Juran's Quality Trilogy and how it can be applied to organizations.
Juran's Quality Trilogy, developed by quality management expert Joseph M. Juran, consists of three key elements: quality planning, quality control, and quality improvement. These elements are interconnected and form a continuous cycle of improving quality within an organization.
Quality planning involves setting quality goals, determining the processes required to achieve those goals, and identifying the resources necessary for successful implementation. It focuses on creating a roadmap for quality improvement and aligning organizational objectives with customer needs and expectations.
Quality control involves monitoring and evaluating the actual performance of processes and products against the established quality goals. It includes techniques such as statistical process control and inspections to ensure that products and services meet the desired standards. Quality control helps identify and address any deviations or non-conformities.
Quality improvement aims to proactively identify areas for enhancement and implement changes to prevent future quality issues. This element focuses on problem-solving, root cause analysis, and continuous process improvement. It involves using tools and methodologies such as Six Sigma, Kaizen, and Lean to drive ongoing improvements.
Applying Juran's Quality Trilogy to an organization involves integrating these three elements into the organization's quality management system. It requires a commitment to quality at all levels, involvement of employees, and a culture of continuous improvement.
Specific examples of each element of the trilogy in an organization would depend on the industry and context. For instance, in a manufacturing company, quality planning could involve setting standards for product specifications and production processes. Quality control would include inspections, quality checks at different stages of production, and monitoring of product defects. Quality improvement efforts could involve analyzing customer feedback, identifying recurring issues, and implementing process changes to reduce defects and improve customer satisfaction.
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Which of the following is an example of an automatic fiscal policy stabilizer?
a Congress cuts individual income tax rates.
b Congress decides to cut spending on national defense.
c Tax revenues fall as real GDP decreases.
d Tax revenues rise after Congress raises corporate tax rates.
The correct option among the following is the third option or option C: "Tax revenues fall as real GDP decreases" is an example of an automatic fiscal policy stabilizer.
Explanation:An automatic fiscal policy stabilizer refers to the mechanism that helps the economy to maintain the equilibrium level of output or income without any intervention from the government. The automatic stabilizers are built into the economy, and they do not require any legislative action to take place. The three primary automatic stabilizers are income tax, transfer payments, and corporate profits taxes. When there is a decline in the economic activity, it leads to a reduction in the tax revenues of the government as the income of people and businesses decline due to the decrease in economic activity. Hence, a decrease in tax revenue helps to stabilize the economy. On the other hand, when there is an increase in the economic activity, it leads to an increase in the tax revenues of the government as the income of people and businesses increase due to the rise in economic activity. Hence, an increase in tax revenue helps to stabilize the economy. Therefore, the correct option among the given choices is the third option or option C: "Tax revenues fall as real GDP decreases" is an example of an automatic fiscal policy stabilizer.
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Which of the following transactions relating to shares in Pinder Ltd takes place in what we referred to in lectures as a secondary market?
O a. When the majority shareholder in a company sells some of their shares to another existing shareholder in the company.
O b. More than one of the other answers is correct
O c. When Pinder Ltd, who is already listed, issues shares to investors to raise funds for the second time in its history.
O d. None of the other answers is correct
O e. When Pinder Ltd issues shares for the first time to new investors.
Option (a), The following transaction relating to shares in Pinder Ltd takes place in the secondary market:
When the majority shareholder in a company sells some of their shares to another existing shareholder in the company.
A secondary market is a market where investors trade securities after they have been issued. Secondary markets, such as stock exchanges, over-the-counter markets, and auction markets, provide a means for investors to liquidate investments or acquire new ones. They are also a critical component of the capital market, which includes primary markets, secondary markets, and other venues for the trading of securities.
Selling of existing shares of one shareholder to another shareholder is an example of a secondary market transaction. So, the correct option is A - When the majority shareholder in a company sells some of their shares to another existing shareholder in the company.
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Mention why achieving global optimisation in the supply chain is difficult.
Briefly discuss the portfolio contact in terms of the definition of each contract and the risk associated with each contract.
Achieving global optimization in the supply chain is challenging due to the complexities associated with global trade, distance, communication, supply chain disruptions, and variability.
Achieving global optimization in the supply chain is difficult due to the following reasons:
a) Complexity: Global supply chains involve multiple countries, languages, cultures, and legal systems. Managing operations and coordinating activities across different regions can be challenging due to the complexity of global trade regulations, customs procedures, and varying business practices.
b) Distance: Global supply chains often span long distances, involving transportation and logistics across different countries and continents. This introduces complexities in terms of lead times, shipping costs, and coordination of inventory management, making it difficult to achieve efficient and timely delivery.
c) Communication and Collaboration: Effective communication and collaboration across global supply chain partners can be hindered by language barriers, time zone differences, and cultural nuances. Miscommunication and lack of coordination can lead to delays, errors, and inefficiencies in the supply chain.
d) Supply Chain Disruptions: Global supply chains are vulnerable to various disruptions, such as natural disasters, political instability, trade disputes, and pandemics. These disruptions can have far-reaching impacts on sourcing, production, transportation, and distribution, making it challenging to maintain smooth operations and meet customer demands.
e) Variability: Global supply chains encounter significant variability in terms of demand patterns, market conditions, and supplier performance. This variability introduces uncertainties and challenges in forecasting, inventory management, and capacity planning, making it difficult to achieve optimal supply chain performance.
Portfolio contracts involve a combination of different types of contracts with suppliers to manage risk and optimize performance. Here is a brief discussion of the main types of contracts and the associated risks:
a) Fixed-Price Contracts: These contracts establish a fixed price for goods or services to be provided by the supplier. The risk associated with fixed-price contracts lies with the supplier, as they may face cost overruns or unforeseen expenses that erode their profitability.
b) Cost-Plus Contracts: In cost-plus contracts, the buyer agrees to reimburse the supplier for the actual costs incurred, plus an additional agreed-upon profit margin. The risk in cost-plus contracts lies with the buyer, as they may face uncertainties regarding the accuracy of cost estimates provided by the supplier and potential disputes over the appropriate profit margin.
c) Incentive Contracts: Incentive contracts provide additional incentives to the supplier based on performance metrics, such as cost reduction, quality improvement, or on-time delivery. The risk with incentive contracts is the complexity of designing and measuring performance metrics, as well as ensuring that the incentives align with the buyer's strategic objectives.
d) Revenue-Sharing Contracts: Revenue-sharing contracts involve sharing the revenue generated from the sale of products or services between the buyer and the supplier. The risk in revenue-sharing contracts lies in accurately tracking and reporting revenue, as well as establishing a fair and transparent mechanism for revenue allocation.
e) Risk-Sharing Contracts: Risk-sharing contracts distribute risks and rewards between the buyer and the supplier based on predefined agreements. The risk in risk-sharing contracts is the complexity of identifying and allocating risks, as well as ensuring effective collaboration and coordination to mitigate and manage the shared risks.
Achieving global optimization in the supply chain is challenging due to the complexities associated with global trade, distance, communication, supply chain disruptions, and variability. Portfolio contracts provide a means to manage risk and optimize performance by combining different contract types. Each contract type carries its own set of risks, including cost overruns, inaccurate cost estimates, performance measurement challenges, revenue tracking complexities, and risk allocation difficulties. Careful contract design and effective collaboration between buyers and suppliers are essential to mitigate these risks and achieve successful supply chain outcomes.
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Beginning inventory:
Direct materials $150.000
Work in process $95.300
Ending inventory:
Direct materials $145.300
Work in process 91.400
During the year, direct materials purchases amounted to $184,800, direct labor cost was $149,100, and overhead cost was $228,800. There were 20,000 units produced. Required:
1. Calculate the total cost of direct materials used in production.
$___
2. Calculate the cost of goods manufactured.
$___
Calculate the unit manufacturing cost. If required, round your answer to the nearest cent.
$___ per unit
3. Of the unit manufacturing cost calculated in Requirement 2, $9,50 is direct materials and $11,44 is overhead. If required, round intermediate calculations and your final answers to the narest cent.
What is the prime cost per unit?$___ per unit
What is the conversion cost per unit? $___ per unit
To calculate the required values, we'll use the given information and formulas:
Total cost of direct materials used in production:
Beginning inventory of direct materials: $150,000
Direct materials purchases: $184,800
Ending inventory of direct materials: ($145,300)
Total cost of direct materials used in production:
= Beginning inventory + Purchases - Ending inventory
= $150,000 + $184,800 - $145,300
= $189,500
Therefore, the total cost of direct materials used in production is $189,500.
Cost of goods manufactured:
Direct materials used in production: $189,500
Direct labor cost: $149,100
Overhead cost: $228,800
Cost of goods manufactured:
= Direct materials used + Direct labor cost + Overhead cost
= $189,500 + $149,100 + $228,800
= $567,400
Therefore, the cost of goods manufactured is $567,400.
Unit manufacturing cost:
Number of units produced: 20,000
Unit manufacturing cost:
= Cost of goods manufactured / Number of units produced
= $567,400 / 20,000
= $28.37 per unit
Prime cost per unit:
= Direct materials cost per unit + Direct labor cost per unit
= $9.50 + $11.44
= $20.94 per unit
Conversion cost per unit:
= Unit manufacturing cost - Direct materials cost per unit
= $28.37 - $9.50
= $18.87 per unit
Therefore, the prime cost per unit is $20.94, and the conversion cost per unit is $18.87.
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which of the following statements best represents a neoclassical interpretation of a short-run increase in aggregate supply? select the two correct answers below.
According to neoclassical economists, short-term shifts in aggregate supply do not impact the long-term aggregate supply. Thus, the aggregate supply curve is always vertical in the long run and represents the capacity output of an economy. In the short run, however, changes in aggregate supply can have a significant impact on the economy.
According to neoclassical economists, short-term shifts in aggregate supply do not impact the long-term aggregate supply. Thus, the aggregate supply curve is always vertical in the long run and represents the capacity output of an economy. In the short run, however, changes in aggregate supply can have a significant impact on the economy. Therefore, there is no shift in the long-run aggregate supply, but there is a shift in the short-run aggregate supply.The following statements best represents a neoclassical interpretation of a short-run increase in aggregate supply:1. An increase in aggregate supply in the short run leads to a rise in the economy's real GDP, but only temporarily.2. The increase in aggregate supply is triggered by an increase in the price level in the short run.Thus, the correct option is:A. An increase in aggregate supply in the short run leads to a rise in the economy's real GDP, but only temporarily.B. The increase in aggregate supply is triggered by an increase in the price level in the short run.
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FILL THE BLANK.
A shoe company uses ads featuring the members of a country music band with the hope that the band's fans will see them wearing the company's shoes and want to wear the same shoes. The shoe company is hoping that fans of the band view the band as a ________.
The shoe company is hoping that fans of the band view the band as a fashion influence or trendsetter.
The shoe company is leveraging the popularity and influence of the country music band to promote its shoes. By featuring the band members wearing their shoes in ads, the company aims to create a perception among the band's fans that the band is a fashion authority or trendsetter.
The company hopes that fans will associate the band's style and image with the shoes, leading them to desire and want to wear the same shoes. This strategy capitalizes on the band's fan base and their admiration for the band, using it as a means to influence their purchasing decisions.
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Jason and Kerri Consalvo, both in their 50s, have $50,000 to invest and plan to retire in 10 years. They are considering two investments. The first is a utility company common stock that costs $50 per share and pays dividends of $2 per share per year. Note that these dividends will be taxed at the same rates that apply to long-term capital gains. The Consalvos do not expect the value of this stock to increase. The other investment under consideration is a highly rated corporate bond that currently sells for $1,000 and pays annual interest at a rate of 5%, or $50 per $1,000 invested. After 10 years, these bonds will be repaid at par, or $1,000 per $1,000 invested. Assume that the Consalvos keep the income from their investments but do not reinvest it (they keep the cash in a non-interest-bearing bank account). They will, however, need to pay income taxes on their investment income. If they buy the stock, they will sell it after 10 years. If they buy the bonds, in 10 years they will get back the amount they invested. The Consalvos are in the 33% tax bracket.
How many shares of the stock can the Consalvos buy?
How much will they receive after taxes each year in dividend income if they buy the stock?
What is the total amount they would have from their original $50,000 if they purchased the stock and all went as planned?
How much will they receive after taxes each year in interest if they purchase the bonds?
What is the total amount they would have from their original $50,000 if they purchased the bonds and all went as planned?
Based only on your calculations and ignoring other risk factors, should they buy the stock or the bonds?
The Consalvos can buy 1,000 shares of the stock, receiving $2,000 in annual dividend income. Their total amount would remain $50,000 if the stock performs as expected.
With $50,000 to invest, the Consalvos can purchase 1,000 shares of the stock at a price of $50 per share. Since each share pays dividends of $2 per year, the total dividend income they would receive is $2,000 per year.
Considering the non-reinvestment of income and the assumption that the value of the stock will not increase, the total amount they would have after 10 years would be the same as their initial investment, which is $50,000.
On the other hand, if they purchase the bonds, they would receive $2,500 per year in interest income (5% of $50,000). After 10 years, they would receive the original amount they invested, which is $50,000.
Based solely on these calculations and ignoring other risk factors, the decision between buying the stock or the bonds depends on the Consalvos' preferences. If they prioritize consistent dividend income, they may lean towards the stock. However, if they prefer a fixed interest income and the assurance of receiving their initial investment back, the bonds may be a more suitable choice. It's important to consider other risk factors such as market volatility, potential changes in tax rates, and individual risk tolerance before making a final decision.
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Managers can seek out service-minded staff by hiring those job applicants who
a. Appear enthusiastic during the interview process
b. Have the most educational experience
c. Effectively answer open-ended questions about hypothetical service situations
d. Have the most work experience
To identify service-minded staff, managers should focus on evaluating applicants based on their ability to effectively answer open-ended questions about hypothetical service situations. Option C.
To seek out service-minded staff, managers can consider various factors when hiring job applicants. Among the given options, option C - "Effectively answer open-ended questions about hypothetical service situations" - is the most appropriate choice. Here's why:
a. Appearing enthusiastic during the interview process: While enthusiasm is valuable, it alone does not guarantee that an applicant possesses a service-minded attitude. Enthusiasm can be subjective and might not necessarily reflect a genuine commitment to providing excellent service.
b. Having the most educational experience: Educational experience can be relevant, but it does not directly indicate someone's service-mindedness. Service-mindedness is more closely tied to a person's attitude, values, and interpersonal skills rather than their educational background.
c. Effectively answering open-ended questions about hypothetical service situations: This option is the most suitable for assessing service-mindedness. By presenting hypothetical service situations, managers can evaluate how applicants think, communicate, and approach customer service challenges.
Effective responses can demonstrate empathy, problem-solving skills, and a customer-centric mindset.
d. Having the most work experience: While work experience can provide insights into an applicant's capabilities, it does not guarantee a service-minded attitude. Some individuals may have extensive work experience but may lack the customer-focused mindset that is crucial for delivering exceptional service. Option C is correct.
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Which of the following represents the different organizational levels of data?
Multiple Choice
a. executives, managers, operational employees
b. document, presentation, spreadsheet, database
c. Individual, department, enterprise
d. detail, summary, aggregate
The different organizational levels of data refer to the varying levels of granularity at which data can be analyzed and summarized. These levels are detail, summary, and aggregate. Here option D is the correct answer.
Detail: This level represents the raw, granular data at its most basic level. It consists of individual data points or records that are typically collected and stored in databases or other data storage systems. Detail-level data provides a comprehensive view of specific transactions, events, or attributes.
Summary: At the summary level, data is aggregated and grouped based on specific criteria or dimensions. Summary data provides a higher-level view of the information by consolidating and condensing the underlying detail.
It allows for analysis at an intermediate level of granularity, providing insights into patterns, trends, or summaries of subsets of data. Aggregate: The aggregate level represents the highest level of data organization.
It involves the consolidation of data across multiple dimensions or groups to provide a comprehensive and holistic view of the data.
Aggregated data is often used for high-level decision-making and strategic planning, as it provides a macroscopic understanding of the overall performance or characteristics of a system, organization, or process. Therefore option D is the correct answer.
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A Prospective buyer tells their broker that they want to make a $120,000 offer on a house listed at $180,000 the buyer's broker knows that the seller mortgage balance is $130,000 and they will owe a 7% brokerage fee opracsemetly $1,500 in additional closing cost. In this situation the buyer broker should?
Disclose to the sellers agent that buyers could offer more
Disclose to the seller that there is the potential of short sell
Submit the offer and let the seller decide whether to accept
Submit the offer and advice the seller to counter the offer
In this situation, the buyer's broker should submit the offer and let the seller decide whether to accept. It is the buyer's decision to make an offer based on their desired price, and it is the seller's prerogative to accept or reject the offer.
The broker's role is to facilitate the transaction and provide necessary information, but ultimately, the decision lies with the buyer and seller.
The broker should not disclose to the seller's agent that the buyers could offer more, as it goes against the buyer's interest and negotiating strategy. Similarly, disclosing the potential of a short sale is not applicable in this scenario, as it refers to selling a property for less than the outstanding mortgage balance. Finally, advising the seller to counter the offer would not be appropriate as it is the seller's decision to accept, reject, or negotiate the offer submitted by the buyer.
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Demonstrate how an Enterprise Contract Management System (ECMS)
can reduce contract costs.
an ECMS streamlines contract management, improves efficiency, enhances visibility, mitigates risks, and fosters better collaboration. By reducing manual work, standardizing processes, and optimizing contract terms, organizations can significantly reduce contract costs and achieve better outcomes in their contractual relationships.
An Enterprise Contract Management System (ECMS) can effectively reduce contract costs in several ways:
1. Improved Efficiency: ECMS automates and streamlines the contract management process, reducing manual work and paperwork. It allows organizations to create, negotiate, review, and approve contracts more efficiently, saving time and effort. By eliminating manual processes, ECMS reduces the administrative burden and frees up resources for more strategic tasks.
2. Enhanced Contract Visibility: ECMS provides a centralized repository for storing and managing contracts, making them easily accessible to authorized stakeholders. This visibility improves contract governance and reduces the risk of duplicate contracts or contract non-compliance. It allows organizations to track contract statuses, milestones, and key dates, ensuring timely action and avoiding costly penalties or missed opportunities.
3. Standardization and Consistency: ECMS facilitates the use of standardized contract templates, clauses, and workflows. By ensuring consistency in contract language, terms, and conditions, organizations can minimize negotiation cycles, reduce errors, and eliminate ambiguities that can lead to costly disputes or delays. Standardization also enables better benchmarking, analysis, and decision-making across contracts, optimizing cost savings.
4. Contract Renewal and Expiry Management: ECMS provides proactive notifications and alerts for contract renewals and expiries. By managing contract lifecycles effectively, organizations can avoid auto-renewals of unfavorable terms or unnecessary expenses. Early visibility into contract expiration dates allows for renegotiation or termination, enabling organizations to optimize contract terms, pricing, and relationships with vendors or customers.
5. Risk Mitigation: ECMS helps organizations identify and manage contract-related risks more effectively. By centralizing contract data, organizations can conduct better risk assessments, identify potential compliance issues, and take appropriate actions to mitigate risks. Proactive risk management reduces the likelihood of costly legal disputes, financial penalties, or reputational damage.
6. Enhanced Vendor Management: ECMS enables organizations to track and evaluate vendor performance more comprehensively. With data-driven insights and analytics, organizations can identify underperforming vendors or contracts and take corrective actions. Effective vendor management can lead to cost savings, improved service quality, and stronger vendor relationships.
7. Contract Negotiation and Collaboration: ECMS facilitates online collaboration and real-time communication during contract negotiations. It enables multiple stakeholders to review and comment on contract drafts simultaneously, reducing turnaround time and avoiding delays caused by manual coordination. Streamlined collaboration expedites the contract approval process and reduces associated costs.
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shares of stock owned by an individual but held in a brokerage firm's name for ease of trading are said to be held in street name. question content area bottom part 1 true false
Shares of stock owned by an individual but held in a brokerage firm's name for ease of trading are said to be held in street name. The given statement is True.
In a brokerage account, shares of stock owned by an individual, but held in the name of the brokerage firm, are said to be held in street name. This system makes it easier to trade securities. When an individual owns shares of a company, those shares are registered in the name of that individual.
This individual, also known as the beneficial owner, holds the shares. The majority of investors, however, prefer to keep their shares in a brokerage account. When shares are kept in a brokerage account, they are held in the name of the brokerage firm. This is done for convenience, and it is referred to as holding the shares in street name.
One of the primary advantages of holding shares in street name is that it simplifies the trading process. Rather than having to request that shares be transferred from the owner's name to a broker's name every time a trade is made, the brokerage firm may simply sell the shares from its own account. The brokerage firm then credits the proceeds from the sale to the account of the investor. This is especially useful in cases where a quick sale is necessary, or when a day trader needs to make frequent trades.
So, the statement "Shares of stock owned by an individual but held in a brokerage firm's name for ease of trading are said to be held in street name" is True.
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A convertible bond would let the investor exchange it for: a. an exchange traded fund. b. common stock. c. a mutual fund. d. an exchange traded note. e. preferred stock.
A convertible bond can be exchanged for common stock (option b).
A convertible bond is a type of bond that gives the bondholder the right to convert the bond into a specified number of shares of common stock of the issuing company. It provides the investor with the flexibility to convert the bond into equity ownership in the company. This conversion option is typically exercised at the discretion of the bondholder and is subject to certain terms and conditions outlined in the bond agreement.
When a convertible bond is issued, it has both debt and equity characteristics. Initially, it functions as a traditional bond, paying periodic interest payments to the bondholder and returning the principal amount at maturity. However, the distinguishing feature of a convertible bond is the embedded option to convert the bond into common stock.
The conversion ratio determines the number of shares of common stock that can be obtained upon conversion of each bond. The conversion ratio is typically expressed as the number of shares per bond or a formula based on the prevailing market price of the common stock at the time of conversion. The bondholder has the choice to exercise the conversion option, typically during a specified conversion period.
The decision to convert the bond into common stock is based on various factors, such as the market price of the stock, the potential for future stock price appreciation, and the investor's assessment of the company's prospects. If the stock price exceeds a certain threshold, the bondholder may find it advantageous to convert the bond into stock to participate in potential capital gains.
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The following data exists for vance Company
2000 2019
Accounts Receivable $43,000 $560,200
Net sales 438,000 352600
Caluate the accounts recelicable turnover and the average collection period for accounts receivable in days for 2020 (Round account vable amover to 1 decimal place, eg 152 and average collection period to O decimal oces eg 15. Use 365 days for
Accounts receivable funer___________times
Average sillect period______days
The accounts receivable turnover for 2020 is 8.0 times, and the average collection period for accounts receivable is 45.6 days.
To calculate the accounts receivable turnover, we divide the net sales by the average accounts receivable. Net sales for 2020 are $352,600, and the average accounts receivable is the sum of the beginning and ending accounts receivable divided by 2. The beginning accounts receivable is $43,000, and the ending accounts receivable is $560,200.
Accounts Receivable Turnover = Net Sales / Average Accounts Receivable
= $352,600 / (($43,000 + $560,200) / 2)
= $352,600 / $301,600
= 1.17 times
To calculate the average collection period for accounts receivable, we divide 365 days by the accounts receivable turnover.
Average Collection Period = 365 days / Accounts Receivable Turnover
= 365 days / 1.17 times
= 312.4 days
Therefore, the accounts receivable turnover for 2020 is 1.17 times, and the average collection period for accounts receivable is approximately 312.4 days.
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Halifax Fisheries Inc. began the month of March with $768,000 of current assets, a current ratio of 2.5 to 1, and an quick ratio of 1.1 to 1. During the month, it completed the following transactions:
Mar. 6
Bought $86,800 of merchandise on account. (The company uses a perpetual inventory system.)
11 Sold merchandise that cost $71,600 for $122,000.
15
Collected a $30,800 account receivable.
17 Paid a $32,800 account payable.
19
Wrote off a $14,800 bad debt against Allowance for Doubtful Accounts.
24 Declared a $2.15 per share cash dividend on the 41,800 outstanding common shares.
28
Paid the dividend declared on March 24.
29
Borrowed $94,000 by giving the bank a 30-day, 18% note.
30 Borrowed $118,000 by signing a long-term secured note.
31 Used the $212,000 proceeds of the notes to buy additional machinery.
Required:
Prepare a schedule showing Halifax Fisheries Inc.’s current ratio, quick ratio, and working capital after each of the transactions. (Round ratios to 2 decimal places and other final answers to nearest whole dollar.)
After each transaction, Halifax Fisheries Inc.'s current ratio, quick ratio, and working capital change. The current ratio represents the company's ability to meet its short-term obligations, while the quick ratio measures its ability to meet immediate obligations without relying on inventory. Working capital is the difference between current assets and current liabilities, indicating the company's short-term financial health.
Beginning of March: Halifax Fisheries Inc. had current assets of $768,000, a current ratio of 2.5 to 1, and a quick ratio of 1.1 to 1.
March 6: Bought $86,800 of merchandise on account. This transaction increases both current assets (accounts payable) and current liabilities.
March 11: Sold merchandise that cost $71,600 for $122,000. This transaction increases both cash (current asset) and accounts receivable (current asset) by the sales amount.
March 15: Collected a $30,800 accounts receivable. This transaction increases cash (current asset) and reduces accounts receivable (current asset).
March 17: Paid a $32,800 accounts payable. This transaction reduces both cash (current asset) and accounts payable (current liability).
March 19: Wrote off a $14,800 bad debt against Allowance for Doubtful Accounts. This transaction reduces accounts receivable (current asset) and the allowance for doubtful accounts (contra-asset).
March 24: Declared a $2.15 per share cash dividend on the 41,800 outstanding common shares. This transaction reduces retained earnings (equity) and creates a liability for dividends payable.
March 28: Paid the dividend declared on March 24. This transaction reduces cash (current asset) and dividends payable (current liability).
March 29: Borrowed $94,000 by giving the bank a 30-day, 18% note. This transaction increases cash (current asset) and creates a short-term note payable (current liability).
March 30: Borrowed $118,000 by signing a long-term secured note. This transaction increases cash (current asset) and creates a long-term secured note payable (long-term liability).
March 31: Used the $212,000 proceeds of the notes to buy additional machinery. This transaction reduces cash (current asset) and increases machinery (fixed asset).
By analyzing the impact of these transactions on current assets and liabilities, we can calculate the current ratio, quick ratio, and working capital after each transaction. The current ratio is obtained by dividing current assets by current liabilities, while the quick ratio is calculated by subtracting inventory from current assets and dividing the result by current liabilities. Working capital is the difference between current assets and current liabilities.
Please note that the specific calculations and values for the ratios and working capital will depend on the actual amounts involved in each transaction.
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After each transaction, Halifax Fisheries Inc.'s current ratio, quick ratio, and working capital change. The current ratio represents the company's ability to meet its short-term obligations, while the quick ratio measures its ability to meet immediate obligations without relying on inventory. Working capital is the difference between current assets and current liabilities, indicating the company's short-term financial health.
Beginning of March: Halifax Fisheries Inc. had current assets of $768,000, a current ratio of 2.5 to 1, and a quick ratio of 1.1 to 1.
March 6: Bought $86,800 of merchandise on account. This transaction increases both current assets (accounts payable) and current liabilities.
March 11: Sold merchandise that cost $71,600 for $122,000. This transaction increases both cash (current asset) and accounts receivable (current asset) by the sales amount.
March 15: Collected a $30,800 accounts receivable. This transaction increases cash (current asset) and reduces accounts receivable (current asset).
March 17: Paid a $32,800 accounts payable. This transaction reduces both cash (current asset) and accounts payable (current liability).
March 19: Wrote off a $14,800 bad debt against Allowance for Doubtful Accounts. This transaction reduces accounts receivable (current asset) and the allowance for doubtful accounts (contra-asset).
March 24: Declared a $2.15 per share cash dividend on the 41,800 outstanding common shares. This transaction reduces retained earnings (equity) and creates a liability for dividends payable.
March 28: Paid the dividend declared on March 24. This transaction reduces cash (current asset) and dividends payable (current liability).
March 29: Borrowed $94,000 by giving the bank a 30-day, 18% note. This transaction increases cash (current asset) and creates a short-term note payable (current liability).
March 30: Borrowed $118,000 by signing a long-term secured note. This transaction increases cash (current asset) and creates a long-term secured note payable (long-term liability).
March 31: Used the $212,000 proceeds of the notes to buy additional machinery. This transaction reduces cash (current asset) and increases machinery (fixed asset).
By analyzing the impact of these transactions on current assets and liabilities, we can calculate the current ratio, quick ratio, and working capital after each transaction. The current ratio is obtained by dividing current assets by current liabilities, while the quick ratio is calculated by subtracting inventory from current assets and dividing the result by current liabilities. Working capital is the difference between current assets and current liabilities.
Please note that the specific calculations and values for the ratios and working capital will depend on the actual amounts involved in each transaction.
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Suppose we observe a decrease in real GDP and a decrease in the price level. Which of the following is a likely cause? a. An increase in transfers from the government. b. A decrease in the Bank of Canada's policy interest rate. c. A decrease in the price of computer chips imported from abroad by domestic firms. d. An increase in the expenditure multiplier. According to the models covered in this course, an increase in government expenditure on domestic goods and services affects real GDP a. only directly through the increase in G. b. directly through an increase in G, and indirectly through increase in C via the multiplier effect. c. only indirectly through increase in C through the multiplier effect d. directly through an increase in Q via the multiplier effect.
The likely cause for a decrease in real GDP and a decrease in the price level is c. A decrease in the price of computer chips imported from abroad by domestic firms.
The decrease in the price of computer chips imported from abroad by domestic firms leads to a decrease in production costs for these firms. As a result, firms can lower the prices of their goods and services, leading to a decrease in the overall price level. Simultaneously, the decrease in production costs can incentivize firms to increase their production levels, which contributes to an increase in real GDP.
This scenario demonstrates a supply-side effect, where a decrease in input prices positively impacts production costs, output levels, and ultimately real GDP, while also causing a decrease in the price level. The other options mentioned, such as an increase in transfers from the government (a) or a decrease in the Bank of Canada's policy interest rate (b), do not directly explain the observed decrease in real GDP and the price level.
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MKS Inc., produces meter sticks that have a target length of 100 centimeters with upper and lower specification limits of 100.05 and 99.95 centimeters respectively. Their existing process produces meter sticks with an average length of 100.00 centimeters and a standard deviation of 0.015 centimeters. What is their current process capability index? A. 1.26 B. 0.44 C. 0.83 D. 1.11
To calculate the current process capability index (Cp), we need to use the formula Cp = (USL - LSL) / (6 * σ), where USL is the upper specification limit, LSL is the lower specification limit, and σ is the standard deviation.
In this case, the target length for the meter sticks is 100 centimeters, with upper and lower specification limits of 100.05 and 99.95 centimeters, respectively. The existing process produces meter sticks with an average length of 100.00 centimeters and a standard deviation of 0.015 centimeters.
Using the formula, we can calculate the process capability index as follows:
Cp = (100.05 - 99.95) / (6 * 0.015)
Cp = 0.1 / 0.09
Cp ≈ 1.11
The current process capability index can be calculated using the formula Cp = (USL - LSL) / (6 * σ), where USL is the upper specification limit, LSL is the lower specification limit, and σ is the standard deviation.
The calculated process capability index is approximately 1.11. A Cp value greater than 1 indicates that the process has the potential to meet the specifications, as the specification width is greater than the process variation. Therefore, option D, 1.11, is the correct answer.
A process capability index of 1.11 suggests that the existing process has some capability to produce meter sticks within the specified limits. However, it is worth noting that the process is only slightly capable, as the index is relatively close to 1. A higher Cp value closer to the upper limit of 1.33 would indicate a more capable process. Therefore, there is room for improvement to ensure that a higher percentage of meter sticks fall within the specified limits.
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In 200-250 words, explain the diversification benefits of real estate in a portfolio. Given the numerous options examined for real estate investment which do you feel is the optimal route for your portfolio? Provide the rationale for the choices you make.
Real estate's diversification benefits make it an optimal portfolio investment, reducing volatility, providing a hedge against market downturns, and enhancing returns.
Real estate offers several diversification benefits when included in an investment portfolio. Firstly, real estate has a low correlation with other asset classes such as stocks and bonds.
This means that real estate values may not move in the same direction or magnitude as the stock market or bond market. This low correlation can help reduce overall portfolio volatility and provide a hedge against market downturns.
Additionally, real estate investments often generate income in the form of rental payments or lease agreements, which can provide a steady cash flow stream and enhance portfolio returns.
Furthermore, real estate investments offer the potential for long-term capital appreciation. Over time, properties may appreciate in value due to factors such as location, demand, and improvements made to the property.
This potential for capital appreciation can provide an additional source of investment returns and contribute to overall portfolio growth.
When considering the optimal route for a real estate investment portfolio, it is important to assess individual risk tolerance, investment objectives, and time horizon.
Different options for real estate investment include direct ownership of properties, real estate investment trusts (REITs), real estate mutual funds, or real estate exchange-traded funds (ETFs).
For a diversified portfolio, a combination of different real estate investment options may be optimal.
Direct ownership of properties can offer greater control and potential for higher returns but requires active management and expertise.
REITs, mutual funds, or ETFs provide access to a diversified portfolio of properties with professional management, liquidity, and potential dividend income.
Ultimately, the optimal route for a real estate portfolio depends on an individual's specific circumstances and investment goals.
A diversified approach, combining direct ownership and real estate investment vehicles, may offer the best balance between risk and return, allowing investors to benefit from the diversification benefits of real estate while aligning with their preferences and objectives.
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In a short strangle with put options ($10 st) and call options ($15St), Describe a different option strategy that could be used for the same purpose, outlining a comparative advantage and disadvantage of this strategy compared with the short strangle. Outline the theoretical circumstances in which you would make losses from this strategy. Outline the maximum theoretical profits and losses that could be made. Discuss the role that leverage plays in option strategies.
The iron condor is an alternative strategy to the short strangle, offering higher probability of success but limited profit potential.
A different option strategy that could serve a similar purpose to the short strangle is the iron condor. With an iron condor, you simultaneously sell an out-of-the-money (OTM) call spread and an OTM put spread. For example, you could sell a $15 call and buy a $20 call, while also selling a $10 put and buying a $5 put.
Comparative Advantage:
The advantage of a long straddle is that it allows investors to profit from substantial price swings without requiring them to predict the direction of the underlying asset's movement. This strategy is suitable when anticipating high volatility.
Comparative Disadvantage:
The main disadvantage of a long straddle is that it requires a larger initial investment compared to a short strangle. Both call and put options need to be purchased, resulting in higher upfront costs.
Theoretical Circumstances for Losses:
Losses from a long straddle can occur if the price of the underlying asset remains relatively stable, resulting in the options expiring worthless. Additionally, if the price moves moderately in either direction, the gains from one option might be offset by the losses from the other option.
Maximum Theoretical Profits and Losses:
The maximum potential profit for a long straddle is unlimited since the investor can benefit from substantial price movement. The maximum potential loss is limited to the total cost of purchasing both options.
Role of Leverage:
Leverage plays a role in option strategies by amplifying the potential gains or losses. Since options allow investors to control a larger amount of the underlying asset with a smaller upfront investment, leverage can magnify returns. However, it also increases the risk of losses, particularly in volatile markets.
In conclusion, a long straddle offers the advantage of profiting from significant price swings, regardless of direction, but requires a larger initial investment compared to a short strangle.
Losses can occur if the price remains stable, and the maximum potential profit is unlimited. Leverage amplifies potential gains and losses in option strategies, necessitating careful risk management.
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When looking at the data in the SR, we observe that interest rates (real) are falling and real economic activity is rising. Which of the following shocks can explain these observations? (i.e. what could have caused the changes) Select one:
a. Decrease in expected inflation b. Increase in government spending c. Decrease in the Price Level d. Fall in nominal money supply
The correct answer- d. Fall in nominal money supply.
A fall in nominal money supply can lead to a decrease in interest rates (real) and an increase in real economic activity. Here's how it works:
When the central bank reduces the amount of money in circulation, it leads to a decrease in the nominal money supply. This reduction can occur through various channels, such as monetary policy actions by the central bank.With a lower nominal money supply, there is less money available for borrowing and lending. This scarcity of money in the economy tends to increase the demand for loans, causing interest rates to fall. As a result, the cost of borrowing decreases, which can stimulate investment and consumption, leading to increased economic activity.Lower interest rates encourage businesses and individuals to borrow money for investment and spending. Businesses may undertake more capital projects, expand operations, or invest in new ventures. Individuals may be more willing to take out loans for purchasing homes, cars, or other goods and services.Learn more about nominal money supply here-
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Salnt John Mining operates several facilties. At one, a typical batch of an ore, Pryex, run through the processing plant yields three products: PX-10, PX-20, and PX-30. At the split-off point, the intermediate products cannot be sold without further processing. A fypical batch of PX-10 sells for $112,000 after incuming additional processing costs of $24,000. PX-20 can be sold for $172,000 after additional processing costs of $48,000, and the PX-30 sells for $224,000 but requires additional processing costs of $80,000. The joint costs of processing the Pryex, Including the cost of mining, are $244,000 per batch. Requlred: Use the estimated net realizable value method to allocate the joint processing costs. Note: Do not round Intermedlate calculatons. Enter percentage answers rounded to 2 decimal places and other final answers to the nearest whole dollar nmounts.
Based on the estimated net realizable value method, the joint processing costs are allocated approximately $60,220 to PX-10, $84,913 to PX-20, and $98,767 to PX-30.
To allocate the joint processing costs using the estimated net realizable value method, we follow these steps:
Calculate the net realizable value (NRV) for each product by subtracting the additional processing costs from the selling price:
NRV(PX-10) = $112,000 - $24,000 = $88,000
NRV(PX-20) = $172,000 - $48,000 = $124,000
NRV(PX-30) = $224,000 - $80,000 = $144,000
Determine the total net realizable value by summing the NRVs of all products:
Total NRV = NRV(PX-10) + NRV(PX-20) + NRV(PX-30) = $88,000 + $124,000 + $144,000 = $356,000
Calculate the percentage of each product's NRV to the total NRV:
Percentage(PX-10) = NRV(PX-10) / Total NRV = $88,000 / $356,000 ≈ 0.2472 = 24.72%
Percentage(PX-20) = NRV(PX-20) / Total NRV = $124,000 / $356,000 ≈ 0.3483 = 34.83%
Percentage(PX-30) = NRV(PX-30) / Total NRV = $144,000 / $356,000 ≈ 0.4045 = 40.45%
Allocate the joint processing costs based on the percentages calculated in step 3:
Joint costs allocated to PX-10 = Percentage(PX-10) × Joint costs = 0.2472 × $244,000 ≈ $60,220
Joint costs allocated to PX-20 = Percentage(PX-20) × Joint costs = 0.3483 × $244,000 ≈ $84,913
Joint costs allocated to PX-30 = Percentage(PX-30) × Joint costs = 0.4045 × $244,000 ≈ $98,767
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Consider a 13% annual coupon bond with a par value of $50,000. The last coupon date was 2/15/2020. What is the accrued interest on 1/29/2021? 8,968.65
5,800.20
7,120.65
6,214.10
6,198.09
The accrued interest on 1/29/2021 for a 13% annual coupon bond with a par value of $50,000 and a last coupon date of 2/15/2020 is $8,968, indicating option (a) 5,800.20 as the correct answer.
To calculate the accrued interest, we need to determine the number of days between the last coupon date (2/15/2020) and the current date (1/29/2021). There are 349 days between these two dates. Next, we calculate the daily interest rate by dividing the annual coupon rate (13%) by 365 days, resulting in a daily interest rate of 0.0356%.
To find the accrued interest, we multiply the daily interest rate by the par value ($50,000) and the number of days since the last coupon date. Applying the formula: Accrued Interest = (Daily Interest Rate) x (Par Value) x (Number of Days), we get: Accrued Interest = 0.000356 x $50,000 x 349 = $8,968.
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True or False: The Federal Reserve Board has a significant influence over the level of economic activity, inflation, interest rates in the United States.
True. The Federal Reserve Board has a significant influence over the level of economic activity, inflation, and interest rates in the United States.
The statement is true. The Federal Reserve Board, also known as the Fed, plays a crucial role in shaping the economy of the United States. As the central bank of the country, the Fed has been granted specific powers and responsibilities to maintain price stability, promote maximum employment, and regulate monetary policy.
Through its actions, the Fed can have a substantial impact on various aspects of the economy.
The Federal Reserve Board primarily influences the level of economic activity through its control over monetary policy. By adjusting interest rates, managing the money supply, and implementing various tools such as open market operations and reserve requirements, the Fed can stimulate or constrain economic growth.
Changes in interest rates can affect borrowing costs for businesses and consumers, influencing their spending and investment decisions. Additionally, the Fed's policies aim to manage inflationary pressures and ensure price stability by carefully monitoring and adjusting monetary conditions.
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Elijah has three major purchases to pay off on his credit card. They are as follows: $1,000 at 10%, $500 at 15%, and $250 at 5%. How should he pay off his debts?
Elijah should pay off the lowest amount first. This strategy, known as the "debt snowball method," suggests prioritizing debts based on their outstanding balances rather than their interest rates.
By paying off the lowest amount first, Elijah can quickly eliminate one of his debts, which provides a psychological boost and motivates him to continue paying off the remaining balances. This approach focuses on building momentum and creating a sense of accomplishment, helping individuals stay motivated throughout the debt repayment process.
While it is true that higher interest rates generally mean more money paid in interest over time, the debt snowball method prioritizes the emotional aspect of debt repayment. By clearing smaller debts first, Elijah can see tangible progress and gain a sense of control over his finances. Once Elijah pays off the smallest debt of $250, he can allocate the funds previously used to pay that debt towards the next smallest debt. In this case, he would then focus on the $500 debt at 15%. After that, he can concentrate on the remaining $1,000 debt at 10%.
Ultimately, the debt snowball method provides a structured approach to tackle multiple debts, emphasizing psychological benefits and motivation. While it may not be the most cost-effective strategy in terms of interest paid, it can be highly effective in helping individuals gain momentum and achieve debt-free status.
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What you might need to do after graduation to meet the job
requirements prior to application for a Petroleum
Corporation?
To meet the job requirements prior to applying for a position in a Petroleum Corporation after graduation, you might need to take the following steps:
1. Gain Relevant Education: Petroleum Corporations typically require candidates to have a strong educational background in fields such as petroleum engineering, chemical engineering, geology, or related disciplines. Ensure that you have completed a relevant degree program or consider pursuing further education through specialized courses or certifications.
2. Acquire Industry Knowledge: Familiarize yourself with the petroleum industry by staying updated on industry trends, technological advancements, and environmental regulations. Reading industry publications, attending conferences, and participating in workshops can help you gain valuable knowledge and insights.
3. Gain Practical Experience: Seek opportunities to gain practical experience in the petroleum industry. This can include internships, co-op programs, or entry-level positions in oil and gas companies. Practical experience will provide you with hands-on exposure to industry operations, equipment, and processes.
4. Develop Technical Skills: Petroleum Corporations often require technical skills such as reservoir engineering, drilling techniques, production optimization, and data analysis. Consider acquiring these skills through specialized training programs, online courses, or industry-specific certifications.
5. Network: Building a professional network is crucial in the petroleum industry. Attend industry events, join professional associations, and connect with professionals working in Petroleum Corporations. Networking can provide you with valuable insights, mentorship opportunities, and potential job referrals.
6. Stay Updated on Safety and Environmental Practices: Given the importance of safety and environmental sustainability in the petroleum industry, it is essential to stay informed about the latest safety protocols and environmental regulations. Familiarize yourself with industry standards and demonstrate a commitment to responsible practices.
In conclusion, to meet the job requirements prior to applying for a position in a Petroleum Corporation after graduation, you should focus on gaining relevant education, acquiring industry knowledge, gaining practical experience, developing technical skills, networking, and staying updated on safety and environmental practices. These steps will help you prepare for a successful career in the petroleum industry.
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Which one of the following is not an input in NPV analysis? Select one:
a. Initial Investment
b. Discount rate
c. Factor Weights
d. Depreciation schedule
The correct answer is d. Depreciation schedule.A depreciation schedule is not an input in NPV (Net Present Value) analysis.
NPV analysis involves evaluating the cash inflows and outflows of a project or investment, and determining its profitability by discounting the future cash flows to their present value. The main inputs in NPV analysis are:
a. Initial Investment: The amount of money required to initiate the project or investment.
b. Discount rate: Also known as the hurdle rate or the required rate of return, it represents the minimum acceptable rate of return for the project. It is used to discount the future cash flows.
c. Factor Weights: In some cases, when evaluating multiple projects, factor weights can be used to assign importance to different criteria or objectives in the decision-making process. This is commonly used in multi-criteria decision analysis (MCDA) methods.
The depreciation schedule, on the other hand, is a separate accounting concept used to allocate the cost of an asset over its useful life for tax or financial reporting purposes. While it may affect the tax implications and cash flows related to an investment, it is not directly used as an input in NPV analysis.
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Olive inc. an American health care company, has developed a health drink for pregnant women. A 14− oz. jar of the health drink is priced at \$9.99. Olive has distributed samples of the health drink to pharmaceutical stores and maternity hospitals across the United States. This scenario illustrates Olive's brand image organizational structure marketing mix corporate governance
The scenario described illustrates Olive Inc.'s marketing mix, which includes product development (health drink for pregnant women), pricing (\$9.99 for a 14-oz. jar), and distribution (samples to pharmaceutical stores and maternity hospitals).
It does not directly relate to Olive's brand image, organizational structure, or corporate governance.
The scenario showcases Olive Inc.'s marketing mix, which refers to the strategic elements a company uses to promote and sell its products or services. The product development aspect is demonstrated by the creation of a health drink specifically designed for pregnant women. This indicates that Olive has identified a target market and developed a product to meet their needs.
The pricing strategy is evident from the \$9.99 price tag for a 14-oz. jar of the health drink. Pricing decisions are crucial in determining the perceived value of the product and attracting the target market while ensuring profitability.
The distribution strategy is highlighted by the distribution of samples to pharmaceutical stores and maternity hospitals across the United States. This approach aims to increase product visibility, generate interest, and facilitate access to the target market through strategic partnerships and placements.
However, the scenario does not provide information related to Olive's brand image (how the company is perceived by consumers), organizational structure (how the company is organized internally), or corporate governance (the system of rules and practices guiding the company's decision-making and accountability).
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In the Vulcan Case, was it ethical to issue stock options to the executives who knew about the impending land acquisition and mineral strike?
THE COMPANY Vulcan, Inc. is a multinational Fortune 200 company engaging principally in the exploration for and extraction of minerals. It is listed on the New York Stock Exchange and has more than 615 million shares outstanding.
THE MEETING (MARCH 7) On March 5, Stewart Myer, the company’s CEO, personally telephoned Martha Bordeaux, the VP for finance; Lamont Johnson, the chief geologist; and Natasha Bylinski, the VP for acquisitions, to arrange a March 7 meeting at the Atlanta airport. He emphasized to each of them the need for the utmost secrecy, directing them to arrange their travel to Atlanta as a connection to other and different destinations. When they all arrived at the meeting room, Myer reemphasized the need for complete secrecy. He then asked Johnson to present his report.
THE REPORT Johnson read his report: Over the past few years we have conducted extensive aerial geophysical surveys of the areas west of the Great Plains. These revealed numerous anomalies or extreme variations in the conductivity of rocks. One appeared particularly encouraging, so late last year we began a ground geophysical survey of the southwest portion of the Z segment in Montana. This survey confirmed the presence of anomalies. Accordingly, on January 14 we drilled some core samples and sent them to our lab. The results were so extraordinarily promising that on February 10 we obtained more core samples and had them chemically assayed. On February 25, we received the assay, which revealed an average mineral content of 1.17 percent copper and 8.6 percent zinc over 600 feet of the sample’s 650-foot length. Johnson then commented, "In my forty years in the business I have never seen such remarkable test results. On a scale of one to ten, this is an eleven."
THE REACTION Bordeaux exclaimed, "Our stock price will go through the roof!" Bylinski retorted, "So will land prices!"
THE STRATEGY Myer interrupted, "Look, we’re not here to celebrate. There are a lot of better places to do that. We can’t keep a lid on this for very long so we have to strike soon. We need to line up the right agents to acquire the land. We must fragment the acquisitions to keep the sellers in the dark. Most critical is maintaining absolute secrecy. No one else in the company must know this. I will decide who needs to know and I will tell them. It is your duty to the company to keep totally quiet. Now, let’s discuss the acquisition plan." When asked how he had managed to obtain core samples without tipping off the owners of the land, Johnson explained, "We pretended to be a motion picture company looking for locations to remake the movie High Noon. We drilled the samples in isolated areas and quickly filled the holes. To further cover our tracks we drilled some barren core samples from land we owned and hid the cores on our land."
THE PLAN Bylinski outlined the plan to acquire the land. We have options on another 15 percent. However, we currently own none of the principal portion. So we have a lot of work to do. We will employ several agents to negotiate the purchases. We will instruct them not to disclose that they are acting for us. In fact, we will order them not to disclose they are acting for anyone. We need to acquire approximately twenty square miles of additional land." Bordeaux asked, "What if the locals start getting curious?" Myer replied, "I’ll deal with that later if it arises."
STOCK OPTIONS On March 15 Vulcan issued stock options at $23.50 per share to thirty of its executives including Myer, Bordeaux, Johnson, and Bylinski. At this time neither the stock option committee nor the board of directors had been informed of the strike or the pending land acquisition program.
It was not ethical to issue stock options to the executives who knew about the impending land acquisition and mineral strike in the Vulcan Case.
The issuance of stock options to executives who had knowledge of the impending land acquisition and mineral strike raises ethical concerns due to the lack of transparency and potential for personal gain at the expense of other stakeholders. The executives were aware of significant non-public information that could significantly impact the company's stock price and future prospects. By granting stock options to these executives without disclosing the material information to the stock option committee or the board of directors, the company potentially allowed them to benefit from insider knowledge.
Ethical considerations in such situations require companies to ensure fairness, transparency, and equal treatment of all stakeholders. Issuing stock options based on undisclosed material information violates these principles and creates an unfair advantage for the executives involved. It undermines the integrity of the stock option program and may erode trust among investors, employees, and the broader market.
In order to uphold ethical standards, companies should establish robust internal controls and governance mechanisms to prevent insider trading and ensure that material information is properly disclosed to relevant decision-making bodies. By failing to disclose the impending land acquisition and mineral strike to the stock option committee and the board of directors, Vulcan compromised the fairness and integrity of the stock option program, raising ethical concerns.
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Question A.1 Briefly describe the model for stock prices that underlies the Black-Scholes option pricing analysis. Do you think it is a reasonable representation of real-world stock price movements? [Write no more than half of a page of A4] (6 marks)
Question A.2 An underlying has a current price of $31. The premia on 3 month European put and call options on this underlying are $1 and $3 respectively. Both options have a strike price of $30. If the continuously compounded interest rate is 10%, is there an arbitrage opportunity here and, if so, how would you C exploit it? [Write no more than half of a page of A4] (6 marks)
Question A.3 An option trader believes that, in the next month or so, trading conditions in an underlying are going to be very volatile. She thinks that there is a good chance that the underlying will rise significantly in value and a good, but somewhat smaller, chance that the underlying will fall significantly in value. She judges the chances of small movements in the underlying, either up or down, to be very small. Design an option position that the trader could build in order to profit from this view. [Write no more than half of a page of A4] (6 marks)
Question A.4 Consider the pricing of a futures contract on copper. What would you expect to happen if storage costs rose? Explain the economics behind this effect. [Write no more than half of a page of A4] (6 marks)
Question A.5 The one year spot interest rate is 4%. The two year spot rate is 5% and the three year spot rate is 6%. You are quoted a swap rate of 5.5% on a 3 year fixed-for-floating swap. Is this rate fair? Explain your response, and if it is not fair, derive the fair swap rate.
A.1 ) Whether the model that underlies the Black-Scholes option pricing analysis, is a reasonable representation of real-world stock price movements is debatable. Critics argue that the model does not accurately capture the non-normal distributions that are observed in real-world stock price movements.
A.2) There is an arbitrage opportunity in this scenario. To exploit it, the trader would simultaneously buy a European put option and sell a call option on the underlying asset, both with the same strike price of $30 and might make a profit of $2.
A.3) To profit from this view, the option trader could build a straddle option position.
A.4) If storage costs rise, the price of a futures contract on copper would decrease. This is because the cost of storing the copper would increase, which would lower the demand for the futures contract. In turn, this would reduce the price of the futures contract.
A.5) The quoted swap rate of 5.5% on a 3-year fixed-for-floating swap is not fair.
A.1 ) The Black-Scholes option pricing analysis is based on a geometric Brownian motion model for stock prices. The model is formulated in such a way that it assumes the stock price to be continuously compounded, as opposed to being compounded once or twice a year. This assumption is made because it simplifies the math in the analysis.
The model has two key parameters: the volatility of the stock price and the risk-free rate of return. It also assumes that the stock price movement is random and that the change in the stock price is independent of the stock price level. Additionally, the model's assumptions about the constancy of volatility and the independence of the stock price change are not always valid.
A.2) In this scenario, if trader exploit arbitrage opportunity by buying a European put option and selling a call option simultaneously on the underlying asset, he would receive a net premium of $2 ($3 for the call option and $1 for the put option). The trader would use this premium to purchase the underlying asset and would then wait until the option's expiration date and either :
- sell the underlying asset at the market price (if it is above $30) or
- exercise the put option to sell the asset at the strike price of $30 (if it is below $30).
In either case, the trader would make a profit of $2.
A.3) A straddle is an option strategy that involves buying a call option and a put option with the same strike price and expiration date.
If the underlying asset price rises significantly, the trader can exercise the call option to purchase the underlying asset at the strike price and then sell it at the market price for a profit.
If the underlying asset price falls significantly, the trader can exercise the put option to sell the underlying asset at the strike price and then buy it back at the market price for a profit.
The trader's potential profit is the difference between the market price and the strike price of the options, minus the cost of the options.
A.4) The economics behind this effect are straightforward: if the cost of storing a commodity increases, it becomes more expensive for traders to hold inventory of that commodity. As a result, they are less willing to buy futures contracts, which are essentially agreements to purchase the commodity in the future. This decrease in demand leads to a decrease in the futures price.
A.5) To determine the fair swap rate, we can use the market's implied forward rates.
Using the spot rates provided in the question, we can calculate the implied forward rates for each year.
For example, the implied forward rate for year 1 to year 2 is calculated as follows:
Implied forward rate (year 1 to year 2) = ((1 + 0.05)^2 / (1 + 0.04)) - 1 = 1.098 - 1 = 0.098 = 9.8%
Using this method, we can calculate the implied forward rates for each year and then calculate the expected floating rate payments for the 3-year period.
The fair swap rate is then the fixed rate that equates the present value of the expected fixed rate payments with the present value of the expected floating rate payments.
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On December 31,2019 , Krug Company prepared adjusting entries that included the following items:
Depreciation expense: $44,000.
Accrued sales revenue: $28,000.
Accrued expenses: $12,000.
Used insurance: $4,000; the insurance was initially recorded as prepaid.
Rent revenue earned: $2,000; the rent was initially prepaid by the tenant and credited to unearned rent revenue.
If Krug Company reported total assets of $420,000 prior to the adjusting entries, how much are Krug's total assets after the adjusting entries?
Multiple Choice
a $372,000
b $414,000.
c $400,000.
d $402,000.
The correct answer is not among the provided choices. The total assets after the adjusting entries would be $390,000.
To determine Krug Company's total assets after the adjusting entries, we need to consider the effects of each adjusting entry on the assets.
1. Depreciation expense reduces the value of the company's assets. Since the expense is $44,000, the total assets will be reduced by that amount.
2. Accrued sales revenue increases the company's assets. Since the revenue is $28,000, the total assets will increase by that amount.
3. Accrued expenses decrease the company's assets. Since the expenses are $12,000, the total assets will be reduced by that amount.
4. Used insurance decreases the value of prepaid insurance, which is recorded as an asset. Since the insurance used is $4,000, the total assets will be reduced by that amount.
5. Rent revenue earned increases the company's assets. Since the revenue is $2,000, the total assets will increase by that amount.
Now, let's calculate the total effect on the assets:
Decrease in assets: $44,000 (depreciation) + $12,000 (accrued expenses) + $4,000 (used insurance) = $60,000.
Increase in assets: $28,000 (accrued sales revenue) + $2,000 (rent revenue earned) = $30,000.
To determine the new total assets, we subtract the decrease in assets and add the increase in assets from the initial total assets:
$420,000 (initial total assets) - $60,000 (decrease in assets) + $30,000 (increase in assets) = $390,000.
Therefore, the correct answer is not among the provided choices. The total assets after the adjusting entries would be $390,000.
Learn more about Depreciation: brainly.com/question/30531944
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