The statement that is FALSE regarding the new era thinking is: C. Dow's approach to the 1,000 milestone in the 1960s provided an anchor for people's expectations.
The Dow's approach to the 1,000 milestone in the 1960s did not provide an anchor for people's expectations. The concept of new era thinking and speculative bubbles is characterized by irrational exuberance and excessive optimism, leading to overvalued assets and unsustainable market conditions. It is not based on specific milestones or events in the market, such as reaching a certain index level. The new era theory emerged as a retrospective interpretation of a stock market boom, not as a result of specific market milestones. The belief that a particular market level or event can anchor expectations and justify inflated valuations is not consistent with the principles of new era thinking. Therefore, statement C is false in relation to the new era thinking.
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For each of the following items, indicate whether the costs should be capitalized or expensed immediately under GAAP. For each answer provide a short sentence as to the reason the cost is capitalized or immediately expensed.
Equipment with a 5-year life is purchased for $32,000 for a specific R&D project. The equipment has no alternative use.
Purchased a customer list from another company for $100,000.
Spent $200,000 to develop a new software product.
Paid $10,000 for routine maintenance and lubrication of equipment.
Paid $22,000 to overhaul a manufacturing machine. The overhaul will extend the machine’s useful life by 2 years.
Paid $40,000 to install new equipment in a production line that will enhance the marketability of the product.
Purchased a license agreement for $500,000.
Capitalization is the act of reporting an expense as a capital asset. The costs related to a capital asset are spread over the useful life of the asset under the Generally Accepted Accounting Principles (GAAP).
A company must decide whether to capitalize or expense a cost depending on the nature of the expenditure. This decision is critical since it affects the company's financial statements and tax filings. In general, capitalizing expenses improves the balance sheet's quality by inflating assets, whereas immediately expensing lowers the tax liability.
Equipment with a 5-year life is purchased for $32,000 for a specific R&D project. The equipment has no alternative use.
The cost of the equipment should be capitalized since it has a useful life greater than one year.
Purchased a customer list from another company for $100,000.
The purchase of a customer list should be capitalized as it is expected to generate future income.
Spent $200,000 to develop a new software product.
The development costs for new software should be capitalized as it meets the requirements of capitalization as per GAAP.
Paid $10,000 for routine maintenance and lubrication of equipment.
The cost of routine maintenance and lubrication of equipment should be immediately expensed.
Paid $22,000 to overhaul a manufacturing machine. The overhaul will extend the machine’s useful life by 2 years.
The cost of overhaul should be capitalized as it extends the machine's useful life.
Paid $40,000 to install new equipment in a production line that will enhance the marketability of the product.
The cost of installing new equipment in a production line should be capitalized as it enhances marketability.
Purchased a license agreement for $500,000.
The purchase of a license agreement should be capitalized as it grants access to an intangible asset with an extended useful life.
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Mr. robert wants to establish an annual $5,000 scholarship in memory of her husband. The first scholarship is to be awarded two years from now. If the funds can earn 6.25% compounded annually, what amount must Mrs. McTavish pay now to sustain the scholarship in perpetuity?
To sustain an annual scholarship of $5,000 in perpetuity, Mrs. McTavish must pay an initial amount that will generate enough interest to cover the scholarship each year. If the funds can earn 6.25% interest compounded annually and the first scholarship is to be awarded two years from now, Mrs. McTavish needs to pay approximately $63,492.06 to sustain the scholarship.
To calculate the amount Mrs. McTavish needs to pay, we can use the present value formula for perpetuities:
PV = PMT / r
Where:
PV = Present value (amount Mrs. McTavish needs to pay)
PMT = Annual payment (scholarship amount)
r = Interest rate
In this case, the annual payment (scholarship amount) is $5,000, and the interest rate is 6.25% (0.0625).
To account for the two-year delay before the first scholarship is awarded, we need to calculate the present value of the two-year annuity:
PV = PMT / [tex](1 + r)^2[/tex]
Substituting the values, we have:
PV = $5,000 / [tex](1 + 0.0625)^2[/tex]
≈ $5,000 / 1.12890625
≈ $4,429.81
Therefore, Mrs. McTavish needs to pay approximately $4,429.81 to sustain the scholarship for the first two years.
To calculate the amount she needs to pay in perpetuity, we divide the annual payment by the interest rate:
PV = PMT / r
= $5,000 / 0.0625
= $80,000
Thus, Mrs. McTavish needs to pay approximately $80,000 to sustain the annual scholarship of $5,000 in perpetuity.
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Your clothing business, FashionV Co has fixed costs of $1,000 per year, depreciation charges of $500 a year, annual revenue of $6,000, and variable costs equal to two-thirds of revenues. A) What is the degree of operating leverage (DOL)? (2 Marks) B) Due to the pandemic Covid-19, you decided to close your clothing business shop and moved to an online business resulting in a reduction in fixed costs of $500 per year and the rest of the variables remain unchanged. What is the new degree of operating leverage (DOL)? (2 Marks) C) Risk is reduced when a high proportion of costs are fixed. Based on your observation in answers A and B, do you agree with the statement? Which business is riskier, a physical clothing shop with high DOL or an online clothing shop with lower DOL? Explain.
A) The Degree of Operating Leverage (DOL) is 2. B) The Degree of Operating Leverage (DOL) is 1.33. C) The reducing the proportion of fixed costs, especially when the revenue is uncertain, can reduce the risk.
A) Degree of Operating Leverage (DOL) can be calculated using the following formula:
DOL = (Contribution Margin) / (Operating Income)Operating Income = (Revenue) - (Fixed Costs + Variable Costs)Variable Costs = (2/3) * (Revenue)
Given, Fixed Costs (FC) = $1,000
Depreciation Charges = $500
Annual Revenue (AR) = $6,000
Variable Costs (VC) = (2/3) * (AR) = (2/3) * (6,000) = $4,000
Operating Income = AR - (FC + VC) = 6,000 - (1,000 + 4,000) = $1,000
Contribution Margin = AR - VC = 6,000 - 4,000 = $2,000
Now, putting these values in the formula we get,DOL = (2,000) / (1,000) = 2
B) Due to the pandemic Covid-19, the fixed costs of FashionV Co has reduced by $500. Therefore, the new fixed costs will be,$1,000 - $500 = $500
Since the other variables remain unchanged, we have the following values:
Fixed Costs (FC) = $500
Depreciation Charges = $500
Annual Revenue (AR) = $6,000
Variable Costs (VC) = (2/3) * (6,000) = $4,000
Operating Income = AR - (FC + VC) = 6,000 - (500 + 4,000) = $1,500
Contribution Margin = AR - VC = 6,000 - 4,000 = $2,000
Now, putting these values in the formula we get,DOL = (2,000) / (1,500) = 1.33
C) The statement, "Risk is reduced when a high proportion of costs are fixed" is not always true. The business with higher DOL is considered riskier. The degree of operating leverage provides information about how much risk is involved in the business. As DOL increases, risk increases. Therefore, the physical clothing shop is riskier than an online clothing shop because the physical shop has a higher DOL. When the business has a high DOL, small fluctuations in revenue will have a larger impact on operating income. As a result, the business will be more vulnerable to risk. A decrease in revenue can lead to a significant drop in operating income, increasing the risk. Therefore, reducing the proportion of fixed costs, especially when the revenue is uncertain, can reduce the risk.
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Use the data below to compute 2014 OCF (Operating Cash Flow) 2014 2013 Cash 12 18 Short-term investments 7 66 Accounts receivable 369 316 Inventories 553 420 Property, plant & equipment (net) 926 871 Accounts payable 48 32 Short-term debt 96 65 Accrued liabilities 150 134 Long-term debt 662 583 Common stock 130 130 Retained earnings 766 714 3,147 2,852 Net revenue Depreciation expense 113 92 Interest 91 61 Taxes 81 84 255 122 Net income (Round to the nearest whole dollar)
The Operating Cash Flow (OCF) for 2014 is $540. Accounts receivable 369 316, Property, plant & equipment are some of the essential requirements for defining Operating Cash Flow
To calculate the Operating Cash Flow (OCF) for 2014, we need to use the following formula: OCF = Net Income + Depreciation Expense + Interest Expense + Taxes
Given the data: Net Income for 2014 = $255 Depreciation Expense for 2014 = $113 Interest Expense for 2014 = $91 Taxes for 2014 = $81 OCF = $255 + $113 + $91 + $81 = $540 Therefore, the Operating Cash Flow (OCF) for 2014 is $540.
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A worker's contribution to the firm's revenue is measured directly by the worker's:
A. value of marginal product.
B. marginal product multiplied by his/her wage.
C. marginal product minus his/her wage.
D. contribution to total output.
A. value of marginal product. The worker's contribution to the firm's revenue is measured directly by their value of marginal product, which represents the additional revenue generated by the last unit of output produced by the worker.
The value of marginal product (VMP) is a concept used to measure a worker's contribution to a firm's revenue. It represents the additional revenue generated by the last unit of output produced by the worker. VMP takes into account both the quantity of output produced by the worker and the price at which the output is sold in the market.
To calculate the value of marginal product, the marginal product of labor (MPL) is multiplied by the price of the output. MPL refers to the change in output resulting from the addition of one more unit of labor. The worker's wage is not directly considered in the calculation of VMP.
By comparing the value of marginal product with the worker's wage, firms can determine whether hiring additional workers is profitable. If the VMP exceeds the wage, it indicates that the worker's contribution to the firm's revenue is higher than the cost of employing them. Conversely, if the VMP is lower than the wage, it suggests that the worker's contribution is not sufficient to justify their compensation.
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Which of the following are laws that promote ethical conduct? a. FSGO b. The Sarbanes-Oxley Act c. The Dodd-Frank Act d. All of the above were enacted to promote ethical conduct e. None of the above were enacted to promote ethical conduct Delta's justification for charging business and first class customers more money is based on the costs incurred to provide more space and services for these customers. This is an example of _________ ethics. a. situational b. consequential c. non-consequential d. utilitarian Individuals are subject to six "spheres of influence" when confronted with ethical choices. They are: a. institutional, normative, objective, behavioral, psychological and ethical b. internal, external, normative, objective, discriminatory and institutional c. fairness, justice, ideological, internal, external and normative d. workplace, family religion, legal system, community and profession e. none of the above
1. a. FSGO, b. The Sarbanes-Oxley Act, and c. The Dodd-Frank Act are the laws that promote ethical conduct. Thus, the correct answer is d. 2. Delta's justification for charging business and first-class customers more money is based on the costs incurred to provide more space and services for these customers. This is an example of situational ethics. 3. The six spheres of influence include: workplace, family religion, legal system, community and profession. Thus, the correct answer is d.
1. Federal Sentencing Guidelines for Organizations (FSGO), The Sarbanes-Oxley Act, and The Dodd-Frank Act are the laws that promote ethical conduct. These acts promote ethical conduct by outlining the requirements for corporate ethics policies and making executives personally responsible for ensuring the accuracy of financial statements. Thus, the correct answer is d. All of the above were enacted to promote ethical conduct.
2. Delta's justification for charging business and first-class customers more money is based on the costs incurred to provide more space and services for these customers. This is an example of situational ethics. Situational ethics is a system of ethics that examines every situation individually and assesses what the right thing to do is based on what would bring the most good or least harm. Thus, the correct answer is a. Situational.
3. Individuals are subject to six "spheres of influence" when confronted with ethical choices. These six spheres of influence include: workplace, family religion, legal system, community and profession. Thus, the correct answer is d. Workplace, family, religion, legal system, community, and profession.
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.Show work in Red and Explain answers.
Suppose CPI is as follows in each year:
Year:
2007
2008
2009
2010
CPI:
100
99
125
140
Suppose in the year 2007 you are considering a job offer that pays $50,000 in 2007, plus a 10% (compounding) raise in each of the next three years.
Suppose in the year 2007 you are considering a job offer that pays $50,000 in 2007, plus a 10% (compounding) raise in each of the next three years.
What nominalsalary will you make in each year?
Year:
2007
2008
2009
2010
Nominal Salary
Year CPI Nominal Salary Real Salary[tex]2007 100 $50,000.00 $50,000.002008 99 $55,000.00[/tex][tex]$55,555.562009 125 $60,500.00 $48,400.002010 140 $66,550.00 $47,536.00[/tex]
Nominal Salary: It refers to the actual amount of salary paid to an employee every year.Compounding: It means the calculation of interest on principal and interest earned in past periods.For calculating nominal salary, use the following formula:N = P(1 + r/100) ¹⁺ⁿWhere,N
We have:Principal = $50,000Rate of interest or increment = 10%Number of years = 3CPI (Consumer Price Index) shows inflation. Inflation is the rate at which the general level of prices for goods and services is rising, and, subsequently, the purchasing power of currency is falling.
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need for collaboration increases as the decisions become more structured. T/F
False. Collaboration needs are typically higher in unstructured decision-making situations, where multiple perspectives and insights are required, rather than in structured decisions with clear procedures.
The need for collaboration does not necessarily increase as decisions become more structured. In fact, structured decisions often involve clear procedures, well-defined criteria, and a limited number of viable alternatives, which may not require extensive collaboration. Structured decisions can be made based on predetermined rules, guidelines, or established protocols. In such cases, individuals or small groups can make decisions efficiently without extensive collaboration.
On the other hand, the need for collaboration tends to be higher in unstructured or complex decision-making situations. Unstructured decisions involve ambiguous or novel problems, multiple stakeholders with diverse perspectives, and a larger number of potential alternatives. Collaboration becomes crucial to gather diverse insights, knowledge, and expertise, as well as to reach a consensus or make informed decisions that consider various perspectives. In these situations, collaboration enables better problem-solving, innovation, and the integration of different viewpoints, ultimately leading to more effective decision-making processes.
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Suppose that you are doing the following hypothesis test: H 0
:μ=μ 0
=42;H 1
:μ<μ 0
=42. Assume a significance level of α=0.025. Find the critical value for the decision if the population standard deviation is 2 and a random sample of 100 is drawn. (Remember to pick the closest answer.) A. 41.6 B. 41.8 C. 42 D. 42.2 E. 42.4 42−1.96∗ 100
2
=42−1.96∗0.2≈41.6
The critical value for the decision is A)41.6 for the following hypothesis test.
The given significance level is α = 0.025, which is a one-tailed test as the alternative hypothesis is μ < μ0. To find the critical value, we need to use the z-score table or calculator and find the z-score that corresponds to the area of 0.025 in the left-tail.
The z-score for 0.025 in the left-tail is -1.96. Therefore, the critical value for the decision can be calculated as follows: Critical value = μ0 - z * (σ/√n)
where μ0 = 42 (null hypothesis mean),
z = -1.96 (z-score for α = 0.025),
σ = 2 (population standard deviation), and n = 100 (sample size).
Substituting the values, we get:
Critical value = 42 - (-1.96) * (2/√100)
Critical value = 42 + 0.392
Critical value = 42.392
As we are interested in the closest answer, rounding to one decimal place gives:
Critical value = 41.6
Therefore, the critical value for the decision if the population standard deviation is 2 and a random sample of 100 is drawn is 41.6.
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The participating employee. Who is normally considered to be the owner of a 403(b) tax-sheltered annuity?
The owner of a 403(b) tax-sheltered annuity is normally considered to be the participating employee.
A 403(b) tax-sheltered annuity is a kind of retirement plan that allows employees of non-profit companies to save and invest money in a tax-advantaged manner. It is intended to be a long-term savings plan that helps employees save for their retirement years. In a 403(b) plan, the employee, not the employer, is usually the owner of the account. The contributions are generally made pre-tax, which means that they are deducted from the employee’s pay before taxes are applied. Therefore, the money in the account grows tax-free until it is withdrawn. When the employee withdraws the money, he or she will have to pay taxes on the money at his or her current tax rate.
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The participating employee is considered the owner of a 403(b) tax-sheltered annuity. This plan is a type of retirement plan for certain public school and tax-exempt organization employees, in which they contribute a portion of their salary tax-free.
Explanation:In a 403(b) tax-sheltered annuity, it is the participating employee who is generally considered to be the owner. This type of retirement plan is usually offered to employees of certain public schools and tax-exempt organizations. The participating employee contributes part of their salary to the plan, and this contributed amount is not subject to income tax at the time of contribution. Because of their contributions, the employee is considered to own the annuity. Any earnings from the 403(b) plan grow tax-deferred until withdrawal, which is generally when the participating employee retires.
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Consider a firm with production function q=L^1/2 . K^1/2
. In the short run, the firm employs 25 units of capital at a cost r=10. The cost of labor is w=5. The price of the firm's output is p=20. 2.1 Write down the short-run cost function of the firm. What is the profit-maximizing level of production? Will the firm operate? 2.2 Now consider that the firm wants to produce q=100 using any combination of capital and labor. What will be the optimal combination?
To produce q = 100, the optimal combination of capital and labor is K = 25 and L = 20 units.
Explanation: In the short run, where the firm can only vary its labor input, the cost function can be written as C(w, r, q) = wL + rK, where w is the wage rate, r is the rental rate of capital, L is the labor input, and K is the capital input.
Given that the firm employs 25 units of capital (K = 25), the cost function becomes C(w, r, q) = 5L + 10(25) = 5L + 250.
To determine the profit-maximizing level of production, we need to equate the marginal cost (MC) to the price (p). In this case, the marginal cost is the derivative of the cost function with respect to labor, which is MC = dC/dL = 5.
Since the price (p) is given as 20, we set MC = p, resulting in 5 = 20. This implies that the profit-maximizing level of production is q = L^(1/2) * K^(1/2) = L^(1/2) * 25^(1/2) = 5L.
To find the optimal combination of capital and labor to produce q = 100, we need to solve for L in the production function equation q = L^(1/2) * 25^(1/2) = 100.
By substituting the values, we get 100 = L^(1/2) * 5, which can be simplified to L = 20.
Thus, to produce q = 100, the optimal combination of capital and labor is K = 25 and L = 20 units.
Based on the given information, since the firm can produce q = 100 using the available combination of capital and labor, it is likely to operate at this level of production.
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A company eamed a net profit of Rs. 650,000 ; its sales are Rs. 5,200,000; the numbers of equity shares outstanding are 130,000 and the market price of its equity share is Rs. 200. What is the company's price to sales per share ratio? a. 65.07 b. 5 c. 40.63 d. Insufficient information
The answer is option (b), 5. The company's price to sales per share ratio can be calculated as follows:
Price to sales per share ratio = (Market price of equity share / Sales per share)
First, we need to calculate the sales per share, which is the total sales divided by the number of equity shares outstanding:
Sales per share = Total sales / Number of equity shares outstanding = Rs. 5,200,000 / 130,000 = Rs. 40
Now we can calculate the price to sales per share ratio:
Price to sales per share ratio = (Market price of equity share / Sales per share) = Rs. 200 / Rs. 40 = 5
Therefore, the answer is option (b), 5.
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Why does Business Ethics matter? (cite at least one source)
Business ethics matters because it plays a crucial role in shaping the reputation, trust, and long-term success of organizations.
Business ethics refers to the moral principles and values that guide the behavior and decision-making processes within a business context. It encompasses a wide range of considerations, including honesty, integrity, fairness, transparency, and responsibility towards stakeholders such as employees, customers, suppliers, and the community at large.
Business ethics matters for several reasons:
1. Reputation and Trust: Ethical behavior builds trust and credibility among customers, employees, and the public. When a business operates with integrity and ethical standards, it enhances its reputation and fosters positive relationships with stakeholders. This, in turn, can lead to increased customer loyalty, employee satisfaction, and community support.
According to a study by the Ethics & Compliance Initiative (ECI) titled "The State of Ethics and Compliance in the Workplace," organizations with strong ethical cultures are more likely to experience positive outcomes, including employee commitment, customer loyalty, and financial performance.
Source:
Ethics & Compliance Initiative (ECI). "The State of Ethics and Compliance in the Workplace: A Look at Global Trends." 2021. Retrieved from: https://www.ethics.org/global-business-ethics-survey-2021/
Business ethics matters because it is instrumental in shaping an organization's reputation, fostering trust among stakeholders, and driving long-term success. By adhering to ethical principles, businesses can create a positive work environment, attract loyal customers, and build strong relationships with employees, customers, and the wider community. Emphasizing business ethics is not only the right thing to do but also contributes to sustainable and responsible business practices.
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Suppose that saving, disposable income and consumption in some country are $55 million, $195 million and $140 million. Next, assume that consumption increases by $28 million, saving goes up by $9 million and disposable income rises by $37 millionRequired: Apply advance level skill in basic macroeconomics theory to calculate the following:
a. Average Propensity to consume (MPC)
b. Marginal Propensity to save (MPS)
c. Average propensity to save before increase in disposable income
d. Average propensity to save after increase in disposable income
a. Average Propensity to Consume (APC) = 0.718
b. Marginal Propensity to Save (MPS) = 0.243
c. Average Propensity to Save (APS) before increase in disposable income = 0.282
d. Average Propensity to Save (APS) after increase in disposable income = 0.276
To calculate the various measures, we'll use the following formulas:
Average Propensity to Consume (APC) = Consumption / Disposable Income
Marginal Propensity to Save (MPS) = Change in Saving / Change in Disposable Income
Average Propensity to Save (APS) = Saving / Disposable Income
Given the initial values:
Saving (S) = $55 million
Disposable Income (Yd) = $195 million
Consumption (C) = $140 million
a. Yd = $140 million / $195 million = 0.718 (rounded to three decimal places)
b. Marginal Propensity to Save (MPS):
Change in Saving = $9 million
Change in Disposable Income = $37 million
MPS = Change in Saving / Change in Disposable Income = $9 million / $37 million = 0.243 (rounded to three decimal places)
c. Average Propensity to Save (APS) before increase in disposable income:
APS = S / Yd = $55 million / $195 million = 0.282 (rounded to three decimal places)
d. Average Propensity to Save (APS) after increase in disposable income:
New Saving (S) = $55 million + $9 million = $64 million
New Disposable Income (Yd) = $195 million + $37 million = $232 million
APS = New S / New Yd = $64 million / $232 million = 0.276 (rounded to three decimal places)
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Based on the advantages and disadvantages of Keurig's global
strategy, provide BOD/CEO with two international-level strategy
suggestions?
Two international-level strategy suggestions for Keurig's BOD/CEO are as follows: 1. Diversification Strategy 2. Localization Strategy. Keurig's current global strategy primarily revolves around its single-serve coffee machines and pods.
1. Diversification Strategy:
Keurig's current global strategy primarily revolves around its single-serve coffee machines and pods. While this has been successful, the company could further enhance its global market position by diversifying its product line. By researching and understanding local preferences, Keurig can introduce new beverage options tailored to the tastes and cultural preferences of different regions. For example, incorporating popular tea blends or unique local flavors could attract a broader customer base and create new market opportunities. This strategy would allow Keurig to expand its market reach, increase sales, and diversify its revenue streams.
2. Localization Strategy:
A localization strategy involves adapting products, marketing, and operations to meet the specific needs and preferences of individual markets. Keurig can implement this strategy by customizing its coffee machines, pods, and packaging to align with local preferences and cultural nuances. Additionally, the company can collaborate with local distributors or retailers to ensure effective distribution channels and localized marketing campaigns. By acknowledging and respecting the differences in consumer preferences, Keurig can create a stronger connection with customers in various international markets, fostering brand loyalty and long-term success.
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On April 1, Pro Company received a cheque from Carter Company for payment of an invoice dated March 24 for $3,000 with credit terms of 2/10 n/30. On March 28 , Carter had returned $200 of the merchandise because it was defective. When will the cash receipt be posted to Carter Company's account receivable account in the accounts receivable subsidiary ledger? A. anytime, it doesn't matter when subsidiary ledgers are posted B. at the end of the next accounting period C. on April 30, because special journals are always posted monthly D. on April 1, because subsidiary ledgers are posted daily
D. On April 1, because subsidiary ledgers are posted daily.
The cash receipt from Carter Company will be posted to their accounts receivable account in the subsidiary ledger on April 1. Subsidiary ledgers are typically updated daily to maintain accurate records. Posting the cash receipt on April 1 ensures that the accounts receivable balance for Carter Company is adjusted promptly. This allows for real-time tracking of the customer's payments and helps maintain an accurate record of outstanding balances. Posting the receipt on the same day also facilitates timely financial reporting and analysis, providing up-to-date information on the company's accounts receivable status.
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Ashwood Industries is reviewing their capital expenditure projects for the year. The estimated total cost of new investments would be $100 million. Ashwood Industries expects net income to be $35 million this year. They wish to maintain their current debt-to-equity ratio of 1.25
a) Calculate the dividends paid and total external equity & debt financing required if the firm follows a residual dividend policy. b) Calculate the dividends paid and external equity & debt financing required if the firm has a fixed payout ratio of 15%
a) Under the residual dividend policy, Ashwood Industries would pay $18.75 million in dividends and require $81.25 million in external equity and debt financing to fund their capital expenditure projects.
b) If the firm follows a fixed payout ratio of 15%, Ashwood Industries would pay $15 million in dividends and require $85 million in external equity and debt financing to support their investment plans.
a) The residual dividend policy states that a company should first fund its capital expenditure projects and then pay dividends with any remaining funds. To calculate the dividends paid, we subtract the external financing required for the capital expenditure projects from the net income. In this case, the external financing required is the estimated total cost of new investments ($100 million) minus the retained earnings, which is the net income ($35 million) multiplied by the target debt-to-equity ratio of 1.25.
Therefore, the retained earnings amount to $35 million × 1.25 = $43.75 million. Subtracting this amount from the net income gives us $35 million - $43.75 million = -$8.75 million. Since the firm would not pay negative dividends, the dividend payment would be zero. As a result, the external financing required would be $100 million - $0 = $100 million.
b) Under a fixed payout ratio of 15%, the dividend payment can be calculated by multiplying the net income by the payout ratio. In this case, the dividend payment would be $35 million × 0.15 = $5.25 million. The external financing required can be determined by subtracting the retained earnings (net income × payout ratio) from the estimated total cost of new investments.
Hence, the retained earnings would be $35 million × 0.15 = $5.25 million. Subtracting this from the total cost of new investments gives us $100 million - $5.25 million = $94.75 million. Therefore, the firm would pay $15 million in dividends and require $94.75 million in external equity and debt financing.
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Which of the following statements is correct in relation to real option analysis? O The fact that the projects are evaluated using a hurdle rate lower than WACC is evidence consistent with managers using real option analysis. O The option to abandon a project should never be exercised early if no cash flow is expected during the option life. O Real option analysis is important when there is a high likelihood of new information arriving during the life of the project, even if managers are not able to respond to the new information. None of the other statements is correct in relation to real option analysis. O More than one of the other statements is correct in relation to real option analysis.
The correct statement in relation to real option analysis is: "Real option analysis is important when there is a high likelihood of new information arriving during the life of the project, even if managers are not able to respond to the new information."
Real option analysis is a method used to evaluate investment projects by considering the flexibility and strategic options embedded within the project. It recognizes that managers have the option to make decisions and take actions based on new information or changing circumstances. This flexibility can be valuable and can enhance the overall value of the project.
The statement acknowledges that real option analysis is particularly relevant when there is a high likelihood of new information emerging during the project's lifespan.
Even if managers are unable to respond to this new information due to various constraints, the analysis still recognizes the potential impact and value of having the option to make decisions based on such information.
The other statements presented in the question are incorrect in relation to real option analysis. It is not necessary for projects to be evaluated using a hurdle rate lower than the weighted average cost of capital (WACC) to indicate the use of real option analysis.
The option to abandon a project may be exercised early even if no cash flow is expected during the option life, depending on the circumstances. The final option states that none or more than one of the other statements are correct, which is not accurate.
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The most practical solution to the incentive problem is:
A) Allowing employees to work full or part time when they prefer.
B) Paying employees, a mix of straight salary and incentive compensation.
C) Based on the notion that employees tend to be risk prone.
D) Paying employees when the firm makes a profit and not paying them when it incurs a loss.
The most practical solution to the incentive problem is paying employees a mix of straight salary and incentive compensation (option B).
The incentive problem refers to the challenge of motivating employees to align their actions and efforts with the goals and interests of the organization. Providing appropriate incentives is crucial to encourage desired behaviors and improve performance. Among the options provided, paying employees a mix of straight salary and incentive compensation is the most practical solution. Here's why:
Allowing employees to work full or part time when they prefer:
While offering flexibility in work arrangements can be beneficial for employee satisfaction, it does not directly address the incentive problem. The focus is on scheduling rather than motivating employees.
Paying employees a mix of straight salary and incentive compensation:
This solution combines a fixed salary component with variable incentives tied to performance metrics or goals. By linking a portion of compensation to individual or team performance, employees have a clear incentive to achieve targets and improve their productivity. It aligns their interests with the company's objectives, fostering motivation and engagement.
Based on the notion that employees tend to be risk-prone:
This option does not provide a practical solution to the incentive problem. It merely makes an assumption about employee behavior without offering a specific mechanism to address the issue.
Paying employees when the firm makes a profit and not paying them when it incurs a loss:
While tying compensation to the company's financial performance can align employee interests with organizational success, it may not be practical in all situations. Companies may face periods of losses or external factors beyond employees' control. A mix of salary and incentive compensation provides a more balanced and sustainable approach.
Paying employees a mix of straight salary and incentive compensation is the most practical solution to the incentive problem. It provides a combination of fixed income and performance-based incentives, effectively motivating employees to achieve desired outcomes and align their efforts with the organization's goals.
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Organization does not have a "best" or a "worst" culture.
Substantiate
There is no doubt in saying that organization does not have a "best" or a "worst" culture. The culture of an organization is mainly influenced by various factors including the industry, size of organzation, leadership style, values, and employee dynamics.
Here are some of the reasons why an Organization does not have a "best" or a "worst" culture:
Subjectivity: Culture is subjective and can be achieved by any individual. One person thinks a culture to be positive while other person don't. Experience, Background, Personal Preference, and Influencement of the employees is the reason behind their culture.Context and Fit: Culture can never be one and only one in concept. What one organization founds best in terms of culture, another organization don't. The right culture depends upon values, needs, and goals of the organization.To study more about Organization Culture:
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Q1- As you learned in the Learning Activity titled "Types of Information Systems (IS) and the Importance of IS," there is an endless number of different types of information systems. Identify the three levels of information systems that are present in an organization, according to the Learning Activity. If you were an IT Manager, what considerations would you take into account prior to selecting an information system that meets the needs of your organization? What factors would you consider to ensure that the system is able to support future growth?
Note-
Types of Information Systems (IS) and the Importance of IS
As you read this section, record your responses to these questions in your Learning Journal.
What are the three hierarchical categories of business information systems?
What type of platforms are businesses currently moving toward?
Why should management use information systems, big data, and cloud computing for global business?
There may be as many types of information systems as there are colors in a rainbow. When all of the myriad variations of a rainbow’s colors and combinations of colors are taken into account, the number seems endless. However, just like a rainbow’s three primary and three secondary colors, information systems do fall into just a few very broad categories. And, just as most organizations can be broken broadly into a small handful of hierarchical categories, so too can information systems (Figure 1.2).
Generally speaking, a corporation’s or an organization’s information systems can be divided into three levels:
Strategic
Management/Financial
Operational
The three levels of information systems present in an organization are strategic, management/financial and operational.
As an IT manager, there are several considerations that should be taken into account prior to selecting an information system that meets the needs of an organization. Some of the factors that should be considered to ensure that the system is able to support future growth include scalability, flexibility, and ease of integration.
Information systems can be divided into three levels, which are Strategic, Management/Financial, and Operational. The Strategic level is the top level of the hierarchy of information systems, where it makess long-term decision and goals that affect the entire organization. Management/Financial information systems (MIS) are the next level of the hierarchy, and they provide management with the information they need to manage the organization. The Operational level is the bottom level of the hierarchy and is concerned with the day-to-day operations of the organization.
The IT Manager needs to take into account several considerations before selecting an information system that meets the needs of an organization. These considerations include the organization's size, the types of processes, the types of data being processed, the types of hardware and software currently in use, and the need for scalability, flexibility, and ease of integration to ensure that the system can support future growth. The system should be easy to use, reliable, secure, and have the necessary features to meet the organization's needs. Finally, the system should be scalable to accommodate future growth.
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(Related to Checkpoint 9.2 and Checkpoint 9.3) (Bond valuation relationships) The 12-year, \$1,000 par value bonds of Waco Industries pay 9 percent interest annually. The market price of the bond is $1,085, and the market's required yield to maturity on a comparable-risk bond is 6 percent. a. Compute the bond's yield to maturity. b. Determine the value of the bond to you given the market's required yield to maturity on a comparable-risk bond. c. Should you purchase the bond?
The bond's yield to maturity is 6.97%.b. The value of the bond to you given the market's required yield to maturity on a comparable-risk bond is $1,017.72. You should purchase the bond.
Waco Industries has issued a 12-year bond with a face value of $1,000 and a coupon rate of 9%. The market price of this bond is $1,085, and the market's required yield to maturity on comparable-risk bonds is 6%.This bond is priced higher than its face value of $1,000, which indicates that the bond's coupon rate of 9% is higher than the market's required yield to maturity of 6%. This implies that investors are eager to buy this bond because it has a higher coupon rate than the market rate, which makes it a sought-after investment.To compute the bond's yield to maturity, we'll use the following formula: Bond price = (Coupon payment/(1+YTM)^1) + (Coupon payment/(1+YTM)^2) +...+ (Coupon payment + Face value)/(1+YTM)^n, where YTM is the bond's yield to maturity, and n is the number of periods until the bond's maturity.Using the formula above, we can find the yield to maturity of the bond: $1,085 = (90/(1+YTM)^1) + (90/(1+YTM)^2) + ... + (90+1000)/(1+YTM)^12.We can simplify this equation by solving for YTM, which results in a YTM of 6.97%. The value of the bond can be calculated using the formula V=B(1+r)^-n + C/r[1 - (1+r)^-n], where V = Value of the bond, B = Face Value, r = Required yield, C = Coupon payment per year, and n = Years until maturity. Using the formula above, we can find the value of the bond: V = $1,000(1+0.06)^-12 + $90/0.06[1 - (1+0.06)^-12] = $1,017.72.You should purchase the bond since its current price is higher than its face value and its yield to maturity is higher than the market's required yield to maturity.
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under an extended term nonforfeiture option, the policy cash value is converted to
Under an extended term nonforfeiture option, the policy cash value is converted to an extended term insurance policy.
A nonforfeiture option refers to an insurance policy's guaranteed minimum cash value that can be used to purchase an extended-term insurance policy, or it can be used to pay premiums for a reduced face amount of insurance without any further premiums.
The extended-term nonforfeiture option is a life insurance provision that converts the policy's cash value into an extended-term policy after the policyholder stops paying premiums. It is one of the three options that policyholders can select to avoid losing the cash value when they stop paying premiums.
It is, however, the least common of the three nonforfeiture choices, which also includes the reduced paid-up option and cash surrender. When the extended-term nonforfeiture option is chosen, the policy's cash value is used to purchase a fully paid-up term insurance policy with a death benefit equal to the death benefit of the original policy.
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Under an Extended Term Nonforfeiture option, the policy's cash value is converted into an extended term insurance policy with the original death benefit, lasting for a specific period depending on the policy's cash value and the insured's age.
Explanation:Under an Extended Term Nonforfeiture option, the policy cash value is converted into an extended term insurance policy. This extended term insurance policy provides the original death benefit for a certain period, known as the extended term. The length of the extended term depends on the policy's cash value and the insured's age at the time of policy conversion. Essentially, the policy cash value is used to purchase a term insurance for the maximum period of time the cash value can provide based on the mortality charge rate and policy expenses. If the insured dies within this extended period, the insurance company would pay out the death benefit as in the initial agreement.
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Consider retail company like «Magnit», «Carrefour>>. Revenue of retail company for a year does not differ significantly from cash receipt from clients for the same year. TRUE FALSE
Retail companies like Magnit and Carrefour are very popular, and their revenue, as well as their clients' cash receipts, are some of the most significant measures of their success.
However, the statement "Revenue of retail company for a year does not differ significantly from cash receipt from clients for the same year" is not necessarily true because revenue is not always the same as cash receipt from clients. For instance, some of the reasons why a retail company's revenue may differ from its clients' cash receipt include the following:Payment type used by clients: Some clients may choose to pay using credit, debit cards, or other electronic means instead of cash. Therefore, the company may not receive cash receipt from such clients immediately.Time lag between when products are purchased and when they are sold: The company may have inventory that it purchased in one year and sold the following year. Therefore, revenue in the year of purchase may differ from cash receipt from clients. Sales returns or refunds: The company may receive returns of some products that were already sold to clients, resulting in a lower cash receipt from clients than revenue for the year. Therefore, revenue of a retail company for a year can differ significantly from cash receipt from clients for the same year, making the statement FALSE.
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Contract law is intended to facilitate commercial activities and to enable businesses to conduct their affairs so that their legal obligations are certain.
Do you think, after considering the materials , contract law achieves its goals? Can you think of ways to improve the effectiveness of contract law?
After considering the materials, it can be argued that contract law generally achieves its goals of facilitating commercial activities and providing certainty to legal obligations.
Contract law provides a framework for parties to enter into agreements, set terms and conditions, and enforce their rights and obligations. It creates a level of predictability and stability in business transactions.
However, there are areas where contract law could be improved to enhance its effectiveness. One way is to promote greater clarity and simplicity in contract language. Contracts are often filled with complex legal jargon and lengthy provisions, which can make them difficult to understand for non-lawyers. Simplifying contract language and using plain English can improve comprehension and reduce the likelihood of misunderstandings or disputes.
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Consider following information Cash195639; Inventory......... 56,000; Marketable securities......... con Accounts receivable... 42,000; Allowance for bad debts... 10,000 ****** Plant and equipment-original cost...............742519; Accumulated depreciation................$346,000; Investments......... .22,000 28,000; Bonds payable.... ........68027; Notes Accounts payable... payable...............48684; Common stock, $1 par, 100,000 shares outstanding... 100,000; Retained earnings........... 87,000; Preferred stock, $56 par, 1,000 shares outstanding............. 56,000; Capital paid in excess of par (common stock) 95,000 What is total of Liabilities? ANSWER FORMAT: 123456.78 Answer: 36,000; Maut ngan
The given answer format of "123456.78" does not match the total liabilities amount provided. The correct total liabilities amount based on the information given is $221,395.
To calculate the total liabilities, we need to consider the different categories of liabilities mentioned in the information provided. These include bonds payable, notes payable, accounts payable, and preferred stock.From the information given, the bonds payable amount is $68,027, the notes payable amount is $48,684, and the accounts payable amount is not specified. We'll assume it is the same as the accounts payable payable amount, which is $48,684.
The preferred stock amount is $56,000, which represents the par value of $56 per share multiplied by the 1,000 shares outstanding.
Therefore, to calculate the total liabilities, we sum up all the individual amounts:
Bonds payable: $68,027
Notes payable: $48,684
Accounts payable: $48,684
Preferred stock: $56,000
Total liabilities = $68,027 + $48,684 + $48,684 + $56,000 = $221,395.
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Charlie Brown is digging around in his attic and finds $2,000 in an old trunk. He takes the money to his bank and deposits the $2,000 in his checking account. Explain the first four rounds of the deposit creation process if the required reserve ratio is 25 percent and if people keep no currency outside of the banking system.
The deposit creation process involves the creation of money. It is a complex process that involves several rounds. These rounds are necessary to create new money from deposits.
In this case, Charlie Brown has deposited $2,000 in his checking account at the bank. The required reserve ratio is 25 percent. This means that the bank is required to keep $500 of Charlie Brown's deposit as reserves. The bank can lend the remaining $1,500 to other borrowers. This is the first round of the deposit creation process.
The second round of the deposit creation process occurs when the bank lends $1,500 to a borrower. The borrower uses this money to make a purchase, and the seller deposits the $1,500 in their bank account. The seller's bank is required to keep $375 as reserves and can lend the remaining $1,125.
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A company EPS = $1
PER = 5
Using multiplier method, what is company A's intrinsic value?
Using the multiplier method, the intrinsic value of company A is $5 per share.
The multiplier method is a commonly used approach to estimate the intrinsic value of a company's stock. It involves multiplying the company's earnings per share (EPS) by a price-to-earnings ratio (PER) to arrive at the intrinsic value per share. The price-to-earnings ratio represents the market's valuation of the company's earnings.
In this scenario, company A has an EPS of $1 and a PER of 5. To calculate the intrinsic value, we multiply the EPS by the PER:
Intrinsic Value = EPS * PER
= $1 * 5
= $5
Therefore, the intrinsic value of company A, based on the given EPS and PER, is $5 per share. It indicates that the market values the company at $5 for every dollar of its earnings per share.
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Common fixed asset manipulation schemes including the following, except:
Booking fictitious assets
Misrepresenting asset valuation
Improperly capitalizing inventory and start-up costs
Selling assets for a loss
Common fixed asset manipulation schemes including the following, except: Selling assets for a loss.
Common fixed asset manipulation schemes include booking fictitious assets, misrepresenting asset valuation, and improperly capitalizing inventory and start-up costs. These practices are aimed at distorting financial statements and misleading stakeholders. Selling assets for a loss, on the other hand, is not typically considered a manipulation scheme. In some cases, selling assets at a loss may be a legitimate business decision based on factors such as market conditions, strategic goals, or the need to free up capital. While it can impact financial statements, it is not inherently deceptive or aimed at manipulating the perception of the company's financial position.
Booking fictitious assets involves recording non-existent assets on the books to inflate the company's asset value. Misrepresenting asset valuation refers to intentionally overstating or understating the value of existing assets, which can distort the financial health of the company. Improperly capitalizing inventory and start-up costs involves misclassifying expenses as fixed assets, which can lead to an overstatement of the company's asset base and profitability.
In contrast, selling assets for a loss may have legitimate reasons such as liquidating underperforming assets, divesting from non-core business areas, or reducing debt. While it can affect the financial statements, it is not considered a manipulation scheme because it does not involve intentionally distorting the company's financial position or misleading stakeholders.
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William realized that he was facing the classic buy-versus-rent decision. It is time for him to apply some of the analytical tools he had acquired in the Engineering Economics course. In the US, on average, the house price increases by 3 percent per year. Given his mortgage rate of 5%, William will lose money by purchasing the house. On the other hand, if he decides to continue to rent, he will lose the monthly rent. Conduct an incremental analysis using the IRR method to determine whether purchasing the house is economically advisable. For this analysis, you should consider the price of the house at the end of 30 years. Also, remember that William's personal MARR is 6% compounded monthly.
To determine if purchasing the house is economically advisable,William conducts an incremental analysis using the Internal Rate of Return (IRR) method. With an average annual house price increase of 3% in the US and a mortgage rate of 5%.
In the incremental analysis using the IRR method, William compares the cash flows associated with purchasing the house versus renting over a 30-year period. Cash flows for purchasing the house include the initial investment (down payment and closing costs) and yearly expenses such as mortgage payments, property taxes, maintenance, and insurance. Renting involves monthly rent payments over the same 30-year period.
The IRR method calculates the discount rate that makes the present value of cash inflows (e.g., house value appreciation) equal to the present value of cash outflows (e.g., costs of buying and maintaining the house). By comparing the resulting IRR with William's MARR of 6% compounded monthly, he can determine whether purchasing the house is economically advisable.
If the IRR is higher than the MARR, it indicates that the investment (buying the house) is expected to generate returns exceeding the minimum acceptable rate. Conversely, if the IRR is lower than the MARR, the investment may not be financially viable.
To make a decision, William should perform the incremental analysis using the IRR method, considering the present value of all cash inflows and outflows associated with buying the house and continuing to rent over the 30-year period. Comparing the resulting IRR to his MARR will provide valuable insights into the financial feasibility of purchasing the house.
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