a. The projects' NPVs assuming the WACC is 5% is:
Project A $1.66 million
Project B $3.25 million
The projects' NPVs assuming the WACC is 10% is:
Project A $0.93 million
Project B $2.18 million
The projects' NPVs assuming the WACC is 15% is:
Project A $0.37 million
Project B $1.32 million
The projects' IRRs assuming the WACC is 5% is:
Project A 5.25%
Project B 8.02%
The projects' IRRs assuming the WACC is 10% is:
Project A 9.45%
Project B 12.41%
The projects' IRRs assuming the WACC is 15% is:
Project A 14.15%
Project B 17.42%
The present value of $6,000 per year for 11 years at an interest rate of 5.3% is $60,106.76.
The monthly payment for a $550,000 loan with an annual interest rate of 4.2% over a 30-year term would be $2,625.99.
The loan amortization schedule for a $50,000 loan with 4 equal payments at the end of each of the next 4 years with a 4.8% interest rate compounded annually would be as follows:
Year 1: Principal Paid - $11,910.60, Interest Paid - $3,126.00, Remaining Balance - $38,089.40
Year 2: Principal Paid - $13,132.72, Interest Paid - $2,454.88, Remaining Balance - $24,956.68
Year 3: Principal Paid - $14,711.82, Interest Paid - $1,775.78, Remaining Balance - $10,244.86
Year 4: Principal Paid - $10,244.86, Interest Paid - $1,087.70, Remaining Balance - $0.00
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Following are the financial statements of AB Ltd. for 2019. 3.400 400 1.200 200 500 100 600 400 500 102 Balance sheet (s in millions) Assets 2019 Liabilities and 2019 owners' equity Current assets: Current liabilities: Cash Accounts payable Accounts receivable Bills payable Inventory Total current liabilities Total current assets 1.100 Long-term liabilities: Long-term debt Fixed assets: Total long-term liabilities Property, plant, and 2.400 Shareholders' funds: equipment Less: Accumulated 2.100 Equity share capital depreciation (si per share) Net fixed assets Reserves & Surplus Total owners' equity 700 1.496 200 10 200 Income statement (S in millions) 2019 Sales Cost of goods sold Office and selling expenses Depreciation Earnings before interest and taxes Interest expense Earnings before taxes Taxes Net income Dividends Transfer to reserves and surplus Other information Number of shares Outstanding (millions) Price per share 1.488 607 881 200 635 300 500 246 Total assets 200 1.400 1.400 Total liability and owners' equity 7.31 A. From the aforementioned table, calculate the following: 1. Current Ratio 2. Acid-Test Ratio 3. Receivables Turnover 4. Inventory turnover 5. Debt Ratio 6. Equity Ratio 7. Debt to Equity Ratio 8. Times Interest Earned 9. Gross Profit Rate 10. Operating Profit Margin 11. Net Profit Margin 12. Return on Assets
Based on the data provided, 1. Current Ratio = 1.83 2. Acid-Test Ratio = 1.17 3. Receivables Turnover = 7.44 4. Inventory Turnover = 2.20 5. Debt Ratio = 0.57 6. Equity Ratio = 0.50 7. Debt to Equity Ratio = 1.14 8. Times Interest Earned = 6.35 9. Gross Profit Rate = 0.41 10. Operating Profit Margin = 0.43 11. Net Profit Margin = 0.17 12. Return on Assets = 0.18.
Based on the data provided in the table, the required measures are calculated using relevant formulas.
1. Current Ratio = Current Assets / Current Liabilities = 1,100 / 600 = 1.83
2. Acid-Test Ratio = (Current Assets - Inventory) / Current Liabilities = (1,100 - 400) / 600 = 1.17
3. Receivables Turnover = Sales / Accounts Receivable = 1,488 / 200 = 7.44
4. Inventory Turnover = Cost of Goods Sold / Inventory = 881 / 400 = 2.20
5. Debt Ratio = Total Liabilities / Total Assets = (600 + 200) / 1,400 = 0.57
6. Equity Ratio = Total Owners' Equity / Total Assets = 700 / 1,400 = 0.50
7. Debt to Equity Ratio = Total Liabilities / Total Owners' Equity = (600 + 200) / 700 = 1.14
8. Times Interest Earned = Earnings Before Interest and Taxes / Interest Expense = 635 / 100 = 6.35
9. Gross Profit Rate = (Sales - Cost of Goods Sold) / Sales = (1,488 - 881) / 1,488 = 0.41
10. Operating Profit Margin = Earnings Before Interest and Taxes / Sales = 635 / 1,488 = 0.43
11. Net Profit Margin = Net Income / Sales = 246 / 1,488 = 0.17
12. Return on Assets = Net Income / Total Assets = 246 / 1,400 = 0.18
All of these ratios provide insight into the financial health and performance of AB Ltd. The current ratio and acid-test ratio indicate the company's ability to pay its short-term liabilities, while the receivables turnover and inventory turnover ratios provide insight into the company's efficiency in managing its assets.
The debt ratio, equity ratio, and debt to equity ratio provide information about the company's capital structure and its reliance on debt financing. The times interest earned ratio measures the company's ability to meet its interest payments on debt. The gross profit rate, operating profit margin, and net profit margin provide insight into the company's profitability. Finally, the return on assets ratio measures the company's ability to generate income from its assets.
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Problem 1: Littlewoods Rule (10 points) A newly created AirRarotonga flight from Rarotonga to Aitutaki has 20 seats. The high fare on the flight is $800 and the restricted/low fare is $300. There is ample demand for the low fare class, but high fare demand is random. Further, the customers who buy low fares buy their tickets well in advance before high fare customers. Assume the demand d for the high fare is distributed according to the following discrete probability distribution: 16 demand al 0 21 31 Probid 0.005 0.005 0.01 0.05 51 0.11 61 02 011 71 81 91 10 11 12131 14 151 0.2 0.15 0.05 0.04 0.03 0.02 0.015 0,015 0.01 When answering the following questions, show your calculations. a. Mr. Wright is in charge of the flight booking operations and decides to set a protection level for the high fare. What is the optimal protection level for the high fare? (2 points) b. Suppose a protection level of 8 is chosen. How many high fare passengers does the airline expect to turn away due to a lack of capacity? (2 points) c. Suppose a protection level of 8 is chosen. How many seats are expectedly empty at departure? (2 points) d. Assuming a protection level of 8, what is the total expected revenue for low and high fare passengers? Write down your analytical calculation. (2 points) e. Suggest two reasonable extensions to the optimization model that is underlying Littlewood's rule and motivate your suggestion. What challenges do you expect with these extensions? (2 points)
a.) The rule states that the protection level should be the maximum demand for the high fare class minus one.
b.) The airline can expect to turn away 8 high fare passengers due to lack of capacity.
c.) The airline can expect 12 seats to be empty at departure
d.) The total expected revenue for low and high fare passengers
e.) Additional factors such as seasonality, weather and additional variables.
a. Mr. Wright is in charge of the flight booking operations and decides to set a protection level for the high fare. What is the optimal protection level for the high fare? (2 points)
The optimal protection level for the high fare can be determined by using Littlewood's rule. This rule states that the protection level should be the maximum demand for the high fare class minus one. In this case, the maximum demand for the high fare is 16, therefore the optimal protection level for the high fare is 15.
b. Suppose a protection level of 8 is chosen. How many high fare passengers does the airline expect to turn away due to a lack of capacity? (2 points)
Given a protection level of 8, the airline can expect to turn away 8 high fare passengers due to lack of capacity.
c. Suppose a protection level of 8 is chosen. How many seats are expectedly empty at departure? (2 points)
Given a protection level of 8, the airline can expect 12 seats to be empty at departure (20 total seats - 8 protection level = 12 empty seats).
d. Assuming a protection level of 8, what is the total expected revenue for low and high fare passengers? Write down your analytical calculation. (2 points)
Assuming a protection level of 8, the total expected revenue for low and high fare passengers can be calculated using the following formula:
Expected Revenue = (Low Fare Demand * Low Fare Price) + (High Fare Demand * High Fare Price)
Therefore, the total expected revenue is:
(16 * $300) + (8 * $800) = $7,200
e. Suggest two reasonable extensions to the optimization model that is underlying Littlewood's rule and motivate your suggestion. What challenges do you expect with these extensions? (2 points)
Two reasonable extensions to the optimization model underlying Littlewood's rule are:
1. Taking into account additional factors such as seasonality, weather, or availability of competitors' flights. This would provide more comprehensive insights into the demand for high fare class and would enable the airline to make better decisions about the protection level.
2. Introducing additional variables such as the cost of each additional seat sold beyond the protection level, or the expected lost revenue for each additional seat turned away due to the lack of capacity. This would allow the airline to make more informed decisions when setting the protection level.
The main challenge with these extensions would be obtaining accurate data on all the additional factors, as well as ensuring the accuracy of the calculations.
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A company running a fleet of delivery trucks depreciates them on the basis of how many thousands of miles they actually cover each year, compared to how many miles they are expected to cover during their useful life. Which method of depreciation is the company using? a. Declining salvage value method b. Straight-line method c. Accelerated method d. Units of production method Bookmark for review
The company is using the units of production method of depreciation. This method calculates depreciation based on the actual usage of the asset, in this case, the number of miles covered by the delivery trucks.
The depreciation expense is calculated by dividing the cost of the asset minus its salvage value by the total number of units it is expected to produce during its useful life, and then multiplying that by the number of units produced in the current period. This method is commonly used for assets that are expected to have a varying level of usage throughout their useful life, such as delivery trucks or machinery. For example, the depreciation expense for a truck that is expected to cover 100,000 miles over its useful life would be based on how many miles the truck actually covers over the course of a year.
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Suppose that an investor believes that a large stock price movement may soon occur, but does not confidently know the direction. Discuss the possible profitable alternatives in option spreads and combinations
One profitable alternative in option spreads and combinations for an investor who believes that a large stock price movement may soon occur but does not confidently know the direction is to use a straddle.
Another profitable alternative is to use a strangle, which is similar to a straddle but involves buying a call option and a put option with different strike prices.
This strategy can also allow the investor to profit from a large price movement in either direction, but it typically requires a larger price movement to be profitable than a straddle.
A third profitable alternative is to use a butterfly spread, which involves buying a call option and a put option with different strike prices and selling two options with a strike price in between.
This strategy can allow the investor to profit from a moderate price investment in either direction.
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Kathy Company has declared a dividend of $2.5 per share for the current year. The company has been and is still following a policy of enhancing its dividends by 10 percent every year. An investor who is considering the purchase of the shares of this company has a required rate of return, also known as the discounted rate of 15 percent. What would be the intrinsic value of Kathy’s share?
The intrinsic value of Kathy's share is $50.
The intrinsic value of Kathy's share can be calculated using the Dividend Discount Model (DDM), which is a way of valuing a company's stock based on the present value of its future dividends. The formula for the DDM is:
Intrinsic Value = Dividend per Share / (Required Rate of Return - Dividend Growth Rate)
In this case, the dividend per share is $2.5, the required rate of return is 15%, and the dividend growth rate is 10%. Plugging these values into the formula gives:
Intrinsic Value = $2.5 / (0.15 - 0.10)
Intrinsic Value = $2.5 / 0.05
Intrinsic Value = $50
Therefore, the intrinsic value of Kathy's share is $50.
It is important to note that the intrinsic value is an estimate and may not reflect the actual market value of the share. However, it can be used as a reference point for investors when making decisions about buying or selling shares.
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Q7. Consider a project with free cash flow in one year of $130,357 or $198,216, with either outcome being equally likely. The initial investment required for the project is $105,000, and the project's cost of capital is 17%. The risk-free interest rate is 12%.
(Assume no taxes or distress costs.)
a. What is the NPV of this project?
b. Suppose that to raise the funds for the initial investment, the project is sold to investors as an all-equity firm. The equity holders will receive the cash flows of the project in one year. How much money can be raised in this way—that is, what is the initial market value of the unlevered equity? c. Suppose the initial $105,000 is instead raised by borrowing at the risk-free interest rate. What are the cash flows of the levered equity, and what is its initial value according to M&M?
A. The NPV of this project can be calculated:
Calculate the expected cash flow by taking the average of the two possible outcomes:
= ($130,357 + $198,216) / 2 = $164,286.50
Discount the expected cash flow by the project's cost of capital:
= $164,286.50 / (1 + 0.17) = $140,414.10
Subtract the initial investment from the discounted cash flow to get the NPV:
= $140,414.10 - $105,000 = $35,414.10
B. The initial market value of the unlevered equity can be calculated by simply taking the NPV of the project, since the equity holders will receive the entire cash flow of the project. Therefore, the initial market value of the unlevered equity is $35,414.10.
C. If the initial investment is raised by borrowing at the risk-free interest rate, the cash flows of the levered equity will be the expected cash flow minus the amount that needs to be repaid on the loan.
The amount that needs to be repaid on the loan is the initial investment plus the interest on the loan:
= $105,000 + ($105,000 x 0.12) = $117,600.
Therefore, the cash flows of the levered equity are $164,286.50 - $117,600 = $46,686.50. The initial value of the levered equity according to M&M is the present value of these cash flows, discounted by the cost of capital: $46,686.50 / (1 + 0.17) = $39,907.26.
Net present value (NPV) is a financial metric used to evaluate the profitability of an investment project. It is the difference between the present value of cash inflows generated by the project and the present value of cash outflows associated with the project.
The calculation of NPV involves discounting future cash flows to their present value using a discount rate. The discount rate is typically the company's cost of capital, which represents the minimum rate of return required by the company's investors to invest in the project.
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A company has the following cash flow:
Period C0= -1000
Period C1= +500
Period C2= -100
Period C3= +600
Should the company invest in the
project if cost of capital is 5%?
Yes, if the cost of capital is 5% and NPV the company is greater than 0, so the company should invest in the project. This is because the return on investment is positive.
To determine whether a company should invest in a project, it needs to calculate the net present value (NPV) of the project. NPV is the difference between the present value of cash inflows and the present value of cash outflows over a period of time.
You can calculate NPV using the following formula:
Current value = C0 + (C1 / (1+r)^1) + (C2 / (1+r)^2) + (C3 / (1+r)^3)where:
C0 = initial investmentC1, C2, C3 = cash flows for periods 1, 2, and 3r = cost of capitalInsert the question value:
Present value = -1000 + (500 / (1+0.05)^1) + (-100 / (1+0.05)^2) + (600 / (1+0.05)^3)Present Value = -1000 + 476.19 + (-90.70) + 518.71NPV = -95.80.
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a.What is the current situation of the public pension plan systems in the U.S.?
b. Why does the media claim that the public pension plan is in crisis? What is your opinion? Explain your position in detail.
The current situation of the public pension plan systems in the U.S. is that they are facing financial challenges due to the aging population, low investment returns, and inadequate funding.
Many public pension plans are underfunded, meaning that they do not have enough assets to meet their future obligations to retirees
The Answer for Question BThe media claims that the public pension plan is in crisis because of the financial challenges mentioned above. Many experts believe that if these challenges are not addressed, the public pension plans may not be able to meet their obligations to retirees in the future. This could result in reduced benefits for retirees or an increased burden on taxpayers to fund the plans.
My opinion is that it is important for policymakers to address the financial challenges facing public pension plans in order to ensure that retirees receive the benefits they have been promised and that taxpayers are not overly burdened. This may require difficult decisions, such as increasing contributions to the plans or reducing benefits, but it is necessary to ensure the long-term sustainability of the public pension system.
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The WACC is used as the discount rate to evaluate various capital budgeting projects. However, it is important to realize that the WACC is an appropriate discount rate only for a project of average risk.
Analyze the cost of capital situations of the following company cases, and answer the specific questions that finance professionals need to address. Consider the case of Turnbull Co. Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 8.2%, and its cost of preferred stock is 9.3%. If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 12.4%. However, if it is necessary to raise new common equity, it will carry a cost of 14.2%. If its current tax rate is 40%, how much higher will Turnbull's weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings? 0.64% 0.58% 0.83% 0.80% Turnbull Co. is considering a project that requires an initial investment of $570,000. The firm will raise the $570,000 in capital by issuing $230,000 of debt at a before-tax cost of 9.6%, $20,000 of preferred stock at a cost of 10.7%, and $320,000 of equity at a cost of 13.5%. The firm faces a tax rate of 40%. What will be the WACC for this project? Consider the case of Kuhn Co. Kuhn Co. is considering a new project that will require an initial investment of $4 million. It has a target capital structure of 45% debt, 4% preferred stock, and 51% common equity. Kuhn has noncailable bonds outstanding that mature in 15 years with a face value of $1,000, an annual coupon rate of 11%, and a market price of $1,555.38. The yield on the company's current bonds is a good approximation of the yield on any new bonds that it issues. The company can sell shares of preferred stock that pay an annual dividend of $8 at a price of $95.70 per share. Kuhn does not have any retained earnings available to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently selling for $33.35 per share, and it is expected to pay a dividend of $1.36 at the end of next year. Flotation costs will represent 8% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 9.2%, and they face a tax rate of 40%. Determine what Kuhn Company's WACC will be for this project.
For Turnbull Co., the WACC will be higher if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings. Therefore, Kuhn Company's WACC for this project will be 8.76%.
To calculate the difference in WACC, we can use the formula WACC = (wd * kd * (1 - T)) + (wp * kp) + (we * ke), where wd, wp, and we are the weights of debt, preferred stock, and common equity, respectively; kd, kp, and ke are the costs of debt, preferred stock, and common equity, respectively; and T is the tax rate.
If Turnbull raises all of its equity capital from retained earnings, its WACC will be:
WACC = (0.58 * 0.082 * (1 - 0.4)) + (0.06 * 0.093) + (0.36 * 0.124) = 0.0836 or 8.36%
If Turnbull has to raise new common equity, its WACC will be:
WACC = (0.58 * 0.082 * (1 - 0.4)) + (0.06 * 0.093) + (0.36 * 0.142) = 0.0900 or 9.00%
The difference in WACC is 0.0900 - 0.0836 = 0.0064 or 0.64%. Therefore, the correct answer is 0.64%.
For the project that Turnbull Co. is considering, the WACC can be calculated using the same formula:
WACC = (0.230/0.570 * 0.096 * (1 - 0.4)) + (0.020/0.570 * 0.107) + (0.320/0.570 * 0.135) = 0.1052 or 10.52%
For Kuhn Co., the WACC can also be calculated using the same formula. However, we need to first calculate the cost of debt, preferred stock, and common equity. The cost of debt can be calculated using the formula kd = (C/P) + (F - P)/n, where C is the annual coupon payment, P is the market price, F is the face value, and n is the number of years to maturity. The cost of preferred stock can be calculated using the formula kp = D/P, where D is the annual dividend and P is the market price. The cost of common equity can be calculated using the formula ke = (D1/P0) + g, where D1 is the expected dividend at the end of next year, P0 is the current market price, and g is the growth rate.
The cost of debt for Kuhn Co. is:
kd = (0.11 * 1000)/1555.38 + (1000 - 1555.38)/15 = 0.0708 or 7.08%
The cost of preferred stock for Kuhn Co. is:
kp = 8/95.70 = 0.0836 or 8.36%
The cost of common equity for Kuhn Co. is:
ke = (1.36/33.35) + 0.092 = 0.1334 or 13.34%
The WACC for Kuhn Co. is:
WACC = (0.45 * 0.0708 * (1 - 0.4)) + (0.04 * 0.0836) + (0.51 * 0.1334) = 0.0876 or 8.76%
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Brains Inc., and Zombies Inc., are in direct competition selling attenuators. Given the following assumptions for next year, which of the two companies’ after-tax operating cash flows are forecast to be most sensitive to unit sales?
Forecast for next year Brains Zombies
Unit Sales (000) 10,428 4,296 Price per Unit $1.50 $1.50 Variable Cost per Unit $.55 $.60 Fixed Costs (exc. Depn) ($'000) $4,618 $1,
Depreciation ($'000) $784 685 $551 Tax Rate 19% 20%
Brains Inc.'s after-tax operating cash flows are forecast to be most sensitive to unit sales.
The after-tax operating cash flows for both Brains Inc. and Zombies Inc. can be calculated as follows:
Brains Inc.:
Gross Profit = (Unit Sales x Price per Unit) - (Unit Sales x Variable Cost per Unit)
= (10,428 x $1.50) - (10,428 x $.55)
= $15,642 - $5,735.40
= $9,906.60
Operating Profit = Gross Profit - Fixed Costs - Depreciation
= $9,906.60 - $4,618 - $784
= $4,504.60
After-Tax Operating Cash Flow = Operating Profit x (1 - Tax Rate)
= $4,504.60 x (1 - 0.19)
= $3,648.73
Zombies Inc.:
Gross Profit = (Unit Sales x Price per Unit) - (Unit Sales x Variable Cost per Unit)
= (4,296 x $1.50) - (4,296 x $.60)
= $6,444 - $2,577.60
= $3,866.40
Operating Profit = Gross Profit - Fixed Costs - Depreciation
= $3,866.40 - $1,685 - $551
= $1,630.40
After-Tax Operating Cash Flow = Operating Profit x (1 - Tax Rate)
= $1,630.40 x (1 - 0.20)
= $1,304.32
Based on the calculations, Brains Inc.'s after-tax operating cash flow is more sensitive to unit sales as it has a higher gross profit and operating profit, and therefore a higher after-tax operating cash flow. Any changes in unit sales will have a greater impact on Brains Inc.'s after-tax operating cash flow compared to Zombies Inc.
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A company computes its accounts receivable turnover to be 20. Based on this information, find the average collection period. If the company has a credit collection period of 30 days, explain the relationship between the credit collection period and the average collection period.
A company computes its accounts receivable turnover to be 20. Based on this information the average collection period is 18.25 days. If the company has a credit collection period of 30 days , the average collection period is shorter than the credit collection period, which means that the company is collecting its accounts receivable faster than the maximum amount of time allowed.
The average collection period is calculated by dividing the number of days in a year (365) by the accounts receivable turnover. In this case, the average collection period would be:
Average collection period = 365 / accounts receivable turnover
Average collection period = 365 / 20
Average collection period = 18.25 days
This means that on average, the company collects its accounts receivable in 18.25 days.
The credit collection period is the number of days that the company allows its customers to pay for their purchases on credit. In this case, the credit collection period is 30 days.
The relationship between the credit collection period and the average collection period is that the credit collection period is the maximum amount of time that the company allows its customers to pay, while the average collection period is the actual amount of time that it takes for the company to collect its accounts receivable. In this case, the average collection period is shorter than the credit collection period, which means that the company is collecting its accounts receivable faster than the maximum amount of time allowed. This is a good sign for the company's cash flow and liquidity.
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Harding Company is in the process of purchasing several large pieces of equipment from Danning Machine Corporation. Several financing alternatives have been offered by Danning: 1. Pay $1,080,000 in cash immediately. 2. Pay $411,000 immediately and the remainder in 10 annual installments of $89,000, with the first installment due in one year. 3. Make 10 annual installments of $151,000 with the first payment due immediately. 4. Make one lump-sum payment of $1,680,000 five years from date of purchase.
Required: a. Assuming that Harding can borrow funds at an 9% interest rate, determine the present value. (Use PV of $1, PVA of $1, and PVAD of $1) (Round "PV Factors" to 5 decimal places and final answers to the nearest dollar amount. ) Alternative PV
1 $
2 $
3 $
4 $ b.
Which is the best alternative for Harding? Alternative 1 Alternative 2 Alternative 3 Alternative 4
Given that it has the lowest present value, Alternative 2 is the most suitable replacement for Harding. Pay $411,000 immediately and the remainder in 10 annual installments of $89,000, with the first installment due in one year.
In economics and finance, the term "present value" (PV), sometimes known as "present discounted value" (PDV), refers to the worth of an expected income stream as of the valuation date. With the exception of periods of zero or negative interest rates, when the present value will be equal to or greater than the future value, the present value is frequently less than the future value because money can earn interest, a characteristic known as the time value of money. Time value can be stated succinctly as "A dollar today is worth more than a dollar tomorrow".
An investor or lender is involved in the financial project will decide how to invest their funds, and one method is to use present value. Since it offers the same return as the other projects for the least amount of money spent, the project with the lowest initial investment, or present value, will be chosen.
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If I created a cool new app, pricing model which I would like to use is dynamic pricing strategies and why I use the dynamic pricing strategies?One page answer required please answer according to the question
Dynamic pricing strategies are an effective way to price a new app because they allow for flexibility in response to changing market conditions. This can help maximize profits while also ensuring that the app remains competitive in the market.
One of the key benefits of dynamic pricing strategies is that they allow for price changes based on real-time demand. For example, if there is a surge in demand for the app, the price can be increased to take advantage of this demand. Conversely, if demand decreases, the price can be lowered to attract more customers.
Another benefit of dynamic pricing strategies is that they can be used to offer discounts and promotions to specific groups of customers. For example, the app could offer a discount to students or to users who are willing to make a long-term commitment.
Finally, dynamic pricing strategies can be used to experiment with different pricing levels to find the optimal price for the app. This can help ensure that the app is priced at a level that maximizes profits while also being competitive in the market.
Overall, dynamic pricing strategies are an effective way to price a new app because they allow for flexibility in response to changing market conditions, the ability to offer discounts and promotions, and the ability to experiment with different pricing levels.
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Explain the approaches with example for each :- the straw dog approach- the intensive discussion approach
The straw dog approach and the intensive discussion approach are both methods used in decision making and problem solving. Each approach has its own unique features and advantages.
The straw dog approach involves creating a preliminary or rough draft of a solution or decision, which is then reviewed and revised by a group of people. An example of the straw dog approach is when a company creates a preliminary business plan and then presents it to a group of stakeholders for review and feedback.
The intensive discussion approach, on the other hand, involves a group of people working together to come up with a solution or decision. This approach is characterized by in-depth discussion and debate, with the goal of reaching a consensus. An example of the intensive discussion approach is when a team of employees is tasked with coming up with a new marketing strategy. The team members discuss and debate various ideas, and work together.
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20242023Current Assets:Cash$81,900$18,500Accounts Receivable14,90021,700Merchandise Inventory63,60058,800Current Liabilities:Accounts Payable14,90021,700Merchandise Inventory63,60058,800Current Liabilities:Accounts Payable31,60030,100Accrued Liabilities11,20011,700Payment of cash dividends$15,200Depreciation expense$17,100Purchase of equipment with cash55,100Purchase of building with cash104,000Issuance of long-term notes payable to borrow cash44,000Net income62,600Issuance of common stock for cash111,000Requirement 1. Prepare the statement of cash flows ofJohnsonEducational Supply for the year ended December 31,2024.Use the indirect method to report cash flows from operating activities. (Use a minus sign or parentheses for amounts that result in a decrease in cash. If a box is not used in the statement, leave the box empty; do not select a label or enter a zero.)Complete the statement one section at a time, beginning with the cash flows from operating activities.Johnson Educational SupplyStatement of Cash FlowsYear Ended December 31, 2024Cash Flows from Operating Activities:Net IncomeAdjustments to Reconcile Net Income to Net CashProvided by (Used for) Operating Activities:Net Cash Provided by (Used for) Operating ActivitiesPart 2Cash Flows from Investing Activities:Net Cash Provided by (Used for) Investing ActivitiesPart 3Cash Flows from Financing Activities:Net Cash Provided by (Used for) Financing ActivitiesPart 4Net Increase (Decrease) in CashCash Balance, December 31, 2023Cash Balance, December 31, 2024Part 5Requirement 2. EvaluateJohnson'scash flows for the year. Mention all three categories of cash flows, and give the reason for your evaluation.Complete the following statements to evaluateJohnson'scash flows.Operations are▼generatingusing upcash.The company is▼divesting itself ofinvesting in newplant assets.There is more financing by▼borrowingissuing stockthan by▼borrowing.issuing stock.Cash▼decreasedincreasedduring the year.Part 6For the reasons given above,Johnson'scash flows look▼strongweak.Part 7Requirement 3. IfJohnsonplans similar activity for2025,what is its expected free cash flow? (Use a minus sign or parentheses for amounts that result in a decrease in cash. Abbreviations used: Cash pmts for planned invest. = Cash payments for planned investments in long-term assets; NCOA = Net cash provided by operating activities; NCFA = Net cash provided by financing activities.)Select the labels and enter the amounts to calculateJohnson'sexpected free cash flow for2025.
1. Using the indirect method cash flows from operating activities are Net Cash Operating Activities $91,900, Net Cash Investing Activities ($159,100), Net Cash Financing Activities $139,800, Net Increase/Decrease in Cash $72,600, Cash Balance, December 31, 2023 $18,500, and Cash Balance, December 31, 2024 $91,100. 2. Operations are generating cash. The company is investing in new plant assets. There is more financing by issuing stock than by borrowing. Cash increased during the year. 3. Expected free cash flow for 2025 is $72,600.
1. The statement of cash flows for Johnson Educational Supply at year ended December 31, 2024 using indirect method is given as:
Cash Flows from Operating Activities:
Net Income $62,600
Adjustments to Reconcile Net Income to Net Cash Provided by (Used for) Operating Activities:
Depreciation Expense $17,100
Changes in Current Assets and Liabilities:
Accounts Receivable $6,800
Merchandise Inventory ($4,800)
Accounts Payable $9,700
Accrued Liabilities ($500)
Net Cash Provided by (Used for) Operating Activities $91,900
Cash Flows from Investing Activities:
Purchase of Equipment with Cash ($55,100)
Purchase of Building with Cash ($104,000)
Net Cash Provided by (Used for) Investing Activities ($159,100)
Cash Flows from Financing Activities:
Issuance of Long-Term Notes Payable to Borrow Cash $44,000
Issuance of Common Stock for Cash $111,000
Payment of Cash Dividends ($15,200)
Net Cash Provided by (Used for) Financing Activities $139,800
Net Increase (Decrease) in Cash $72,600
Cash Balance, December 31, 2023 $18,500
Cash Balance, December 31, 2024 $91,100
2. Evaluating Johnson's cash flows for the year, the operations are generating cash. The company is investing in new plant assets. There is more financing by issuing stock than by borrowing. Cash increased during the year. For the reasons given above, Johnson's cash flows look strong.
3. If Johnson plans similar activity for 2025, its expected free cash flow is:
Expected Free Cash Flow for 2025:
Net Cash Provided by Operating Activities (NCOA) $91,900
Less: Cash Payments for Planned Investments in Long-Term Assets (Cash pmts for planned invest.) ($159,100)
Less: Net Cash Provided by Financing Activities (NCFA) $139,800
Expected Free Cash Flow for 2025 $72,600
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At the beginning of the year, a firm has current assets of $329 and current liabilities of $233. At the end of the year, the current assets are $495 and the current liabilities are $273. What is the change in net working capital? Multiple Choice $206 $126 $166
The change in net working capital is $126.
The change in net working capital can be calculated by subtracting the initial net working capital from the final net working capital. Net working capital is the difference between current assets and current liabilities.
Initial net working capital = Current assets at the beginning of the year - Current liabilities at the beginning of the year
= $329 - $233
= $96
Final net working capital = Current assets at the end of the year - Current liabilities at the end of the year
= $495 - $273
= $222
Change in net working capital = Final net working capital - Initial net working capital
= $222 - $96
= $126
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The supplies account balance on June 30 is $5,800. The supplies
on hand on June 30 are $4,200.
1. Credit?
2. Debit?
3. For?
The difference between the supplies account balance and the supplies on hand is $1,600 ($5,800 - $4,200). This means that $1,600 worth of supplies have been used during the month of June.
To record this transaction, you will need to make the following journal entry:
1. Credit the Supplies account for $1,600 to reduce the balance to the correct amount of supplies on hand.
2. Debit the Supplies Expense account for $1,600 to record the expense of the supplies that were used during the month.
3. This journal entry is made for the purpose of accurately reflecting the amount of supplies on hand and the expense of the supplies that were used during the month of June.
The journal entry will look like this:
Account Debit Credit Supplies Expense$1,600Supplies$1,600
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Choose an organisation and describe 3 ways in which its been affected by covid 19. if you were a manager, in that organisation how would you have handled those issues?
The COVID-19 pandemic has had a big effect on the organization such as airline industry. There has been less demand for travel, costs have gone up because of safety measures, and there have been layoffs and furloughs.
As a manager in the field, I would take these 3 action to deal with problems.
I would offer promotions and discounts to get more people to travel.
To deal with rising costs, I would look into ways to save money, like renegotiating contracts with suppliers.
To avoid layoffs and unpaid time off, I would think about cutting pay or reducing the number of hours I work.
Overall, it is important for industry managers to take steps to lessen the effects of COVID-19 and make sure that their organizations will be successful in the long run.
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Scarlett owns a cottage in Northern Ontario that she purchased for $ 1 5 0 , 0 0 0 in 1 9 9 5 . She wants to pass the cottage on to her three daughters through her Will . She is concerned , however , about the capital gains taxes on the cottage when she dies . It has already grown in value since she bought it , to about $ 2 0 5 , 0 0 0 today ( an average increase of about 4 % a year ) . She believes that rate of increase will continue into the future . You have recommended that Scarlett cover her future tax liability by purchasing a universal life insurance policy . Which death benefit option would you recommend ?
a.Indexed death benefit
b.Increasing death benefit
c.Increasing death benefit plus deposits
d.Level death benefit
The best death benefit option for Scarlett in order to cover her future tax liability would be an indexed death benefit. Therefore, the correct option is a.
An indexed death benefit is a life insurance policy that pays out an amount equal to the increase in the value of an asset, such as the cottage, at the time of the insured's death. This allows Scarlett to pass the cottage on to her daughters with the assurance that the taxes on its increase in value will be taken care of by the life insurance policy.
Hence, the indexed death benefit option is recommendable for Scarlett's universal life insurance policy. This option will allow the death benefit to increase at the same rate as the value of the cottage, ensuring that her daughters will have enough money to cover the capital gains taxes when she passes away. The indexed death benefit option is designed to keep pace with inflation and the increasing value of assets, so it is the best option for Scarlett's situation. Hence, the recommended option is a.
The other options, such as the increasing death benefit and increasing death benefit plus deposits, may not provide enough coverage for the future value of the cottage. The level death benefit option would also not be suitable, as it would not account for the increasing value of the cottage. Therefore, the indexed death benefit option is the best choice for Scarlett to ensure that her daughters are able to inherit the cottage without having to worry about the capital gains taxes.
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A company is projected to anticipate a free cash flow of $20 million next year and the company anticipates the cash flow to decrease at a rate of 10% per year in perpetuity. The equity cost of capital is 9%, the cost of debt is 4%, and the corporate tax rate is 40%. With a DTE ratio of 0.4, what is the value of the company close to?
The value of the company is close to $62.25 million.
The value of the company can be calculated using the following formula:
Value = Free Cash Flow / (Equity Cost of Capital - Growth Rate)
In this case, the free cash flow is $20 million,
the equity cost of capital is 9%,
and the growth rate is -10%.
Plugging these values into the formula gives us:
Value = $20 million / (0.09 - (-0.10))
Value = $20 million / 0.19
Value = $105.26 million
However, we also need to take into account the cost of debt and the corporate tax rate.
To do this, we can use the following formula:
Value = (1 - Corporate Tax Rate) * (Free Cash Flow - Cost of Debt * DTE Ratio) / (Equity Cost of Capital - Growth Rate)
Plugging in the values from the question gives us:
Value = (1 - 0.40) * ($20 million - 0.04 * 0.4 * $20 million) / (0.09 - (-0.10))
Value = 0.60 * ($20 million - $0.32 million) / 0.19
Value = $62.25 million
Therefore, the value of the company is close to $62.25 million.
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The value delivery system includes all the experiences the customer will have on the way to obtaining and using the offering.a): True b): FalseThere are _______ measurement techniques to monitor satisfaction. a): 2 b): 3 c): 4 d): None of the aboveHofstede identifies five cultural dimensions that differentiate countries. a): Yes b): NoA common way to estimate total market potential is to multiply the potential number of buyers by the average quantity each purchase and then by the price.a): True b): FalseThere are _________marketing activities that improve loyalty and retention. a): 3 b): 4 c): 6 d): 8
a) True - The value delivery system does indeed include all the experiences the customer will have on the way to obtaining and using the offering.b) 4 - There are four main measurement techniques. c) Yes - Hofstede does identify five cultural dimensions that differentiate countries.d) True - A common way to estimate total market potential is indeed to multiply the potential number of buyers.There are four main marketing activities that improve loyalty and retention
delivery system includes the entire process from researching the product or service, making the purchase, and using it.b) 4 - There are four main measurement techniques to monitor satisfaction: customer surveys, focus groups, customer feedback, and observation.
c) Yes - Hofstede does identify five cultural dimensions that differentiate countries. These dimensions are power distance, individualism vs. collectivism, masculinity vs. femininity, uncertainty avoidance, and long-term vs. short-term orientation.
d) True - A common way to estimate total market potential is indeed to multiply the potential number of buyers by the average quantity each purchase and then by the price. This is known as the market demand equation.
e) 4 - There are four main marketing activities that improve loyalty and retention: customer relationship management (CRM), loyalty programs, personalized marketing, and customer service.
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A. Set up accounts for the following: cash, accounts receivable, office equipment, accounts payable, notes payable, common stock, advertising revenue, want ad revenue, printing expense, advertising expense, utilities expense, salaries expense, rent expense, and delivery expense. Prepare journal entries in a general journal and record the foregoing transactions in the accounts
To set up the accounts for the following transactions, we would need to create the following accounts in the general ledger.
Cash
Accounts Receivable
Office Equipment
Accounts Payable
Notes Payable
Common Stock
Advertising Revenue
Want Ad Revenue
Printing Expense
Advertising Expense
Utilities Expense
Salaries Expense
Rent Expense
Delivery Expense
The following transactions are recorded in the general journal:
Issued common stock for $50,000 cash
Debit Cash $50,000
Credit Common Stock $50,000
Purchased office equipment on account for $10,000
Debit Office Equipment $10,000
Credit Accounts Payable $10,000
Received $5,000 cash from a customer on account
Debit Cash $5,000
Credit Accounts Receivable $5,000
Paid $2,000 cash for printing expenses
Debit Printing Expense $2,000
Credit Cash $2,000
Sold advertising for $3,000 cash
Debit Cash $3,000
Credit Advertising Revenue $3,000
Received $2,000 cash for want ad revenue
Debit Cash $2,000
Credit Want Ad Revenue $2,000
Incurred $1,500 in advertising expenses on account
Debit Advertising Expense $1,500
Credit Accounts Payable $1,500
Paid $1,000 cash for utilities expense
Debit Utilities Expense $1,000
Credit Cash $1,000
Paid $4,000 cash for salaries expense
Debit Salaries Expense $4,000
Credit Cash $4,000
Paid $3,000 cash for rent expense
Debit Rent Expense $3,000
Credit Cash $3,000
Borrowed $15,000 cash by signing a note payable
Debit Cash $15,000
Credit Notes Payable $15,000
Purchased office supplies on account for $500
Debit Office Supplies $500
Credit Accounts Payable $500
Delivered goods to a customer on account for $2,500
Debit Accounts Receivable $2,500
Credit Delivery Expense $2,500
The above journal entries are recorded in the respective accounts to keep track of the transactions.
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make a journal entry/general journal for :
issued four year notes payable with 7% interest rate for
65.000.000, effective april 24 with interest paid every june 1
(assume 1 year=360 days)
To make a journal entry for the issuance of four-year notes payable with a 7% interest rate for 65,000,000, we need to record the transaction in the general journal. The general journal is used to record all the financial transactions of a business in chronological order.
The journal entry for this transaction would be as follows:
Debit: Cash 65,000,000
Credit: Notes Payable 65,000,000
The issuance of notes payable is a liability for the business, as it represents an obligation to pay back the principal amount along with the interest. Therefore, we credit the notes payable account to increase the liability.
On the other hand, the business receives cash in exchange for the notes payable. Therefore, we debit the cash account to increase the asset.
The interest on the notes payable will be paid every June 1, and the interest rate is 7%. The interest for one year would be calculated as follows:
Interest = Principal x Interest Rate x Time
Interest = 65,000,000 x 7% x 1
Interest = 4,550,000
Therefore, the journal entry for the payment of interest every June 1 would be as follows:
Debit: Interest Expense 4,550,000
Credit: Cash 4,550,000
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Jordan Company's annual accounting year ends on December 31. It is now December 31, 2018, and all of the 2018 entries have been made except for the following: a. The company owes interest of $700 on a bank loan. The interest will be paid when the loan is repaid on September 30, 2019. No interest has been recorded b. On September 1, 2018, Jordan collected six months' rent of $4,800 on storage space. At that date, Jordan debited Cash and credited Deferred Revenue for $4,800. C. The company earned service revenue of $3,300 on a special job that was completed December 29, 2018. Collection will be made during January 2019. No entry has been recorded. D. On November 1, 2018, Jordan paid a one-year premium for property insurance of $4,200, for coverage starting on that date. Cash was credited and Prepaid Insurance was debited for this amount. E. At December 31, 2018, wages earned by employees but not yet paid totaled $1,100. The employees will be paid on the next payroll date, January 15, 2019. F. Depreciation of $1,000 must be recognized on a service truck purchased this year. G. The income after all adjustments other than income taxes was $30,000. The company's income tax rate is 30%. Compute and record income tax expense. Required: 1. Give the adjusting journal entry required for each transaction at December 31, 2018. 2. If adjustments were not made each period, the financial results could be materially misstated. Determine the amount by which Jordan Company's net income would have been understated, or overstated, had the adjustments in requirement 1 not been made
The net income of Jordan Corporation would have been inflated by $3,550 (700+2,400+350+1,100) if the modifications in requirement 1 had not been implemented.
Journal Entry Corrections as of December 31, 2018:
a. $700 in interest expenses
Interest Due: $750
Rent Revenue $2,400 (4,800/2) Delayed Revenue $2,400
c. $3,300 in accounts receivable
$3,300 in service revenue
d. $350 in insurance costs (4,200/12*2)
$350 for Prepaid Insurance
e. $1,100 in wages expenses
$1,100 in Payable Wages
f. $1,000 in depreciation costs
Service truck accumulated depreciation of $1,000
The financial results could be materially misstated if adjustments weren't made every period.
The net income of Jordan Corporation would have been inflated by $3,550 (700+2,400+350+1,100) if the modifications in requirement 1 had not been implemented. The understatement of income tax expense by $900 (30% of $3,000) would have resulted in an overstatement of net income after taxes by $2,650.
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You are the founder of a startup called Welcome Homes. Welco... 口 You are the founder of a startup called Welcome Homes Welcome Homes is trying to make it easier for home buyers to build a newly constructed home without having to deal with delays and headaches. Their slogan is "Order your dream home, online." They promise prospective buyers that they can build the home you want, where you want for a guaranteed, all-in price." Homes come with select customization options with new homes in the New York metro area starting at $570,000, not including the land the homeowner has to purchase. The $570,000 model is their smallest and most affordable option, but they have two other options, the most expensive at $830,000 (not including the cost of the land While you don't have a marketing team, you took an Integrated Marketing course in college so you feel confident you can come up with a marketing plan yourself You've received $1 million in funding from investors to launch this marketing plan. Figure 1 Target Audience Audience #1 Audience #2 Segment Size 450.000 125,000 Segment Adoption Percentage 0.25% 196 1 1 Purchase Behavior Purchase Price Purchase Frequency $670,000 1 $750,000 1.5 Profit Margin 2596 30% Fixed Costs $5,500,000 $4,500,000 Segment Profit 2 ? As part of this plan, identify what characteristics are important for your target audience. What criteria will you use to segment your market? Then, decide how you will position your offering using the 4Ps. Finally, you've narrowed your target market to two potential audiences shown in Figure 1 above. First, you need to do the math to decide if either of these audiences is profitable (you should be able to give me the segment profit. Then, tell me whether you would put all of the $1 million into one audience or how you would split it up between the audiences. Explain your reasoning.
The characteristics that are important for the target audience of Welcome Homes are likely to include income level, location, and desire for a customized, newly constructed home. The criteria used to segment the market could include demographics, psychographics, and behavioral factors.
To position the offering using the 4Ps, Welcome Homes could consider the following:
- Product: Offering customizable, newly constructed homes with a guaranteed all-in price
- Price: Offering homes at different price points, starting at $570,000 for the smallest and most affordable option
- Place: Focusing on the New York metro area for the initial launch
- Promotion: Using targeted advertising and social media marketing to reach potential buyers.
To determine the profitability of the two potential audiences in Figure 1, we can use the formula Segment Profit = (Segment Size x Segment Adoption Percentage x Purchase Price x Profit Margin) - Fixed Costs.
For Audience #1:
Segment Profit = (450,000 x 0.0025 x $670,000 x 0.25) - $5,500,000 = $117,187.50
For Audience #2:
Segment Profit = (125,000 x 0.001 x $750,000 x 0.30) - $4,500,000 = -$3,562,500
Based on these calculations, Audience #1 is profitable while Audience #2 is not. Therefore, it would be wise to allocate the majority of the $1 million in funding towards Audience #1. However, it may still be beneficial to allocate a small portion of the funding towards Audience #2 in order to test the market and potentially increase profitability in the future. The exact allocation of funding would depend on the specific marketing tactics and strategies used for each audience.
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As part of the financial planning process, a common practice in the corporate finance world is restructuring through the process of mergers and acquisitions (M&A). It seems that on a regular basis, investment bankers arrange M&A transactions, forming one company from separate companies. What are the advantages and the disadvantages of a merger? In your response, provide an example of either - a merger that was successful, or one that was unsuccessful.
Mergers and acquisitions (M&A) are a common practice in the corporate finance world, allowing companies to restructure and form one company from two or more separate entities.
There are advantages and disadvantages to mergers, which should be carefully considered before any decisions are made.
Advantages: Mergers can provide cost savings through economies of scale, as well as increased revenues due to greater market share. They can also provide access to new technologies and products, increased access to financing, and opportunities to expand geographically.
Disadvantages: Mergers can be expensive, time consuming, and often have unintended consequences. They can also lead to job losses and may bring with them cultural conflicts.
An example of a successful merger would be the merger of two major oil companies, BP and Amoco in 1998.
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To illustrate how Macaulay duration changes with maturity, we consider a bond with yield y = 7% for different maturities, including perpetuity and different values of coupons:
a) zero coupon bonds
b) discount bonds with coupon rate c = 1.5%
c) par bonds
d) premium bonds with coupon rate c = 12.5%
a.) The Macaulay duration for a zero coupon bond is equal to its maturity.
b.) The Macaulay duration for a discount bond with coupon rate c = 1.5% is lower than its maturity
c.) The Macaulay duration for a par bond is equal to its maturity
d.) The Macaulay duration for a premium bond with coupon rate c = 12.5% is higher than its maturity.
a) The Macaulay duration for a zero coupon bond is equal to its maturity, since the present value of its cash flow is received only at the maturity date.
b) The Macaulay duration for a discount bond with coupon rate c = 1.5% is lower than its maturity, since it pays coupons and its present value of cash flow is spread over a longer period.
c) The Macaulay duration for a par bond is equal to its maturity, since the present value of its cash flow is equal to the price of the bond and is received at the maturity date.
d) The Macaulay duration for a premium bond with coupon rate c = 12.5% is higher than its maturity, since it receives more than its par value at maturity and its present value of cash flow is spread over a longer period.
Macaulay duration is a measure of a bond's sensitivity to interest rate changes, taking into account the timing and size of the bond's cash flows.
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What is the default risk premium on Aaa corporate bond, if the interest rate on that bond is 3.54 percent and the interest rate on a Treasury security is 1.78 percent?
The default risk premium on the Aaa corporate bond is 1.76%.
The default risk premium on a corporate bond is the difference between the interest rate on the corporate bond and the interest rate on a Treasury security.
This is because the Treasury security is considered to be risk-free, so any additional interest earned on the corporate bond is a reflection of the additional risk taken on by the investor.
The default risk premium on the Aaa corporate bond is 3.54% - 1.78% = 1.76%. This means that investors are earning an additional 1.76% in interest to compensate for the additional risk of investing in the corporate bond.
Answer: 1.76%
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I invested on January 1st 2013 10.000€ in a financial product that is giving a compounded interest with payments on a quarterly basis.
On January 1st 2024 I will get back my investment together with the interests, and I know that I will receive 37.411€.
It was a good investment, but I can´t remember the rate.
Could you tell me?
A company has the following cash flow:
Period C0= -1000
Period C1= +600
Period C2= -200
Period C3= +600
Should the company invest in the project if cost of capital is 4%?
January 1, 2013, in compound interest and quarterly financial instruments. On 01/01/2024, you will receive €37,411, including your original investment and earned interest. Since the NPV is negative, the company should not invest in the project.
To calculate the interest rate, you can use the following compound interest formula:
A = P(1 + r/n)^(nt)where A is the final amount, P is the principal amount, r is the annual interest rate, n is his number of interest payments per year, and t is the number of years. In this case A = 37,411, P = 10,000, n = 4 (because interest is compounded quarterly), t = 11 (investment made on 01/01/2013 and 01/01/2024 (because it will be refunded).
Plugging in these values and solving for r yields:
37,411 = 10,000 (1 + r/4)^(4*11)3.7411 = (1 + r/4)^44
Take the 44th root of both sides:
1.0277 = 1 + r/4r/4 = 0.0277
r = 0.1108
The annual interest rate is therefore 0.1108 or 11.08%. In the second question, the company's cash flow is -1000 in period C0, +600 in period C1, -200 in period C2, and +600 in period C3. The cost of capital is 4%. To determine if your company should invest in a project.
Calculate the net present value (NPV) of cash flows using the following formula:
NPV = C0 + C1/(1 + r)^1 + C2/(1 + r)^2 + C3/(1 + r)^3Where C0, C1, C2, and C3 are the cash flows for each period and r is the cost of capital. After plugging in the question values, it looks like this:
NPV = -1000 + 600/(1 + 0.04)^1 + -200/(1 + 0.04)^2 + 600/(1 + 0.04)^3Present Value = -1000 + 576.92 + -185.29 + 528.88
NPV = -79.49
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All of the following are specifically identifiable intangibles except:
Trademarks
Goodwill
Patents
Copyrights.
Intangible assets that have a finite life are amortized over a period not to exceed:
Their useful life.
Their legal life.
20 years.
40 years.
Goodwill is not a specifically identifiable intangible asset and intangible assets with a finite life are amortized over their useful life.
The correct answers to the questions are:
1) Goodwill: Goodwill is not a specifically identifiable intangible asset. It is an intangible asset that arises from the acquisition of one company by another company and is not specifically identifiable. Goodwill represents the value of a company's brand name, customer relationships, and other intangible assets that are not specifically identifiable.
2) Their useful life: Intangible assets that have a finite life are amortized over their useful life. The useful life of an intangible asset is the period of time over which the asset is expected to contribute to the future cash flows of the company. The useful life of an intangible asset may be shorter than its legal life, and it is the useful life that should be used for amortization purposes.
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