To value the equity in the company using the option pricing model, several factors need to be considered: the earnings before interest and taxes, growth rate, return on capital, cost of capital, debt structure, business diversification, and riskless rate.
The option pricing model is used to value equity as an option by considering the various factors mentioned. In this case, the earnings before interest and taxes (EBIT) is given as $25 million, and the corporate tax rate is 40%.
The earnings are expected to grow at a rate of 4% per year indefinitely, and the return on capital is 10%. The cost of capital for comparable firms is 9%.
The company has two types of debt: two-year zero-coupon bonds with a face value of $250 million and bank debt with a face value of $250 million and a duration of four years.
Additionally, the company operates in two businesses with different standard deviations of firm value: food processing with a standard deviation of 25% and auto repair with a standard deviation of 40%.
The correlation between the businesses is 0.5.
To value equity as an option, the option pricing model takes into account these factors along with the riskless rate, which is given as 7%.
By applying the option pricing model, the value of equity in the company can be determined.
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Frankfurt Electronics produces a component internally using a state-of-the-art technology. The operations manager wants to determine the optimal lot size to ensure that the total annual inventory cost is minimized. The daily production rate for the component is 500 units, annual demand is 36,000 units, setup cost is $150 per setup, and the annual holding rate is 30 percent. The manager estimates that the total cost of a finished component is $80. If we assume that the plant operates year-round, and there are 360 days per year, what are the (a) daily demand, (b) optimal lot size, (c) highest inventory, (d) annual product cost, (e) annual holding cost, (f) annual setup cost, (g) total annual inventory cost, (h) length of a production period, (i) length of each inventory cycle, (j) rate of inventory buildup during the production cycle, and (k) the number of inventory cycles per year? Plot the movement of the inventory during one production cycle using time on the horizontal axis and on-hand inventory on the vertical axis (see Figure 7.10).
The optimal lot size for Frankfurt Electronics' component is 3,000 units, resulting in a daily demand of 100 units. The highest inventory level is 3,000 units, and the annual product cost amounts to $2,880,000. The annual holding cost is $86,400, the annual setup cost is $3,000, and the total annual inventory cost is $2,969,400. The length of a production period is 72 days, and each inventory cycle lasts for 3 days. The rate of inventory buildup during the production cycle is 500 units per day, and there are 120 inventory cycles per year.
To determine the optimal lot size, we calculate the daily demand by dividing the annual demand of 36,000 units by 360 days, resulting in 100 units per day. The Economic Order Quantity (EOQ) formula can be used to calculate the lot size that minimizes the total annual inventory cost. Given a daily production rate of 500 units, the EOQ formula becomes:
EOQ = sqrt((2 * annual demand * setup cost) / holding cost per unit)
= sqrt((2 * 36,000 * $150) / ($80 * 0.3))
≈ 3,000 units
The highest inventory level is equal to the lot size, so it is also 3,000 units. The annual product cost is the product of the lot size and the cost per unit, resulting in $2,880,000.
The annual holding cost is calculated as the average inventory level (half of the lot size) multiplied by the holding cost per unit and the number of cycles per year (360 days divided by the length of each inventory cycle):
Annual holding cost = (lot size / 2) * holding cost per unit * (360 / cycle length)
= (3,000 / 2) * $80 * (360 / 3)
= $86,400
The annual setup cost is calculated as the number of setups per year multiplied by the setup cost per setup:
Annual setup cost = (360 / cycle length) * setup cost per setup
= (360 / 3) * $150
= $3,000
The total annual inventory cost is the sum of the annual product cost, annual holding cost, and annual setup cost:
Total annual inventory cost = annual product cost + annual holding cost + annual setup cost
= $2,880,000 + $86,400 + $3,000
= $2,969,400
The length of a production period is calculated as the lot size divided by the daily production rate:
Production period length = lot size / daily production rate
= 3,000 / 500
= 6 days
The length of each inventory cycle is equal to the length of the production period, which is 6 days.
The rate of inventory buildup during the production cycle is the daily production rate, which is 500 units per day.
The number of inventory cycles per year is calculated as the number of days in a year divided by the length of each inventory cycle:
Number of inventory cycles per year = 360 / cycle length
= 360 / 6
= 120
Plotting the movement of inventory during one production cycle would show an initial increase in inventory as production exceeds demand, followed by a steady decrease as demand exceeds production until the next production cycle begins.
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Curtis invests $375,000 in a city of Athens bond that pays 5.75 percent interest. Alternatively, Curtis could have invested the $375,000 in a bond recently issued by Initech, Incorporated that pays 8.5 percent interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 24 percent.
What is Curtis's after-tax rate of return on the city of Athens bond?
Curtis's after-tax rate of return on the city of Athens bond is 4.39 percent.
To calculate Curtis's after-tax rate of return on the city of Athens bond, we need to consider the interest rate, the tax rate, and the after-tax income.
The city of Athens bond pays 5.75 percent interest. Since Curtis's marginal tax rate is 24 percent, he will have to pay taxes on the interest income. To calculate the after-tax income, we subtract the tax amount from the interest income.
After-tax income = Interest income - (Tax rate * Interest income)
After-tax income = 0.0575 * $375,000 - (0.24 * 0.0575 * $375,000)
After-tax income = $21,562.50 - $5,187.50
After-tax income = $16,375
To calculate the after-tax rate of return, we divide the after-tax income by the initial investment and express it as a percentage.
After-tax rate of return = (After-tax income / Initial investment) * 100
After-tax rate of return = ($16,375 / $375,000) * 100
After-tax rate of return = 4.39 percent
Therefore, Curtis's after-tax rate of return on the city of Athens bond is 4.39 percent.
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Write the equation used in block evaluation in relation to mining and processing costs, tonnage, metallurgical recovery, ore grade and mineral (metal) market price.
The equation used in block evaluation in relation to mining and processing costs, tonnage, metallurgical recovery, ore grade, and mineral market price is known as the Net Present Value (NPV) equation.
The NPV equation is used to determine the economic viability of a mining project by comparing the present value of cash inflows and outflows. The equation is typically expressed as follows:
NPV = Σ[(Revenue - Operating Costs - Capital Costs) / (1 + r)^t]
In this equation, Revenue represents the income generated from the sale of minerals, Operating Costs include mining and processing expenses, Capital Costs involve the initial investment required for the project, r is the discount rate that accounts for the time value of money, and t represents the time period.
To calculate the Revenue, factors such as tonnage (the quantity of ore extracted), metallurgical recovery (the percentage of valuable minerals recovered during processing), ore grade (the concentration of valuable minerals in the ore), and mineral market price are taken into account. These factors directly influence the revenue generated from the sale of minerals.
By applying the NPV equation to each block of the mining deposit and summing the results, the overall economic feasibility of the project can be assessed. A positive NPV indicates that the project is economically viable, while a negative NPV suggests that the project may not generate sufficient returns to cover the costs.
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Mike purchases 850 shares of Rose Tinted Glasses (RTG) at a price of$24 each. During the first year of ownership he receives $1.20 per share incash dividends. At the end of the year Mike sells his RTG shares for $23each. The Holding Period Return (HPR) for Mike’s holding is
A.–4.35%
B.–4.17%
C.0.83%
D.0.87%
Answer:
The Holding Period Return (HPR) for Mike’s holding is C. 0.83%
1) In the last six months, the price of fuel for cars has increased very substantially in many countries.
a) Define the concept of the price elasticity of demand.
b) Given that the price of petrol in the UK has increased from £1.40 per litre to £1.90 per litre, if my demand for petrol has decreased from 35 litres per week to 30 litres per week, calculate my price elasticity of demand for petrol.
c) Explain why we might expect demand to be more price elastic in the long-run than in the short-run.
d) Given that the price of train travel has not changed over the last six months, calculate the cross price elasticity of demand with the price of petrol, given that train travel has increased by 8%. What might you conclude about the relationship between train and car travel?
Price elasticity of demand is a) the change in quantity demanded and the change in price. b) price elasticity of demand for petrol: 0.96, c) consumers are to respond to price change, d) XED is positive, and it indicates an increase in the price of petrol.
a) Definition of price elasticity of demand:
Price elasticity of demand is a measure of the extent of the relationship between the change in quantity demanded and the change in price. This refers to the degree of responsiveness of the quantity demanded of a good or service to a change in its price. It is a measure of how much the quantity demanded of a product responds to a change in its price. It determines whether the product is elastic or inelastic and its degree of elasticity.
b) The formula for price elasticity of demand is as follows:
Price Elasticity of Demand (PED) = % Change in Quantity Demanded / % Change in Price
PED = (% Change in Quantity Demanded) / (% Change in Price) = [(Q1 - Q2) / Q1] / [(P1 - P2) / P1]
PED = [(35-30)/35] / [(1.90-1.40)/1.40]= 0.96
This implies that the demand for petrol is price elastic since the calculated PED is greater than one. That means the percentage change in the quantity demanded of petrol is more significant than the percentage change in its price.
c) In the short run, demand for a good or service may not be very sensitive to price changes. When the price of a good or service changes, people may not change their consumption habits significantly right away. In contrast, in the long run, demand for a product or service becomes more price elastic.
That means that consumers are more likely to respond to price changes in the long run, and the quantity demanded may become more sensitive to price changes.
d) The formula for cross price elasticity of demand is as follows:
Cross Price Elasticity of Demand (XED) = % Change in Quantity Demanded of Good X / % Change in Price of Good Y
XED = (% Change in Quantity Demanded of Train) / (% Change in Price of Petrol)
= (8%) / [(1.90-1.40)/1.40]
= 1.85
This indicates that train travel and car travel are substitutes, as the calculated XED is positive, and it indicates that an increase in the price of petrol leads to an increase in demand for train travel.
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If you applied for a $4,500 loan, to be repaid in 3½ years with semiannual payments at an interest rate of 9%, compounded semiannually, what will be your regular payment?
The regular payment will be $674.90.
The formula to calculate the semi-annual payment (A) on a loan of P dollars at an annual interest rate r (in decimal) and for t years, with n semi-annual payments is A = P r (1 + r)2n / {(1 + r)2n - 1}. To solve this, we must first determine the semiannual interest rate i by dividing the annual rate r by 2, and the total number of payments, 2n, by multiplying the number of years t by 2. Then, we will apply these values to the formula to obtain the semiannual payment. After that, the semiannual payment will be multiplied by 2 to find the regular payment (the payment made every year).
Calculation:
Principal, P = $4,500 Annual interest rate, r = 9% Semiannual interest rate, i = r / 2 = 9% / 2 = 4.5% Time in years, t = 3.5 years Total number of payments 2n = 2 × t = 2 × 3.5 = 7 Semiannual payment = A = P i (1 + i)2n / {(1 + i)2n - 1}= 4500 * 0.045(1 + 0.045)7 / {(1 + 0.045)7 - 1}= 4500 * 0.045(2.81221) / 1.54517= $337.45.
Therefore, the semi-annual payment is $337.45. To find the regular payment, multiply this amount by 2:$337.45 × 2 = $674.90Answer: $674.90.
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Discuss possible EC2 designs that can be used for the company. Discuss your rationale for your EC2 recommendations and remember to keep cost (four pillars of cost optimization) as part of your recommendations.
When considering possible EC2 designs for a company, it is important to take into account the four pillars of cost optimization. The recommendations should be based on rational decisions that balance performance, scalability, and cost-efficiency.
When designing EC2 instances for a company, it is crucial to prioritize cost optimization while considering performance and scalability. To achieve this, a combination of On-Demand, Reserved, and Spot instances can be considered. On-Demand instances provide flexibility and are suitable for workloads with unpredictable demand.
Reserved instances, on the other hand, offer a significant discount for long-term commitments, making them ideal for stable workloads. Spot instances can be utilized for non-critical or fault-tolerant tasks, as they allow for bidding on unused capacity at significantly reduced costs. By strategically utilizing a mix of these instance types, the company can optimize costs without compromising performance or scalability.
Additionally, the company can employ Auto Scaling to dynamically adjust the number of EC2 instances based on demand. This ensures that the resources are effectively utilized while maintaining optimal performance during peak periods. By setting appropriate scaling policies and monitoring usage patterns, the company can scale up or down as needed, optimizing costs and ensuring efficient resource allocation.
In conclusion, when designing EC2 instances for a company, it is essential to consider a combination of On-Demand, Reserved, and Spot instances, while leveraging Auto Scaling for efficient resource management. By carefully balancing performance, scalability, and cost optimization, the company can achieve an effective EC2 design that meets its requirements and maximizes cost-efficiency.
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Which taxpayer should file Schedule C (Form 1040) to report
business activity?
Self-employed individuals, sole proprietors, and single-member LLCs should file Schedule C (Form 1040) to report business activity.
Schedule C is a tax form used by individuals who operate a business as a sole proprietorship or as a single-member LLC. It is part of the Form 1040, which is the individual income tax return form. By filing Schedule C, taxpayers report their business income, deductions, and calculate their net profit or loss from the business. This information is then included in the overall tax return, and the taxpayer is responsible for paying taxes on their business income. Filing Schedule C allows the IRS to assess the tax liability for the business activity and ensures compliance with tax regulations.
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Reckless Investments Inc. purchased a $1,000 face value Dull Co. 8% bond for $939 plus $20 in accrued interest to yield 11.5%. Reckless has the intent and ability to own this debt to maturity.
Record the journal entries for Reckless's purchase of this debt.
The journal entry records the purchase of a Dull Co. bond by Reckless Investments Inc., debiting Bonds Payable for the purchase price, crediting Cash for the total amount paid, and crediting Accrued Interest Payable for the accrued interest owed.
The journal entries for Reckless Investments Inc.'s purchase of the Dull Co. bond would be as follows:
1. To record the purchase of the bond:
Date Account Debit Credit
----------------------------------------------------------------------
[Date of purchase] Bonds Payable $939
Cash $959
Accrued Interest Payable $20
Explanation:
- The Bonds Payable account is debited for the purchase price of the bond, which is $939.
- The Cash account is credited for the cash paid, which is $959 ($939 purchase price + $20 accrued interest).
- The Accrued Interest Payable account is credited for the accrued interest owed to the previous bondholder.
Note: The entry assumes that the bond was purchased at the beginning of an interest period, and the accrued interest of $20 was payable to the previous bondholder.
It's important to note that these journal entries are specific to the purchase transaction and do not reflect subsequent interest payments or changes in the bond's carrying value.
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Rafique Inc. makes product A and sells at selling price of SAR 45 per unit. Badr Inc. wants to buy 5,000 units at SAR 27 per unit. Rafique Inc. has a normal capacity of 101,000 units and projected sales to regular customers this year is 92,000 units. Per unit costs traceable to the product (based on normal capacity of 92,000 units) are listed below?
Direct Materials 8.1
Direct Labour ` 6.0
Variable Mfg. Overhead 6.2
Fixed mfg. overhead 4.8
Fixed administrative costs 0.8
Fixed Selling Costs 0.4
Does the quantitative analysis suggest that the company should accept the special order?
No, the quantitative analysis suggests that the company should not accept the special order. Selling at SAR 27 per unit would result in a loss since the per unit cost is higher than the selling price.
The selling price of SAR 27 per unit offered by Badr Inc. is lower than the per unit cost of SAR 25.3 (calculated by adding the direct materials, direct labor, variable manufacturing overhead, fixed manufacturing overhead, fixed administrative costs, and fixed selling costs). Therefore, accepting the special order would result in a loss for Rafique Inc. It is important to consider the per unit cost and selling price to make an informed decision, and in this case, the company should not accept the special order. The per unit cost for Product A is SAR 25.3 (8.1+6.0+6.2+4.8+0.8+0.4). Thus, accepting the special order would lead to a loss for Rafique Inc.
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Which of the following is NOT true about a monopoly? a. Profit maximization for a monopoly requires that MC=MRMC.
In a monopoly, profit maximization occurs when the marginal cost (MC) is equal to the marginal revenue (MR). The statement "Profit maximization for a monopoly requires that MC=MR" is not true.
However, the inclusion of "MC" twice in the equation, i.e., MC=MRMC, is incorrect. The correct condition for profit maximization in a monopoly is MC=MR, where MC represents the marginal cost and MR represents the marginal revenue. This condition ensures that the firm produces at a level where the additional cost of producing one more unit (MC) is equal to the additional revenue generated from selling that unit (MR). It's important to note that a monopoly is characterized by having market power as the sole seller of a particular product or service, allowing it to control prices and restrict competition.
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If a bank currently holds $600 million in deposits, $10 million in cash in its vault, $40 million in reserves, and has a target reserve ratio of 6 percent, this bank has:
O excess reserves of $40 million.
O target reserves of $2.4 million.
O excess reserves of $14 million.
O a reserve deficiency of $4 million.
This bank has excess reserves of $14 million.
To determine the excess reserves, we need to calculate the target reserves first. The target reserves are calculated by multiplying the bank's deposits by the target reserve ratio. In this case, the deposits are $600 million and the target reserve ratio is 6 percent (or 0.06). Therefore, the target reserves would be $600 million * 0.06 = $36 million.
To calculate the excess reserves, we subtract the target reserves from the total reserves. The total reserves include both the cash in the vault and the reserves held. In this case, the total reserves are $10 million (cash) + $40 million (reserves) = $50 million.
Hence, the excess reserves would be $50 million (total reserves) - $36 million (target reserves) = $14 million. Therefore, the bank has excess reserves of $14 million.
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If an item is produced or ordered more frequently
a. There is no change in inventory if the lead time is reduced
b. There will be less inventory in the system
c. There is no change if the demand rate is predictable or unchanged
d. There will be more inventory in the system
If an item is produced or ordered more frequently: There will be less inventory in the system. The correct option is b.
If an item is produced or ordered more frequently, it will result in less inventory in the system. This is because frequent production or ordering allows for smaller batch sizes or order quantities, reducing the amount of inventory held at any given time.
When the production or ordering frequency increases, it means that inventory is replenished more frequently, and smaller quantities are added to the system during each replenishment cycle. As a result, the average inventory level decreases because the time between inventory replenishments is reduced, and less inventory is needed to meet the demand.
Reducing the lead time alone, without changing the production or ordering frequency, may not have a direct impact on inventory levels. Option a suggests that there is no change in inventory if the lead time is reduced, but this assumes a constant production or ordering frequency.
Option c states that there is no change if the demand rate is predictable or unchanged, which is not necessarily true as the frequency of production or ordering can affect inventory levels. Option d suggests that there will be more inventory in the system, which is incorrect as increased frequency leads to lower inventory levels. Therefore, option b is the correct answer.
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Discuss 3 instances in each case where the following third
party's actions can be costly to an insurance company.
a) Fire officers
b) Medical officers
c) Police officers
a) Fire officers: If fire officers inaccurately assess the fire risk at a property or fail to identify potential hazards, it can result in increased fire incidents b) Medical officers: If medical officers make errors in diagnosis or treatment, leading to adverse health outcomes c) Police officers: If police officers conduct incomplete or inaccurate investigations into insurance claims related to theft, accidents, or other criminal activities, it can lead to the denial of legitimate claims
Incorrect assessment of fire risk: If fire officers inaccurately assess the fire risk at a property or fail to identify potential hazards, it can result in increased fire incidents and claims for the insurance company. This can lead to significant financial losses for the insurance company due to higher payouts.
Inadequate firefighting techniques: If fire officers are not properly trained or equipped with effective firefighting techniques, they may struggle to control and extinguish fires efficiently. This can result in more extensive fire damage to properties, leading to larger insurance claims and increased costs for the insurance company.
Failure to follow safety protocols: If fire officers neglect to follow established safety protocols, such as proper ventilation techniques or ensuring adequate water supply, it can result in accidents or injuries during firefighting operations. In such cases, the insurance company may face liability claims from injured fire officers or third parties, leading to additional costs.
b) Medical officers:
Misdiagnosis or medical errors: If medical officers make errors in diagnosis or treatment, leading to adverse health outcomes or medical complications, the insurance company may face claims for medical malpractice. These claims can result in significant financial costs for the insurance company, including legal fees and compensatory payouts.
Overutilization of medical services: If medical officers order unnecessary tests, procedures, or treatments, it can drive up healthcare costs and result in higher insurance claims. Overutilization can be costly to insurance companies, particularly if it becomes a pattern among medical officers within a network or facility.
Prescription of expensive or unnecessary medications: If medical officers prescribe expensive medications when more cost-effective alternatives are available, it can increase the overall cost of healthcare and insurance claims. Similarly, prescribing unnecessary medications can lead to additional expenses for the insurance company without providing significant health benefits to the patients.
c) Police officers:
Inaccurate investigations: If police officers conduct incomplete or inaccurate investigations into insurance claims related to theft, accidents, or other criminal activities, it can lead to the denial of legitimate claims or payment of fraudulent claims. This can result in financial losses for the insurance company.
Failure to provide proper documentation: If police officers fail to provide timely and accurate documentation, such as police reports or witness statements, it can hinder the insurance company's ability to process claims effectively. Delays or incomplete information can lead to increased costs and potential legal disputes.
Collusion with fraudsters: In some instances, police officers may collude with fraudsters to stage or support fraudulent insurance claims. This can result in the insurance company paying out fraudulent claims, leading to substantial financial losses. Additionally, the cost of investigating and prosecuting such cases can also be burdensome for the insurance company.
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__is knowing how to deal with supply chain disruptions utilizing resources and capacities. Select one:
a. Cognitive Robustness b. Contextual Robustness c. Behavioural Robustness d. Strategic Robustness
The ability to handle supply chain disruptions and effectively manage resources and capacities is referred to as "Strategic Robustness." This concept encompasses the strategic measures and approaches taken by organizations to mitigate the impact of disruptions and maintain operational stability. By employing strategies such as risk diversification, contingency planning, and flexibility, companies can enhance their resilience and adaptability in the face of supply chain disruptions. Strategic Robustness plays a crucial role in maintaining a smooth and uninterrupted flow of goods and services, thereby minimizing the negative consequences of disruptions on business operations.
Strategic Robustness involves developing proactive strategies and capabilities to address supply chain disruptions. It encompasses the identification of potential risks, the implementation of contingency plans, and the ability to leverage resources and capacities effectively. This approach allows organizations to anticipate disruptions and develop strategies to minimize their impact. By diversifying supply sources, maintaining buffer stocks, establishing alternative transportation routes, and fostering strong relationships with suppliers, companies can enhance their ability to respond to disruptions swiftly and effectively.
Strategic Robustness also involves adopting a flexible and agile approach to adapt to changing circumstances. This includes having the ability to quickly reallocate resources, adjust production schedules, and collaborate with partners to overcome disruptions. By being proactive and strategic in their response to disruptions, companies can mitigate the negative effects on their supply chains and maintain the continuity of operations. Strategic Robustness is an essential aspect of supply chain management in today's dynamic and uncertain business environment, enabling organizations to navigate challenges and ensure a resilient and efficient supply chain.
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The formula for a down-and-out call option V_D (S,t) is given by
V_DO (S,t) = C(S,t) − (S/Sd)^(1−2r/σ²) C(Sd²/S,t), (2.1)
where C(S,t) is the value of a vanilla call option with the same expiry and payoff as the barrier option. The down barrier is set at Sd. Show that (2.1) satisfies the Black-Scholes partial differential equation given by
∂V/∂t + 1/2 σ²S² ∂²V/∂S² + rS ∂V/∂S − rV = 0. (2.2)
S is the underlying asset price, t is time, r > 0 is the constant risk-free interest rate, σ > 0 is the constant volatility. Hint: Show that S^(1−2r/σ)² V(Y²/S,t) satisfies Black-Scholes for any Y, when V(S,t) satisfies (2.2).
Using the change of variables, V(S, t) = S^(1-2r/σ)² W(Y, t), we can show that S^(1-2r/σ)² V(Y²/S, t) satisfies the Black-Scholes equation:
∂(S^(1-2r/σ)² V(Y²/S, t))/∂t + 1/2 σ²S² ∂²(S^(1-2r/σ)² V(Y²/S, t))/∂S² + rS ∂(S^(1-2r/σ)² V(Y²/S, t))/∂S - r(S^(1-2r/σ)² V(Y²/S, t)) = 0.
To show that equation (2.1) satisfies the Black-Scholes partial differential equation (2.2), we'll first introduce a change of variables:
Let Y = Sd²/S.
We'll denote the value of the down-and-out call option as V_DO(S, t) and the value of the vanilla call option as C(S, t).
Using the change of variables, equation (2.1) becomes:
V_DO(S, t) = C(S, t) - (S/Sd)^(1-2r/σ²) C(Sd²/S, t) (2.1)
To show that (2.1) satisfies the Black-Scholes partial differential equation (2.2), we need to show that S^(1-2r/σ)² V(Y²/S, t) satisfies the Black-Scholes equation for any Y, given that V(S, t) satisfies (2.2).
Let's denote V(S, t) as V(S, t) = S^(1-2r/σ)² W(Y, t), where W(Y, t) is some function that we want to determine.
Using the change of variables, equation (2.2) becomes:
∂V/∂t + 1/2 σ²S² ∂²V/∂S² + rS ∂V/∂S - rV = 0
Substituting V(S, t) = S^(1-2r/σ)² W(Y, t):
∂(S^(1-2r/σ)² W(Y, t))/∂t + 1/2 σ²S² ∂²(S^(1-2r/σ)² W(Y, t))/∂S² + rS ∂(S^(1-2r/σ)² W(Y, t))/∂S - r(S^(1-2r/σ)² W(Y, t)) = 0
Expanding the derivatives:
(S^(1-2r/σ)² ∂W/∂t - 2r/σ S^(1-2r/σ) ∂S/∂t) + 1/2 σ²S² (S^(1-2r/σ)² ∂²W/∂S² - 2r/σ S^(1-2r/σ) ∂²S/∂S²) + rS (S^(1-2r/σ)² ∂W/∂S - 2r/σ S^(1-2r/σ) ∂S/∂S) - r(S^(1-2r/σ)² W(Y, t)) = 0
Simplifying and canceling terms:
S^(1-2r/σ)² (∂W/∂t + 1/2 σ² ∂²W/∂S² + r∂W/∂S - rW) - 2r/σ S^(1-2r/σ) (∂S/∂t + 1/2 σ² ∂²S/∂S² + r∂S/∂S) = 0
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Techcom is designing a new smartphone. Each unit of this new phone will require $231 of direct materials; $11 of direct labor: $24 of variable overhead; $19 of variable selling, general, and administrative costs: $32 of fixed overhead costs; and $11 of fixed selling. general, and administrative costs.
1. Compute the selling price per unit if the company uses the total cost method and plans a markup of 175% of total costs.
2. The company is a price-taker and the expected selling price for this type of phone is $810 per unit. Compute the target cost per uni if the company's target profit is 70% of expected selling price.
3. Compute the selling price per unit if the company uses the variable cost method and plans a markup of 200% of variable costs.
A Answer is not complete.
Complete this question by entering your answers in the tabs below.
Compute the selling price per unit if the company uses the Mriable cost method and plans a markup of 200% of variable costs.
1. Total variable costs per unit
2. Markup per unit
3. Selling price per unit
1. Total variable costs per unit if the company uses the total cost method and plans a markup of 175% of total costs is $328.
2. If the company's target profit is 70% of expected selling price and the expected selling price for this type of phone is $810 per unit, then the markup per unit will be $574 and the target cost per unit will be $2433.
3. The selling price per unit if the company uses the variable cost method and plans a markup of 200% of variable costs is $855.
1. Selling price per unit if the company uses the total cost method and plans a markup of 175% of total costs.
Direct materials per unit = $231
Direct labor per unit = $11
Variable overhead per unit = $24
Variable selling, general, and administrative costs per unit = $19
Total variable cost per unit = Direct materials + Direct labor + Variable overhead + Variable selling, general, and administrative costs
$231 + $11 + $24 + $19 = $285
Total cost per unit = Total variable cost per unit + Total fixed cost per unit
$285 + ($32 + $11) = $328
Therefore, total variable costs per unit if the company uses the total cost method and plans a markup of 175% of total costs is $328.
2. Markup per unit = Total cost per unit x Markup percentage
175% = 1.75
Markup per unit = $328 x 1.75 = $574
Selling price per unit = Total cost per unit + Markup per unit
$328 + $574 = $9022.
Target cost per unit if the company's target profit is 70% of expected selling price.
Expected selling price per unit = $810
Target profit percentage = 70%
Target profit per unit = Expected selling price x Target profit percentage
70% = 0.7
Target profit per unit = $810 x 0.7 = $567
Target cost per unit = Expected selling price per unit - Target profit per unit
$810 - $567 = $2433.
Therefore, the target cost per unit is $2433 with a markup per unit of $574.
3. Selling price per unit if the company uses the variable cost method and plans a markup of 200% of variable costs.
Direct materials per unit = $231
Direct labor per unit = $11
Variable overhead per unit = $24
Variable selling, general, and administrative costs per unit = $19
Total variable cost per unit = Direct materials + Direct labor + Variable overhead + Variable selling, general, and administrative costs
$231 + $11 + $24 + $19 = $285
Markup percentage = 200% = 2
Markup per unit = Total variable cost per unit x Markup percentage
Markup per unit = $285 x 2 = $570
Selling price per unit = Total variable cost per unit + Markup per unit$285 + $570 = $855
Therefore, the selling price per unit if the company uses the variable cost method and plans a markup of 200% of variable costs is $855.
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Here are simplified financial statements for Watervan Corporation: The company's cost of capital is 8.5%. Required: a. Calculate Watervan's economic value added (EVA). Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. b. What is the company's return on capital? (Use start-of-year rather than average capital.) Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. c. What is its return on equity? (Use start-of-year rather than average equity.) Note: Enter your answer as a percent rounded to 2 decimal places. d. Is the company creating value for its shareholders?
Previous question
a. Watervan Corporation's economic value added (EVA) is calculated to be $11.48 million.
b. The company's return on capital is 15.29%.
c. The return on equity for Watervan Corporation is 22.92%.
d. Yes, the company is creating value for its shareholders.
a) Calculation of Economic Value Added (EVA) EVA = Net Operating Profit After Tax - (Capital * Cost of Capital) EVA = $54m - (($500m - $200m) * 8.5%)EVA = $54m - ($300m * 8.5%)EVA = $54m - $25.5mEVA = $28.5m (in millions, rounded to 2 decimal places)
b) Calculation of Return on CapitalReturn on Capital = Operating Income / (Total Assets - Total Current Liabilities)
Return on Capital = $110m / ($500m - $200m)Return on Capital = $110m / $300mReturn on Capital = 36.67%
c) Calculation of Return on EquityReturn on Equity = Net Income / Total EquityReturn on Equity = $54m / $300mReturn on Equity = 18%
d) Answer to the question:Is the company creating value for its shareholders?
EVA > 0 indicates that the company is creating value for its shareholders. Here, the EVA of Watervan Corporation is $28.5m which is greater than zero. Thus, the company is creating value for its shareholders.
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With aid of practical examples. critically discuss the
policy and strategic matters which could be considered by a
contractor based on cost records.
Cost records play a crucial role in the decision-making process for contractors, enabling them to assess project profitability, control costs, and make informed strategic and policy decisions. Here are some policy and strategic matters that contractors could consider based on cost records:
Project Bidding and Pricing: Cost records provide valuable insights into the actual costs incurred on previous projects. Contractors can analyze these records to determine accurate project costs, identify cost drivers, and evaluate profit margins. This information helps in developing competitive bidding strategies and setting appropriate pricing for future projects. For example, if cost records reveal that a particular type of project consistently incurs higher costs than estimated, the contractor may adjust their bidding strategy to account for these factors.
Resource Allocation and Optimization: Cost records allow contractors to analyze the utilization and performance of various resources, such as labor, equipment, and materials. By identifying the most cost-effective resources and evaluating their productivity, contractors can make informed decisions regarding resource allocation. For instance, if cost records show that certain equipment consistently incurs high maintenance costs, the contractor may consider replacing or upgrading it to optimize operational efficiency and reduce long-term expenses.
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1. What would happen to inflation, GDP, unemployment and economic growth in the short run and the long run if we cut income taxes by 100 billion and the marginal propensity to consume (MPC) is equal to .75? Make sure to include the appropriate equation and an analysis of the impacts of C, I, G, Aggregate Demand, Aggregate Supply, inflation and economic growth.
2. To fight inflation
a) How should the government execute Fiscal Policy?
b) How should the Federal Reserve Bank execute Monetary Policy?
Make sure to include the appropriate graphs, equations, and analyze how these policies each affect C, I, G, Aggregate Demand, Aggregate Supply, inflation, Unemployment, GDP and economic growth.
3. If we increase government spending on education and infrastructure how will this impact AD/AS in the following. Make sure to include a Goods graph for each model.
a) Classical Model
b) Keynesian Model
c) Supply-side Model
In the short run, cutting income taxes by 100 billion with a marginal propensity to consume (MPC) of 0.75 would have several effects. The equation that represents the impact on aggregate demand (AD) is AD = C + I + G + (X - M). Given that MPC is 0.75, the tax cut would increase consumption (C) by 0.75 times the tax cut amount, resulting in a higher value for C. This increase in consumption would lead to a higher aggregate demand, which can stimulate GDP growth. However, the impact on inflation, unemployment, and economic growth will depend on other factors such as the state of the economy and the overall responsiveness of the economy to changes in aggregate demand.
To fight inflation using fiscal policy, the government can implement contractionary fiscal measures. This involves decreasing government spending (G) or increasing taxes (T) to reduce aggregate demand and curb inflationary pressures. Graphically, this would shift the aggregate demand curve to the left, leading to lower output, lower inflation, and potentially higher unemployment.
To fight inflation using monetary policy, the Federal Reserve Bank can implement contractionary monetary measures. This involves increasing interest rates and reducing the money supply to decrease aggregate demand. Higher interest rates would reduce consumption (C) and investment (I) and decrease aggregate demand. Graphically, this would result in a leftward shift of the aggregate demand curve, leading to lower output, lower inflation, and potentially higher unemployment.
When government spending on education and infrastructure is increased, it can impact AD/AS in different ways depending on the economic model.
In the classical model, an increase in government spending on education and infrastructure would lead to a shift in the aggregate supply (AS) curve. As education and infrastructure enhance productivity and potential output, the AS curve would shift to the right. This would result in increased GDP and potentially lower inflation.
In the Keynesian model, an increase in government spending would directly increase aggregate demand (AD). This increase in AD would lead to higher GDP, increased employment, and potentially higher inflation.
In the supply-side model, an increase in government spending on education and infrastructure can have positive supply-side effects. By improving human capital and physical infrastructure, it can enhance productivity and long-term economic growth. This would result in a rightward shift of the aggregate supply (AS) curve, leading to increased output and potentially lower inflation.
Graphically, the impact of increased government spending on education and infrastructure would depend on the specific shifts of the AD and AS curves in each model, resulting in different outcomes for GDP, inflation, and other economic variables.
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The Nelson Company has $1,147,500 in current assets and $425,000 in current liabilities. Its initial inventory level is $340,000, and it will raise funds as additional notes payable and use them to increase inventory.
1) How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 1.6? Round your answer to the nearest cent.
2)What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds? Round your answer to two decimal places.
1) Nelson's short-term debt (notes payable) can increase by $397,500 without pushing its current ratio below 1.6.
2) The firm's quick ratio after raising the maximum amount of short-term funds will be 0.80.
1) To calculate how much Nelson's short-term debt can increase without pushing its current ratio below 1.6, we need to first determine the current ratio. The current ratio is calculated by dividing current assets by current liabilities.
Current ratio = Current assets / Current liabilities
= $1,147,500 / $425,000
= 2.70
Next, we need to determine the maximum amount of additional notes payable that can be raised without pushing the current ratio below 1.6. We can do this by rearranging the current ratio formula:
Current ratio = (Current assets + Additional notes payable) / Current liabilities
Substituting the given values, we have:
1.6 = ($1,147,500 + Additional notes payable) / $425,000
Solving for Additional notes payable:
$1,147,500 + Additional notes payable = 1.6 * $425,000
Additional notes payable = 1.6 * $425,000 - $1,147,500
Additional notes payable = $680,000 - $1,147,500
Additional notes payable = -$467,500
Since the result is negative, it means that Nelson cannot raise any additional notes payable without pushing its current ratio below 1.6.
2) The quick ratio is a measure of a firm's ability to pay off its current liabilities without relying on the sale of inventory. It is calculated by subtracting inventory from current assets and dividing the result by current liabilities.
Quick ratio = (Current assets - Inventory) / Current liabilities
= ($1,147,500 - $340,000) / $425,000
= $807,500 / $425,000
= 1.90
Since Nelson plans to raise funds as additional notes payable and use them to increase inventory, the inventory will increase. Therefore, the quick ratio will decrease.
To determine the firm's quick ratio after raising the maximum amount of short-term funds, we need to subtract the maximum amount of additional notes payable from current assets and subtract the resulting inventory from current assets. We then divide the result by current liabilities.
New quick ratio = ($1,147,500 - $467,500 - $340,000) / $425,000
= $340,000 / $425,000
= 0.80
Thus, the firm's quick ratio after Nelson has raised the maximum amount of short-term funds will be 0.80.
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why is adhd considered to be a controversial diagnosis?
ADHD is considered controversial due to varying opinions on its overdiagnosis, potential misuse of medication, lack of objective diagnostic tests, and debates over its classification as a disorder rather than a normal variation of human behavior.
ADHD is controversial because there are differing viewpoints on its prevalence and diagnosis. Some argue that it is overdiagnosed and that medication is overprescribed, leading to concerns about potential misuse. Additionally, there is no definitive objective test for ADHD, relying instead on subjective assessments. There are debates over whether ADHD is a valid disorder or simply a normal variation in human behavior. These factors contribute to the controversy surrounding ADHD as a diagnosis.
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checklists for documentation should include all of the following except
The item that should be excluded from checklists for documentation is the inclusion of personal opinions. Here option E is the correct answer.
Checklists for documentation serve as a guide to ensure the quality, accuracy, and effectiveness of written materials. They help maintain consistency and professionalism in the documentation process.
Comprehensive information coverage: The documentation should provide all the necessary and relevant information to fulfill its purpose. It should be complete and cover all important aspects.
Proper grammar and spelling: Documentation should be free from grammatical errors, typos, and spelling mistakes to enhance readability and credibility.
Clear organization and structure: The information should be logically organized and presented in a clear and structured manner. This aids in comprehension and makes the document easier to navigate. Therefore option E is the correct answer.
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Complete question:
Which of the following should be excluded from checklists for documentation?
A) Comprehensive information coverage
B) Proper grammar and spelling
C) Clear organization and structure
D) Timely updates and revisions
E) Inclusion of personal opinions
Which type of accounting change may be accounted for in current and future periods only?
O correction of an error
O change in accounting policy
O change in inventory costing method
O change in accounting estimate
The type of accounting change that may be accounted for in current and future periods only is a change in accounting estimate.
A change in accounting estimate occurs when there is a revision to an estimate used in the preparation of financial statements. This could be due to new information, additional experience, or changes in circumstances that result in a revision to the estimate's amount or timing. Examples include changes in the useful life of an asset, the expected collectability of receivables, or the assessment of contingent liabilities.
When a change in accounting estimate occurs, it is applied prospectively, meaning it affects the current and future periods but does not require restatement of prior period financial statements. The effect of the change is recognized in the period of the change and future periods, but it does not adjust previously reported financial statements. Therefore, a change in accounting estimate is accounted for in current and future periods only.
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In January, gross earnings in Vaughn Company were \$114,000. All earnings are subject to 7.65% FICA taxes. Federal income tax withheld was $16,500, and state income tax withheld was $2,000.
Calculate net pay for January. Net pay for January $ Record the payroll. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
To calculate the net pay for January in Vaughn Company, we need to consider the deductions for FICA taxes, federal income tax, and state income tax.
First, we calculate the FICA taxes by multiplying the gross earnings by the FICA tax rate (7.65%):
FICA taxes = Gross earnings * 7.65% = $114,000 * 7.65% = $8,751
Next, we deduct the federal income tax withheld and state income tax withheld from the gross earnings:
Net pay = Gross earnings - FICA taxes - Federal income tax withheld - State income tax withheld
Net pay = $114,000 - $8,751 - $16,500 - $2,000
Net pay = $86,749
Therefore, the net pay for January in Vaughn Company is $86,749.
To record the payroll, the journal entry would be as follows:
Date: January
Account Debit Credit
Salaries Expense 86,749
FICA Taxes Payable 8,751
Federal Income Tax Payable 16,500
State Income Tax Payable 2,000
Cash 86,749
Explanation: The salaries expense is debited for the net pay amount, representing the company's expense. FICA taxes payable is credited for the FICA taxes withheld from the employees' earnings. Federal income tax payable and state income tax payable are credited for the respective tax amounts withheld. Finally, cash is credited for the net pay amount, representing the payment made to the employees.
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"Customer value is subjective but drives the success/failure of
any service organization" make a brief discussion on this
statement.
The statement "Customer value is subjective but drives the success/failure of any service organization" highlights the significance of understanding and delivering value from the customer's perspective. Customer value refers to the perceived benefits or worth that a customer derives from a product or service.
While customer value is subjective and can vary from person to person, it plays a crucial role in determining the success or failure of a service organization.
To achieve success, service organizations need to align their offerings with the needs, preferences, and expectations of their target customers. By understanding and addressing the unique value drivers of their customer base, organizations can tailor their services to meet customer demands effectively. This involves delivering exceptional experiences, personalized solutions, quality, convenience, reliability, and other factors that customers consider valuable.
Failing to provide value can result in customer dissatisfaction, reduced loyalty, negative word-of-mouth, and ultimately, the decline of the service organization. Therefore, service organizations must continuously strive to identify and enhance the value they offer to customers, adapting their strategies and offerings to meet changing customer preferences and market dynamics. By focusing on delivering customer value, organizations can differentiate themselves, build strong customer relationships, and ultimately drive their success.
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Use an example to define CRM and list its benefits to digital marketers? Define A/B testing and list examples of where it can be used in the digital world?Select a particular brand or product. What criteria would you consider to write effective copy for ad search. Identify three key words and three key phrases that you would incorporate
CRM stands for customer relationship management. It is a strategy that businesses use to manage their interactions with customers. It involves the use of technology to organize, automate, and synchronize sales, marketing, customer service, and technical support processes to enhance customer experience and increase customer satisfaction. One example of a CRM tool is Salesforce. The benefits of CRM to digital marketers include:
Personalization: CRM helps digital marketers personalize their marketing messages and content to better target their audience and deliver relevant content.
Improved customer service: With CRM, businesses can track customer interactions and issues, and respond to them in a timely manner, leading to better customer service and satisfaction.
Increased sales: CRM provides insights into customer preferences and behavior, allowing digital marketers to identify potential customers and tailor their messaging to them, which can lead to increased sales.
A/B testing, also known as split testing, is a method used to test different variations of a website or marketing campaign to determine which version performs better. It involves randomly showing different versions of a website or campaign to different groups of people and measuring their response. Examples of where A/B testing can be used in the digital world include:
Email subject lines: Digital marketers can test different email subject lines to determine which one leads to higher open rates.
Landing pages: Marketers can test different landing page designs, calls to action, and messaging to determine which one leads to higher conversion rates.
Ad copy: Advertisers can test different ad copy to determine which one leads to higher click-through rates.
When writing effective ad copy, digital marketers should consider the following criteria:
Target audience: The ad copy should be tailored to the target audience's needs and preferences.
Key benefits: The ad copy should highlight the key benefits of the product or service being advertised.
Call to action: The ad copy should include a clear call to action that tells the viewer what to do next.
Three key words and phrases that could be incorporated into the ad copy for a product like Nike sneakers could be:
Key words: Sneakers, comfort, style
Key phrases: "Get comfortable in style with Nike sneakers," "The perfect sneakers for every occasion," "Experience comfort and style with Nike sneakers."
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As cost competitiveness increases, multinationals should move from _____ strategy. I. Localization to transnational II. Internationalization to global standardization III. Global standardization to localization
As cost competitiveness increases, multinationals should move from global standardization to localization strategy.
Global standardization is a strategy that focuses on producing a standardized product or service that can be sold in multiple countries with minimal modification. This strategy can be effective in reducing costs, but it can also lead to a loss of flexibility and responsiveness to local market needs.
Localization is a strategy that focuses on adapting products or services to the specific needs of each local market. This strategy can be more expensive than global standardization, but it can also lead to greater customer satisfaction and market share.
In a competitive environment, where cost competitiveness is increasing, multinationals need to be able to adapt their products or services to meet the needs of local markets. This means moving away from a global standardization strategy and towards a localization strategy.
Here are some of the benefits of moving from global standardization to localization:
Increased customer satisfaction: Localizing products or services can help to ensure that they meet the needs of local customers. This can lead to increased customer satisfaction and loyalty.
Increased market share: By tailoring products or services to local markets, multinationals can increase their market share in those markets.
Improved brand image: A localized brand image can be more appealing to local customers. This can lead to increased brand awareness and sales.
Of course, there are also some challenges associated with localization, such as the increased cost of production and the need to manage multiple product lines. However, the benefits of localization can outweigh the challenges in many cases.
In conclusion, as cost competitiveness increases, multinationals should move from global standardization to localization strategy. This will help them to adapt their products or services to the needs of local markets and improve their customer satisfaction, market share, and brand image.
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Stephens Marine Repair is trying to establish the standard labor cost of a typical watercooling pump repair. The following data have been collected from time and motion studies conducted over the past month.
Actual time spend on pump repair 1.75 hours
Hourly wage rate $24.00
Payroll taxes 10% of wage rate
Onsite setup and downtime 5% of actual labor time
Final adjustments and testing 10% of actual labor time
Fringe benefits 20% of wage rate
Required
(a) Determine the standard direct labor hours per pump repair
(b) Determine the standard direct labor hourly rate.
(c) Determine the standard direct labor cost per pump repair.
(d) If a pump repair took 1.75 hours at the standard hourly rate, what was the
a) The standard direct labor hours per pump repair is 2.0125 hours b) standard direct labor hourly rate is $31.20 c) standard direct labor cost per pump repair is $62.70 d) the standard direct labor cost is $54.60.
(a) To determine the standard direct labor hours per pump repair, we need to account for the actual time spent on pump repair and the additional time for onsite setup, downtime, final adjustments, and testing.
Actual time spent on pump repair: 1.75 hours
Onsite setup and downtime: 5% of actual labor time = 0.05 * 1.75 = 0.0875 hours
Final adjustments and testing: 10% of actual labor time = 0.10 * 1.75 = 0.175 hours
Standard direct labor hours per pump repair:
Actual labor time + Onsite setup and downtime + Final adjustments and testing
= 1.75 + 0.0875 + 0.175
= 2.0125 hours
(b) To determine the standard direct labor hourly rate, we need to consider the hourly wage rate, payroll taxes, and fringe benefits.
Hourly wage rate: $24.00
Payroll taxes: 10% of wage rate = 0.10 * $24.00 = $2.40
Fringe benefits: 20% of wage rate = 0.20 * $24.00 = $4.80
Standard direct labor hourly rate:
Hourly wage rate + Payroll taxes + Fringe benefits
= $24.00 + $2.40 + $4.80
= $31.20
(c) To determine the standard direct labor cost per pump repair, we multiply the standard direct labor hours per pump repair by the standard direct labor hourly rate.
Standard direct labor hours per pump repair: 2.0125 hours
Standard direct labor hourly rate: $31.20
Standard direct labor cost per pump repair:
Standard direct labor hours per pump repair * Standard direct labor hourly rate
= 2.0125 * $31.20
= $62.70
(d) If a pump repair took 1.75 hours at the standard hourly rate, we can calculate the standard direct labor cost for that repair.
Standard direct labor cost per pump repair: $62.70
Actual labor time for the repair: 1.75 hours
Standard direct labor cost for the pump repair:
Actual labor time * Standard direct labor hourly rate
= 1.75 * $31.20
= $54.60
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From the following details relating to Asha traders for the year ending 31st March 2000, you are required to calculate ratios reflecting their liquidity position ( Current ratio, acid test ratio and super quick ratio)
Rs
sundry debtors 50,000
cash in hand 40,000
cash at bank 60,000
Trade investments 20,000
Bills recievables 30,000
Prepaid expenses 10,000
Closing stock 80,000
Current assets 2,90,000
Sundry creditors 40,000
Bills Payable 30,000
Outstanding expenses 2500
Current liabilities 72,500
The super quick ratio for Asha Traders is approximately 2.7586. The acid test ratio is approximately 2.8966, which suggests that they can meet their short-term obligations even after excluding inventory.
The liquidity ratios for Asha Traders, we will need to use the given information about their current assets and liabilities. The three ratios we will calculate are the current ratio, acid test ratio, and super quick ratio.
1. Current Ratio:
The current ratio measures the ability of a company to meet its short-term obligations. It is calculated by dividing current assets by current liabilities.
Current Assets = Sundry debtors + Cash in hand + Cash at bank + Trade investments + Bills receivables + Prepaid expenses + Closing stock
= 50,000 + 40,000 + 60,000 + 20,000 + 30,000 + 10,000 + 80,000
= 2,90,000
Current Liabilities = Sundry creditors + Bills payable + Outstanding expenses
= 40,000 + 30,000 + 2,500
= 72,500
Current Ratio = Current Assets / Current Liabilities
= 2,90,000 / 72,500
= 4
The current ratio for Asha Traders is 4.
2. Acid Test Ratio:
The acid test ratio, also known as the quick ratio, measures a company's ability to pay off its current liabilities using its most liquid assets. It is calculated by excluding inventory from current assets in the current ratio formula.
Quick Assets = Current Assets - Closing Stock
= 2,90,000 - 80,000
= 2,10,000
Acid Test Ratio = Quick Assets / Current Liabilities
= 2,10,000 / 72,500
= 2.8966 (rounded to four decimal places)
The acid test ratio for Asha Traders is approximately 2.8966.
3. Super Quick Ratio:
The super quick ratio is an enhanced version of the acid test ratio that further excludes prepaid expenses from quick assets. It provides a more conservative measure of liquidity.
Super Quick Assets = Quick Assets - Prepaid Expenses
= 2,10,000 - 10,000
= 2,00,000
Super Quick Ratio = Super Quick Assets / Current Liabilities
= 2,00,000 / 72,500
= 2.7586 (rounded to four decimal places)
The super quick ratio for Asha Traders is approximately 2.7586.
we can conclude that Asha Traders has a current ratio of 4, indicating that they have sufficient current assets to cover their current liabilities. The acid test ratio is approximately 2.8966, which suggests that they can meet their short-term obligations even after excluding inventory. The super quick ratio, excluding both inventory and prepaid expenses, is approximately 2.7586, providing a more conservative measure of their liquidity position. Overall, these ratios indicate a healthy liquidity position for Asha Traders.
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