Structural hole refers to the gap between clusters in a network. Forming a coalition is part of a manager's job, involving collaboration and alliances to address issues collectively.
The term for the gap between two clusters in a network is "structural hole." Structural holes refer to the spaces or gaps that exist between groups or clusters within a network. These structural holes can represent opportunities for individuals or organizations to bridge the gap and connect different clusters, allowing for the flow of information, resources, and influence.
Regarding forming a coalition, the correct option is "It is part of a typical manager's job." Forming a coalition is often a crucial aspect of a manager's role, especially in situations where multiple stakeholders or departments need to come together to achieve a common goal. Coalitions involve building alliances, gathering support, and creating collaborative networks to address complex issues, make decisions, or drive organizational change. It is not limited to a single person but typically involves the efforts of multiple individuals working collectively to tackle a shared problem or pursue a common objective.
Therefore, Structural hole refers to the gap between clusters in a network. Forming a coalition is part of a manager's job, involving collaboration and alliances to address issues collectively.
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Golden Co Is Planning To Take Out A Six-Month Fixed Rate Loan Of $5 Million In Three Months' Time. It Is 1 December, And An Exchange Is Quoting The Following Prices For A Standard $500,000 Three-Month Contract. Contracts Expire At The End Of The Relevant Month. LIBOR Is 5.25%. Prices Are As Follows: December 94.75 March 94.65 June
Golden Co is planning to take out a six-month fixed rate loan of $5 million in three months' time.
It is 1 December, and an exchange is quoting the following prices for a standard $500,000 three-month contract. Contracts expire at the end of the relevant month. LIBOR is 5.25%.
Prices are as follows:
December 94.75
March 94.65
June 94.55
September 94.45
Required
Illustrate the outcome of a futures hedge, assuming that a loan is taken out at LIBOR+1% fixed at the start of the loan and that LIBOR is 5.75% on 1 March.
State two advantage and two disadvantage of of futures
To illustrate the outcome of a futures hedge, we need to calculate the gain or loss from the futures contract and compare it to the interest expense on the loan.
Given that Golden Co plans to take out a six-month fixed-rate loan of $5 million in three months' time, on 1 December, the current LIBOR rate is 5.25%. Let's assume the fixed rate on the loan is LIBOR+1%, which would be 6.25%. On 1 March, LIBOR increases to 5.75%.
To hedge the loan, Golden Co can sell three-month futures contracts in December at a price of 94.75. Each contract is for $500,000, so they would need to sell 10 contracts to cover the $5 million loan.
Calculating the gain or loss from the futures contract:
1) Selling price: 94.75
2) Buying price on 1 March: 94.65
3) Gain or loss per contract: 94.75 - 94.65 = 0.10
4) Total gain or loss: 0.10 * 10 contracts = $1,000
Assuming the loan period is from 1 March to 1 September (six months), the interest expense on the loan at a fixed rate of 6.25% would be:
$5 million * (6.25% / 2) * 6/12 = $156,250
Therefore, the outcome of the futures hedge would result in a gain of $1,000, which can offset a portion of the interest expense on the loan.
Advantages of futures:
1) Hedging: Futures contracts allow businesses to hedge against price fluctuations in commodities, currencies, or interest rates, providing protection against potential losses.
2) Liquidity: Futures markets are generally highly liquid, allowing for easy entry and exit positions, enabling efficient trading and risk management.
Disadvantages of futures:
1) Counterparty risk: Futures contracts involve the risk of default by the counterparty, leading to potential financial losses.
2) Margin requirements: Futures trading requires maintaining margin accounts, which ties up capital and may lead to additional costs.
In summary, the outcome of the futures hedge results in a small gain of $1,000, which helps offset a portion of the interest expense on the loan. Advantages of futures include hedging and liquidity, while disadvantages include counterparty risk and margin requirements.
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Your company is applying for a state sponsored quality award, and the application needs a 300-word ethics statement from the supply chain management department. You are asked to submit one. What does it say?
Our supply chain management department is dedicated to upholding the highest ethical standards, not just to meet compliance requirements, but because it is the right thing to do.
Ethics Statement from the Supply Chain Management Department-At our company, the supply chain management department operates with a steadfast commitment to ethical principles and practices. We believe that integrity, transparency, and social responsibility are the foundation of a successful and sustainable supply chain. Ethics are deeply ingrained in our decision-making processes, starting from supplier selection to delivery of goods and services to our customers. We prioritize fair and equitable treatment of our suppliers, ensuring that they adhere to ethical standards and practices. We maintain open and honest communication channels with our suppliers, fostering trust and long-term partnerships. In our procurement processes, we uphold ethical sourcing practices, giving preference to suppliers who share our values of environmental sustainability, human rights, and fair labor practices. We carefully evaluate and monitor our suppliers to ensure compliance with these ethical standards.
Within our supply chain operations, we are committed to minimizing our environmental impact. We actively seek out opportunities to reduce waste, promote recycling, and optimize transportation routes to reduce carbon emissions. We collaborate with our suppliers to implement sustainable practices and support initiatives that align with our ethical and environmental goals. In our relationships with customers, we prioritize honesty and transparency. We provide accurate information about our products and services, including their origin, ingredients, and manufacturing processes. We believe in delivering high-quality, safe, and ethically produced goods to our customers.
Our supply chain management department is dedicated to upholding the highest ethical standards, not just to meet compliance requirements, but because it is the right thing to do. We continuously strive to improve our ethical practices, staying informed about industry best practices and emerging ethical challenges. We are committed to creating a positive impact through our supply chain operations, contributing to a more ethical and sustainable business ecosystem.
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After a bubble, assume that an economy faces a crash in the stock and real estate markets and a failure in the banking system. Further assume that there is a huge decline in domestic demand and the budget deficit is already high. Discuss the success of a devaluation in increasing the output decreasing the budget deficit. (1
The success of a devaluation in increasing output and decreasing the budget deficit after a bubble crash, stock and real estate market decline, banking system failure, and domestic demand decline is uncertain.
Devaluation refers to a deliberate reduction in the value of a country's currency relative to other currencies. It can potentially stimulate exports by making them more competitive in international markets and boost domestic production. However, the success of devaluation in increasing output depends on various factors such as the structure of the economy, the level of international competitiveness, and the responsiveness of exports to changes in prices.
In the given scenario, where there is a significant economic downturn with multiple crises and a decline in domestic demand, the effectiveness of devaluation may be limited. A devaluation alone cannot address the underlying issues such as the failure in the banking system or the decline in the stock and real estate markets. These problems need comprehensive policy measures and structural reforms to restore confidence and stabilize the economy.
Additionally, devaluation can lead to inflationary pressures as imports become more expensive, which can worsen the budget deficit. If the government relies heavily on imports or has substantial foreign debt, the cost of servicing that debt could also increase, further exacerbating the budget deficit.
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possible Find the present value of an annuity with payments of $2,500 at the end of each year for 4 years. The interest rate is 10% compounded annually The present value of the annuity is $ (Round the final answer to the nearest cent as needed. Round all intermediate values to six decimal places as needed) Submit quiz
The present value of the annuity with payments of $2,500 at the end of each year for 4 years, with an interest rate of 10% compounded annually, is $8,287.43.
The present value of an annuity can be calculated using the formula: PV = P * (1 - (1+r)^(-n)) / r, where PV is the present value, P is the payment per period, r is the interest rate per period, and n is the number of periods.
In this case, the payment per period is $2,500, the interest rate is 10% (or 0.10), and the number of periods is 4. Plugging these values into the formula, we get:
PV = 2500 * (1 - (1+0.10)^(-4)) / 0.10
Calculating this equation, the present value of the annuity is $8,287.43 (rounded to the nearest cent).
To obtain this result, the future value of each payment ($2,500) at the end of each year is discounted back to the present value using the interest rate of 10%. The formula accounts for the compounding effect of the interest rate over the four-year period.
Therefore, the present value of the annuity with payments of $2,500 at the end of each year for 4 years, with an interest rate of 10% compounded annually, is $8,287.43.
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Which of the following projects would you approve?
Project Cost IRR A 0.9m 9%
B 2.25m 10.5%
C 1.25m 7.90%
D 1.10m 7.20%
Marginal cost of capital
$0 to $2.5m 6.9%
$2.5m to $4.5m 8.7%
over $4.5m 10.2%
I would approve Project B because it has the highest Internal Rate of Return (IRR) of 10.5%, which exceeds the marginal cost of capital for the corresponding investment range.
It also meets the minimum required return on investment. Project A, C, and D have lower IRRs that do not exceed the marginal cost of capital in their respective investment ranges.
Project B should be approved as it offers the highest Internal Rate of Return (IRR) at 10.5%, surpassing the marginal cost of capital for the investment range of $2.5m to $4.5m. It also meets the minimum required return on investment. Projects A, C, and D have lower IRRs that fall below the marginal cost of capital for their respective investment ranges, making Project B the most attractive option in terms of profitability and meeting financial criteria.
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Which of the following projects would you approve? Project Cost IRR A 0.9m 9% B 2.25m 10.5% C 1.25m 7.90% D 1.10m 7.20% Marginal cost of capital $0 to $2.5m 6.9% $2.5m to $4.5m 8.7% over $4.5m 10.2%
SoundPro produces amplifiers for electric guitars. SoundPro has annual fixed costs totaling $250,000 and variable costs of $60 per amplifier. Each amplifier is sold for $75 each. Sound pro is currently selling 18,000 amplifiers. (this is the base case)
Answer the following questions regarding SoundPro:
Prepare a contribution format income statement for the base case.
2. How many units must be sold to earn an annual profit of $65,000?
3. What is SoundPro’s breakeven point in sales dollars?
4. What is the margin of safety in sales dollars?
5. What would be the operating profit (loss) if variable cost per unit increases 10 percent. (Assume sales remain at the base case level of 18,000 amplifiers).
Contribution Format Income Statement for SoundPro (Base Case):Sales Revenue: 18,000 amplifiers × $75/amplifier = $1,350,000Variable Costs: 18,000 amplifiers × $60/amplifier = $1,080,000Contribution
Margin: $1,350,000 - $1,080,000 = $270,000Fixed Costs: $250,000Operating Profit: $270,000 - $250,000 = $20,0002. To earn an annual profit of $65,000, we need to calculate the additional contribution margin required. Assuming the fixed costs remain constant, the equation would be: Required Contribution Margin = Fixed Costs + Target ProfitRequired Contribution Margin = $250,000 + $65,000 = $315,000Contribution Margin per Unit = Selling Price per Unit - Variable Cost per UnitContribution Margin per Unit = $75 - $60 = $15Units to be sold = Required Contribution Margin ÷ Contribution Margin per UnitUnits to be sold = $315,000 ÷ $15 = 21,000 units3. The breakeven point in sales dollars is the level of sales at which the company neither makes a profit nor incurs a loss. The equation to calculate the breakeven point is:Breakeven Point in Sales Dollars = Fixed Costs ÷ Contribution Margin RatioContribution Margin Ratio = Contribution Margin ÷ Sales RevenueContribution Margin Ratio = $270,000 ÷ $1,350,000 = 0.2 (or 20%)Breakeven Point in Sales Dollars = $250,000 ÷ 0.2 = $1,250,0004. Margin of safety in sales dollars represents the amount by which actual sales exceed the breakeven point. It indicates the cushion the company has before incurring a loss. The formula to calculate the margin of safety is:Margin of Safety in Sales Dollars = Actual Sales - Breakeven SalesMargin of Safety in Sales Dollars = $1,350,000 - $1,250,000 = $100,0005. If the variable cost per unit increases by 10%, the new variable cost per unit would be $66 ($60 + ($60 * 10%)). Assuming sales remain at the base case level of 18,000 amplifiers:Total Variable Costs = 18,000 amplifiers × $66/amplifier = $1,188,000Operating Profit (Loss) = Sales Revenue - Total Variable Costs - Fixed CostsOperating Profit (Loss) = $1,350,000 - $1,188,000 - $250,000 = -$88,000Therefore, the operating loss would be $88,000.
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FILL THE BLANK.
Chem-O-Texx is one of the largest chemical companies in the US. The company primarily produces ceramics, petrochemicals, agrochemicals, and polymers. Employees work with a wide range of materials, and select employees work with hazardous substances. In order to meet the regulations set in place by OSHA, Chem-O-Texx must ensure that employees who work with hazardous substances __________.
Understand the vital importance of using hazardous substances with care
Receive a special training to ensure qualification and competence
Be trained on how to properly handle and store hazardous substances
Know which of the substances are most harmful to humans and animals
Chem-O-Texx must ensure that employees who work with hazardous substances understand the importance of using them with care, receive specialized training .
In order to meet the regulations set in place by OSHA, Chem-O-Texx must ensure that employees who work with hazardous substances __________. Chem-O-Texx has a responsibility to prioritize the safety and well-being of its employees, especially those who work with hazardous substances. To comply with the regulations established by the Occupational Safety and Health Administration (OSHA), the company must implement certain measures to ensure employee safety. One crucial aspect is ensuring that employees understand the vital importance of using hazardous substances with care. This includes recognizing the potential risks associated with these substances and the need for proper handling, storage, and disposal procedures. Employees need to be aware of the potential dangers and the importance of adhering to safety protocols to prevent accidents, injuries, and long-term health issues.
Another essential requirement is for employees to receive special training to ensure qualification and competence in handling hazardous substances. This training should cover topics such as identifying different types of hazardous substances, understanding their properties and associated risks, using appropriate personal protective equipment (PPE), and responding to emergencies or spills. This training equips employees with the knowledge and skills necessary to safely work with hazardous substances and mitigate potential risks. Additionally, employees must be trained on how to properly handle and store hazardous substances. This includes following specific protocols for handling, transporting, and storing chemicals to prevent accidents, spills, or exposure. Proper labeling, storage containers, and containment measures should be in place to minimize the risks associated with these substances. Employees should also be educated on proper disposal methods to ensure environmental safety. Moreover, employees need to have knowledge of which substances are most harmful to humans and animals. This understanding helps them identify the level of risk associated with different substances and prioritize safety measures accordingly. By knowing the potential health effects and risks of specific chemicals, employees can take appropriate precautions and make informed decisions while working with hazardous substances.
In summary, Chem-O-Texx must ensure that employees who work with hazardous substances understand the importance of using them with care, receive specialized training, know how to handle and store them properly, and are aware of the substances that pose the highest risks. These measures contribute to maintaining a safe working environment, protecting employee health, and complying with OSHA regulations.
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Explain the specific benefits and drawbacks Mayo Clinic cancer center may face in using the SPACE Matrix tool
The SPACE Matrix tool is a strategic planning tool used by organizations to assess the organization's current state and develop possible strategies based on the analysis of various internal and external factors.
Mayo Clinic cancer center can benefit from using the SPACE Matrix tool in the following ways
:Benefits of using the SPACE Matrix tool
1. Helps in determining the strategic position of Mayo Clinic cancer centerThe SPACE Matrix tool can help Mayo Clinic cancer center to assess its current strategic position and determine the type of strategies to use to achieve its objectives. The tool can be used to analyze Mayo Clinic cancer center's internal and external factors such as competitive position, financial strength, industry attractiveness, and internal resource position. This will enable Mayo Clinic cancer center to determine the most suitable strategies to employ.2. It provides an objective assessment of Mayo Clinic cancer center's current stateThe SPACE Matrix tool uses objective criteria to assess Mayo Clinic cancer center's current state. It provides a clear picture of Mayo Clinic cancer center's internal and external factors that influence its performance. This enables Mayo Clinic cancer center to identify its strengths and weaknesses and to take corrective action to improve its performance.3. It helps Mayo Clinic cancer center to identify the most appropriate strategiesThe SPACE Matrix tool helps Mayo Clinic cancer center to identify the most appropriate strategies based on its current state. The tool considers the internal and external factors that influence Mayo Clinic cancer center's performance.
This enables Mayo Clinic cancer center to develop strategies that are aligned with its objectives. Drawbacks of using the SPACE Matrix tool1. The tool may be too complex for Mayo Clinic cancer center to useThe SPACE Matrix tool is complex and requires expertise to use. Mayo Clinic cancer center may not have the expertise to use the tool, which may result in inaccurate results.
2. The tool may be too time-consuming The SPACE Matrix tool may be too time-consuming, and Mayo Clinic cancer center may not have the time and resources to use it. This may result in delayed decision-making.3. The tool may not provide a comprehensive analysis of Mayo Clinic cancer center's current stateThe SPACE Matrix tool may not provide a comprehensive analysis of Mayo Clinic cancer center's current state. It only considers a limited number of factors, and this may result in a narrow perspective of Mayo Clinic cancer center's current state. This may result in incomplete and inaccurate results.
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Ehrhart Appliance uses a perpetual inventory system. For its flat-screen television sets, the January 1 inventory was 3 sets at $600 each. On January 10, Ehrhart purchased 6 units at $660 each. The company sold 2 units on January 8 and 5 units on January 15. Compute the ending inventory under LIFO.
LIFO stands for Last In, First Out, which is an inventory accounting method. It assumes that the last items added to an inventory are the first to be sold. The inventory is valued by multiplying the cost of the most recent units purchased by the total units sold.
To compute the ending inventory under LIFO, we must first calculate the cost of goods sold (COGS) using the LIFO method. We begin with the most recent purchase of 6 units at $660 each: Total purchase price of 6 units = 6 x $660 = $3,960. We assume that 5 units were sold at the price of $660 each, and 1 unit remained unsold.
The cost of goods sold is the value of the units sold, which is 5 x $660 = $3,300. To compute the ending inventory under LIFO, we use the remaining inventory on hand and multiply it by the most recent purchase price per unit. So, ending inventory under LIFO is 1 unit x $660 = $660.
So, the ending inventory under LIFO is $660.What is perpetual inventory system?A perpetual inventory system is a method of accounting for inventory in which inventory is continuously updated and maintained.
The perpetual inventory system tracks the movement of inventory in real-time, providing real-time data on inventory levels and sales. It is used to keep track of inventory levels, sales, and cost of goods sold (COGS) by continuously updating the inventory account after every sale or purchase.
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Big Tech is a technology firm that trades on the London Stock Exchange. Over the past year, the stock has increased from GBP 60 to GBP 65, while the exchange rate has fallen from USD 2.000/GBP to USD 1.8000/GBP over the same period.
Discuss if there would there be a significant difference in the expected return to the US dollar investor if the investor hedges the exchange rate risk in the investment, or remains unhedged.
Yes, there would be a significant difference in the expected return to the US dollar investor if the investor hedges the exchange rate risk in the investment, or remains unhedged.
The exchange rate risk is the danger of an investor sustaining losses due to the variations in the currency exchange rates. The fluctuation of exchange rates could influence the value of financial instruments in an investor's portfolio. Therefore, when a US dollar investor invests in a company that trades on a foreign stock exchange, such as the London Stock Exchange, their returns are exposed to both market risk and exchange rate risk.In this situation, the London Stock Exchange stock of Big Tech has increased from £60 to £65 over the past year.
However, the exchange rate fell from $2.00/£1 to $1.80/£1 during the same period. As a result, the US dollar investor's return on investment would be impacted by the change in exchange rate if the investor remains unhedged.
This is due to the fact that the appreciation of the pound relative to the dollar causes the US dollar investor to incur a loss since their returns have to be converted back to dollars.To avoid such loss, the US dollar investor can hedge the investment by either buying a currency forward contract, which locks in the current exchange rate for a future date, or by buying a currency option contract, which gives the investor the option to buy or sell at a predetermined exchange rate. Therefore, hedging the exchange rate risk helps the US dollar investor to mitigate the risks that arise from the fluctuations in the currency exchange rates, thus providing a higher expected return.
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Suppose this year Amazon's common stock gave $1.1 dividend this year. The company announced that its future dividends will be growing by 8% annually for the foreseeable future.If you require a 10% return on your investment,how much are you willing to pay for the stock?(Round your answer to 2 decimal point)
You will be ready to spend around $59.40 for the stock if you need a 10% return on your investment and anticipate that Amazon's dividends would increase at an 8% yearly pace.
The dividend discount model (DDM), which computes the present value of future dividends, can be used to estimate the stock's worth.
Calculate the expected dividend for the next year:
Future dividend = Current dividend × (1 + Growth rate)
Future dividend = $1.1 × (1 + 8%) = $1.188
Determine the required return rate:
Required return rate = 10% = 0.10
DDM formula to calculate the intrinsic value of the stock will be applicable
Intrinsic value = Future dividend / (Required return rate - Growth rate)
Intrinsic value = $1.188 / (0.10 - 0.08) = $59.40
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A selling cost would include office supplies used at the corporate headquarters. advertising costs for the period. Salary of the human resource manager Depreciation on office furniture.
A selling cost typically refers to the expenses incurred in promoting and selling a company's products or services. In this context, the following costs would be considered selling costs:
1. Advertising costs for the period: These expenses are directly related to promoting the company's products or services to potential customers. They include expenses for advertising campaigns, media placements, online marketing, and other promotional activities aimed at generating sales.
2. Salary of the human resource manager: While the human resource manager's salary may not be directly involved in the actual selling process, it can be considered a selling cost if the manager is responsible for recruiting and training sales personnel or overseeing sales-related activities.
3. Office supplies used at the corporate headquarters: Although office supplies are typically categorized as administrative expenses, if they are specifically used for sales-related activities at the corporate headquarters, they can be considered as selling costs. For example, supplies used for preparing sales presentations or materials for client meetings.
4. Depreciation on office furniture: Office furniture used by the sales team or at sales-related areas, such as the showroom or sales offices, can be considered a selling cost. Depreciation expense represents the allocation of the cost of the furniture over its useful life and is recognized as an operating expense.
These costs are directly or indirectly associated with the selling function and are necessary for generating sales revenue. Including them as selling costs allows companies to accurately track and allocate expenses related to their sales efforts.
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Discuss from a digital marketing perspective
"Trends that are driving shifts from traditional marketing practices to digital marketing practices" Based on the above - Digital marketing tools and techniques provide business owners the best chance for competition, endurance and business growth?" Expand – Do you agree or disagree.
I agree that using digital marketing tools and strategies gives company owners the best opportunity for survival, development, and competition. This perspective is supported by a number of phenomena that are causing the transition from conventional marketing strategies to digital marketing practices:
Changing consumer behavior: For information, entertainment, and purchasing, consumers are turning more and more to digital platforms. The use of smartphones on a large scale, the growth of the internet, and the accessibility of social media platforms have changed how consumers interact with companies.
Greater reach and accessibility: Companies may use digital marketing to connect with customers anywhere in the world. Businesses may target certain demographics and interact with potential consumers whenever and wherever they want by using a variety of digital channels, including search engines, social media, email marketing, and online advertising.
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I'm creating a leadership portfolio for a director of facilities, I need an example in a pdf so I can get an idea
Creating a leadership portfolio for a director of facilities requires a comprehensive showcase of technical skills, leadership abilities, and achievements.
Creating a leadership portfolio for a director of facilities can be a challenging task. It's important to demonstrate not just technical skills and experience, but also leadership abilities and achievements.
Here's an example of a leadership portfolio for a director of facilities that you can refer to for ideas: PDF example of Leadership Portfolio for Director of FacilitiesThis example covers the following sections:
Introduction: A brief overview of the director's background and experience in facilities management.Leadership Philosophy: A statement of the director's approach to leadership, including core values and principles that guide their decision-making and interactions with team members.
Management Style: A description of the director's management style, including strengths and areas for development, and examples of how they have adapted their approach to different team members and situations.
Team Building and Development: Examples of how the director has built and developed teams, including strategies for recruiting, training, and retaining staff.
Communication Skills: Examples of effective communication strategies used by the director, including how they manage communication with stakeholders and resolve conflicts.
Project Management: Examples of successful projects led by the director, including details of project objectives, timelines, budgets, and outcomes.
Financial Management: A summary of the director's experience in managing budgets, controlling costs, and ensuring compliance with financial regulations.
Organizational Development: Examples of how the director has contributed to the development of their organization, including initiatives to improve efficiency, quality, and customer satisfaction.
Conclusion: A summary of the director's achievements and future goals, and how they plan to continue to develop their leadership skills and contribute to the success of their organization.
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Frederick Company uses ABC to account for its chrome wheel manufacturing process. Company managers have identified four manufacturing activities that incur manufacturing overhead costs: materials handling, machine setup, insertion of parts, and finishing. The budgeted activity costs for the upcoming year and their allocation bases are as follows:
(Click the icon to view the data.)
Frederick Company expects to produce 1,000 chrome wheels during the year. The wheels are expected to use 2,750 parts, require 15 setups, and consume 1,700 hours of finishing time.
(Click the icon for completed job data.)
Read the requirements.
- X
Data table
Total Budgeted
Manufacturing
Activity
Overhead Cost
Allocation Base
11,000
Requirement 1. Compute the cost allocation rate for each activity.
Materiele handling....
Number of perts
Machine setup
3,600
Number of setups
Activity cost
allocation rate
Insertion of parts
44,000
Number of parts
Materials handling (per part)
76,500
Finishing
Finishing direct labor hours.
Machine setup (per setup)
$ 135,100
Total
Insertion (per part)
Finishing (per hour)
Requirement 2. Compute the manufacturing overhead cost that should be assigned to Job 420.
Print
Done
The manufacturing overhead cost that should be assigned to Job 420 is
Requirement 3. Compute the manufacturing overhead cost that should be assigned to Job 510.
The manufacturing overhead cost that should be assigned to Job 510 is
More info
Requirements
Job 420 used 250 parts, required 5 setups, and consumed 120 finishing hours. Job 510 used 450 parts, required 6 setups, and consumed 310 finishing hours.
1. Compute the cost allocation rate for each activity.
2. Compute the manufacturing overhead cost that should be assigned to Job 420.
3. Compute the manufacturing overhead cost that should be assigned to Job 510.
Print
Done
To compute the cost allocation Company rate for each activity, we divide the total budgeted manufacturing overhead cost by the corresponding allocation
base: Materials handling: Cost allocation rate = $11,000 / 2,750 parts = $4 per part Machine setup: Cost allocation rate = $3,600 / 15 setups = $240 per setup Insertion of parts: Cost allocation rate = $44,000 / 2,750 parts = $16 per part Finishing: Cost allocation rate = $135,100 / 1,700 finishing hours = $79.47 per finishing hour To compute the manufacturing overhead cost assigned to Job 420: Job 420 used 250 parts, required 5 setups, and consumed 120 finishing hours. Manufacturing overhead cost assigned to Job 420: = (250 parts * $4 per part) + (5 setups * $240 per setup) + (120 finishing hours * $79.47 per finishing hour) To compute the manufacturing overhead cost assigned to Job 510: Job 510 used 450 parts, required 6 setups, and consumed 310 finishing hours. activities Manufacturing overhead cost assigned to Job 510: = (450 parts * $16 per part) + (6 setups * $240 per setup) + (310 finishing hours * $79.47 per finishing hour) Please calculate the specific amounts using the given formulas and data.
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Our economists have redone their calculations. They now estimate that citizens in our country have an MPC of 0.90. We can fix the problem by decreasing GDP by 850. Alien Hvisor How much should we increase taxes? - Enter a response then click Submit below
MPC refers to the marginal propensity to consume. It represents the proportion of extra income that an individual uses to consume. MPC varies with income and the economy.
In general, individuals with lower incomes have a higher MPC because they tend to spend more of their income.Increase taxes With an MPC of 0.90, we can conclude that the citizens will spend 90% of any additional income. If GDP decreases by 850, it means that the government needs to take measures to reduce income levels. One way to reduce income levels is to increase taxes. If the government increases taxes, it will reduce disposable income, which means that individuals will have less to spend. To calculate the amount of taxes to increase, we can use the formula: Taxes = 850/0.90 Taxes = 944.44
In conclusion, to fix the problem, the government should increase taxes by $944.44. This will help reduce disposable income, which will decrease consumption and fix the problem.
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brief explanation of Business reports and their features and how
they help a company
Business reports are formal documents that provide information, analysis, and insights on specific topics or issues relevant to a company's operations, performance, or decision-making processes.
They are prepared to convey data, findings, and recommendations in a clear and concise manner to support informed decision-making within the organization. Here are some features of business reports and how they help a company Business reports serve as a medium to communicate important information within the company. They consolidate and present data, facts, and findings in a structured format, making it easier for stakeholders to understand and interpret the information.
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Zebra Inc. produced net income of $100,000 in 2019. They paid out half their net income in dividends and the other half was reinvested back into the company. During the year, they incurred $10,000 in interest expense. How did these transactions impact Zebra's income for 2019? Income is reduced $10,000 for interest. Income is reduced $50,000 for dividends. Income is reduced $60,000 for interest and dividends. Income is not impacted. 44. Which of the following is not one of the three conditions necessary for revenue to be recognized as earned? The goods and services have been delivered. The customer has agreed to buy the goods and services. Payment has been received. The seller has performed substantially all of its obligation to the buyer. 15. Parker Associates purchased a patent in 2018 for $200,000. The patent will be amortized over 20 years. How would Parker adjust for the annual amortization for the patent on the balance sheet? Credit accumulated amortization $10,000 Credit prepaid assets $10,000 Credit patents $10,000 Credit patent amortization $10,000 16. Which of the following balance sheet items is not considered a liability? Short-term debt Taxes Payable Prepaid expenses Advance from customers
1. How did these transactions impact Zebra's income for 2019?
The correct answer is: Income is reduced $60,000 for interest and dividends.
Since Zebra paid out half of its net income ($100,000) in dividends, this reduces their income by $50,000. Additionally, they incurred $10,000 in interest expense, which further reduces their income. Therefore, the total reduction in income is $60,000.
44. Which of the following is not one of the three conditions necessary for revenue to be recognized as earned?
The correct answer is: Payment has been received.
The three conditions necessary for revenue to be recognized as earned are:
1. The goods and services have been delivered.
2. The customer has agreed to buy the goods and services.
3. The seller has performed substantially all of its obligation to the buyer.
Payment being received is not one of these conditions.
15. How would Parker adjust for the annual amortization for the patent on the balance sheet?
The correct answer is: Credit accumulated amortization $10,000.
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Global Air is about to introduce a daily round-trip flight from New York to Los Angeles and is determining how to price its round-trip tickets. The market research group at Global Air segments the market into business and pleasure travelers. It provides the following information on the effects of two different prices on the number of seats expected to be sold and the variable cost per ticket, including the commission paid to travel agents: i (Click the icon to view additional (Click the icon to view the pricing and ticket information.) information.) $ Price Charged 800 $ 2,200 Variable Cost per Ticket 85 175 Number of Seats Expected to Be Sold Business Pleasure 150 75 135 45 Pleasure travelers start their travel during one week, spend at least 1 weekend at their destination, and return the following week or thereafter. Business travelers usually start and complete their travel within the same work week. They do not stay over weekends. Assume that round-trip fuel costs are fixed costs of $24,400 and that fixed costs allocated to the round-trip flight for airplane-lease costs, ground services, and flight-crew salaries total $188,000. 1. If you could charge different prices to business travelers and pleasure travelers, would you? Show your computations. 2. Explain the key factor (or factors) for your answer in requirement 1. 3. How might Global Air implement price discrimination? That is, what plan could the airline formulate so that business travelers and pleasure travelers each pay the price the airline desires? Requirement 1. If you could charge different prices to business travelers and pleasure travelers, would you? Show your computations. Before determining if you would charge different prices to business travelers and pleasure travelers, calculate the total contribution margin at each price for each type of traveler. Total contribution margin Price charged Business Pleasure 53,625 $ 800 $ 107,250 $ 273,375 2,200 91,125 Global Air would maximize contribution margin and operating income by charging business travelers a fare of $2,200 and pleasure travelers a fare of $2,200. Global Air would maximize contribution margin and operating income by setting prices at the highest level for any customer, where business travelers are charged the same as pleasure travelers. Requirement 2. Explain the key factor (or factors) for your answer in requirement 1. Business travelers are relatively price insensitive because they must get to their destination during the week (exclusive of weekends) and their fares are paid by their companies. Pleasure travelers are price sensitive because they have to pay for their own airfare. (Round the percentages to the nearest tenth percent, X.X%.) % of the business passengers from flying An increase in fares from $800 to $2,200 will deter only with Global Air. In contrast, a similar fare increase will lead to a(n) % drop in pleasure travelers. The drop in demand for the pleasure travelers offset by the total contribution margin.
Global Air can use advance purchase requirements to distinguish business and pleasure travelers. For example, pleasure travelers who buy tickets a month in advance may be rewarded with a lower fare, while business travelers who buy tickets a month in advance may be rewarded with an additional service or perks.
1. If you could charge different prices to business travelers and pleasure travelers, would you? Show your computations.The table below shows the total contribution margin for each price and type of traveler.Price chargedBusinessPleasure800$53,625$107,2502,200$91,125$273,375Global Air would increase contribution margin and operating income by charging business travelers a fare of $2,200 and pleasure travelers a fare of $800.2. Explain the key factor (or factors) for your answer in requirement 1.
Business travelers are relatively price insensitive because they must arrive at their destination during the week, and their fares are paid by their employers. Pleasure travelers, on the other hand, are price sensitive because they must pay for their own airfare. An increase in fares from $800 to $2,200 will deter only % of the business passengers from flying with Global Air. In contrast, a similar fare increase will lead to a % drop in pleasure travelers. The drop in demand for the pleasure travelers is offset by the total contribution margin.3.
How might Global Air implement price discrimination? That is, what plan could the airline formulate so that business travelers and pleasure travelers each pay the price the airline desires?Global Air may use price discrimination to get business and pleasure travelers to pay what the airline wants them to pay. The method used to divide the market is crucial in the execution of price discrimination.
Global Air may charge a higher fare for passengers who book on short notice, as business travelers may be more prone to doing so than pleasure travelers. Global Air can also charge a higher fare to customers who want to travel one way, as business travelers may be more inclined to do so than pleasure travelers.
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Question 1
Identify a real luxury hotel you are familiar in Malaysia. Describe the background and the service concept.
Question 2
Analyse the hotel based on value chain analysis. Suggest back-office operations required to support the front-end operations of the hotel.
Question 3
Propose key operational challenges faced by the hotel and propose the corresponding countermeasure. |
Question 1
Luxury hotel: The Ritz-Carlton, Kuala Lumpur is one of the most luxurious hotels in Malaysia. The Ritz-Carlton is located in the heart of Kuala Lumpur, the capital city of Malaysia.
Service concept: The Ritz-Carlton hotel is committed to providing guests with personalized and attentive service. The hotel's mission is to provide guests with an unforgettable experience, including luxurious accommodations, fine dining, and exceptional service. The hotel offers a range of services to its guests, including a fitness center, swimming pool, spa, and business center.
Question 2
Primary activities: Inbound logistics, operations, outbound logistics, marketing and sales, and service. Support activities: Procurement, technology development, human resource management, and firm infrastructure.
Back-office operations required to support the front-end operations of the hotel: The back-office operations required to support the front-end operations of the hotel are finance, human resources, IT, and purchasing.
Question 3
Key operational challenges faced by the hotel are maintaining customer satisfaction or high level of service quality etc.
Maintaining customer satisfaction is a significant challenge faced by The Ritz-Carlton hotel. In the hotel industry, customer satisfaction is crucial to success.
Maintaining a high level of service quality is also a significant challenge. The hotel industry is a highly competitive industry, and the quality of service is one of the key differentiators between hotels.
Another challenge is attracting and retaining high-quality employees. The Ritz-Carlton hotel is known for its exceptional service, and attracting and retaining top talent is crucial to maintaining the hotel's high standards.
Countermeasures:
To maintain customer satisfaction, the hotel must focus on providing personalized and attentive service to its guests. The hotel can do this by training its staff to provide excellent customer service and by regularly soliciting feedback from guests.
To maintain a high level of service quality, the hotel can invest in training and development programs for its staff. The hotel can also use guest feedback to identify areas for improvement and take action to address these areas.
To attract and retain high-quality employees, the hotel can offer competitive salaries and benefits packages, provide opportunities for career development, and foster a positive work environment.
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Complete the columns to show the effects of the following transactions: Assets (a) We settle account payable $70 in cash. Bought fixtures $200 paying by cheque. (b) (c) Our account receivables paid us by cash $100. (d) The owner introduces another $500 cash into the firm. (e) J Walker lends the firm $1,200 in cash. Effect upon Liabilities Capital
The transactions for the given assets are:
A) We settle account payable $70 in cash.
Bought fixtures $200 paying by cheque.
Assets
(a )Liabilities Capital Cash-$270
Fixtures+$200Account Payable-$70Effect on capital
= -$200
B) There are no transactions given for this part.
Hence, no effect on assets, liabilities or capital.
C) Our account receivables paid us by cash $100.
Assets (c)Liabilities Capital Cash+$100 Account Receivable-$100Effect on capital
= No effect
D) The owner introduces another $500 cash into the firm.
Assets (d) Liabilities Capital Cash+$500
No Effect
E) J Walker lends the firm $1,200 in cash.
Assets (e) Liabilities Capital Cash+$1,200Loan+$1,200
No Effect
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The internal rate of return should:
A. Not be used for ranking mutually exclusive projects.
B. Only be applied to small projects.
C. Be relied upon more heavily than the net present value.
D. Always result in the same decision as discounted payback.
E. Lead to correct decisions when comparing mutually exclusive projects.
The internal rate of return (IRR) is a commonly used financial metric to evaluate the profitability of an investment project. It represents the discount rate that makes the net present value (NPV) of the project equal to zero.
Unlike NPV, IRR is expressed as a percentage, which makes it easier to compare different projects with different cash flows and investment requirements.
However, there are limitations to the use of IRR as a decision-making tool. Firstly, IRR assumes that interim cash flows can be reinvested at the same rate of return as the project itself. This is known as the reinvestment assumption and may not hold true in practice, especially for long-term projects or those with uncertain cash flows.
Secondly, IRR does not take into account differences in the size and timing of cash flows between projects. For example, two projects with the same IRR may have very different NPVs if one has larger cash inflows in earlier years.
Thirdly, IRR should not be used to rank mutually exclusive projects where only one can be chosen. In such cases, NPV is a more appropriate metric since it measures the absolute value of the project's cash flows relative to the required rate of return.
In conclusion, while IRR is a useful tool for comparing investments and evaluating their returns, it should be used in conjunction with other metrics such as NPV, discounted payback, and sensitivity analysis. The choice of metric depends on the specific context of the decision problem, including the nature of the investment, the availability of data, and the preferences of stakeholders.
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Below are transactions for Hurricane Company during 2024.
1. On October 1, 2024, Hurricane lent $9,000 to another company. The other company signed a note indicating principal and 12% interest will be paid to Hurricane on September 30, 2025. 2. On November 1, 2024, Hurricane paid its landlord $4,500 representing rent for the months of November through January. The payment was debited to Prepaid Rent for the entire amount on November 1.
3. On August 1, 2024, Hurricane collected $13,200 in advance from another company that is renting a portion of Hurricane's factory. The $13,200 represents one year's rent and the entire amount was credited to Deferred Revenue.
4. Utilities owed at the end of the year are $5,500.
5. Salaries for the year earned by employees but not paid to them or recorded are $5,000. 6. Hurricane began the year with $1,500 in supplies. During the year, the company purchased $5,500 in supplies and debited that amount to Supplies. At year-end, supplies costing $3,500 remain on hand.
Required:
Record the necessary adjusting entries at December 31, 2024, for Hurricane Company for each of the situations. Assume that no financial statements were prepared during the year and no adjusting entries were recorded. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations.)
View transaction list
Journal entry worksheet
1 2 3 4 5 6
On October 1, 2024, Hurricane lent $9,000 to another company. The other company signed a note indicating principal and 12% interest will be paid to Hurricane on September 30, 2025. Record the adjusting entry for interest at its year-end of December 31.
Note: Enter debits before credits.
Date General Journal Debit Credit
December 31
Record entry Clear entry View general journal
December 31:
Interest Receivable $270
Interest Income $270
Hurricane Company needs to record the adjusting entry for interest earned on the loan it provided. The interest earned is calculated as $9,000 principal × 12% interest rate × (3/12) months (from October to December). Interest Receivable is debited to recognize the amount the company expects to receive in the future, while Interest Income is credited to reflect the revenue earned during the year-end period. This adjustment ensures that the company recognizes and records the interest income it has earned but not yet received in its financial statements.
Hurricane Company needs to recognize the interest income it has earned on the loan it provided. The adjusting entry is made to record the interest earned for the period from October 1 to December 31, 2024. The interest is calculated by multiplying the principal amount of $9,000 by the interest rate of 12% and the time period of 3 months (October to December). This results in an interest income of $270. By debiting Interest Receivable, Hurricane acknowledges that it expects to receive this amount in the future. On the other hand, the credit to Interest Income recognizes the revenue earned during the year-end period. These adjusting entries ensure that the financial statements accurately reflect the company's financial position and performance.
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1. A government bond issued in Germany has a coupon rate of 5%, a face value of 1.000 euros, and matures in six years. The bond pays annual interest payments. Calculate the price of the bond (in euros) if the yield to maturity is 3.5%.
2.The preferred stock of HomeDepot pays a $3.75 dividend. What is the value of the stock if your required return is 10 percent?
3. Ink Corporation common stock paid $1.52 in dividends last year and is expected to grow indefinitely at an annual 8 percent rate. What is the value of the stock if you require a 12 percent return?
The price of the German government bond with a coupon rate of 5%, face value of 1,000 euros, and six years to maturity, given a yield to maturity of 3.5%, is approximately 1,060.61 euros.
To calculate the price of the bond, we need to use the formula for the present value of a bond, which is the present value of the future cash flows (interest payments and the face value) discounted at the yield to maturity.
Step 1: Calculate the present value of the annual interest payments.
The annual interest payment is calculated as the coupon rate multiplied by the face value of the bond.
Annual interest payment = 5% * 1,000 euros = 50 euros.
To calculate the present value of the interest payments, we use the formula for the present value of an ordinary annuity:
PV = (Annual interest payment) * [(1 - (1 + r)^(-n)) / r],
where PV is the present value, r is the yield to maturity (expressed as a decimal), and n is the number of years.
PV of interest payments = 50 euros * [(1 - (1 + 0.035)^(-6)) / 0.035] = 260.10 euros.
Step 2: Calculate the present value of the face value.
The face value of the bond is 1,000 euros, and since it is paid at maturity, its present value is simply the face value discounted at the yield to maturity.
PV of face value = 1,000 euros / (1 + 0.035)^6 = 800.51 euros.
Step 3: Add the present values of the interest payments and the face value.
Price of the bond = PV of interest payments + PV of face value = 260.10 euros + 800.51 euros = 1,060.61 euros.
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An individual has $15,000 invested in a stock with a beta of 0.6 and another $70,000 invested in a stock with a beta of 2.3. If these are the only two investments in her portfolio, what is her portfolio's beta? Do not round intermediate calculations. Round your answer to two decimal places.
Beta is a measure of a stock's systematic risk relative to the entire market, represented by the S&P 500. If a stock has a beta of 1, it is said to have average risk, whereas a beta of more than 1 implies that it has higher risk, whereas a beta of less than 1 implies that it has lower risk.
Beta is calculated as the slope of the line of best fit of a stock's returns compared to the market returns. The following formula is used to calculate beta = Covariance of the stock's returns and market returns / Variance of the market's returns.
The beta of an individual's portfolio is a weighted average of the betas of all the stocks held in the portfolio. We will first calculate the portfolio beta's numerator and then its denominator, and then divide the numerator by the denominator to obtain the final result.
Portfolio's beta numerator Covariance between the stock with beta 0.6 and the stock with beta 2.3 is calculated first. Covariance = Beta1 * Beta2 * Variance of the market Covariance between the stock.
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The United States is expected to record a $1 trillion budget shortfall this year, down from $2.7 trillion in 2021, marking a return to the economy's prepandemic trajectory. (Source: The New Yorks Times) Explain TWO important tools that can be employed by the U.S government in executing their budget. Illustrate your answer by giving examples. Using AD-AS diagram, explain the expected outcomes of this budget on the U.S economy in the short run. (You may exclude LRAS curve in your model)
The two important tools that can be employed by the U.S government in executing their budget are fiscal policy and monetary policy.
One example of fiscal policy is the use of expansionary fiscal measures, such as tax cuts or increased government spending, to stimulate the economy during a recession. For instance, the U.S government may implement tax cuts to provide individuals and businesses with more disposable income, which can boost consumer spending and business investment. This can help stimulate economic growth and reduce the budget shortfall.
Another example is the use of contractionary fiscal measures during periods of high inflation or excessive budget deficits. In this case, the government may implement tax increases or reduce government spending to curb inflationary pressures and bring the budget back on track. These measures can help stabilize the economy and prevent further deterioration of the budget deficit.
Monetary policy, on the other hand, involves the actions of the Federal Reserve (the central bank of the United States). One tool used by the Federal Reserve is open market operations, which involves buying or selling government securities to influence the money supply. For example, if the government wants to stimulate economic activity and reduce the budget shortfall, the Federal Reserve can purchase government securities, injecting money into the economy and lowering interest rates. This can encourage borrowing and investment, which can have a positive impact on the economy.
Using an AD-AS diagram, the expected outcome of this budget on the U.S economy in the short run can be illustrated. With expansionary fiscal measures and accommodative monetary policy, both the aggregate demand (AD) and aggregate supply (AS) curves are expected to shift to the right. This indicates an increase in both the overall level of economic activity and the price level. In the short run, the increase in government spending and tax cuts would lead to higher consumer and business spending, resulting in increased aggregate demand. As a result, real GDP would increase, and unemployment would decrease. However, the increase in aggregate demand may also lead to inflationary pressures as the economy approaches its full capacity. This can be represented by a higher price level in the AD-AS diagram.
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: SkyAir is a large multi-national airline that has many responsibility centres:< A. The South American division, which is responsible for operations in South America and has the authority to purchase new aircraft and add/cut routes.< B. The Pilot Training group, which is responsible for training and professional development of SkyAir pilots.< C. The reservations group, which is responsible for processing SkyAir reservations.< D. The fuel group, which is responsible for SkyAir fueling aircraft.< Required:< What type of cost-centre (Cost, Revenue, Profit, Investment) should each of these be considered for evaluation purposes? Briefly justify your responses.< Question 4 (continuation of Question 3)< ( The maintenance division maintains the aircraft. Currently, the maintenance division is classified as a cost centre. From time-to-time, the maintenance division also does maintenance for other airlines, but this represents less than 1% of revenues. Should the maintenance division be a cost centre?< له
For evaluation purposes, each responsibility center within SkyAir can be categorized as A. The South American division (operations in South America), B. The Pilot Training group, C. The reservations group, D. The fuel group
How to evaluate the purposes and each responsibility center within SkyAirFor evaluation purposes, each responsibility center within SkyAir can be categorized as follows:
A. The South American division (operations in South America):
- Cost Centre: The South American division can be considered a cost centre. It is responsible for operations and has the authority to purchase new aircraft and add/cut routes. Its primary focus is on controlling costs and managing expenses related to its operations in South America.
B. The Pilot Training group:
- Investment Centre: The Pilot Training group should be considered an investment centre. This group is responsible for training and professional development of SkyAir pilots, which involves investing in pilot training programs, resources, and facilities.
C. The reservations group:
- Revenue Centre: The reservations group should be considered a revenue centre. Its main responsibility is processing SkyAir reservations, which directly contributes to generating revenue for the airline.
D. The fuel group:
- Cost Centre: The fuel group should be considered a cost centre. It is responsible for fueling SkyAir's aircraft, which is an essential operational cost. The focus of this group is primarily on managing and controlling fuel-related costs.
Regarding the maintenance division, since it maintains the aircraft and generates less than 1% of revenues from maintenance services for other airlines, it can still be classified as a cost centre.
The primary function of the maintenance division is to ensure the airworthiness and safe operation of SkyAir's aircraft, which aligns with the cost center's objective of cost control and cost management.
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JRN Enterprise
Dividend $3-$1.50
Grow 4% indefinitely
Share: $25.50
Expected growth: 8%
Risk unchanged
Value is ?JRN Enterprises just announced that it plan's to cut its dividend from $3.00 to $1.50 per share and use the extra funds to expand its operations. Prior to this announcement, JRN's dividends were expected to grow indefinitely at 4% per year and JRN's stock was trading at \$25.50 per share. With the new expansion, JRN's dividends are expected to grow at 8% per year indefinitely. Assuming that JRN's risk is unchanged by the expansion, the value of a share of JRN after the announcement is
To calculate the value of a share of JRN Enterprises after the dividend cut and expansion announcement, we can use the Gordon Growth Model (also known as the Dividend Discount Model). The formula for the Gordon Growth Model is:
Value = Dividend / (Required Rate of Return - Dividend Growth Rate)
Given:
Initial Dividend = $3.00
New Dividend = $1.50
Initial Dividend Growth Rate = 4%
New Dividend Growth Rate = 8%
Stock Price = $25.50
First, we need to calculate the required rate of return. Since the question states that JRN's risk is unchanged by the expansion, we can assume that the required rate of return remains the same. Let's assume the required rate of return is 10% (this can vary depending on the specific risk profile of the company).
Now we can calculate the value of a share of JRN after the announcement:
Value = New Dividend / (Required Rate of Return - New Dividend Growth Rate)
Value = $1.50 / (0.10 - 0.08)
Value = $1.50 / 0.02
Value = $75.00
Therefore, the value of a share of JRN Enterprises after the dividend cut and expansion announcement is $75.00.
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1. Hailey and Sarah are considering purchasing a house together. They have identified a beautiful home in Raleigh, North Carolina that is listed at a price of $473,000. Aside from living in the house, Hailey and Sarah are considering this home as an investment, as they only plan to live in the house for 10 years before selling the house. They expect the house to sell of $680,000 in 10 years. As their brilliant friend who is taking Engineering Economy, they have asked for your help in selecting the best mortgage option for their needs.
Option A: A 15-year fixed rate mortgage, with bi-weekly payments (i.e., 26 payments per year). The loan's interest rate is 3.94% compounded monthly. The bank will require a 25% down payment. The couple would owe an additional $3,200 in closing costs and fees, however the lender will allow them to include this $3,200 in the loan finance amount (i.e., the amount borrowed).
Option B: A conventional 30-year fixed rate mortgage with an interest rate of 4.375% compounded monthly, and requiring monthly payments. If they choose this option, they would need to make a 20% down payment and would owe an additional $5,250 in closing costs and fees. They are able to make the down payment, but the closing costs and fees would need to be included in the loan finance amount.
1. Determine the payments that they would make for each period of each loan (i.e., what is the bi- weekly payment for Option A, and the monthly payment for Option B?).
2. Which of these options should they choose, if their objective is to maximize profit after selling the house in 10 years? For this question, let's define profit as: profit = selling price - amount paid - remaining balance.
1.The monthly payment is $1,772.32.
2.Option B will maximize the profit after selling the house in 10 years. Therefore, Hailey and Sarah should choose Option B.
1. Hailey and Sarah are considering purchasing a house together. They have identified a beautiful home in Raleigh, North Carolina that is listed at a price of $473,000. Aside from living in the house, Hailey and Sarah are considering this home as an investment, as they only plan to live in the house for 10 years before selling the house. They expect the house to sell of $680,000 in 10 years. As their brilliant friend who is taking Engineering Economy, they have asked for your help in selecting the best mortgage option for their needs. Option A: A 15-year fixed rate mortgage, with bi-weekly payments (i.e., 26 payments per year).
The loan's interest rate is 3.94% compounded monthly. The bank will require a 25% down payment. The couple would owe an additional $3,200 in closing costs and fees, however the lender will allow them to include this $3,200 in the loan finance amount (i.e., the amount borrowed).Option B: A conventional 30-year fixed rate mortgage with an interest rate of 4.375% compounded monthly, and requiring monthly payments. If they choose this option, they would need to make a 20% down payment and would owe an additional $5,250 in closing costs and fees. They are able to make the down payment, but the closing costs and fees would need to be included in the loan finance amount.
1. Payment calculation for each loan optionA. Calculation of Bi-weekly payment for option AUsing a loan of $473,000 - $3,200 = $469,800, we can use the formula;Bi-weekly payment = (P (r / n)) / (1 - (1 + r / n)^(-nt)),Where;P = Principal = $469,800r = Interest rate per year = 3.94% compounded monthlyr = 0.0394 / 12n = Number of payments per year = 26t = Time in years = 15The bi-weekly payment is $1,896.41.B. Calculation of monthly payment for option BUsing a loan of $473,000 - (20% of $473,000) - $5,250 = $355,240, we can use the formula;Monthly payment = (P * r) / (1 - (1 + r)^(-n*t)),Where;P = Principal = $355,240r = Interest rate per year = 4.375% compounded monthlyr = 0.04375 / 12n = Number of payments per year = 12t = Time in years = 30The monthly payment is $1,772.32.
2. Option that would maximize profit after selling the house in 10 years:To choose the option that will maximize profit after selling the house in 10 years, we will find the remaining balance at the end of the 10 years for both options and subtract it from the proceeds from the sale of the house. The option with the least remaining balance will maximize the profit.Option A,Using the Bi-weekly payment of $1,896.41, the total number of payments for 10 years is;10 years = 10 * 26 = 260The remaining balance after 10 years can be calculated using the formula for remaining balance of a mortgage loan which is;B = P * [(1 + r / n)^(n*t) - (1 + r / n)^(n*t - p)] / [(1 + r / n)^(n*t) - 1],Where;P = Principal = $469,800r = Interest rate per year = 3.94% compounded monthlyr = 0.0394 / 12n = Number of payments per year = 26t = Time in years = 15p = Number of payments made = 260The remaining balance will be;B = $469,800 * [(1 + 0.0394 / 26)^(26 * 15) - (1 + 0.0394 / 26)^(26 * 15 - 260)] / [(1 + 0.0394 / 26)^(26 * 15) - 1] = $71,416.60.
Option B,Using the Monthly payment of $1,772.32, the total number of payments for 10 years is;10 years = 10 * 12 = 120The remaining balance after 10 years can be calculated using the formula for remaining balance of a mortgage loan which is;B = P * [(1 + r / n)^(n*t) - (1 + r / n)^(n*t - p)] / [(1 + r / n)^(n*t) - 1],Where;P = Principal = $355,240r = Interest rate per year = 4.375% compounded monthlyr = 0.04375 / 12n = Number of payments per year = 12t = Time in years = 30p = Number of payments made = 120The remaining balance will be;B = $355,240 * [(1 + 0.04375 / 12)^(12 * 30) - (1 + 0.04375 / 12)^(12 * 30 - 120)] / [(1 + 0.04375 / 12)^(12 * 30) - 1] = $139,843.37Profit calculation using Option AProfit = Selling price - Amount paid - Remaining balanceProfit = $680,000 - ($1,896.41 * 260) - $71,416.60Profit = $177,170.40Profit calculation using Option BProfit = Selling price - Amount paid - Remaining balanceProfit = $680,000 - ($1,772.32 * 120) - $139,843.37Profit = $222,686.27.
Based on the calculations above, Option B will maximize the profit after selling the house in 10 years. Therefore, Hailey and Sarah should choose Option B.
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You are considering an investment in 20-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning \( 0.50 \
a. the inflation premium is 0.04%. b. the fair interest rate on Moore Corporation 30-year bonds is 3.70%.
a. Inflation premium: Inflation premium refers to the increase in the cost of living due to inflation. It is the compensation that investors receive for expected inflation. To calculate the inflation premium, we need the nominal rate and the real rate, and then subtracting the real rate from the nominal rate. The formula for calculating the inflation premium is:
Inflation premium = Nominal rate - Real rate
Given that the real risk-free rate is 0.46% and the one-year T-bill rate is 0.50%, the inflation premium is:
Inflation premium = Nominal rate - Real rate = 0.50% - 0.46% = 0.04%
Therefore, the inflation premium is 0.04%.
b. Fair interest rate: The fair interest rate is the sum of the real risk-free rate, inflation premium, default risk premium, liquidity risk premium, and maturity risk premium. It reflects the risk associated with a particular investment.
To find the fair interest rate for Moore Corporation's 30-year bond, we will use the following formula:
Fair interest rate = Real risk-free rate + Inflation premium + Default risk premium + Liquidity risk premium + Maturity risk premium
Fair interest rate = 0.46% + 0.04% + 1.45% + 0.80% + 0.95%
Fair interest rate = 3.70%
Therefore, the fair interest rate on Moore Corporation 30-year bonds is 3.70%.
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