The formula for price elasticity of demand, which is the percentage change in quantity demanded divided by the percentage change in price, must be used to determine the point price elasticity at Q = 20.
Price elasticity of demand is calculated as follows: E = (ΔQ / Q) / (ΔP / P) Q = 20, thus we can use this number as a substitution in the demand equation to determine the corresponding price: 20 = 100 - 10P 10P = 100 - 20 10P = 80 P = 8 Therefore, the price is P = 8 for Q = 20. The following formula : ΔQ / Q = (Q2 - Q1) / Q1 ΔQ / Q = (20 - 0) / 20 = 1 We employ the following formula to determine the price change as a percentage.
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CASE STUDY "Old Mutual: Leading Culture Change"Full name:Student #:Executive SummaryThe focus of the paper was to examine the problems associated with organisational changeand leadership at Old Mutual to provide key recommendations on how the problems can beaddressed. It emerged from the analysis the managed separation of Old Mutual into OldMutual Emerging Market (OMEM), Old Mutual Wealth, Nedbank, and Old Mutual AssetManagement created disparities in the organisational culture that could potentially affect theperformance of the new business segments. There was a disconnect in the organisationalculture due to the differences in the demographic, legal and market setting of the entities. Asa result, the proposed solution by the leadership was to develop a new organisational culture.The new organisational culture spearheaded by Morule and the executive leadership teamfocused on implementing a participatory leadership approach. The leadership styleemphasized the need for inclusion and appreciation for diversity while at the same timefocusing on employee engagement in the change management process. The process of changeinvolved preparation for change, managing change in addition to reinforcing change. Thisinvolved the process of preparing the employees for the managed separation of theorganisation, adapting to the new changes following the change in addition institutionalizingthe changes within the organisational contexts. The leadership of organisation pursued a neworganisational culture defined by journey of "Anchoring in Africa" which placed moreemphasis on the African identity. Its effectiveness was largely linked to the participatoryleadership approach and the visionary outlook of the leaderships. However, to ensure that thenew strategy would be sustainable, Morule needs to focus on enhancing communication inaddition to leveraging reward systems to incentive the employees. Communication can beimproved through listening to the concerns of the employees with regards to organisationalchange while both tangible and intangible rewards can be used to promote desiredbehaviours.
Why did old mutual’s leaders believe they needed to change the organisational culture?
Old Mutual's leaders believed they needed to change the organizational culture to address disparities and create a cohesive culture following the managed separation of the company.
Old Mutual's leaders believed they needed to change the organizational culture due to the disparities that emerged after the managed separation of Old Mutual into different business segments. The demographic, legal, and market differences among these entities created a disconnect in the organizational culture. Recognizing the potential impact on performance, the leaders saw the need to develop a new organizational culture that would align and unify the various segments. The aim was to address the challenges arising from the separation and create a cohesive culture that would support the company's goals and enable effective collaboration and adaptation to the new changes.In conclusion, Old Mutual's leaders recognized the need to change the organizational culture to overcome disparities resulting from the managed separation and foster a unified and cohesive culture for improved performance and effective adaptation to the new business segments.
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Identify an organization that participates in a corporate social responsibility (CSR) activity, and describe that CSR activity. If you were the CEO of this organization, how would you assess the value of the CSR activity? What does the organization want to achieve through this CSR activity?
One organization that participates in corporate social responsibility (CSR) activities is Patagonia, an outdoor clothing and gear company. One of their notable CSR activities is their commitment to environmental sustainability.
Patagonia's CSR activity includes initiatives such as reducing their carbon footprint, promoting sustainable manufacturing practices, and supporting environmental causes. They have implemented measures to reduce energy consumption, use recycled materials in their products, and advocate for environmental protection. They also donate a portion of their profits to grassroots environmental organizations.
If I were the CEO of Patagonia, I would assess the value of their CSR activity by considering various factors. Firstly, I would evaluate the impact of their sustainability efforts on the environment. This would include measuring reductions in carbon emissions, waste generation, and water usage. I would also assess the effectiveness of their sustainable manufacturing practices in terms of resource conservation and minimizing environmental harm.
Additionally, I would analyze the social and reputational value of their CSR activities. This would involve examining the public perception of Patagonia's sustainability efforts and their influence on brand loyalty and customer engagement. I would assess whether their CSR initiatives attract and retain environmentally conscious customers, and if it contributes to positive brand recognition and differentiation.
Furthermore, I would evaluate the alignment of the CSR activity with the organization's values and long-term goals. Patagonia's commitment to environmental sustainability aligns with their mission of producing high-quality products while minimizing their ecological impact. Assessing how the CSR activity aligns with the overall strategic direction of the company would help determine its value.
The ultimate goal of Patagonia's CSR activity is to create a positive environmental impact beyond their own operations and inspire others to take action. They aim to be a catalyst for change within the industry and encourage sustainable practices throughout the supply chain. Through their CSR initiatives, Patagonia wants to raise awareness about environmental issues, protect natural resources, and contribute to the well-being of the planet.
In evaluating the value of the CSR activity, it would be essential to measure the tangible outcomes in terms of environmental impact and assess the intangible benefits, such as enhanced brand reputation and customer loyalty. It is crucial to ensure that the CSR activity aligns with the organization's core values, furthers its mission, and generates positive results for both the company and the broader community.
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Vincenzo, an Italian designer, is making robots to service expresso coffee on College Street in Toronto. The robots will roll to your table and also drop off the biscotti. Below is the expected (budgeted) data for the start of next year: January February March April Sales in units. 50 60 70 85 Sales price per unit $60.00 $65.00 $55.00 $50.00 The desired ending inventory for finished goods (production) is 20% of next month's sales. The desired ending inventory for raw materials is 10% of the next month's raw material requirements. Raw material required for each unit of the product is 5 units. The cost of each unit of raw material is $10 per unit. Time required to assemble one (1) robot is 90 minutes. Assembly line workers are paid $15 per direct labour hour. Using the above information answer the following questions. Using the sales budget, calculate the budgeted sales for February. HINT: remember the entry rules! A/ Complete the production budget. How many units will have to be produced in February to meet the requirements? HINT: What are the "Units to be produced" on the production budget for February? A/ Prepare the Direct Materials Purchases Budget. What will be the cost of February's production? HINT: On the Direct Materials Purchases Budget, what will be the "Total direct materials cost"? A/ Prepare the Direct Labour Budget. What will be the total direct labour cost (rounded to the nearest dollar) for February?
1. Budgeted sales for February: 60 units. 2. Production budget for February: 64 units. 3. Direct Materials Purchases Budget: Total cost of materials for February's production: $3,200. 4. Direct Labour Budget: Total labour cost for February: $1,440.
1. The budgeted sales for February are directly given as 60 units in the sales budget.
2. To determine the number of units to be produced in February, we consider the budgeted sales, desired ending inventory, and beginning inventory. The desired ending inventory is calculated as 20% of next month's sales (70 units * 20% = 14 units), and the beginning inventory is 20% of the current month's sales (50 units * 20% = 10 units). By adding these values, we get the units to be produced as 64 units.
3. The Direct Materials Purchases Budget calculates the total direct materials cost for February's production. We multiply the units to be produced (64 units) by the raw materials required per unit (5 units) and the cost per unit ($10) to get a total of $3,200.
4. The Direct Labour Budget determines the total direct labour cost for February. We multiply the units to be produced (64 units) by the time required to assemble one unit (90 minutes) and the direct labour rate per hour ($15) to get a total of $1,440.
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Prepare journal entries to record the following merchandising transactions of Cabela's, which uses the perpetual inventory system and the gross method. Hint: It will help to identify each receivable and payable; for example, record the purchase on July 1 in Accounts Payable-Boden. July 1 Purchased merchandise from Boden Company for $6,600 under credit terms of 2/15, n/30, ron shipping point, invoice dated July 1. 2 Sold merchandise to Creek Co. for $1,000 under credit terms of 2/10, n/60, FOB shipping point, invoice dated July 2. The merchandise had cost $550. 3 Paid $130 cash for freight charges on the purchase of July 1. 8 Sold merchandise that had cost $1,900 for $2,300 cash.. 9 Purchased merchandise from Leight Co. for $2,600 under credit terms of 2/15, n/60, FOB destination, invoice dated July 9. 11 Returned $600 of merchandise purchased on July 9 from Leight Co. and debited its account payable for that amount. 12 Received the balance due from Creek Co. for the invoice dated July 2, net of the discount.. 16 Paid the balance due to Boden Company within the discount period. 19 Sold merchandise that cost $1,200 to Art Co. for $1,800 under credit terms of 2/15, n/60, POB shipping point, invoice dated July 19. 21 Gave a price reduction (allowance) of $300 to Art Co. for merchandise sold on July 19 and credited Art's accounts receivable for that amount. 24 Paid Leight Co. the balance due, net of discount.
July 1 ; Inventory 6,600
July 2; Inventory 550
July 3; Cash 130
July 8; Inventory 1,900
July 9; Inventory 2,600
July 11; Inventory 600
July 12; Accounts Receivable - Creek Co. Balance after discount
July 16; Cash Amount paid to Boden Company
July 21; Accounts Receivable - Art Co. 300
July 24; Cash Amount paid to Leight Co.
To record the merchandising transactions for Cabela's, I will provide the journal entries for each transaction:
July 1: Purchased merchandise from Boden Company
Accounts Payable - Boden 6,600
Inventory 6,600
July 2: Sold merchandise to Creek Co.
Accounts Receivable - Creek Co. 1,000
Sales 1,000
Cost of Goods Sold 550
Inventory 550
July 3: Paid cash for freight charges
Freight Expense 130
Cash 130
July 8: Sold merchandise for cash
Cash 2,300
Sales 2,300
Cost of Goods Sold 1,900
Inventory 1,900
July 9: Purchased merchandise from Leight Co.
Accounts Payable - Leight Co. 2,600
Inventory 2,600
July 11: Returned merchandise to Leight Co.
Accounts Payable - Leight Co. 600
Inventory 600
July 12: Received payment from Creek Co.
Cash Amount received from Creek Co.
Sales Discounts Discount amount
Accounts Receivable - Creek Co. Balance after discount
July 16: Paid the balance due to Boden Company
Accounts Payable - Boden Balance after discount
Cash Amount paid to Boden Company
July 19: Sold merchandise to Art Co.
Accounts Receivable - Art Co. 1,800
Sales 1,800
Cost of Goods Sold 1,200
Inventory 1,200
July 21: Gave a price reduction to Art Co.
Sales Returns and Allowances 300
Accounts Receivable - Art Co. 300
July 24: Paid the balance due to Leight Co.
Accounts Payable - Leight Co. Balance after discount
Cash Amount paid to Leight Co.
Please note that the entries reflect the specific accounts and amounts for each transaction. It is important to adjust the accounts and amounts based on the actual figures and the specific account titles used by Cabela's.
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Pharoah Corporation's balance sheet at December 31,2021 , is presented below. During 2022, the following transactions occurred, Pharoah uses a perpetual inventory system. 1. Pharoah paid $2,750 interest on the bonds on January 1,2022. 2. Pharoah purchased $240,100 of inventory on account. 3. Pharoah sold for $451,300 cash inventory which cost $247,700. Pharoah also collected $27,078 sales taxes. 4. Pharoah paid $227,800 on accounts payable. 5. The prepaid insurance ($6,000) expired on July 31. 6. On August 1. Pharoah paid \$12,000 for insurance coverage from August 1, 2022, through July 31.2023. 6. On August 1. Pharoah paid $12,000 for insurance coverage from August 1, 2022, through July 31,2023. 7. Pharoah paid $26,100 sales taxes to the state. 8. Paid other operating expenses, $93,600. 9. Redeemed the bonds on December 31,2022 , by paying $52,800 plus $2,750 interest. 10. Issued $85,800 of 8% bonds on December 31,2022 , at 103 . The bonds pay interest every June 30 and December 31 . Adjustment data: 1. Recorded the insurance expired from item 6. 2. The equipment was acquired on December 31,2021 , and will be depreciated on a straight-line basis over 5 years with a $2,800 salvage value. (a) Prepare journal entries for the transactions listed above. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select. "No Entry" for the account titles and enter O for the amounts. If no entry is required, select "No entry" for the account titles and enter O for the amounts.)
The below journal entries capture the transactions and adjustments for Pharoah Corporation during the year 2022. They reflect the financial activities and events that occurred, ensuring accurate recording of the company's financial position and performance.
Here are the journal entries for the transactions listed above:
On January 1, 2022, Pharoah paid the bonds' interest of $2,750.
Interest Expense 2,750
Cash 2,750
Pharoah purchased $240,100 of inventory on account.
Inventory 240,100
Accounts Payable 240,100
Pharoah sold inventory for $451,300 cash, which cost $247,700. Pharoah also collected $27,078 in sales taxes.
Cash 451,300
Sales Revenue 451,300
Cost of Goods Sold 247,700
Inventory 247,700
Cash 27,078
Sales Taxes Payable 27,078
Pharoah paid $227,800 on accounts payable.
Accounts Payable 227,800
Cash 227,800
The prepaid insurance ($6,000) expired on July 31.
Insurance Expense 6,000
Prepaid Insurance 6,000
For insurance coverage from August 1, 2022, through July 31, 2023, Pharoah paid $12,000 on August 1.
Prepaid Insurance 12,000
Cash 12,000
Pharoah gave the state $26,100 in sales taxes.
Sales Taxes Payable 26,100
Cash 26,100
Paid other operating expenses, $93,600.
Operating Expenses 93,600
Cash 93,600
On December 31, 2022, redeemed the bonds for $52,800 + $2,750 in interest.
Bonds Payable 52,800
Interest Expense 2,750
Cash 55,550
8% bonds worth $85,800 were issued on December 31, 2022, at 103. Interest on the bonds is payable every June 30 and December 31.
Cash 88,074
Bonds Payable 85,800
Premium on Bonds Payable 2,274
Adjustment data:
Recorded the insurance expired from item 6.
Insurance Expense 2,000
Prepaid Insurance 2,000
Since the equipment was bought on December 31, 2021, it will depreciate over a period of five years at a straight-line rate with a salvage value of $2,800.
Depreciation Expense 6,480
Accumulated Depreciation 6,480
These journal entries capture the transactions and adjustments for Pharoah Corporation during the year 2022.
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Consider the case of Kuhn Co. Kuhn Co. Is considering a new project that will require an initial investment of $20 million. It has a target capital structure of 45% debt, 4% preferred stock, and 51% common equity. Kuhn has noncallable bonds outstanding that mature in flve years with a face value of $1,000, an annual coupon rate of 10%, and a market price of $1,050.76. 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 $9 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 3% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 8.7%, and they face a tax rate of 25%. What will be the WACC for this project? (Note: Round your intermediate calculations to two decimal places.)
The WACC of Kuhn Co. for the new project is 10.69%.
:Given data Initial Investment = $20 million Debt = 45%Preferred Stock = 4%Common Equity = 51%Noncallable bonds outstanding that mature in five years Annual Coupon Rate = 10%Market Price = $1,050.76Face Value = $1,000Yield is a good approximation of the yield on any new bonds that it issues. Company can sell preferred stock with an annual dividend of $9 and a price of $95.70 per share. Common stock is selling for $33.35 per share. Dividend expected at the end of next year is $1.36Flotation costs will represent 3% of the funds raised by issuing new common stock. Company is projected to grow at a constant rate of 8.7%.Tax rate = 25%We will calculate the cost of each component of capital.1. Cost of Debt Cost of Debt = Annual Interest payment/Market Value of Debt Annual Interest payment = 10% * Face Value = $100Market Value of Debt = $1,050.76Therefore,Cost of Debt = (10% * $1,000)/$1,050.76 = 9.5%2. Cost of Preferred Stock Cost of Preferred Stock = Annual Dividend/Net Proceeds of Preferred Stock Annual Dividend = $9Net Proceeds of Preferred Stock = $95.70Therefore,Cost of Preferred Stock = $9/$95.70 = 9.4%3. Cost of Common Equity We will use the CAPM to calculate the cost of common equity. Cost of Common Equity = Risk-free Rate + Beta * Market Risk Premium Risk-free rate = 1.9% Beta = 1.55Market Risk Premium = 8.5%Therefore, Cost of Common Equity = 1.9% + (1.55 * 8.5%) = 14.075% We have to adjust the cost of common equity for the flotation costs, as they represent 3% of the funds raised by issuing new common stock.
Cost of Common Equity = 14.075% * (1 - 3%) = 13.6%4. Weighted Average Cost of Capital (WACC)WACC = (w1 * r1) + (w2 * r2) + (w3 * r3)Where, w1 = Weight of Debt = 45%w2 = Weight of Preferred Stock = 4%w3 = Weight of Common Equity = 51%r1 = Cost of Debt = 9.5%r2 = Cost of Preferred Stock = 9.4%r3 = Cost of Common Equity = 13.6%Therefore,WACC = (0.45 * 9.5%) + (0.04 * 9.4%) + (0.51 * 13.6%) = 10.69%Hence, the WACC of Kuhn Co. for the new project is 10.69%.
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what are the three conditions that make fraud likely?
please respond diffrentily from Chegg
Fraud refers to an intentional deception made for financial gain or other personal benefit. It's crucial to identify and understand the circumstances that make fraud more likely.
Fraud is more likely to occur under the following conditions:Opportunity: Fraud is more likely to occur when there is an opportunity to commit the fraud. This means that individuals who have access to company funds, accounts, or sensitive information are more likely to commit fraud.
An absence of proper oversight or weak internal controls can create an opportunity for fraudulent behavior.Pressure: Individuals who experience financial or personal pressures are more likely to commit fraud. This may include personal debt, job insecurity, addiction, or gambling problems.
Individuals who experience these types of pressures may feel that they have no other option but to engage in fraudulent behavior.Rationalization: Fraud is more likely to occur when the individual committing the fraud can rationalize their actions.
This may include justifying their behavior as necessary to meet personal needs, or feeling that they are owed something by their employer or company. Rationalizing fraudulent behavior can help individuals justify their actions and avoid feelings of guilt or remorse.
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4. If you are concerned that the inflation rate is too high, which of the following policies is recommended? (a) A decrease in the money supply. (c) A decrease in income tax rates: (b) An increase in the money supply. (d) An increase in government spending. 5. Suppose an Egyptian car maker manufactures cars in Jordan. If these cars are sold to Jordanian consumers, they will be considered in calculating: (a) Egyptian gross domestic product (GDP). (b) Jordanian gross national product (GNP). (c) Jordanian consumption. (d) All of the above.
4. To address high inflation, a decrease in the money supply is recommended.
5. If the Egyptian car maker sells cars to Jordanian consumers, it will be considered in calculating Jordanian consumption.
4. If you are concerned about high inflation, a decrease in the money supply (option a) is recommended. This is because reducing the amount of money circulating in the economy can help curb inflationary pressures by limiting the availability of money for spending and investment.
5. If the Egyptian car maker sells cars to Jordanian consumers, it will be considered in calculating Jordanian consumption (option c). The calculation of GDP (gross domestic product) focuses on economic activities within a country's borders, while GNP (gross national product) takes into account the economic activities of a country's residents, regardless of where they occur.
Since the cars are sold and consumed in Jordan, they contribute to Jordanian consumption and are not included in the GDP of Egypt. Therefore, option c is the correct answer.
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In the EOQ model,
we assume that "When an order is placed to the supplier, the units are delivered instantly." Now, let us suppose that the delivery time is five weeks. Then, what is the new ordering policy?
The new ordering policy is that the company should order the EOQ every five weeks to meet the inventory demand, considering the lead time of five weeks.
In the EOQ (Economic Order Quantity) model, the assumption is that when an order is placed with the supplier, the units are delivered instantly. If the delivery time is five weeks, then the new ordering policy will be as explained below.
The EOQ is a widely used inventory control method in manufacturing companies. It’s also called the Wilson formula. The EOQ model helps in determining the optimal order quantity for a business by taking into account the carrying costs, ordering costs, and holding costs. One of the assumptions of the EOQ model is that the lead time is zero. But if there is a lead time, then the EOQ model needs to be modified accordingly. The formula used for the modified EOQ model is:
EOQ = √(2DS/ H) * (1 + L/D), where
EOQ = Economic Order Quantity
D = Annual demand
S = Ordering cost
H = Carrying cost
L = Lead time
D/365 = Daily demandL/D = Proportion of lead time to the demand cycle.
The new ordering policy is that the company needs to order the Economic Order Quantity (EOQ) every five weeks to meet the inventory demand, taking into account the five weeks lead time.
The modified EOQ formula should be used to determine the EOQ, as it takes into account the lead time.
Hence, the formula used to calculate the new ordering policy isEOQ = √(2DS/ H) * (1 + 5/365)
In conclusion, the new ordering policy is that the company should order the EOQ every five weeks to meet the inventory demand, considering the lead time of five weeks. The company should use the modified EOQ formula to calculate the EOQ.
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Required information [The following information applies to the questions displayed below.] Built-Tight is preparing its master budget. Budgeted sales and cash payments follow: Sales to customers are \
The budgeted sales and cash payments provided are necessary for preparing Built-Tight's master budget.
The budgeted sales and cash payments information is crucial in developing Built-Tight's master budget. The sales figures represent the estimated amount of revenue the company expects to generate from its customers. These figures are essential for determining the company's projected income and assessing its financial performance. By accurately forecasting sales, Built-Tight can plan its production levels, manage its inventory, and allocate resources effectively.
On the other hand, the cash payments information is vital for understanding when Built-Tight expects to receive payments from its customers. This data helps in projecting the company's cash inflows and outflows. By analyzing the timing of cash payments, Built-Tight can assess its cash flow position, identify potential cash shortages or surpluses, and plan accordingly. It allows the company to optimize its working capital management and ensure it has sufficient funds to meet its financial obligations.
Overall, the budgeted sales and cash payments information provides key insights into Built-Tight's expected revenue and cash flow patterns. These figures serve as a foundation for developing various components of the master budget, such as the sales budget, production budget, cash budget, and more.
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involve the manager's ability to resolve conflict between people, understand human behaviour, and motivate groups as well as individuals.
A manager's ability to resolve conflicts, understand human behavior, and motivate groups and individuals is crucial for effective leadership.
Conflict resolution is an essential skill for managers as they often encounter disputes and disagreements within their teams. The ability to mediate conflicts, find common ground, and facilitate open communication can help prevent conflicts from escalating and maintain positive working relationships among team members. Managers who excel in conflict resolution can create a supportive and collaborative work environment where differences are acknowledged and resolved constructively.
Understanding human behavior is another critical aspect of effective management. Managers who possess this skill can identify individual strengths, weaknesses, and motivations within their team members. By recognizing the unique needs and characteristics of each employee, managers can tailor their approach to provide appropriate guidance, support, and development opportunities. Understanding human behavior also allows managers to anticipate potential challenges, manage expectations, and promote a positive work culture that values diversity and inclusivity.
Motivating groups and individuals is a key responsibility of managers. By understanding the factors that drive employee motivation, managers can design strategies to enhance engagement, productivity, and job satisfaction. Effective motivation techniques may involve providing meaningful recognition and rewards, fostering a sense of purpose and autonomy, and creating opportunities for growth and advancement. A skilled manager can inspire their team members, align their efforts with organizational goals, and foster a high-performance culture that encourages collaboration and innovation.
In conclusion, a manager's ability to resolve conflicts, understand human behavior, and motivate individuals and groups is vital for successful leadership. These skills contribute to a harmonious work environment, effective communication, and increased employee engagement. Managers who excel in these areas can build strong, cohesive teams, address interpersonal issues proactively, and drive organizational success through empowered and motivated employees.
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Allentown Services Inc. is preparing adjusting entries for the year ending December 31, 2019. The following data are available: a. Interest is owed at December 31, 2019, on a 6-month, 8% note. Allentown borrowed $120,000 from NBD on September 1, 2019. b. Allentown provides daily building maintenance services to Mack Trucks for a quarterly fee of $2,700 payable on the fifteenth of the month following the end of each quarter. -No entries have been made for the services provided to Mack Trucks during the quarter ended December 31, and the related bill will not be sent until January 15, 2020. c. At the beginning of 2019, the cost of office supplies on hand was $1,220. During 2019, office supplies with a total cost of $6,480 were purchased from Office Depot and debited to office supplies inventory. On December 31, 2019, Allentown determined the cost of office supplies on hand to be $970. d. On September 23, 2019, Allentown received a $7,650 payment from Bethlehem Steel for 9 months of maintenance services beginning on October 1, 2019. The entire amount was credited to unearned service revenue when received. Required: Prepare the appropriate adjusting entries at December 31, 2019.
The appropriate adjusting entries at December 31, 2019, for Allentown Services Inc. are as follows:
a. Interest Expense 1,600
Interest Payable 1,600
b. Accounts Receivable 2,700
Service Revenue 2,700
c. Office Supplies Expense 5,250
Office Supplies Inventory 5,250
d. Unearned Service Revenue 6,050
Service Revenue 6,050
a. To record the interest owed on the 6-month, 8% note, an adjusting entry is made by debiting Interest Expense and crediting Interest Payable for the accrued interest of $1,600 ($120,000 x 8% x 6/12). b. An adjusting entries is required to recognize the revenue earned but not yet billed for the building maintenance services provided to Mack Trucks. Accounts Receivable is debited for the amount of $2,700, and Service Revenue is credited. c. To adjust the office supplies account, an adjusting entry is made by debiting Office Supplies Expense for the difference between the beginning balance ($1,220) and the ending balance ($970). The credit is made to Office Supplies Inventory.
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Why is it important that companies like Enterprise Holdings train, empower, and reward their CSRs (Customer Service Representatives)?
Do you work? If you do, how would you like to be empowered at your organization? If you do not currently work or have never worked, what would empowerment (check the definition if unsure) sound like, feel like, or look like for YOU as an employee?
It is important for companies like Enterprise Holdings to train, empower, and reward their CSRs (Customer Service Representatives) because it enhances customer satisfaction, builds brand loyalty, and improves overall business performance.
Training, empowering, and rewarding CSRs is crucial for companies like Enterprise Holdings due to several reasons. Firstly, well-trained CSRs have the knowledge and skills to provide excellent customer service. They can effectively address customer inquiries, resolve issues, and create positive interactions, resulting in higher customer satisfaction. Satisfied customers are more likely to become repeat customers and recommend the company to others, leading to increased sales and brand loyalty.
Secondly, empowering CSRs gives them a sense of ownership and responsibility in their role. When CSRs are empowered, they have the authority and resources to make decisions and solve problems on their own, without constantly relying on management for guidance. This autonomy boosts their confidence and job satisfaction, leading to higher productivity and better customer experiences.
Lastly, rewarding CSRs for their performance and achievements is essential for motivation and retention. Recognizing and incentivizing their hard work and dedication encourages them to continue delivering exceptional service. Rewards can include financial incentives, performance-based bonuses, career advancement opportunities, and a supportive work environment. This not only attracts top talent but also fosters a positive and motivated workforce, resulting in improved employee engagement and overall business success.
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An investment group is considering the purchase of a 35,000 square foot shopping center for $5
million. The property rents for $22 per foot, with an annual increase of 5%. Expected vacancy is
10%, and expected operating expenses are 30%. The anticipated holding period is 5 years.
Assume that the property could be sold at a 10% cap rate with sales expenses of 5%.
1-What is the appreciation rate?
PP = 5,000,000 = PV
SP = 619,124 / 0.10 = 6,191,242 = FV
N = 5; CPT I = 4.37%
How get to the value 619,124? And how get 309,562 for the sales expense?
The value 619,124 was obtained using the Present Value (PV) function of the financial calculator or software. Using the given information.
The Present Value of the property's future cash flows is calculated as follows, Rental income per year = $22 x 35,000 = [tex]$770,000[/tex], Expected Vacancy rate
= 10%Effective rental income
= 90% of [tex]$770,000[/tex]
= $693,000Expected operating expenses
= 30% of [tex]$693,000[/tex]
= [tex]$207,900[/tex].
Net Operating Income (NOI) = [tex]$693,000 - $207,900 = $485,100[/tex]. Expected annual increase in rental income = 5%Therefore, the anticipated cash flows for the 5-year holding period are as follows.
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Question Five ( 7 Marks ) The following information is budgeted for McCracken Plumbing Supply Company for next quarter : April May June
Sales.....$ 110,000 $ 130,000 $ 180,000
Merchandise purchases.....$ 85,000 $ 92,000 $ 105,000
Selling and administrative expenses ..... $ 50,000b $ 50,000 $ 50,000
All sales at McCracken are on credit . Forty percent are collected in the month of sale , 58 % in the month following the sale , and the remaining 2 % are uncollectible . Merchandise purchases are paid in full the month following the month of purchase . The selling and administrative expenses above include $ 8,000 of depreciation on display fixtures and warehouse equipment . All other selling and administrative expenses are paid as incurred . McCracken wants to maintain a cash balance of $ 15,000 . Any amount below this can be borrowed from a local bank as needed in increments of $ 1,000 . All borrowings are made at month end . Required : Prepare McCracken's cash budget for the month of May . Use good form . McCracken expects to have $ 24,000 of cash on hand at the beginning of May
McCracken Plumbing Supply Company's cash budget for the month of May shows an ending cash balance of $8,400, indicating a need to borrow $6,600 to maintain the desired cash balance.
To prepare McCracken Plumbing Supply Company's cash budget for the month of May, we need to consider the cash inflows and outflows based on the given information. Here's the calculation:
Beginning cash balance (May): $24,000
Cash inflows:
Sales collected in May (40% of April sales): $110,000 * 40% = $44,000
Sales collected in May (58% of May sales): $130,000 * 58% = $75,400
Total cash inflows: $44,000 + $75,400 = $119,400
Cash outflows:
Merchandise purchases paid in May (April purchases): $85,000
Selling and administrative expenses (including depreciation): $50,000
Total cash outflows: $85,000 + $50,000 = $135,000
Net cash flow: Cash inflows - Cash outflows
Net cash flow: $119,400 - $135,000 = -$15,600
Ending cash balance (May): Beginning cash balance + Net cash flow
Ending cash balance: $24,000 - $15,600 = $8,400
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All of the following are factors that influence consumers' price awareness of their purchased items EXCEPT:
a. Price level of the item purchased
b. Price variation over time
c. Price variation between brands
d. Opportunity to learn prices
e. All of the above are factors that influence consumers' price awareness of their purchased items.
All of these factors contribute to consumers' overall price awareness, making e the correct answer.
e. all of the above are factors that influence consumers' price awareness of their purchased items.
all the s listed in a, b, c, and d are factors that can influence consumers' price awareness of their purchased items. the price level of the item purchase is an obvious factor as it directly affects the perceived value and importance of being aware of the price. price variation over time and between brands can also impact consumers' price awareness, as it allows them to compare prices and make informed purchasing decisions. the opportunity to learn prices, such as through advertising, promotions, or online research, is another important factor that affects consumers' price awareness.
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Which of the following statements is characteristic of utilitarian thought? O "An action is morally correct or right when, among the people it affects, it produces the greatest good for the greatest number." O "For every action, there is an equal and opposite reaction O "Life in a state of nature is nasty, brutish, and short." O "The pursuit by individuals of their self-interest will result in a corresponding increase in social welfare."
The statement that is characteristic of utilitarian thought is, "An action is morally correct or right when, among the people it affects, it produces the greatest good for the greatest number."
Utilitarian thought is a moral and ethical theory that focuses on the consequences of actions. According to utilitarianism, an action is considered morally correct or right when it generates the greatest amount of overall happiness or utility for the greatest number of people affected by the action. This principle is often summarized as "the greatest good for the greatest number."
Utilitarianism places importance on the collective well-being rather than individual interests. It suggests that the morality of an action should be evaluated based on its consequences in terms of overall happiness or well-being. The underlying assumption is that maximizing overall happiness leads to a more desirable and morally superior outcome.
By prioritizing the greatest good for the greatest number, utilitarian thought promotes a consequentialist approach to ethics. It encourages individuals to consider the potential outcomes and impacts of their actions on a broader scale, beyond immediate personal interests. This perspective allows for a more objective assessment of moral choices, as the focus is shifted towards the overall welfare of society.
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a) What is a sinking fund? Do investors like bonds that have this feature? Why? (5 marks) b) Suppose Microsoft, Inc. was trading at $27.29 per share. At that time, it paid an annual dividend of $0.32 per share, and analysts have set a 1-year target price around $33.30 per share. What is the expected return on this stock? (2 marks) c) "Though much attention is given on securities markets, particularly the stock market, financial intermediaries are a far more important source of financing for corporations than securities markets are." Identity the importance of financial intermediaries and indirect financing, considering the above statement (5 marks) d) "In theory, the money markets should not be needed. The banking industry should serve the need for short term funds" Do you agree? Why? Why not? (3 marks) Total 15 marks
a) Sinking fund is a way of paying off a loan by setting aside money into a separate account and using it to pay off the loan over time. Bonds that have this feature are more attractive to investors because they feel more secure investing in bonds that have a sinking fund since the fund ensures that there will be money available to pay off the bond's principal when it comes due
.b)Expected return on a stock is calculated using the following formula:Expected Return = (Dividend Yield + Capital Gains Yield)Dividend Yield = Annual Dividend per Share / Market Price per ShareCapital Gains Yield = (Expected Price - Initial Price) / Initial PriceWhere, Annual Dividend per Share = $0.32Market Price per Share = $27.29Expected Price per Share = $33.30Putting values in the above formula we get,Dividend Yield = $0.32 / $27.29 = 0.0117Capital Gains Yield = ($33.30 - $27.29) / $27.29 = 0.221Expected Return = (0.0117 + 0.221) = 0.232 or 23.2%
c) Financial intermediaries such as banks and other lending institutions are crucial sources of financing for corporations. They play an important role in providing funds to businesses that need them for their operations. These intermediaries also provide indirect financing by pooling funds from individual savers and lending them out to businesses in the form of loans or investments in stocks and bonds. This form of financing is important because it helps to bridge the gap between those who have money to invest and those who need money to finance their operations.
d) In theory, the money markets should not be needed because the banking industry should be able to serve the need for short-term funds. However, in practice, the money markets are necessary because the banking industry may not always be able to provide the funds that are needed in a timely manner. Money markets provide a way for businesses and other borrowers to access funds quickly and easily, which can be crucial in times of financial stress. Therefore, money markets serve an important role in the economy even if the banking industry is able to provide short-term funds.
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Which of the following is a control activity in relation to completeness?
a. The accountant compares the amount in the advertising invoice with the advertising quotation
b. The accountant inspects areas where repair costs have been invoiced to ensure repairs have been carried out.
c. The accountant reviews whether invoices have been received and processed for all building repairs purchase orders.
d. The accountant reviews newspapers to see that purchased advertisements appear as expected.
Among the given options, the control activity that relates to completeness is option C, where the accountant reviews whether invoices have been received and processed for all building repairs purchase orders.
Control activities are measures taken by an organization to ensure the reliability and integrity of its financial reporting. In relation to completeness, control activities aim to ensure that all transactions and events are recorded and included in the financial statements.
Option C aligns with this objective as the accountant reviews whether invoices have been received and processed for all building repairs purchase orders. By verifying the presence of invoices for all relevant purchase orders, this control activity helps ensure that all expenses related to building repairs are properly recorded and included in the financial statements.
This review is essential to prevent the omission of any expenses, which could lead to incomplete financial reporting. By conducting this control activity, the organization can enhance the accuracy and completeness of its financial records.
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Jones is seriously ill and has $6 million of property that he wants to leave to his four children. He is considering making a current gift of the property (rather than leaving the property to pass through his will). Assume all of his exemption equivalent was used and any taxable transfers will be subject to the highest transfer tax rate.
Required:
a. Determine how much gift tax Jones will owe if he makes the transfers now.
b. If he makes a current gift, how much estate tax will Jones save if he dies after three years, during which time the property appreciates to $6.8 million?
To determine the gift tax and estate tax implications in the given scenario, we need to consider the relevant tax rates and exemptions.
a. Gift Tax Calculation:
Gift tax is imposed on the transfer of property during one's lifetime. In this case, Jones wants to make a current gift of $6 million to his four children.
As per the information provided, Jones has already used his entire exemption equivalent amount. Assuming the highest transfer tax rate applies, we'll consider a tax rate of 40%. Therefore, Jones will owe $2,400,000 in gift tax if he makes the transfers now.
b. Estate Tax Calculation:
Estate tax is imposed on the transfer of property upon death. If Jones decides to keep the property and passes away after three years when it appreciates to $6.8 million, we can calculate the potential estate tax savings compared to the current gift scenario. Assuming the same tax rate of 40%, the estate tax can be calculated as follows:
Potential Estate Tax Savings = Gift Tax - Estate Tax
Potential Estate Tax Savings = $2,400,000 - $2,720,000
Potential Estate Tax Savings = -$320,000 (negative value indicates no savings)
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Greg Morrison recently graduated from construction engineering school. He is considering opening his own construction business providing module housing. Providing module homes is a high-fixed cost business, as it requires considerable expenditures for facilities, labor, and equipment, no matter how many families are served. Assume the annual fixed cost of operations is $800,000. Further assume that the only significant variable cost relates to the module homes, themselves. An average module home costs $12,000. Greg's banker has asked a variety of questions in contemplation of providing a loan for this business:
(a) If the average family is charged $18,000 for installation of a module home, how many families must be served to clear the break-even point?
(b) If the banker believes Greg will only serve 100 families during the first year in business, how much will the business lose during its first year of operation?
(c) If Greg believes his profits will be at least $100,000 during the first year, how much is he anticipating for total revenue?
(d) The banker has suggested that Greg can reduce his fixed costs by $150,000 if he will not buy any vehicles. Greg can instead rent vehicles as needed. The variable cost of renting is $700 per family served. Will this suggestion help Greg reach the break-even point sooner?
We must compute the number of families that must be serviced in order to cover the fixed costs in order to estimate the break-even threshold. Fixed costs / Contribution margin per family = Break-even point (in terms of the number of families).
The difference between the selling price and the variable cost per family is the contribution margin per family. Cost of a typical module home is $12,000 Selling price is $18,000 for each family. Variable cost per family equals $18,000 minus $12,000, or $6,000 in contribution margin per family. Break-even point is equal to 800,000/6,000, or 133.33 families. Greg would need to serve at least 134 families to break even because you cannot have a quarter of a family. If the banker thinks Greg will only serve 100 customers.
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Discuss the current economic situation (recession?) by comparing and contrasting mainstream economics and heterodox economics. Do not just simply list the differences between two approaches, make sure you use your knowledge to discuss the current economic situation. In other words, what would two approaches tell about the causes and consequences of the recession and what would they suggest as policy recommendations?
Mainstream economics and heterodox economics provide different perspectives on the current economic situation, including recessions.
Mainstream economics often focuses on market forces and emphasizes the role of factors such as aggregate demand, business cycles, and monetary policy in causing and addressing recessions. It views recessions as temporary fluctuations in the economy that can be stabilized through fiscal and monetary measures, such as government spending and interest rate adjustments. Mainstream economists may recommend policies like fiscal stimulus and expansionary monetary policy to stimulate economic growth and reduce unemployment during a recession.
Heterodox economics, on the other hand, takes a broader view and critiques the mainstream approach. Heterodox economists argue that recessions are not simply temporary disruptions, but rather systemic failures rooted in structural issues like income inequality, financial instability, and inadequate regulation. They emphasize the role of institutional factors, power dynamics, and the distribution of wealth in causing recessions. Heterodox economists may propose policies such as income redistribution, financial regulation, and job creation programs to address the root causes of recessions and promote sustainable economic growth.
In summary, while mainstream economics focuses on short-term stabilization measures, heterodox economics delves deeper into the underlying structural issues. Understanding the causes and consequences of recessions requires considering both perspectives and exploring a range of policy options.
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Technical training has become increasingly important because of changes in organizational design.
Indicate whether the statement is true or false.
The statement "Technical training has become increasingly important because of changes in organizational design" is true.
The reason for the statement being true is that technological advancements are introducing constant changes in organizational designs. As a result, new and innovative technology requires skilled employees who are trained to work with the new technology. Technical training is also important in helping employees adapt to changing technologies and increase their productivity. Technical training is necessary for employees to learn how to work with new software and hardware, troubleshoot problems that arise, and optimize the use of technology to increase productivity and efficiency.
Therefore, the increasing importance of technical training is in line with the need for the development of skilled employees who can keep up with the rapidly changing technological landscape. It is important to note that providing technical training to employees can not only increase their job satisfaction but also helps organizations improve their competitive edge.
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Quatro Company issues bonds dated January 1, 2021, with a par value of $780,000. The bonds' annual contract rate is 13%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 12%, and the bonds are sold for $799,207. 1. What is the amount of the premium on these bonds at issuance? 2. How much total bond interest expense will be recognized over the life of these bonds? 3. Prepare an effective interest amortization table for these bonds.
1. Amount of premium on the bonds at issuance The issuance price of the bond is $799,207 and its par value is $780,000. The difference between these two values is the amount of premium on the bond, which is $19,207.
2. Total bond interest expense that will be recognised over the life of the bond The bonds have an annual contract rate of 13%, a par value of $780,000, and semi-annual interest payments. As a result, the semi-annual interest is computed as follows:$780,000 x 13% x 6/12 = $50,700Interest is paid semiannually over a three-year term, resulting in six interest payments. The total bond interest expense is the sum of all of the interest payments over the term of the bond:6 x $50,700 = $304,2003. Effective interest a mortification table for these bonds The effective interest rate must first be calculated before creating the effective interest amortisation table.
The effective interest rate is a weighted average of the interest rates paid on the bond's outstanding balance. As a result, for the initial period, the effective interest rate is:Effective interest rate = Interest expense / Outstanding balance$19,207 / $799,207 = 0.024 (rounded to three decimal places)Period 1:Image credit: CFIImage credit: CFIIn the first period, interest expense is calculated by multiplying the effective interest rate by the outstanding balance at the end of the previous period. In this case, the outstanding balance at the end of the previous period is the issuance price of the bond minus the initial semi-annual interest payment:Outstanding balance at the end of the previous period = $799,207 - $50,700 = $748,507Interest expense = $748,507 x 0.024 = $17,964Image credit: CFIThe bond's unamortized premium is $1,243, which is the difference between the bond's carrying amount of $781,243 ($780,000 plus $1,243) and the bond's par value of $780,000. The bond's carrying amount is the sum of the par value and the unamortized premium at the end of each period.The outstanding balance at the end of the period is the carrying amount of the bond minus the amount of principal paid, which is $15,000 (half of $30,000). As a result, the outstanding balance at the end of the period is $766,243 ($781,243 minus $15,000).Period 2:Image credit: CFIInterest expense is calculated by multiplying the effective interest rate by the outstanding balance at the end of the previous period:Outstanding balance at the end of the previous period = $766,243 - $50,700 = $715,543Interest expense = $715,543 x 0.024 = $17,173Image credit: CFIBond's unamortized premium = $1,505Outstanding balance at the end of the period = $749,748 ($766,243 minus $16,495)Period 3:Image credit: CFIInterest expense is calculated by multiplying the effective interest rate by the outstanding balance at the end of the previous period:Outstanding balance at the end of the previous period = $749,748 - $50,700 = $699,048Interest expense = $699,048 x 0.024 = $16,777Image credit: CFIBond's unamortized premium = $1,775Outstanding balance at the end of the period = $733,348 ($749,748 minus $16,400)Period 4:Image credit: CFIInterest expense is calculated by multiplying the effective interest rate by the outstanding balance at the end of the previous period:Outstanding balance at the end of the previous period = $733,348 - $50,700 = $682,648Interest expense = $682,648 x 0.024 = $16,344 Image credit: CFIBond's unamortized premium = $2,075Outstanding balance at the end of the period = $716,748 ($733,348 minus $16,600)Period 5:Image credit: CFIInterest expense is calculated by multiplying the effective interest rate by the outstanding balance at the end of the previous period:Outstanding balance at the end of the previous period = $716,748 - $50,700 = $666,048 Interest expense = $666,048 x 0.024 = $15,985Image credit: CFIBond's unamortized premium = $2,416 Outstanding balance at the end of the period = $700,448 ($716,748 minus $16,300)Period 6:Image credit: CFIInterest expense is calculated by multiplying the effective interest rate by the outstanding balance at the end of the previous period:Outstanding balance at the end of the previous period = $700,448 - $50,700 = $649,748Interest expense = $649,748 x 0.024 = $15,594Image credit: CFIBond's unamortized premium = $2,798Outstanding balance at the end of the period = $683,448 ($700,448 minus $17,000)This concludes the preparation of the effective interest amortization table for the bonds.
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Suppose you are responsible for the design of a new order entry and sales analysis system for a national chain of auto part stores. Each store has a PC that supports office functions. The company also has regional managers who travel from store to store working with the local managers to promote sales. There are four national offices for the regional managers, who each spend about 1 day a week in their office and 4 on the road. Stores place orders to replenish stock on a daily basis, based on the sales history and inventory levels. The company uses the Internet to connect store PCs into the company’s main computer. Each regional manager has a laptop computer to also connect with stores and the main office.
Recommend (briefly describe) a technology architecture for supporting the business activities of the company.
Recommended tech architecture: Distributed client-server model, utilizing Internet for seamless order entry, sales analysis, and communication between store PCs, regional managers' laptops, and main computer.
A distributed client-server model with Internet connectivity offers a scalable and efficient solution. The store PCs would serve as clients, utilizing web-based interfaces or custom software to facilitate order entry and sales analysis. These PCs would connect to the company's main computer through the Internet, enabling real-time data synchronization and centralized data management.
The regional managers' laptops would also connect to the main office and stores, allowing them to access and update information while on the road. This ensures seamless communication and collaboration between regional managers, local managers, and the main office.
This technology architecture enables efficient order processing, accurate sales analysis, and streamlined communication throughout the organization. It leverages the power of the Internet and client-server computing to provide a robust and scalable solution that supports the business activities of the national chain of auto part stores.
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Question 3 1 pts Assume Merck (MRK) just announced that its next dividend will be $2, paid one year from now (you just missed the prior annual dividend). You expect the dividend will grow (after the $2 dividend) by 3% per year forever. Your required return is 10%. What are you willing to pay for a share of Merck stock?
To determine the value of a share of Merck stock, we can use the dividend discount model (DDM). The DDM calculates the present value of all future expected dividends.
Given the information provided:
Next year's dividend (D1) = $2
Dividend growth rate (g) = 3%
Required return (r) = 10%
The formula for the DDM is:
Stock Price = D1 / (r - g)
Plugging in the values:
Stock Price = $2 / (0.10 - 0.03)
Stock Price = $2 / 0.07
Stock Price ≈ $28.57
Therefore, you would be willing to pay approximately $28.57 for a share of Merck stock based on the given assumptions of future dividend growth and required return.
It's important to note that the DDM is a simplified model and relies on several assumptions. Actual stock prices may be influenced by other factors such as market conditions, company performance, and investor sentiment. Therefore, it's recommended to consider additional analysis and factors when making investment decisions.
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TIPS are ______.
A) Treasury bonds which coupon interest rate is adjusted for inflation
B) Corporate bonds that protect investors from inflation
C) Treasury bonds which face value is adjusted for inflation
D) index of all stock traded on Toronto stock exchange
Treasury bonds that have their face value adjusted for inflation are commonly referred to as Treasury Inflation-Protected Securities (TIPS).
TIPS, or Treasury Inflation-Protected Securities, are Treasury bonds (A) that have their coupon interest rate adjusted for inflation. This ensures that investors receive a consistent real return, protecting them from the erosion of purchasing power caused by inflation. TIPS provide a hedge against inflation and are considered a relatively low-risk investment option.
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Intertemporal budget constraint. Budget line 1: Y₁ = $900. Y₂ = $600. The interest rate is 12 percent, both for borrowing and saving. Utility = C₁⁵C₂⁷ Draw the budget line, with solved numbers. Solve the optimal consumption levels to choose in time 1 and time 2.
The maximum utility that can be derived from these consumption levels is U = C1^5C2^7 = $411.42^5 x $517.14^7 = $20,961,636.18. Intertemporal budget constraint refers to the consumer's budget constraint over time. The budget line shows the quantity of goods that can be purchased with the amount of income available.
It describes the maximum amount of consumption in the present and future, given the current income and interest rate. Hence, the formula for the budget line is: C1 + C2/ (1+r) = Y1/ (1+r) + Y2. Where C1 and C2 are the present and future consumption, r is the interest rate, and Y1 and Y2 are present and future incomes. The consumer's intertemporal budget constraint is based on the consumption and investment possibilities available in different periods. Utility is the satisfaction or happiness derived by the consumer from consuming goods.
Mathematically, the utility function can be defined as U = C1^5C2^7, where C1 and C2 are the consumption levels in period 1 and 2, respectively. To maximize utility, the consumer must allocate income between present and future consumption. In this problem, the budget line is: C1 + C2/ (1+12%) = $900/ (1+12%) + $600. Simplifying, C1 + C2/ 1.12 = $803.57. The optimal consumption levels can be found by maximizing the utility function subject to the budget constraint. The Lagrangian function is: L = C1^5C2^7 - λ(C1 + C2/ 1.12 - $803.57). Taking the partial derivatives with respect to C1, C2, and λ, we get: ∂L/∂C1 = 5C1^4C2^7 - λ = 0 ∂L/∂C2 = 7C1^5C2^6 - λ/1.12 = 0 ∂L/∂λ = C1 + C2/ 1.12 - $803.57 = 0 Solving the above equations, we get: C1 = $411.42 and C2 = $517.14. Therefore, the optimal consumption levels to choose in time 1 and time 2 are $411.42 and $517.14, respectively. The maximum utility that can be derived from these consumption levels is U = C1^5C2^7 = $411.42^5 x $517.14^7 = $20,961,636.18.
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Which of the following is considered investment by economists?
a) The U.S. government increased military spending in Afghanistan by $120 billion
b) Target purchased new shopping baskets for their new store in Gastonia
c) I purchased a $10,000 Treasury bond from the U.S. government
d) My husband is saving cash in a safe in our basement
e) all of the above
The correct answer is option e) all of the above. According to economists, all of the given options can be considered investment in the context of economics:
a) The U.S. government increasing military spending in Afghanistan by $120 billion is considered investment because it involves the expenditure of resources with the expectation of generating future benefits or returns, such as enhancing national security or promoting economic stability in the region.
b) Target's purchase of new shopping baskets for their new store in Gastonia is considered investment because it involves the acquisition of physical capital (shopping baskets) with the intention of using it to facilitate business operations and generate future revenues.
c) Your purchase of a $10,000 Treasury bond from the U.S. government is considered investment because it involves lending money to the government in exchange for a financial instrument that pays interest over time, providing a return on your investment.
d) Your husband saving cash in a safe in your basement is also considered investment in the sense that it involves setting aside money for future use or investment purposes, such as funding a future project or acquiring assets.
In all the given options, resources are allocated with the expectation of generating future benefits or returns, which aligns with the concept of investment in economics.
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6. Consider a project with initial investment of $50,000. Cash flows are $30,000, $20,000 and $10,000 annually. What is the payback period of this project? (5\%) 7. The first initial investment of a project is $200. The cash inflows in the following 3 years are $100,$100 and $100. What is the Internal Rate of Return for this project? (10%)
To calculate the payback period of the project, we need to determine the time it takes for the cumulative cash inflows to equal or exceed the initial investment.
Year 1: Cash inflow = $30,000
Year 2: Cash inflow = $20,000
Year 3: Cash inflow = $10,000
The cumulative cash inflows are as follows:
Year 1: $30,000
Year 2: $30,000 + $20,000 = $50,000
Year 3: $50,000 + $10,000 = $60,000
Since the cumulative cash inflows exceed the initial investment of $50,000 in Year 3, the payback period is less than 3 years but more than 2 years. To determine the exact payback period, we can calculate the proportion of the initial investment recovered in Year 3:
Proportion recovered = ($60,000 - $50,000) / $10,000 = 1
Therefore, the payback period is 2 years plus the proportion recovered in Year 3, which is 2 + 1 = 3 years.
The Internal Rate of Return (IRR) is the discount rate that makes the net present value (NPV) of cash inflows equal to the initial investment. In this case, the initial investment is $200, and the cash inflows over three years are $100, $100, and $100.
Using the formula for calculating IRR, we can set up the equation:
$200 = $100 / (1 + IRR) + $100 / (1 + IRR)^2 + $100 / (1 + IRR)^3
Simplifying this equation and solving for IRR can be done using trial and error or financial software. The calculated IRR for this project is approximately 7.45%.
The IRR represents the rate of return at which the project breaks even, meaning the NPV is zero. Since the calculated IRR of 7.45% is higher than the required rate of return of 10%, the project is not considered attractive based on the IRR criterion.
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