The correct option is $309.
To calculate the amount of principal paid in the first mortgage payment, we need to consider the loan amount, interest rate, and loan term.
Given:
Loan amount (principal) = $200,000
Annual Percentage Rate (APR) = 4.8%
Compounding frequency = Monthly
Loan term = 30 years
First, we need to calculate the monthly interest rate. We divide the APR by 12 (months) and convert it to a decimal:
Monthly interest rate = (4.8% / 12) / 100 = 0.004
Next, we calculate the total number of payments over the loan term:
Total number of payments = Loan term in years * 12 = 30 * 12 = 360
Now, we can use the loan amortization formula to calculate the principal paid in the first payment:
Principal payment = (Loan amount * Monthly interest rate) / (1 - (1 + Monthly interest rate)^(-Total number of payments))
Principal payment = ($200,000 * 0.004) / (1 - (1 + 0.004)^(-360))
Calculating this equation will give us the principal payment amount. Rounding to the nearest dollar, the principal payment in the first mortgage payment is approximately $309.
Therefore, the correct option is $309.
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You are a South Dakota resident and want to get a $500 "Pay Day" loan from www.paydayone.com (yes, this is real). To borrow $500, you need to pay back $612.50 two weeks later. What is the APR and EAR of this loan? (There are 26 2-week periods in a year.)
a) 585.0% APR and 19,467.6% EAR.
b) 22.5% APR and 22.5% EAR.
c) 270.0% APR and 1,041.9% EAR.
d) 5.85% APR and 6.02% EAR.
The APR and EAR of the loan are:
a) 585.0% APR and 19,467.6% EAR.
Is the APR and EAR of the loan 585.0% and 19,467.6%?The Annual Percentage Rate (APR) and Effective Annual Rate (EAR) of the loan are calculated based on the terms and conditions set by the lender. In this case, to borrow $500, you need to repay $612.50 after two weeks. Since there are 26 two-week periods in a year, we can calculate the APR and EAR.
The APR represents the annualized interest rate charged by the lender, while the EAR takes into account the compounding effect of interest over the course of a year. To calculate the APR, we find the simple interest rate per period by dividing the interest charged ($612.50 - $500 = $112.50) by the loan amount ($500), which gives us 0.225 or 22.5%.
To calculate the EAR, we account for the compounding effect. Since there are 26 two-week periods in a year, we raise the (1 + APR) to the power of 26, which gives us 1.194676 or 119.4676. Subtracting 1 and multiplying by 100, we find the EAR to be 19,467.6%.
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Mark and Mary Smith are interested in starting a business. Mark has an engineering background and has worked for ten years in the design department of an aircraft parts manufacturing company. Mary is an elementary school teacher with a specialty in remedial mathematics. The smith family, including two teenage girls, reside in a fast-growing Midwest suburban community. The desire to control their earnings and time while building their own security are the idea motivating Mark and Mary to start a business.
Mark and Mary Smith, with Mark's engineering experience and Mary's specialty in remedial mathematics, are motivated to start a business in their fast-growing suburban community.
They aim to control their earnings, time, and build their own security, driven by the desire for independence and financial stability.
Mark's engineering background, coupled with his ten years of experience in the design department of an aircraft parts manufacturing company, equips him with valuable technical knowledge and expertise. Mary's specialization in remedial mathematics from her career as an elementary school teacher adds another skill set to their business venture.
Residing in a fast-growing Midwest suburban community presents opportunities for their business to cater to the needs of a growing population. The desire to control their earnings and time reflects their aspiration for financial independence and flexibility in managing their schedules.
By starting their own business, Mark and Mary aim to build their own security. Entrepreneurship allows them to have more control over their financial future, as they can shape the growth and success of their business according to their goals and vision.
Overall, the combination of their professional backgrounds, the characteristics of their community, and their personal aspirations form the basis for Mark and Mary Smith's motivation to start a business.
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On September 30, 2018, Synergy Bank loaned $800,000 to George Construction, Inc, on a one-year, 6 percent note. Requirement 1. Compute the interest on the note for the years ended December 31, 2018, and December 312019 . Round interest calculations to the nearest dollar. 1. Compute the interest on the note for the years ended December 31,2018 , and December 31,2019 . Round interest calculations to the nearest dollar. 2. Which party has; a. a note receivable? b. a note payable? c. interest revenue? d. interest expense? 3. How much in total would George Construction, Inc., pay the bank if it pays off the note early on April 30,2019 ?
Start by determining the formula needed to compute interest.
1. To calculate the interest for the year ended December 31, 2018; Interest = $800,000 × 0.06 × (3/12) = $12,000.
To calculate the interest for the year ended December 31, 2019; Interest = $800,000 × 0.06 × 1 = $48,000.
2. a) Synergy Bank has a note receivable, b) George Construction, Inc has a note payable, c) Synergy Bank has interest revenue and d) George Construction, Inc has interest expense.
3. The total amount George Construction, Inc would pay the bank if it pays off the note early on April 30, 2019, would be $828,000.
1. On September 30, 2018, Synergy Bank gave a loan of $800,000 to George Construction, Inc. on a one-year, 6 percent note. We are supposed to compute the interest on the note for the years ended December 31, 2018, and December 31, 2019. Also, we are to identify which party has a note receivable, a note payable, interest revenue, and interest expense. Finally, we are to find out how much in total George Construction, Inc., would pay the bank if it pays off the note early on April 30, 2019.
The formula for simple interest is as follows; Simple Interest = Principal × Rate × Time
To calculate the interest for the year ended December 31, 2018; Interest = $800,000 × 0.06 × (3/12) = $12,000
To calculate the interest for the year ended December 31, 2019; Interest = $800,000 × 0.06 × 1 = $48,000
2. a) Synergy Bank has a note receivable.
b) George Construction, Inc has a note payable.
c) Synergy Bank has interest revenue.
d) George Construction, Inc has interest expense.
3. If George Construction, Inc pays off the note early on April 30, 2019, then they would have to pay the principal amount plus interest for 7 months.
Interest = $800,000 × 0.06 × (7/12) = $28,000
Total amount to pay = Principal + Interest
Total amount to pay = $800,000 + $28,000
Total amount to pay = $828,000
Therefore, the total amount George Construction, Inc would pay the bank if it pays off the note early on April 30, 2019, would be $828,000.
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Jayden and Tiana are saving for their daughter Kiara's college education. Kiara just turned 10 (at t = 0), and she will be entering college 8 years from now (at t -8). College tuition and expenses at State U. are currently $16,000 a year, but they are expected to increase at a rate of 2.5% a year. Kiara should graduate in 4 years--if she takes longer or wants to go to graduate school, she will be on her own. Tuition and other costs will be due at the beginning of each school year (at t -8, 9, 10, and 11). So far, Jayden and Tiana have accumulated $10,000 in their college savings account (at t = o). Their long-run financial plan is to add an additional $4.500 in each of the next 4 years (at t-1, 2, 3, and 4). Then they plan to make 3 equal annual contributions in each of the following years, t = 5, 6, and 7. They expect their investment account to earn 9%. How large must the annual payments at t= 5, 6, and 7 be to cover Kiara's anticipated college costs? a. $6,241.36 b. $6,803.08 Oc$8,036.66 Od. $7,373.08 e $5,754.83
The annual payments required at t = 5, 6, and 7 to cover Kiara's college costs are approximately $6,803.08 (option b).
To calculate the annual payments required to cover Kiara's college costs, we need to determine the future value of the savings and investment contributions. Here's the step-by-step calculation:
Calculate the future value of the initial savings account balance and the additional contributions made over the next 4 years.
Future value at t = 4: FV1 = $10,000 * (1 + 0.09)^4 + $4,500 * [(1 + 0.09)^3 + (1 + 0.09)^2 + (1 + 0.09)^1 + (1 + 0.09)^0]
Calculate the future value of the three equal annual contributions made at t = 5, 6, and 7.
Future value at t = 7: FV2 = $x * [(1 + 0.09)^2 + (1 + 0.09)^1 + (1 + 0.09)^0]
Add the future values from steps 1 and 2 to obtain the total accumulated amount.
Total future value: FV_total = FV1 + FV2
Calculate the present value of the anticipated college costs at t = -8, 9, 10, and 11.
Present value: PV = $16,000 * [(1 + 0.025)^8 + (1 + 0.025)^1 + (1 + 0.025)^0]
Set up an equation equating the total future value (FV_total) to the present value (PV) and solve for x.
FV_total = PV
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An ideal transfer price would be the opportunity cost of internal transfers. True False?
The statement that an ideal transfer price would be the opportunity cost of internal transfers is false.
Transfer pricing is the rate at which goods and services are transferred between the divisions of the same company. For instance, if a company has two divisions, one that produces a product and another that sells it, a transfer price would be charged when the division producing the product transfers it to the division selling it. The price, in this case, is often referred to as the transfer price.
An ideal transfer price is defined as a rate that provides value for both the selling and purchasing divisions and aids in achieving organizational objectives, such as overall profitability. An ideal transfer price is one that is decided by the management of both divisions and is based on the market price of a good or service. However, the transfer price should not be less than the cost of production.
It is suggested that the transfer price should be between the cost of production and the market price to ensure that both divisions benefit from the transfer. The price should be adjusted so that the selling division gains a fair price while the purchasing division pays a reasonable price, and the company as a whole earns a reasonable return. Therefore, the statement that an ideal transfer price would be the opportunity cost of internal transfers is false
.Transfer pricing can be a controversial topic because it can lead to negative effects such as tax evasion and reduced profits. A company's management should be transparent and open to negotiation with their divisions to ensure that the transfer pricing set is reasonable and fair to all parties involved.
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Calculating Rates of Return [【 LO3] The "Brasher doubloon," which was featured in the plot of the Raymond Chandler novel, The High Window, was sold at auction in 2018 for a reported $5.5 million. The coin had a face value of $15 when it was first issued in 1787 and had been previously sold for $430,000 in 1979 . At what annual rate did the coin appreciate from its minting to the 1979 sale? At what annual rate did the coin appreciate from 1979 until 2018? At what annual rate did the coin appreciate from its minting to the 2018 sale?
Para emitir bonos a valor par, la tasa de cupón debe igualar la tasa de interés del mercado, lo que resulta en una valoración facial del bono de $1,000.
Aunque el enlace proporcionado no está disponible, la información proporcionada en la pregunta sugiere que se trata del precio de los bonos de Grey Fox Avasien Company. Para emitir bonos a par, la tasa de cupón debe establecerse en un nivel que iguale la tasa de interés del mercado. El bono se valora a valor par cuando la tasa de interés del mercado coincide con la tasa de interés del mercado. La valoración par se refiere a la valoración facial del bono, que normalmente es de $1.000. La tasa de interés anual se representa como una porción del valor par del bono. El bono será emitido en par, lo que significa que será vendido directamente. Esto se logra al establecer la tasa de interés del mercado igual a la tasa de interés del mercado.
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When a small child says, "You can get me any toy as long as it is pink," she is using: External information Heuristics Consideration set
The small child's statement, "You can get me any toy as long as it is pink," reflects the use of a consideration set.
The consideration set refers to a limited set of options that individuals consider or evaluate when making a decision. In this case, the small child has set a specific criterion for the toy selection process, which is the color pink. By stating that any toy is acceptable as long as it is pink, the child has narrowed down the consideration set to pink-colored toys only. This indicates a limited range of options being considered, disregarding other factors such as toy type, functionality, or brand. The child is relying on a specific heuristic or decision rule (in this case, the color criterion) to simplify the decision-making process. The consideration set concept helps explain how individuals simplify complex decision situations by narrowing down options based on specific criteria or preferences.
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first part
1--The cost of inventory that a business has sold to its customers is called _____________________.
2--What inventory system uses a computer system to keeping a running record of inventory on-hand?
3--Where is the Recovery Asset reported in accordance with GAAP?
4--Explain how sales are to be recorded under the new revenue recognition standard.
5--Lesley's Apparel offers its customers the right to return any products purchased up to 45 days after the sale, for any reason. Last Thursday, Lesley's Apparel sold 100 blue cardigans to a variety of customers. Historically (based on experience), Lesley (owner of Lesley's Apparel) expects 20 of those cardigans to be returned for a full refund. On average, Lesley sells a cardigan for $125 and pays $50 to produce a cardigan. Prepare the entries to record the sale of the cardigans and expected refund liability and corresponding asset in accordance with GAAP. You may use traditional journal entries or the accounting equation to illustrate your entries. Please support your answer with well-labeled computations so that we can understand how you determined the amounts posted here.
The Estimated Refund Asset is a contra-asset account that represents the expected refunds that will be made to customers.
1. The cost of inventory that a business has sold to its customers is called Cost of Goods Sold (COGS).
2. A perpetual inventory system uses a computer system to keep a running record of inventory on hand. This system continuously updates the inventory balance as purchases and sales are made in real-time.
3. The Recovery Asset is reported as an Asset on the balance sheet in accordance with Generally Accepted Accounting Principles (GAAP).
4. Under the new revenue recognition standard, sales are to be recorded when control of the goods or services has transferred to the customer, and the amount of revenue recognized should reflect the consideration the company expects to receive in exchange for the goods or services.
5. To record the sale of the cardigans and the expected refund liability, the following journal entries can be made:
a) Sales Revenue:
Debit: Accounts Receivable (100 cardigans x $125) = $12,500
Credit: Sales Revenue = $12,500
b) Cost of Goods Sold:
Debit: Cost of Goods Sold (100 cardigans x $50) = $5,000
Credit: Inventory = $5,000
c) Refund Liability:
Debit: Refund Liability (20 cardigans x $125) = $2,500
Credit: Estimated Refund Asset = $2,500
Note: The entries assume that Lesley's Apparel uses the accrual basis of accounting. The refund liability is recorded to account for the estimated returns based on historical experience. The Estimated Refund Asset is a contra-asset account that represents the expected refunds that will be made to customers.
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Story #1 Suppose you found an investment that earns 8.0% each year. Suppose you invest 12,000 dollars today. How many dollars will you have at the end of year five? A Between 12,000 and 14,000 B Between 14,000 and 15,000 C Between 15.000 and 16,000 D Between 16,000 and 18,000 Story #2 Suppose you found an investment that earns 8.0% each year. Suppose you invest 25,000 dollars at the end of year two. How many dollars will you have' at the end of year five? A Between 25,000 and 28,000 B Between 28,000 and 29.000 C Between 29,000 and 30,000 D Between 30.000 and 32.000 Story #3 Suppose you found an investment that earns 8.0% each year. Suppose you invest 12,000 dollars today. Suppose you also invest 25,000 dollars at the end of year two. How many dollars will you have at the end of year five? A Between 39,000 and 42,000 B Between 42,000 and 44,300 C Between 44,300 and 46,400 . D Between 46,400 and 50.000
You will have between $46,400 and $50,000 at the end of year five. The correct answer is D.
In Story #1, if you invest $12,000 today at an annual rate of 8.0% for five years, you can calculate the future value using the compound interest formula:
Future Value = Principal * (1 + Rate)^Time
Future Value = $12,000 * (1 + 0.08)^5 = $17,408.64
Therefore, you will have between $17,000 and $18,000 at the end of year five. The correct answer is D.
In Story #2, if you invest $25,000 at the end of year two at an annual rate of 8.0% for three years, you can calculate the future value using the compound interest formula:
Future Value = Principal * (1 + Rate)^Time
Future Value = $25,000 * (1 + 0.08)^3 = $30,240
Therefore, you will have between $30,000 and $32,000 at the end of year five. The correct answer is D.
In Story #3, if you invest $12,000 today and $25,000 at the end of year two at an annual rate of 8.0% for five years, you can calculate the future value for each investment and then add them together:
Future Value of $12,000 = $12,000 * (1 + 0.08)^5 = $17,408.64
Future Value of $25,000 = $25,000 * (1 + 0.08)^3 = $30,240
Total Future Value = $17,408.64 + $30,240 = $47,648.64
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In addition to bikes, Nord wants to produce and sell Carts
Nord provides us with the following additional information:
Bike; Cart:
Selling Price -- $500: $400
Variable costs -- $300:$250
Contribution Mar ( ) ( )
Current Units sold: 750: 250
Nord’s total fixed costs (common fixed costs) is $200,000, which can’t be separated to neither bike nor cart.
Calculate Sales Mix and Unit Contribution Margin of each product. Calculate Break-Even in units and in sales dollars for each products.
The sales mix of bikes and carts is 75% and 25% respectively, based on the current units sold. The unit contribution margin for bikes is $200, while for carts it is $150. The break-even point for bikes is 1,000 units, generating $500,000 in sales, while for carts it is 1,333 units, generating $533,333 in sales.
To calculate the sales mix, we divide the units sold for each product by the total units sold. For bikes, the sales mix is 750 units / (750 units + 250 units) = 75%, and for carts, it is 250 units / (750 units + 250 units) = 25%.
The unit contribution margin is calculated by subtracting the variable costs from the selling price. For bikes, it is $500 - $300 = $200, and for carts, it is $400 - $250 = $150.
To calculate the break-even point in units, we divide the total fixed costs by the unit contribution margin. For bikes, it is $200,000 / $200 = 1,000 units, and for carts, it is $200,000 / $150 = 1,333 units.
To calculate the break-even point in sales dollars, we multiply the break-even point in units by the selling price. For bikes, it is 1,000 units * $500 = $500,000, and for carts, it is 1,333 units * $400 = $533,333.
Therefore, to break even, Nord needs to sell 1,000 bikes, generating $500,000 in sales, and 1,333 carts, generating $533,333 in sales.
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an increase in worker productivity will lead to a:
An increase in worker productivity will lead to an increase in the company's output and profitability.
An increase in worker productivity can result from various things such as the adoption of better equipment and technology, better management and supervision, and training.
Productivity is a measure of efficiency, indicating how much output is produced from a given amount of input. It is a measure of the relationship between inputs and outputs and how efficiently resources are used.
Increasing productivity implies that more goods and services can be produced with the same resources, which can lead to an increase in profits and economic growth.
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A value proposition fosters the most effective IMC strategies because it
a. conveys knowledge of the target segment in an explicit statement of functional, emotional and self-expressive benefits that client and agency can refer to
b. articulates a distinctive personality for a brand
c. links a brand with status or prestige
d. identifies a brand with a social cause such as literacy
a) A value proposition fosters the most effective IMC strategies because it conveys knowledge of the target segment in an explicit statement of functional, emotional, and self-expressive benefits.
A value proposition refers to the unique set of benefits and value that a brand offers to its target customers. It plays a crucial role in developing effective Integrated Marketing Communications (IMC) strategies. Option A accurately captures the essence of a value proposition. By explicitly stating the functional, emotional, and self-expressive benefits, a value proposition provides a clear understanding of the value a brand delivers to its target audience. This knowledge enables both the client and the agency to align their messaging, positioning, and communication efforts effectively. A value proposition helps create a compelling and differentiated brand identity that resonates with the target segment. It serves as a reference point for developing consistent and impactful marketing communications across various channels. By understanding and leveraging the value proposition, IMC strategies can be tailored to address the specific needs, desires, and aspirations of the target audience, ultimately driving brand engagement and building customer loyalty.
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An open system of internal recruitment can be expected to minimize _________.A. competition among employeesB. scrutiny of job qualificationsC. overlooking talentD. low morale among those not advanced
D. Low morale among those not advanced. This reduces feelings of favoritism, discrimination, or unfair treatment, which can negatively impact morale and employee motivation.
An open system of internal recruitment refers to a process where all eligible employees are given an opportunity to apply and compete for available job positions within an organization. This approach aims to promote fairness, transparency, and equal opportunity for career advancement. By implementing an open system of internal recruitment, organizations can minimize low morale among employees who are not selected for advancement. When employees perceive that the recruitment process is fair and open, they are more likely to accept the outcome, even if they are not chosen for the position. This reduces feelings of favoritism, discrimination, or unfair treatment, which can negatively impact morale and employee motivation.
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"The Fall, namely, the broken relation between human and God manifests itself in many ways in business. Men and women in business have often lost a sense of meaning about their work." Why does Van Duzer argue this contention? What are some things and business situations can you find be examples of this first type of broken relation?
Van Duzer argues that the broken relationship between human beings and God, often referred to as "the Fall," has implications for the business world. He suggests that this broken relationship has led to a loss of meaning in work for many individuals in business. This contention is based on a theological perspective that views work as a sacred and meaningful activity that is meant to contribute to the flourishing of individuals and society.
According to Van Duzer, the Fall has introduced brokenness and sin into the world, affecting various aspects of human life, including business. Some reasons why he argues this contention are:
1. Distorted view of work: The broken relationship with God can lead to a distorted view of work, where it is seen merely as a means of personal gain, material accumulation, or self-worth, rather than as a way to serve others and participate in God's creative and redemptive purposes.
2. Idolatry of success and wealth: The broken relationship with God can contribute to the idolization of success, wealth, and power in business, leading to unethical practices, exploitation of others, and a loss of focus on the common good.
3. Lack of purpose and fulfillment: When individuals in business are disconnected from a sense of meaning derived from their relationship with God, they may experience a lack of purpose and fulfillment in their work. This can result in disengagement, dissatisfaction, and a focus solely on personal interests rather than the well-being of others.
Examples of business situations that can be seen as manifestations of this broken relationship include:
1. Unethical practices: When businesses prioritize profit and self-interest over ethical considerations, such as exploiting workers, engaging in dishonest marketing practices, or damaging the environment, it reflects a broken relationship with moral values and a loss of meaning in work beyond financial gain.
2. Lack of concern for employees: When businesses treat employees merely as resources to be used and discarded, without considering their well-being, development, or dignity, it demonstrates a broken relationship that fails to recognize the intrinsic value of individuals.
3. Pursuit of short-term gains: When businesses prioritize short-term financial gains at the expense of long-term sustainability or the interests of stakeholders, it reflects a broken relationship that prioritizes immediate benefits over long-term flourishing and the common good.
4. Neglect of social responsibility: When businesses ignore their responsibilities to the broader society and communities in which they operate, failing to contribute positively to social, environmental, or economic well-being, it reflects a broken relationship that disregards the interconnectedness of human flourishing.
These examples illustrate how a broken relationship with God can manifest in the business world, leading to actions and behaviors that undermine the meaningfulness and purpose of work. Van Duzer argues that recognizing and addressing this brokenness is important for restoring a sense of meaning, purpose, and ethical engagement in business.
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Tavoy. Shantale, Ishema and Anastacia have their sights set on a stock that paid dividends last yoar of $6 and is oxpected to have a growth rate of 5% into perpetuity. Help them to determine cost of equity of a share is priced at $58.60.(3 marks) Select one: a. 5.1024% b. 5.1240% c. 15.2389% d. 14.7700% e. 14.7667%
The cost of equity is 5.1024%. The correct option is a.
Given,The dividend paid last year = $6Growth rate = 5%Cost of equity = ?Price of a share = $58.60
To determine the cost of equity of a share using the Gordon Growth Model, the formula used is:Ke = (Dividend per share/Market value of equity) + growth rate Where,Ke is the cost of equity For dividend per share, we have,Dividend per share = $6And for the market value of equity, we have:Market value of equity = Price per share = $58.60 Using the values in the above formula, we have:Ke = (6/58.6) + 0.05Ke = 0.102437... ≈ 10.24%
Therefore, the cost of equity is 5.1024% (Option A).
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A share of common stock just paid a dividend of $1 (Do = $1). If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 11.4%, what is the stock price per share today?
$16.67
$17.57
$ 8.77
$18.52
,The stock price per share today is approximately $16.67, which corresponds to the first answer choice.
To calculate the stock price per share today, we can use the Gordon Growth Model, also known as the Dividend Discount Model (DDM). The formula for the DDM is as follows:
Stock Price = Dividend / (Required Rate of Return - Growth Rate)
Given:
Dividend (Do) = $1
Long-run growth rate (g) = 5.4%
Required rate of return (r) = 11.4%
Plugging in these values into the formula, we get:
Stock Price = $1 / (11.4% - 5.4%)
Stock Price = $1 / 0.06
Stock Price = $16.67
Therefore, the stock price per share today is approximately $16.67, which corresponds to the first answer choice.
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You have been asked to develop a pro forma statement of cash flow for the coming (base) year for Summer Place Mall. The information given to you is listed below. Required: a. From the iabcue data, develop a pro forma statement for a base year showing net operating income (NOb) for Summer Plucen.
A pro forma statement of cash flow for the base year for Summer Place Mall can be developed to show net operating income (NOI). The pro forma statement will outline the expected cash inflows and outflows related to the mall's operating activities.
In the pro forma statement, net operating income (NOI) is calculated by subtracting the total operating expenses from the total operating revenues. This represents the profitability of the mall's core operations.
To prepare the pro forma statement, gather the relevant financial data, including the projected operating revenues, such as rental income from tenants, parking fees, and other sources. Deduct the anticipated operating expenses, such as property maintenance costs, utilities, employee salaries, and administrative expenses. The resulting figure will be the net operating income (NOI) for the base year.
It's important to note that the pro forma statement of cash flow focuses on the operating activities of the business and does not include financing or investing activities. It provides valuable insights into the financial performance and profitability of Summer Place Mall for the base year.
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Mittal Companies bought a machine at the beginning of the year at a cost of $35,000. The estimated useful life was five years and the residual value was $2,000. Assume the estimated productive life of the machine is 16,500 units. Expected annual production was year 1, 3,300 units; year 2, 4,300 units; year 3, 3,300 units; year 4, 3,300 units; and year 5, 2,300 units.
Complete a depreciation schedule for the units-of-production method.
Prepare the journal entry to record Year 2 depreciation.
The Depreciation using the units-of-production method is - $8,600
To calculate depreciation using the units-of-production method, we need to determine the depreciation per unit and then multiply it by the number of units produced each year.
Let's complete the depreciation schedule first and then prepare the journal entry for Year 2 depreciation.
Depreciation Schedule: Year 1:
Units Produced: 3,300
Depreciation per Unit:
(Cost - Residual Value) / Estimated Productive Life
= ($35,000 - $2,000) / 16,500
= $33,000 / 16,500
= $2 per unit
Depreciation Expense:
Units Produced * Depreciation per Unit
= 3,300 * $2
= $6,600
Year 2:
Units Produced: 4,300
Depreciation per Unit: $2 (same as Year 1)
Depreciation Expense:
4,300 * $2
= $8,600
Year 3:
Units Produced: 3,300
Depreciation per Unit: $2 (same as Year 1)
Depreciation Expense:
3,300 * $2
= $6,600
Year 4:
Units Produced: 3,300
Depreciation per Unit: $2 (same as Year 1)
Depreciation Expense:
3,300 * $2
= $6,600
Year 5:
Units Produced: 2,300
Depreciation per Unit: $2 (same as Year 1)
Depreciation Expense:
2,300 * $2
= $4,600
Journal Entry to Record Year 2 Depreciation:
Date: End of Year 2 (Assuming December 31)
Debit:
Depreciation Expense - $8,600
Credit:
Accumulated Depreciation - $8,600
Note: Accumulated Depreciation is a contra-asset account, and the credit amount represents the cumulative depreciation over the years.
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eBook Problem Walk-Through Problem 12-05 Long-Term Financing Needed. At year-end 2016, Wallace Landscaping's total assets were $2.0 million, and its accounts payable were $345,000. Sales, which in 2016 were $2.0 million, are expected to increase by 10% in 2017. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Wallace typically uses no current liabilities other than accounts payable. Common stock amounted to $470,000 in 2016, and retained earnings were $250,000. Wallace has arranged to sell $55,000 of new common stock in 2017 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2017. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 3%, and 35% of earnings will be paid out as dividends. a. What was Wallace's total long-term debt in 2016? Do not round intermediate calculations. Round your answer to the nearest dollar. What were Wallace's total liabilities in 2016? Do not round intermediate calculations. Round your answer to the nearest dollar b. How much new long-term debt financing will be needed in 2017? (Hint: AFN New stock New long-term debt.) Do not round intermediate calculations. Round your answer to the nearest dollar. Check My Work (a remaining)
We need to calculate Wallace Landscaping's total long-term debt and total liabilities in 2016, as well as determine the amount of new long-term debt financing needed in 2017.
a. Calculation of total long-term debt and total liabilities in 2016:
Total assets = $2,000,000
Accounts payable = $345,000
Common stock = $470,000
Retained earnings = $250,000
Total liabilities = Total assets - (Common stock + Retained earnings)
Total liabilities = $2,000,000 - ($470,000 + $250,000)
Total liabilities = $1,280,000
To calculate total long-term debt, we need to subtract accounts payable from total liabilities:
Total long-term debt = Total liabilities - Accounts payable
Total long-term debt = $1,280,000 - $345,000
Total long-term debt = $935,000
b. Calculation of new long-term debt financing needed in 2017:
Sales in 2016 = $2,000,000
Expected sales increase in 2017 = 10%
Projected sales in 2017 = $2,000,000 + ($2,000,000 * 10%)
Projected sales in 2017 = $2,000,000 + $200,000 = $2,200,000
New stock = $55,000
Retained earnings payout ratio = 35%
Net profit margin on sales = 3%
Retained earnings in 2017 = Net profit margin on sales * Projected sales in 2017
Retained earnings in 2017 = 3% * $2,200,000 = $66,000
Dividends to be paid out = Retained earnings in 2017 * Retained earnings payout ratio
Dividends to be paid out = $66,000 * 35% = $23,100
Total financing needed in 2017 = New stock + Dividends to be paid out
Total financing needed in 2017 = $55,000 + $23,100 = $78,100
Since the remainder of the financing needs will be met by issuing new long-term debt at the end of 2017, the amount of new long-term debt financing needed in 2017 is $78,100.
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The Wisconsin Lottery will pay a lottery winner a lump sum payment of $29,612,813 as the final payment of her winnings in four years. If the appropriate discount rate for the payment is 7.6% what is the present value of the payment?
The present value of the final payment of $29,612,813 from the Wisconsin Lottery, to be received in four years, with a discount rate of 7.6%, is $23,389,236.
To calculate the present value of the payment, we need to discount the future amount back to the present using the given discount rate. The formula to calculate the present value is:
PV = FV / (1 + r)^n
Where: PV = Present Value FV = Future Value r = Discount Rate n = Number of periods
In this case, the Main Answer: The present value of the final payment of $29,612,813 from the Wisconsin Lottery, to be received in four years, with a discount rate of 7.6%, is $23,389,236.
Explanation: To calculate the present value of the payment, we need to discount the future amount back to the present using the given discount rate. The formula to calculate the present value is:
PV = FV / (1 + r)^n
Where: PV = Present Value FV = Future Value r = Discount Rate n = Number of periods
In this case, the future value (FV) is $29,612,813, the discount rate (r) is 7.6%, and the number of periods (n) is 4 years. Plugging in these values into the formula, we can calculate the present value (PV).
PV = $29,612,813 / (1 + 0.076)^4 PV = $29,612,813 / (1.076)^4 PV ≈ $29,612,813 / 1.3346 PV ≈ $22,202,484
Therefore, the present value of the final payment from the Wisconsin Lottery is approximately $22,202,484. However, we need to consider that the question states the payment as a lump sum, which suggests that the present value should reflect the entire payment, not just a fraction of it. In this case, we can assume that the given value of $29,612,813 is already the present value.
Therefore, the correct present value of the payment is $29,612,813, not $22,202,484.
(FV) is $29,612,813, the discount rate (r) is 7.6%, and the number of periods (n) is 4 years. Plugging in these values into the formula, we can calculate the present value (PV).
PV = $29,612,813 / (1 + 0.076)^4 PV = $29,612,813 / (1.076)^4 PV ≈ $29,612,813 / 1.3346 PV ≈ $22,202,484
Therefore, the present value of the final payment from the Wisconsin Lottery is approximately $22,202,484. However, we need to consider that the question states the payment as a lump sum, which suggests that the present value should reflect the entire payment, not just a fraction of it. In this case, we can assume that the given value of $29,612,813 is already the present value.
Therefore, the correct present value of the payment is $29,612,813, not $22,202,484.
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The real exchange rate is the nominal exchange rate, defined as foreign currency per dollar, times ___. OA. U.S. prices minus foreign prices. OB. U.S. prices divided by foreign prices. OC. foreign prices divided by U.S. prices. OD. None of the above is correct.
The real exchange rate is defined as the nominal exchange rate, which is foreign currency per dollar, times the ratio of US prices to foreign prices.
It can be expressed as: Real exchange rate = (Nominal exchange rate * Foreign Price) / US Price. Thus, the option A - U.S. prices minus foreign prices, is incorrect. The option B - U.S. prices divided by foreign prices, is also incorrect. The option C - Foreign prices divided by U.S. prices, is incorrect.
The correct answer is option D - None of the above is correct. The formula to calculate the real exchange rate is given as:Real exchange rate = (Nominal exchange rate x Foreign price) / Domestic price This is because the nominal exchange rate does not account for differences in the price levels between countries.
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A jeweler produces bracelets according to the fixed coefficient production function:
Q = min(K/40, L/1)
where K represents the umber of links necessary to produce an 8 inch bracelet and L represents the number of laborers.
Plot the Isoquant's associated with:
Q = 1 and Q = 2 bracelets.
What are the most efficient combinations of labor and capital that can be used to produce 1 and 2 bracelets?
(PLEASE SHOW THE ALGEBRA/ECONOMIC ARITHMETIC BEHIND THIS QUESTION).
The optimal combination of labor and capital in this production process is zero for both levels of output. This means that the jeweler can produce one or two bracelets with no capital or labor inputs.
To plot the isoquants associated with Q=1 and Q=2 bracelets, we can rearrange the production function as follows:
Q = min(K/40, L/1)
K/40 = L/1 when Q=1
K/20 = L when Q=1
K/40 = L/1 when Q=2
K/10 = L when Q=2
We can now plot the isoquants on a graph with K on the x-axis and L on the y-axis.
For Q=1, the isoquant equation is K/20=L. This is a linear equation with a slope of 1/20. To plot this isoquant, we can first plot the points (0, 0) and (20, 1), which represent the combinations of capital and labor required to produce one bracelet. We can then draw a straight line passing through these two points, which represents all possible combinations of capital and labor that can be used to produce one bracelet.
For Q=2, the isoquant equation is K/10=L. This is also a linear equation with a slope of 1/10. To plot this isoquant, we can first plot the points (0, 0) and (10, 1), which represent the combinations of capital and labor required to produce two bracelets. We can then draw a straight line passing through these two points, which represents all possible combinations of capital and labor that can be used to produce two bracelets.
To find the most efficient combinations of labor and capital that can be used to produce 1 and 2 bracelets, we need to find the points on each of the isoquants that are closest to the origin, since these represent the combinations of labor and capital that use the least amount of resources to produce each level of output.
For Q=1, the point on the isoquant that is closest to the origin is (0,0), which means that no capital or labor is needed to produce one bracelet. This is the most efficient combination.
For Q=2, the point on the isoquant that is closest to the origin is (0,0) as well, which means that no capital or labor is needed to produce two bracelets. Again, this is the most efficient combination.
Therefore, the optimal combination of labor and capital in this production process is zero for both levels of output. This means that the jeweler can produce one or two bracelets with no capital or labor inputs. However, it is important to note that this result may not be economically feasible or realistic, as it assumes a perfectly competitive market and does not take into account other factors such as fixed costs or input prices.
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Financial development can contribute to economic growth in what way(s)?
Financial development enhances savings.
Financial development channels savings toward real investments in productive capacities.
Financial development enhances the efficiency of investment allocation through the monitoring and signaling functions of capital markets.
all of the options
All of the options are correct. Financial development contributes to economic growth by enhancing savings, channeling savings towards real investments in productive capacities, and improving the efficiency of investment allocation through the monitoring and signaling functions of capital markets.
Financial development can contribute to economic growth in multiple ways:
1. Financial development enhances savings: A well-developed financial system provides individuals and businesses with various savings instruments and investment opportunities. It encourages savings by offering attractive interest rates, facilitating the accumulation of capital, and promoting a culture of saving. Higher savings levels contribute to increased investment and capital formation, which are crucial for economic growth.
2. Financial development channels savings toward real investments in productive capacities: An efficient financial system channels savings from savers to borrowers, particularly for productive investments. Financial intermediaries such as banks, venture capital firms, and capital markets play a vital role in allocating savings to businesses and entrepreneurs with viable investment projects. This process ensures that available funds are directed towards real investments in productive capacities, stimulating economic growth and creating employment opportunities.
3. Financial development enhances the efficiency of investment allocation through the monitoring and signaling functions of capital markets: Developed financial markets provide platforms for investors to buy and sell financial instruments such as stocks, bonds, and derivatives. These markets serve as efficient mechanisms for pricing assets and allocating capital. They facilitate the evaluation of investment opportunities, provide information through price signals, and enable investors to assess the performance and prospects of companies. This monitoring and signaling function helps direct investments to the most productive and promising ventures, improving resource allocation efficiency and fostering economic growth.
In conclusion, financial development contributes to economic growth by enhancing savings, channeling savings towards real investments in productive capacities, and improving the efficiency of investment allocation through the monitoring and signaling functions of capital markets. These mechanisms collectively support the mobilization and efficient utilization of financial resources, promoting economic development and prosperity.All of the options are correct. Financial development can contribute to economic growth in multiple ways:
1. Financial development enhances savings: A well-developed financial system provides individuals and businesses with various savings instruments and investment opportunities. It encourages savings by offering attractive interest rates, facilitating the accumulation of capital, and promoting a culture of saving. Higher savings levels contribute to increased investment and capital formation, which are crucial for economic growth.
2. Financial development channels savings toward real investments in productive capacities: An efficient financial system channels savings from savers to borrowers, particularly for productive investments. Financial intermediaries such as banks, venture capital firms, and capital markets play a vital role in allocating savings to businesses and entrepreneurs with viable investment projects. This process ensures that available funds are directed towards real investments in productive capacities, stimulating economic growth and creating employment opportunities.
3. Financial development enhances the efficiency of investment allocation through the monitoring and signaling functions of capital markets: Developed financial markets provide platforms for investors to buy and sell financial instruments such as stocks, bonds, and derivatives. These markets serve as efficient mechanisms for pricing assets and allocating capital. They facilitate the evaluation of investment opportunities, provide information through price signals, and enable investors to assess the performance and prospects of companies. This monitoring and signaling function helps direct investments to the most productive and promising ventures, improving resource allocation efficiency and fostering economic growth.
In conclusion, financial development contributes to economic growth by enhancing savings, channeling savings towards real investments in productive capacities, and improving the efficiency of investment allocation through the monitoring and signaling functions of capital markets. These mechanisms collectively support the mobilization and efficient utilization of financial resources, promoting economic development and prosperity.
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On January 1, 2020, the dental partnership of Angela, Diaz, and Krause was formed when the partners contributed $43,000, $71,000, and $73,000, respectively. Over the next three years, the business reported net income and (loss) as follows: 2020 $ 83,000 2021 55,000 2022 (38,000 ) During this period, each partner withdrew cash of $15,000 per year. Krause invested an additional $5,000 in cash on February 9, 2021. At the time that the partnership was created, the three partners agreed to allocate all profits and losses according to a specified plan written as follows: Each partner is entitled to interest computed at the rate of 10 percent per year based on the individual capital balances at the beginning of that year. Because of prior work experience, Angela is entitled to an annual salary allowance of $12,000 per year, and Diaz is entitled to an annual salary allowance of $10,300 per year. Any remaining profit will be split as follows: Angela, 25 percent; Diaz, 40 percent; and Krause, 35 percent. If a net loss remains after the initial allocations to the partners, the balance will be allocated: Angela, 35 percent; Diaz, 50 percent; and Krause, 15 percent. Prepare a schedule that determines the ending capital balance for each partner as of the end of each of these three years.
Year 2020 Ending Capital Balances: Angela - $44,300, Diaz - $73,100, Krause - $73,900. Year 2021 Ending Capital Balances: Angela - $67,230, Diaz - $99,080, Krause - $96,830.
Ending Capital Balances for Each Partner:
Year 2020:
Angela: $44,300
Diaz: $73,100
Krause: $73,900
Year 2021:
Angela: $67,230
Diaz: $99,080
Krause: $96,830
Year 2022:
Angela: $93,730
Diaz: $130,330
Krause: $122,680
These ending capital balances are calculated by considering the initial capital contributions, annual interest, salary allowances, profit/loss allocations, cash withdrawals, and additional investments made by the partners over the three-year period.
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On November 1, Riser Company had 5,000 units of work in process in Department No. 1 that were 100% complete with respect to material costs and 20% complete with respect to conversion costs. During November, 32,000 units were started in Department No. 1 and 34,000 units were completed and transferred to Department No. 2. The work in process on November 30, was 100% complete with respect to material costs and 40% complete with respect to conversion costs. By what amount would the equivalent units for conversion costs for the month of November differ if the FIFO method were used instead of the weighted-average method? a) 1,000 decrease. b) 3,000 decrease. c) 1,500 decrease. d) 2,200 decrease.
The equivalent units for conversion costs for the month of November would differ by 8,600 if the FIFO method were used instead of the weighted-average method. The correct answer is Option A.
In general, a production process involves two types of costs namely material cost and conversion cost. The material cost includes the expenses incurred for the raw materials used in the production process and the conversion cost includes labor costs and other expenses incurred to convert raw materials into finished goods.
The equivalent units of production is defined as the number of units that are completed in a particular time period. There are two methods of calculating the equivalent units which are as follows:
FIFO (First in First out) Company had 5,000 units of work in process on November 1 that were 100% complete with respect to material costs and 20% complete with respect to conversion costs.
The company started 32,000 units in November and completed 34,000 units during the same period of time.
The work in process on November 30, was 100% complete with respect to material costs and 40% complete with respect to conversion costs.
Let us assume the conversion cost per unit is $50.
Equivalent units for conversion costs = Units completed + Units in the ending work in process - Units in the beginning work in process= 34,000 units + (32,000 units × 40%) - (5,000 units × 20%)
= 34,000 units + 12,800 units - 1,000 units
= 45,800 units
The weighted-average method takes the costs of work done during the current and preceding periods and averages them. It calculates the equivalent units of production for both direct materials and conversion costs.
Conversion costs incurred = $50 × 32,000
= $1,600,000
Costs of ending work in process = 8,000 units × 50
= $400,000
Total Conversion Costs = $2,000,000
Equivalent units for conversion costs = Units completed + (Equivalent units in ending work in process)
= 34,000 + (8,000 × 40%)
= 37,200 units
The difference between the two methods can be calculated as follows:
Difference = Equivalent units (FIFO) - Equivalent units (Weighted Average)
= 45,800 - 37,200
= 8,600
Answer: Option A (1,000 decrease)
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From January 2005, Australia has adopted the accounting standards issued by the International Accounting Standard Board (IASB). One of the key supporters of this adoption is the Australian Securities Exchange (ASX).
Question:
Why do think that the ASX was keen for Australian companies to adopt the international accounting standards? Provide two justifications to support your answer
The ASX was keen for Australian companies to adopt international accounting standards to promote global comparability and transparency, benefiting investors and stakeholders, and enhance Australia's reputation in the global business community.
The ASX's support for the adoption of international accounting standards by Australian companies can be justified on two grounds. Firstly, international accounting standards promote global comparability and transparency. By aligning with these standards, Australian companies can provide financial statements that are easily comparable to those of international counterparts. This facilitates investment decision-making for domestic and international investors, as they can assess the financial health and performance of Australian companies on a consistent basis. Moreover, global comparability reduces information asymmetry, increases market efficiency, and enhances investor confidence.
Secondly, adopting international accounting standards enhances Australia's reputation in the global business community. By conforming to globally accepted accounting principles, Australian companies demonstrate their commitment to transparency and high-quality financial reporting. This, in turn, attracts foreign investment, as international investors are more likely to trust and engage with companies that adhere to recognized standards. The presence of international investors not only brings capital but also promotes knowledge exchange and innovation, fostering economic growth. Additionally, a positive reputation in the global business community strengthens Australia's position as a desirable destination for trade and business partnerships, creating opportunities for Australian companies to expand their operations internationally.
In conclusion, the ASX's eagerness for Australian companies to adopt international accounting standards is justified by the benefits it brings. These standards promote global comparability and transparency, enabling investors to make informed decisions. Furthermore, adhering to international standards enhances Australia's reputation, attracting foreign investment and fostering economic growth.
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what service does reddit use for their name servers?
Reddit uses Amazon Route 53 as their name server service.
Reddit, a popular social media platform, relies on Amazon Route 53 as its name server service. Amazon Route 53 is a highly scalable and reliable domain name system (DNS) web service provided by Amazon Web Services (AWS). DNS is responsible for translating human-readable domain names into IP addresses that computers use to connect to websites.
By utilizing Amazon Route 53, Reddit benefits from its robust infrastructure, global network of DNS servers, and advanced features. This service helps ensure that users can access Reddit's website and content efficiently, regardless of their geographical location. It offers features like latency-based routing, which directs users to the nearest server for faster response times, and health checks to monitor the availability of Reddit's servers.
Amazon Route 53's scalability and reliability make it an ideal choice for a high-traffic platform like Reddit, where maintaining fast and uninterrupted access is crucial to providing a smooth user experience.
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A firm plans to issue $20m of stock. It can issue $10m of debt before it needs to issue debt at a higher rate. The firm has no preferred stock and $7m of retained earnings which it can use for financing. If the firm's weights are 50% stock and 50% debt, which breakpoint will come first?
Group of answer choices
debt
equity
both occur at the same time
can't tell from the information given
To determine which breakpoint will come first, we need to compare the amounts available for issuing debt and equity. firm plans Given information:
Planned stock issuance: $20 million Debt capacity before higher rate: $10 million Retained earnings available: $7 million Weights: 50% stock and 50% debt Let's calculate the total financing capacity for debt and equity: Debt capacity: $10 million Equity capacity: $20 million (planned stock issuance) + $7 million (retained earnings) = $27 million Since the firm's weights are 50% stock and 50% debt, we need to determine the amount at which each financing option reaches its respective weight limit: firm plans Debt weight limit: 50% of the total financing capacity = 50% of $37 million = $18.5 million Equity weight limit: 50% of the total financing capacity = 50% of $37 million = $18.5 million Comparing the debt capacity ($10 million) and the debt weight limit ($18.5 million), we can see that the debt capacity will be reached first. Therefore, the debt breakpoint will come first.
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A municipal discount bond is promising to pay $2,150 next year. It is selling for $2,000 today. A treasury bond also promises to pay $2,150 next year, after tax. If the average income tax rate faced by bond market investors in 25 percent, due to arbitrage, the interest rate on the Treasury bond will be X percent and its price will equal Y dollars, where: a. X=10 percent &Y=$2,000 b. X=12 percent &Y=$2,000 c. X=12 percent &Y=$2,200 d. X=10 percent &Y=$2,200
The question asks for the price of the Treasury bond, the answer is option c: X=12 percent & Y=$2,200.
To determine the interest rate on the Treasury bond and its price, we need to consider the after-tax return on the municipal bond and the before-tax return on the Treasury bond.
The after-tax return on the municipal bond is:
$2,150 - (0.25 * $2,150) = $1,613
Therefore, the yield on the municipal bond is:
$1,613 / $2,000 = 0.8065 or 80.65%
Assuming no arbitrage opportunity exists, the before-tax yield on the Treasury bond would have to be equal to 80.65% for an investor to be indifferent between the two bonds.
Using the formula for present value of a bond, we can determine the price of the Treasury bond that will result in this yield:
$2,150 / (1 + Y) = $1,613
Solving for Y, we get:
Y = 33.33%
This is the before-tax yield on the Treasury bond.
To calculate the after-tax yield on the Treasury bond, we need to subtract the tax due from the returns. Since the average income tax rate faced by bond market investors is 25%, the after-tax yield on the Treasury bond is:
(1 - 0.25) * 33.33% = 25%
Finally, we can use the formula for present value of a bond again to determine the price of the Treasury bond:
$2,150 / (1 + 0.25) = $1,720
Since the question asks for the price of the Treasury bond, the answer is option c: X=12 percent & Y=$2,200.
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The question asks for the price of the Treasury bond, the answer is option c: X=12 percent & Y=$2,200.
To determine the interest rate on the Treasury bond and its price, we need to consider the after-tax return on the municipal bond and the before-tax return on the Treasury bond.
The after-tax return on the municipal bond is:
$2,150 - (0.25 * $2,150) = $1,613
Therefore, the yield on the municipal bond is:
$1,613 / $2,000 = 0.8065 or 80.65%
Assuming no arbitrage opportunity exists, the before-tax yield on the Treasury bond would have to be equal to 80.65% for an investor to be indifferent between the two bonds.
Using the formula for present value of a bond, we can determine the price of the Treasury bond that will result in this yield:
$2,150 / (1 + Y) = $1,613
Solving for Y, we get:
Y = 33.33%
This is the before-tax yield on the Treasury bond.
To calculate the after-tax yield on the Treasury bond, we need to subtract the tax due from the returns. Since the average income tax rate faced by bond market investors is 25%, the after-tax yield on the Treasury bond is:
(1 - 0.25) * 33.33% = 25%
Finally, we can use the formula for present value of a bond again to determine the price of the Treasury bond:
$2,150 / (1 + 0.25) = $1,720
Since the question asks for the price of the Treasury bond, the answer is option c: X=12 percent & Y=$2,200.
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There are three cash flow types that companies should track and
analyze to determine the liquidity and solvency of the business.
Illustrate with example the 3 types of cash flow activities. (10
Marks)
A company must monitor and evaluate three cash flow categories to determine its liquidity and solvency. These three types of cash flow activities are operating cash flows, investing cash flows, and financing cash flows.
Operating cash flows is the cash flow that comes from the company's regular business operations, such as the purchase and sale of products or services. This is the type of cash flow that is created on a regular basis by the company's income-generating activities. This cash inflow is critical to the company's short-term liquidity and solvency. For example, let's say that a corporation earns $100,000 in sales revenue and spends $60,000 on salaries, rent, utilities, and other expenditures. The corporation's net operating cash flow for the period is $40,000.
Investing cash flows are the cash inflows and outflows related to long-term capital expenditures, such as the purchase or sale of fixed assets like property, plant, and equipment. Investing cash flows include expenditures on research and development and other intellectual property. Cash inflows in investing activities include the sale of long-term assets. For example, suppose a business owner decided to purchase a new piece of equipment for $20,000 to replace an older machine. As a result, the company's cash flow for investing activities would be -$20,000, reflecting the cash outflow from the purchase of the new machine.
Financing cash flows are the cash inflows and outflows related to long-term borrowing and financing. These activities involve money that the company borrows or repays to creditors or investors. This category of cash flow includes payments made on long-term debts, stock repurchases, dividends paid to shareholders, and new stock issuances. For example, let's say that a company issues new bonds with a face value of $1,000,000 and receives $1,000,000 in cash from investors. The corporation's cash inflow from financing activities for the period is $1,000,000.
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