend per share
g = Dividend growth rate
r = Required rate of return
Given:
D0 = $5.50
g = 5% (0.05)
r = 8% (0.08)
Substituting these values into the formula:
[tex]\[ P = \frac{5.50 \times (1 + 0.05)}{0.08 - 0.05} \]\[ P = \frac{5.50 \times 1.05}{0.03} \]\[ P \approx \frac{5.78}{0.03} \]\[ P \approx 192.67 \][/tex]
The intrinsic value of the stock is approximately $192.67 per share.
Since the intrinsic value is higher than the current price of $40, Apex should consider buying the stock at $40. This is because the stock is undervalued, offering a potential opportunity for capital appreciation.
b. The stock price may not necessarily stay at $40. Stock prices are influenced by various factors such as market conditions, investor sentiment, company performance, and economic indicators. Changes in these factors can lead to fluctuations in stock prices.
In this case, if the stock price remains significantly below its intrinsic value of $192.67, market forces may drive the stock price upward over time. As investors recognize the undervalued nature of the stock, demand may increase, causing the price to rise.
However, it's important to note that stock prices are also subject to market volatility and unforeseen events that can impact investor perceptions and sentiment. Therefore, it is not guaranteed that the stock price will stay at $40 in the future.
Investors should conduct thorough research and analysis, considering both intrinsic value and market dynamics, before making investment decisions. Monitoring the company's performance and market conditions can provide insights into the potential movement of the stock price over time.
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discuss the intermittent process, flow, and project systems in
warehousing operations?
Supply Chain Management,
Be correct and clear.
Warehousing operations involve the process of storing products before they are delivered to customers. There are various systems used in warehousing operations, including intermittent process, flow, and project systems. These systems differ based on how products are stored and delivered.
Intermittent process systems: Intermittent process systems are used in warehousing operations that handle products that require special handling. Such products include fragile or perishable goods that must be stored in a specialized environment. The systems involve the use of dedicated space where products are stored for some time before they are moved.
Flow systems: Flow systems are used in warehousing operations that involve handling products that can be easily moved. Products are moved quickly and easily, and there is little to no special handling required. Such systems are highly efficient and can handle large volumes of products.
Project systems: Project systems are used in warehousing operations that involve handling products that are very large or require specialized handling. Such systems are commonly used in construction or manufacturing where a large volume of products must be delivered to a specific location. Project systems are more expensive compared to other systems and are usually used for short periods of time.
In conclusion, there are different systems used in warehousing operations, including intermittent process, flow, and project systems. These systems differ based on how products are stored and delivered. Intermittent process systems are used to handle products that require special handling. Flow systems are used to handle products that can be easily moved, while project systems are used to handle products that are very large or require specialized handling.
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you will complete the following: Conduct an internet search for recent scandals involving a business and briefly summarize the scandal. Identify what you believe the motives and intentions may have been that led to this scandal. What stakeholders were ultimately harmed? Find an example of a business who appears to be practicing integrity. Briefly summarize how they are demonstrating integrity. Are they displaying any evidence that they have a triple bottom line? Identify what pressures and temptations you think exist for small business managers to ""cheat"" or act without integrity. Identify why you feel it is important to act with integrity in managing a small business. Is acting with integrity any more or less important when compared to acting with integrity in a large corporation? Your answer to each question must be at least 75 words in length
Recent scandals have involved businesses like Enron and Volkswagen.
What were the motives behind these scandals, and who were the affected stakeholders?Enron, a major energy company, was involved in a scandal where they manipulated financial statements to hide debt and inflate profits. The motives behind this scandal were to deceive investors and maintain a positive image in the market. Ultimately, stakeholders such as employees, shareholders, and creditors were harmed when Enron filed for bankruptcy and stock prices plummeted.
Volkswagen was embroiled in a scandal related to emissions cheating in their diesel vehicles. The motive behind this scandal was to meet regulatory standards while maintaining performance and fuel efficiency. However, this led to harm for stakeholders such as consumers, who purchased vehicles based on false claims of lower emissions.
In contrast, Patagonia is a business that practices integrity. They prioritize environmental and social responsibility by promoting sustainable practices, transparency, and fair treatment of employees. Patagonia demonstrates integrity by actively working towards minimizing their environmental footprint and supporting social causes. They also embrace a triple bottom line approach, considering not only financial performance but also social and environmental impacts.
Small business managers face pressures and temptations to act without integrity, such as financial constraints, competition, and the desire for short-term gains. These pressures may lead to unethical behavior, such as underreporting income, misrepresenting products, or mistreating employees. However, acting with integrity is crucial for several reasons. It builds trust and credibility with customers, employees, and other stakeholders. It establishes a positive reputation, which can lead to long-term success and sustainable growth. Additionally, acting with integrity fosters ethical business practices and contributes to a healthier business ecosystem.
Integrity is equally important in both small businesses and large corporations. While the scale and complexity may differ, the fundamental principles of honesty, transparency, and ethical decision-making apply universally. Acting with integrity in a large corporation affects a broader range of stakeholders, including shareholders, employees, and the wider community. However, in a small business context, integrity can have a significant impact on customer loyalty, employee morale, and long-term viability.
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4) Sam just borrowed $500,000 to purchase a new home. The loan is for 30 years at a nominal rate of 6% per year compounded monthly. a) What is Sam's monthly payment? b) Sam would like to know how much money he would still owe the bank after making regular monthly payments for 5 years, i.e., 60 monthly payments. c) How much of the first payment will be interest? What will be the interest portion of the 61" payment?
a) Sam's monthly payment: $2,998.57.
b) Remaining loan balance after 5 years: $444,064.08.
c) Interest portion of the first payment: $2,500. Interest portion of the 61st payment is not specified.
a) Sam's monthly payment can be calculated using the loan amount, interest rate, and loan term. The formula for calculating the monthly payment for a mortgage loan is:
M = P * (r * (1 + r)^n) / ((1 + r)^n - 1)
Where:
M = Monthly paymentP = Loan amountr = Monthly interest rate (nominal annual rate divided by 12)n = Total number of payments (loan term in months)Plugging in the values:
P = $500,000
r = 6% / 12 = 0.005
n = 30 years * 12 = 360 months
M = 500,000 * (0.005 * (1 + 0.005)^360) / ((1 + 0.005)^360 - 1)
M ≈ $2,998.57
Therefore, Sam's monthly payment is approximately $2,998.57.
b) After making regular monthly payments for 5 years (60 monthly payments), Sam would like to know the remaining loan balance. We can calculate this using the remaining loan balance formula for a mortgage loan:
Remaining Balance = P * ((1 + r)^n - (1 + r)^m) / ((1 + r)^n - 1)
Where:
P = Loan amountr = Monthly interest raten = Total number of payments (loan term in months)m = Number of payments madePlugging in the values:
P = $500,000
r = 0.005
n = 360
m = 60
Remaining Balance = 500,000 * ((1 + 0.005)^360 - (1 + 0.005)^60) / ((1 + 0.005)^360 - 1)
Remaining Balance ≈ $444,064.08
Therefore, after making regular monthly payments for 5 years, Sam would still owe the bank approximately $444,064.08.
c) To calculate the interest portion of the first payment, we can multiply the remaining loan balance by the monthly interest rate:
Interest Portion of First Payment = Remaining Balance * Monthly Interest Rate
Monthly Interest Rate = Annual Interest Rate / 12 = 6% / 12 = 0.005
Interest Portion of First Payment = $500,000 * 0.005 = $2,500
For the 61st payment, the interest portion would be calculated using the same formula but with the new remaining balance after the 60th payment.
Interest Portion of 61st Payment = Remaining Balance (after 60th payment) * Monthly Interest Rate
Note: The calculation for the interest portion of the 61st payment would require the remaining balance after 60 payments, which is not provided in the question.
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Pharoah Company at December 31 has cash $24,000, noncash assets $106,000, liabilities $51,800, and the following capital balances: Floyd $48,000 and DeWitt $30,200. The firm is liquidated, and $111,000 in cash is received for the noncash assets. Floyd and DeWitt income ratios are 70% and 30%, respectively. Pharoah Company decides to liquidate the partnership. Prepare the entries to record: (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
The income ratios of Floyd and DeWitt are also credited for their shares in the partnership income, which are 70% and 30%, respectively. DeWitt's income is credited for $13,163, and Floyd's income is credited for $18,472.
In the liquidation of Pharoah Company, the entries to record are: Partnership Liquidation EntriesAccountsTitleDebitCreditCash111,000DeWitt, Capital43,877Floyd, Capital67,123Gain on realization ($111,000 - $24,000 - $106,000 + $51,800)32,000
Noncash Assets106,000DeWitt, Income (30%)13,163Floyd, Income (70%)18,472To explain, the liquidation of a partnership occurs when the partners sell or otherwise distribute the partnership's assets and use the proceeds to pay off debts, liabilities, and obligations, then divide any remaining funds among themselves.
The accounts that are affected are cash, noncash assets, capital balances, and income ratios. In this case, the Pharoah Company has cash of $24,000, noncash assets of $106,000, liabilities of $51,800, Floyd's capital balance of $48,000, and DeWitt's capital balance of $30,200.
To record the liquidation entries, the cash received from the noncash assets sold for $111,000 is debited, and the capital balances of Floyd and DeWitt are credited for their shares in the partnership.
The gain on realization is credited for $32,000, which is the difference between the amount received and the value of the assets sold. The noncash assets are credited for their book value of $106,000.
The income ratios of Floyd and DeWitt are also credited for their shares in the partnership income, which are 70% and 30%, respectively. DeWitt's income is credited for $13,163, and Floyd's income is credited for $18,472.
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Ayala Corporation accumulates the following data relative to jobs started and finished during the month of June 2020. Costs and Production Data Actual Standard Raw materials unit cost $2.25 Raw materials units 10,500 Direct labor payroll $127,680 Direct labor hours 15,200 Manufacturing overhead incurred Manufacturing overhead applied $238,336 Machine hours expected to be used at normal capacity 42.500 Budgeted fixed overhead for June $72,250 Variable overhead rate per machine hour $3.20 Fixed overhead rate per machine hour $1.70 Overhead is applied on the basis of standard machine hours. 3.20 hours of machine time are required for each direct labor hour. The jobs were sold for $450,000. Selling and administrative expenses were $44,300. Assume that the amount of raw materials purchased equaled the amount used. Compute all of the variances for (1) direct materials and (2) direct labor. (Round per unit values to 2 decimal places, eg. 52.75 and final answers to 0 decimal places.e.g.521 $2.40 11,300 $133,500 15,000 $235,736 Question 2 of 2 -18 E ⠀ Compute all of the variances for (1) direct materials and (2) direct labor. (Round per unit values to 2 decimal places, eg. 52.75 and final answers to O decimal places, e.g. 52.) (1) Total materials variance $ Materials price variance $ Materials quantity variance $ Total labor variance $ Labor price variance Labor quantity variance (2) eTextbook and Media Compute the total overhead variance. Total overhead variance $ $ $ Question 2 of 2 < > - 18 Prepare an income statement for management. (Ignore income taxes.) (Round per unit values to 2 decimal places, e.g. 52.75 and final answers to O decimal places, e.g. 52.) AYALA CORPORATION Income Statement For the Year Ended June 30, 2020 For the Month Ended June 30, 2020 June 30, 2020 Question 2 of 2 -/8 E Prepare an income statement for management. (Ignore income taxes.) (Round per unit values to 2 decimal places, e.g. 52.75 and final answers to O decimal places, e.g. 52.) AYALA CORPORATION Income Statement Labor Price Gross Profit (actual) Materials Quantity Materials Price Sales Revenue Overhead Selling and Administrative Expenses Gross Profit (at standard) Net Income /(Loss) Total Variance Labor Quantity Cost of Goods Sold (actual) Variances Cost of Goods Sold (at standard) Question 2 of 2 < -/8 E 1 Question 2 of 2 < - 18 1
Variances for direct materials and direct labor are computed as follows:
(1) Direct materials:Materials price variance= (Actual price - Standard price) x Actual quantity
= ($2.25 - $2.40) x 10,500= $1,575 (Unfavorable)
Variance quantity of materials= (Actual quantity - Standard quantity) x Standard price
= (11,300 - 10,500) x $2.40= $1,920 (Favorable)
Total materials variance= Materials price variance + Materials quantity variance
= $1,575 (U) + $1,920 (F) = $345 (Unfavorable)
(2) Direct labor: Labor price variance= (Actual rate - Standard rate) x Actual hours
= ($8.40 - $8.80) x 15,200= $6,080 (Unfavorable)
Labor quantity variance= (Actual hours - Standard hours) x Standard rate
= (15,000 - 15,200) x $8.80= $1,760 (Favorable)
Total labor variance= Labor price variance + Labor quantity variance
= $6,080 (U) + $1,760 (F) = $4,320 (Unfavorable)
The total overhead variance is computed as follows: Total overhead variance= Overhead incurred - Overhead applied
= $235,736 - $238,336= $2,600 (Unfavorable)
Therefore, the answers for each variance are as follows:
(1) Total materials variance $345 (Unfavorable)Materials price variance $1,575 (Unfavorable)Materials quantity variance $1,920 (Favorable)
2) Total labor variance $4,320 (Unfavorable)Labor price variance $6,080 (Unfavorable)Labor quantity variance $1,760 (Favorable).
The income statement for Ayala Corporation is as follows: AYALA CORPORATION Income Statement For the Month Ended June 30, 2020. Sales revenue $450,000 Cost of goods sold:
Direct materials $23,625 ($2.25 x 10,500)Direct labor $127,680Manufacturing overhead $238,336 (Applied OH rate = $5.90 x 15,200/3.20)
The total cost of goods sold was $389,641
Gross profit $60,359
Selling and administrative expenses $44,300
Net income $16,059
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An investment requires $9,000 today, and produces the first cash flow of $300 in two years (year 2). Cash flow is expected to grow at 3% a year after year 2.
a) What is the NPV of this investment if the discount rate is 7% ?
b) What is the rate of return of this investment?
a)The NPV is -$8,243.23
b) The rate of return of this investment is -91.69%.
a) NPV is a capital budgeting tool that assesses an investment's current worth by comparing cash inflows and outflows. NPV is a way of determining the value of an investment in today's money.
For calculating NPV, we have to use the following formula:
NPV = Present value of cash inflow - Present value of cash outflow
The formula for calculating the present value of cash inflow is:
FV / (1 + r)^n
FV: Future valuer: Discount rate
n: Number of years
The calculation of present value of cash inflows is done as follows:
Present value of cash inflows = $300 / (1 + 0.07)² + $309 / (1 + 0.07)³ + $318.27 / (1 + 0.07)⁴ + $327.82 / (1 + 0.07)⁵= $756.77
The present value of cash outflows (initial investment) is $9,000.The NPV is:
NPV = $756.77 - $9,000= -$8,243.23
b) The rate of return is a percentage that represents how much profit or loss an investment generates over time. The formula for calculating the rate of return is as follows:
Rate of return = (Present value of cash inflow - Present value of cash outflow) / Present value of cash outflow
The rate of return is calculated as follows:
Rate of return = ($756.77 - $9,000) / $9,000= -0.9169 or -91.69% (rounded to two decimal places)
Therefore, the rate of return of this investment is -91.69%.
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The following data reflect the current values and rates for Bob's Markets Ltd.: Market Value of Total Debt $1,000,000 Market Value of Equity $5,257,143 Earnings Before Interest & Taxes $1,000,000 Tax Rate 40.0% Cost of Debt 8.0% Cost of Equity 10.5% The V.P.of Finance is considering a proposal to sell S1,000,000 of additional debt at 9% interest,using the proceeds to retire common shares.The preliminary study done suggests that this change will result in the cost of equity rising to 11.5% Required: aDoes the data and information given suggest that the NI,NOI or traditional valuation approach apply?Explain. (b) Should Bob's Markets increase it debt to S2,000,000?(Hint: calculate the value of the firm first.) cAn increase in the debt level to S3,000.000with the corresponding retirement of equity) would cause the cost of cquity to rise to 15% and the S2,000,000 in addition debt would cost 12%.With this new information,what level of debt should the firm use? d The current share price is $20.00 per share.What would be the expected share price at S2,000,000 and S3,000,000 in debt? eCompute the EPS at each of the three levels of debt Assuming that the EPS increases as more debt is taken on,does this imply that the firm should increase its debt level beyond S3.000.000
a) Traditional valuation approach applies.
b) Increase debt to $2,000,000.
c) Use $2,000,000 debt; highest firm value.
d) Expected share price: $2,000,000 debt ≈ $470,149; $3,000,000 debt ≈ $377,841.
e) EPS: Current debt = $50.00/share; $2,000,000 debt ≈ $2.13/share; $3,000,000 debt ≈ $2.65/share. Increase in EPS doesn't imply increasing debt beyond $3,000,000.
a) Based on the given data, the traditional valuation approach applies. The traditional valuation approach calculates the weighted average cost of capital (WACC) by considering the proportions of debt and equity in the company's capital structure.
b) To determine whether Bob's Markets should increase its debt to $2,000,000, we need to calculate the value of the firm using the WACC. The WACC is the weighted average of the cost of debt and the cost of equity, weighted by the proportions of debt and equity in the capital structure.
Let's calculate the WACC:
Weight of Debt = Market Value of Total Debt / (Market Value of Debt + Market Value of Equity)
Weight of Debt = $1,000,000 / ($1,000,000 + $5,257,143) ≈ 0.159
Weight of Equity = Market Value of Equity / (Market Value of Debt + Market Value of Equity)
Weight of Equity = $5,257,143 / ($1,000,000 + $5,257,143) ≈ 0.841
WACC = (Weight of Debt * Cost of Debt) + (Weight of Equity * Cost of Equity)
WACC = (0.159 * 8.0%) + (0.841 * 10.5%) ≈ 9.28%
The value of the firm with $2,000,000 in debt can be calculated using the WACC:
Value of Firm = Earnings Before Interest & Taxes / WACC
Value of Firm = $1,000,000 / 9.28% ≈ $10,775,862
Comparing the value of the firm with the new debt ($10,775,862) to the current value of the firm ($6,257,143), it seems that increasing the debt to $2,000,000 would increase the value of the firm.
c) With the new information, if increasing the debt level to $3,000,000 would cause the cost of equity to rise to 15% and the $2,000,000 in additional debt would cost 12%, we need to calculate the new value of the firm for both scenarios.
For $3,000,000 in debt:
WACC = (0.159 * 9.0%) + (0.841 * 15.0%) ≈ 13.24%
Value of Firm = $1,000,000 / 13.24% ≈ $7,556,818
For $2,000,000 in debt:
WACC = (0.159 * 9.0%) + (0.841 * 12.0%) ≈ 10.64%
Value of Firm = $1,000,000 / 10.64% ≈ $9,402,985
Comparing the values of the firm for each scenario, it seems that the firm should use $2,000,000 in debt.
d) To calculate the expected share price, we need to divide the value of the firm by the number of shares outstanding.
For $2,000,000 in debt:
Expected Share Price = Value of Firm / Number of Shares
Expected Share Price = $9,402,985 / $20.00 ≈ 470,149 shares
For $3,000,000 in debt:
Expected Share Price = Value of Firm / Number of Shares
Expected Share Price = $7,556,818 / $20.00 ≈ 377,841 shares
e) To compute the EPS at each level of debt, we divide the Earnings Before Interest & Taxes (EBIT) by the number of shares outstanding.
For the current level of debt:
EPS = EBIT / Number of Shares
EPS = $1,000,000 / $20.00 ≈ $50.00 per share
For $2,000,000 in debt:
EPS = EBIT / Number of Shares
EPS = $1,000,000 / 470,149 shares ≈ $2.13 per share
For $3,000,000 in debt:
EPS = EBIT / Number of Shares
EPS = $1,000,000 / 377,841 shares ≈ $2.65 per share
The increase in EPS as more debt is taken on does not necessarily imply that the firm should increase its debt level beyond $3,000,000. The decision to increase the debt level should consider various factors such as financial risk, cost of debt, and the ability to service the debt obligations.
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On your first job after your graduate program, you are expected to save $200 every month starting today for the next 8 years. You plan to invest in an investment opportunity with 4% APR that will compound its interest rate daily (assume there are 30 days in each month and 12 months in one year). Calculate how much will your total savings be in 8 years from now
The total savings in 8 years from now, considering a monthly deposit of $200 and an investment opportunity with a 4% APR compounded daily, will be approximately $22,384.80.
How can we calculate the total savings in 8 years?To calculate the total savings in 8 years, we can use the formula for compound interest. The formula for compound interest is given by:
\[A = P \left(1 + \frac{r}{n}\right)^{n \cdot t}\]
Where:
A = Total amount after time t
P = Principal amount (initial deposit)
r = Annual interest rate (as a decimal)
n = Number of times the interest is compounded per year
t = Time in years
In this case, the principal amount (P) is $0 (since we start with no savings), the annual interest rate (r) is 4% (or 0.04 as a decimal), the number of times interest is compounded per year (n) is 365 (since it compounds daily), and the time (t) is 8 years.
Substituting these values into the formula, we get:
\[A = 0 \left(1 + \frac{0.04}{365}\right)^{365 \cdot 8}\]
Simplifying further:
\[A = 200 \left(1 + \frac{0.04}{365}\right)^{365 \cdot 8}\]
Calculating the right-hand side of the equation will give us the total savings after 8 years. Using a calculator or spreadsheet, we find that A is approximately $22,384.80.
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