Answer:
it should be C. cross-licensing
The smartest thing a firm involved in an oligopoly market could do is to cut their prices and capture more of the market share from their competitors.
a) We learned in class that the best move would be to raise prices.
b) We also learned that cutting prices on an elastic demand curve will be a smart way of getting more revenues.
c) Cutting prices is no gaurantee of success. Indeed if the firm does capture more market share and customers, then their costs will go up and it will be harder for them because they will have lower profit margins - if they can earn any profit at all.
d) Both A and C are correct.
Answer:
Correct Answer:
c) Cutting prices is no gaurantee of success. Indeed if the firm does capture more market share and customers, then their costs will go up and it will be harder for them because they will have lower profit margins - if they can earn any profit at all.
Explanation:
An oligopoly market is a market form wherein a market or industry is dominated by a small group of large sellers. A pure monopoly maximizes profits by producing that quantity where marginal revenue = marginal cost. however, it is much more difficult for an oligopoly to determine at what output it can maximize its profit.
Suppose that the value of an investment in the stock market has increased at an average compound rate of about 5% since 1912. It is now 2016. a. If someone invested $1,000 in 1912, how much would that investment be worth today?
Answer:
FV= $159,840.60
Explanation:
Giving the following information:
Initial investment= $1,000
Number of years= 2016 - 1912= 104
Interest rate= 5%
To calculate the value of the investment today, we need to use the following formula:
FV= PV*(1+i)^n
FV= 1,000*(1.05^104)
FV= $159,840.60
The labor cost to produce a certain item is $8.50 per hour. Job setup costs $50 and material costs are $20 per unit. The item can be purchased for $88.50 per unit. The learning rate is 90 percent. Overhead is charged at a rate of 50 percent of labor, materials, and setup costs.
Required:
a. Determine the average unit cost for 20 units, given that the first unit took 5 hours to complete.
b. What is the minimum production quantity necessary to make production cost less than purchase cost?
Answer:
Explanation:
Given
Setup cost =$50
Material cost = $20
= $20×$20
= $400
Purchased cost = $88.50
Learning rate (P) = 90%
Labor cost is $8.50, and it requires 5 hours to produce the first unit. Total time required for the production of 20 units is
= 5×14.608
= $73.04
The value 14.608 is the total time factor which has been taken from table 7S.1 and the time required for the production of 20 units at the rate of 90% is 14.608. Hence, the labor cost for the production of 20 units will be calculated using the following method.
Cost of labor for production of 20 units
= 8.50×73.04
= $620.84
Hence,
In the problem, it has been given that the overhead cost is 50% of the labor material, and setup cost. Hence,
= 50/100 (620.84+50+400)
= 0.5×(1070.84)
= $535.42
Hence total cost
$535.42 +$1070.84
=$ 1606.26
Hence, the cost of production of 20 units is calculated by the following method.
= $1606.26÷20
=$80.313
Therefore, the unit cost is $80.313/unit.
Ans B:
The minimum production quantity important to make the production cost less than the purchase cost is calculated by the trial-and-error method. Now, let's take average unit cost when the 10 units are produced.
Setup cost =$50
Material cost = $20
= $20×$10
= $200
Labor cost is $8.50, and it requires 5 hours to produce the first unit. Total time required for the production of 10 units is
=5×7.994
= $39.97
The value 7.994 is the total time factor which has been taken from table 7S.1 and the time required for the production of 10 units at the rate of 90% is 7.994. Therefore, the labor cost for the production of 10 units will be calculated by the following method.
The cost of production of 20units
8.50×7.994×5
= $339.745
Ten years ago you put $150000.00 into an interest earning account. Today it's worth $275000. What is the effective annual interest earned on the account
Answer:
the effective annual interest earned on the account is 6.25%.
Explanation:
The effective annual interest earned on the account can be calculated as follows :
PV = - $150,000
N = 10
PMT = $0
P/yr = 1
FV = $275,000
R = ?
Using a Financial calculator, the effective annual interest, R, earned on the account will be : 6.2488 or 6.25%.
You purchased 1,000 shares of stock in Natural Chicken Wings, Inc., at a price of $43.37 per share. Since you purchased the stock, you have received dividends of $.95 per share. Today, you sold your stock at a price of $46.62 per share. What was your total percentage return on this investment?
Answer:
9.68%
Explanation:
Percent Return on Investment is calculated as Net Profit / Cost of Investment x 100
Net Profit= $46,620 (1,000 x $46.62 per share) + $950 (1,000 x $.95 per share) - $43,370 (1,000 x $43.37 per share) = $4,200
Cost of Investment= $43,370 (1,000 x $43.37 per share)
Percent Return on Investment= $4,200 / $43,370 x 100 = 9.68%
What is the present value of a perpetuity that pays you annual, end-of-year payments of $950? Use a nominal rate (monthly compounding) of 7.50%.
Answer:
The present value of the perpetuity is $12,242.27.
Explanation:
A perpetuity is an annuity that provide cash flow for an infinite period .Examples are Non -redeemable Preference Share.
Present Value (perpetuity) = Payments ÷ Required Rate
But, first change the 7.50 % nominal rate to Annual Effective Rate to match the period of Cash flow.
Effective Rate = (1 + r / m)^m - 1
= ( 1 + 0.0750 / 12) ^12 -1
= 7.76%
Therefore, Present Value (perpetuity) = $950 ÷ 7.76%
= $12,242.27
At the certain interest rate, present value (PV) is the current value of a future sum of money or stream of cash flows.
The discount rate determines the present value of the cash flows, and the higher the discount rate, the lower the current value of future cash flows.
The present value of the perpetuity is $12,242.27.
A perpetuity is an annuity that payments out during an indefinite period of time. Non-redeemable Preference Share is an example.
Present Value (perpetuity) = [tex]\frac{\text{Payments}}{\text{Required Rate}}[/tex]
However, to match the Working capital period, change a 7.50 percent nominal rate to a Yearly Effective Tax rate.
[tex]\text{Effective Rate} = (1 + \frac{r}{m} )^m - 1= [1 + \frac{0.0750}{12}]^{12} -1= 7.76\%[/tex]
Therefore, Present Value (perpetuity)= [tex]\frac{\$950}{7.76\%} = $12,242.27[/tex]
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On July 1, Year 1, Yellow Rose Corp. paid $25,000 cash for a machine and paid an additional 8% sales tax. On the same date, an electrician was paid $1,000 to install custom switches to enhance the functionality of the machine. Yellow Rose estimates a five-year useful life, uses straight-line depreciation, and expects a $2,000 salvage value. The machine was placed in service on October 1, Year 1. Yellow Rose has a calendar year-end.On December 31, Year 2, the machine was sold for $14,000 cash. Depreciation expense for Year 2 was properly recorded.Use the data above to prepare each of the journal entries for Yellow Rose specified below.1. Prepare the journal entry to record the cost of the machine.2. Prepare the journal entry to record the Year 1 depreciation for the machine.3. Prepare the journal entry to record the sale of the machine.
Answer:
Journal entries are given below
Explanation:
July 1, Year 1 (Yellow Rose Corp. purchased a machine)
DEBIT CREDIT
Machine $28,000
Cash $28,000
Working
Cost of machine = Purchase price + Sales tax + Installation
Cost of machine = $25,000 + $2,000 + $1,000
Cost of machine = $28,000
Depreciation for year 1 (October to December)
DEBIT CREDIT
Depreciation Expenses $1,300
Accumulated Depreciation $1,300
Working
Annual Depreciation expense = (Cost - salvage value) / useful life
Annual Depreciation expense = (28000 - 2000) / 5 = $5,200
Depreciation for 3 months
Depreciation = $5,200 x 3/12
Depreciation = $1300
Sale of the machine
DEBIT CREDIT
Cash $14,000
Loss on Sale $7,500
Accumulated Depreciation $6,500
Machinery $28,000
Workng
Gain/Loss on sale = Sale proceed - carrying value
Gain/Loss on sale = 14,000 - 21,500
Loss on sale = $7,500
Carrying value = Cost - Accumulated depreciation
Carrying value = 28,000 - 6500 = 21500
Accumulated depreciation = $1,300 + $5,200 = $6,500
Rally Quadcopters plans to sell a standard quadcopter (toy drone) for $45 and a deluxe quadcopter for $65. Rally purchases the standard quadcopter for $35 and the deluxe quadcopter for $45. Management expects to sell two deluxe quadcopters for every three standard quadcopters. The company's monthly fixed expenses are $14,700. How many of each type of quadcopter must Rally sell monthly to breakeven?
To earn $10,500?
First identify the formula to compute the sales in units at various levels of operating income using the contribution margin approach.
Answer:
Rally must sell 1,080 units of Standard and 720 units of Deluxe
Explanation:
Standard Deluxe Total
Sales price per unit $45 $65
Less: Variable cost ($35) ($45)
Contribution Margin per unit $10 $20
Sales Mix units (A) $3 $2 $5
Contribution margin $30 $40 $70
Weighted average Contribution $14
per unit C= B/A
Appointment of fixed cost between standard and deluxe
Total Fixed cost = 14,700
Break even point = Fixed cost / Weighted average Contribution per unit
= 14,700 / 14
= 1,050
Apportionment of Break even point sales between Standard and deluxe in sales mix ratio (3:2)
Standard = 1,050 * 3/5 = 630
Deluxe = 1,050 * 2/3 = 420
Unit to be sold to get desired profit = Fixed cost + Desired profit / Weighted average Contribution per unit
= (14,700 + 10,500) / 14
= 1,800
Apportionment of Units to be sold to get desired profit between Standard and Deluxe in sales mix ratio (3:2)
Standard = 1,800 * 3/5 = 1,080
Deluxe = 1,800 * 2/5 = 720
To reach target operating income, Rally must sell 1,080 units of Standard and 720 units of Deluxe
Fallow Corporation has two separate profit centers. The following information is available for the most recent year: West Division East Division Sales (net) $ 410,000 $ 560,000 Salary expense 47,000 61,000 Cost of goods sold 143,000 259,000 The West Division occupies 10,250 square feet in the plant. The East Division occupies 6,150 square feet. Rent, which was $ 82,000 for the year, is an indirect expense and is allocated based on square footage. Compute operating income for the West Division.
Answer:
$168,750
Explanation:
The data below are extracted from the above question.
West division
Sales (S) = $410,000
Salary expense (E) = $47,000
Cost of goods sold (C) = $143,000
Proportional rent (R) = $82,000 % of square footage
Area of the division = 10,250 square feet.
Total area of both division = 10,250 + 6,150
= 16,400 square feet
Therefore, the operating income (I) for the West Division is given by the amount of sales minus salary expenses , cost of goods sold and rent.
I = S - E - C - R
= $410,000 - $47,000 - $143,000 - (82,000 × 10,250 / 16,400)
= $220,000 - $51,250
= $168,750
The yearly operating income for Fallow's Corporation West Division is $168,750.
If a bank that faces a 10% reserve ratio received a deposit of $50,000 and makes a loan to a customer for $5,000, what is the consequence if the bank then deposits the rest of the funds at the Federal Reserve?
Answer:
Excess reserve increases by $40,000
Required reserve increases by $5,000
Explanation:
In order to calculate the reserve, we need to multiply the Deposit received by a required reserve ratio.
DATA
Reserve ratio = 10%
Deposit received = $50,000
Loan to customer = $5,000
Solution
Reserve = Deposit x Required reserve ratio
Reserve = $50,000 x 10%
Reserve = $5,000
After providing a $5,000 loan to the customer and keeping $5,000 as a reserve remaining $40,000 would be deposited in the Federal Reserve.
Huron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labor standards for one unit of Zoom are given below:
Standard Quantity or Hours Standard Price or Rate Standard Cost
Direct materials 5.50 pounds $ 2.50 per pound $ 13.75
Direct labor 0.50 hours $ 6.50 per hour $ 3.25
During the most recent month, the following activity was recorded:
1. Ten thousand six hundred pounds of material were purchased at a cost of $2.40 per pound.
2. The company produced only 1,060 units, using 9,540 pounds of material. (The rest of the material purchased remained in raw materials inventory.)
3. 630 hours of direct labor time were recorded at a total labor cost of $7,560.
Required:
Compute the materials price and quantity variances for the month. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do not round intermediate calculations.)
Answer:
Instructions are below.
Explanation:
Giving the following information:
Direct materials 5.50 pounds $ 2.50 per pound.
Actual:
1. 10,600 were purchased for $2.40 per pound.
2. The company produced only 1,060 units, using 9,540 pounds of material.
To calculate the direct material price and quantity variance, we need to use the following formulas:
Direct material price variance= (standard price - actual price)*actual quantity
Direct material price variance= (2.5 - 2.4)*10,600
Direct material price variance= $1,060 favorable
Direct material quantity variance= (standard quantity - actual quantity)*standard price
standard quantity= 1,060*5.5= 5,830
Direct material quantity variance= (5,830 - 9,540)*2.5
Direct material quantity variance= $9,275 unfavorable
If the price that determined where marginal revenue equaled marginal cost were below the bottom of the average variable cost curve, then the profit-maximizing, monopolistically competitive firm would
Answer: c. shut down because it would cost more to produce and sell output than it would to shut down and lose all fixed costs.
Explanation:
The profit maximizing, monopolistically competitive firm maximises profit at the point where marginal revenue equals marginal costs.
If this point is below Average variable costs then that means that the company is not making enough to cover its variable costs. Should this be the case then the company should shutdown operations because variable costs are only there when the company is producing. If they shutdown then they will no longer incur them which would be the cheaper option.
They would take losses on the fixed costs but these have already been incurred so it would be better to lose the fixed costs than continue to make losses on variable costs.
A firm's total cost function is given by the equation TC=4000+5Q+10Q and marginal cost is given by the equation MC=5+20Q
(A) Write an expression for each of the following cost concepts:
a. Total Fixed Cost
b. Average Fixed Cost
c. Total Variable Cost
d. Average Variable Cost
e. Average Total Cost
(B) Calculate the values of marginal cost and the costs in (a)-(e) above for Q=0,1,2,3.
(C) Determine the quantity that minimizes average total cost. Demonstrate that the predicted relationship between marginal cost and average cost holds.
Following are the calculation to the given question:
[tex]\to TC = 4,000 + 5Q + 10 \ Q2\\\\\to MC = 5 + 20\ Q\\\\[/tex]
For point A)
[tex](a)\ TFC = 4,000\\\\(b)\ AFC = \frac{TFC}{ Q} = \frac{4,000}{ Q}\\\\(c)\ TVC = 5Q + 10\ Q2\\\\(d)\ AVC = \frac{TVC }{Q} = 50 + 10\ Q\\\\(e)\ ATC = \frac{TC }{ Q} = (\frac{4,000}{ Q}) + 50 + 10Q \ \text{Also, ATC = AVC + AFC}\\\\[/tex]
For point B)
TFC remains unchanged at 4,000, regardless of the price of Q.
i)
[tex]\to Q = 0[/tex]
AFC, AVC, and ATC cannot be calculated (division by zero is not possible).
ii)
[tex]Q = 1\\\\AFC =\frac{4,000}{ 1} = 4,000\\\\TVC = (5 \times 1) + (10 \times 1) =5 + 10 = 15\\\\AVC = \frac{TVC}{ Q} = \frac{15}{1} = 15\\\\ATC = 4,000 + 15 = 4,015\\\\MC = 5 + (20 \times 10 = 5 + 20 = 25[/tex]
iii)
[tex]Q = 2\\\\AFC = \frac{4,000}{ 2} = 2,000\\\\TVC = (5 \times 2) + (10 \times 2 \times 2) = 10 + 40 = 50\\\\AVC = \frac{50}{2} = 25\\\\ATC = 2,000 + 25 = 2,025\\\\MC = 5 + (20 \times 2) = 5 + 40 = 45\\\\[/tex]
iv)
[tex]Q = 3\\\\AFC = \frac{4,000}{ 3} = 1,333.33\\\\TVC = (5 \times 3) + (10 \times 3 \times 3) = 15 + 90 = 105\\\\AVC = \frac{105}{3} = 35\\\\ATC = 1,333.33 + 35 = 1,368.33\\\\MC = 5 + (20 \times 3) = 5 + 60 = 65\\\\[/tex]
For point C)
i)
[tex]ATC[/tex] is minimized when [tex]\frac{dATC}{dQ} = 0[/tex]
[tex](- \frac{4,000}{Q2} ) + 10 = 0\\\\\frac{4,000}{Q2} = 10\\\\Q2 = 400\\\\Q = 20\\[/tex]
ii)
Part (B) shows that as MC increases from Q = 0 to Q = 3, ATC decreases, validating the link.
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Top managers of are alarmed by their operating losses. They are considering dropping the laminate flooring product line. Company accountants have prepared the following analysis to help make this decision:
Total Blue-Ray Discs DVD Discs
Sales Revenue $432,000 $305,000 $127,000
Variable Costs $246,000 $150,000 $96,000
Contribution Margin $186,000 $155,000 $31,000
Fixed Costs:
Manufacturing $128,000 $71,000 $57,000
Selling and Administrative $67,000 $52,000 $15,000
Total Fixed Costs $195,000 $123,000 $72,000
Operating Income (loss) $(9000) $32,000 $(41,000)
Total fixed costs will not change if the company stops selling DVDs.
Required:
a. Prepare a differential analysis to show whether Movie Street should drop the DVD product line.
b. Will dropping DVDs add $41,000 to the operating income? Explain.
Answer:
a)
Blue-ray discs Blue-ray discs Differential
and DVD discs only amount
Sales Revenue $432,000 $305,000 $127,000
Variable Costs ($246,000) ($150,000) ($96,000)
Contribution M. $186,000 $155,000 $31,000
Fixed Costs:
Manufacturing ($128,000) ($128,000) $0S&A expenses ($67,000) ($67,000) $0Operating Income ($9000) ($40,000) $31,000
b) Will dropping DVDs add $41,000 to the operating income?
No, dropping the DVDs product line will decrease operating income by $31,000, resulting in a total loss of $40,000. Even though the DVDs product line by itself is not profitable, it absorbs a large percentage of the fixed costs and if you get rid of it, all the fixed costs will be absorbed by the Blue-rays product line.
You have invested 20 percent of your portfolio in Homer, Inc., 40 percent in Marge Co., and 20 percent in Bart Resources. What is the expected return of your portfolio if Homer, Marge, and Bart have expected returns of 2 percent, 18 percent, and 3 percent, respectively?
Answer:
Expected return = 8.2%
Explanation:
A portfolio is a collection of assets/ investment. The return on a portfolio is the weighted average of all the return of the individual assets weighted according to the percentage of total funds allocated to each assets.
Expected return on portfolio:
E(R) =( Wa*Ra) + (Wb*Rb) + (Wc*Rc) + Wn*Rn
W= Weight i.e proportion of fund invested in each asset class
Wa = 20%, Wb- 40%, Wc- 20%
Ra-2%, Rb-18%, Rc- 3%
E(R) = (0.2 *2%) + (0.4× 18%) + (0.2*3%) = 8.2%
Expected return = 8.2%
Praveen Co. manufactures and markets a number of rope products. Management is considering the future of Product XT, a special rope for hang gliding, that has not been as profitable as planned. Since Product XT is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year’s plans call for a $350 selling price per 100 yards of XT rope. Its fixed costs for the year are expected to be $315,000, up to a maximum capacity of 550,000 yards of rope. Forecasted variable costs are $245 per 100 yards of XT rope.
Required:
1. Estimate Product XT's break-even point in terms of (a) sales units and (b) sales dollars.
2. Prepare a CVP chart for Product XT. Use 7,000 units (700,000 yards/100 maximum number of sales units on the horizontal axis of the graph, and $1,400,000 as the maximum dollar amount on the vertical axis.
3. Prepare a contribution margin income statement showing sales, variable costs, and fixed costs for Product XT at the break-even point.
Answer:
1a. 3,000 units
1b. $1,050,000
2. See attachment.
3. contribution margin income statement
Sales ($350 × 7,000 units) $2,450,000
Less Variable Cost ($245 × 7,000 units)) ($1,715,000)
Contribution $735,000
Less Fixed Costs ( $315,000)
Operating Profit $420,000
Explanation:
Break-even point (sales units ) = Fixed Cost ÷ Contribution per unit
= $315,000 ÷ ($350 - $245)
= 3,000
Break-even point (sales dollars) = Fixed Cost ÷ Contribution Margin Ratio
= $315,000 ÷ ($105/$350)
= $1,050,000
If there were 40000 pounds of raw materials on hand on January 1, 130000 pounds are desired for inventory at January 31, and 310000 pounds are required for January production, how many pounds of raw materials should be purchased in January
Answer:Pound of raw materials needed to be purchased = 400000 pounds
Explanation:
Opening inventory at January 1 =40000 pounds
Closing inventory at January 31- =130000 pounds
Pounds required for production ==310000 Pounds
Pound of raw materials needed to be purchased= Pounds required for production + Closing inventory at January 31 --Opening inventory at January 1 =
=310, 000 pounds+130, 000 pounds -40000 pounds
=400000 pounds
In October, Vaughn Company reports 21,200 actual direct labor hours, and it incurs $118,830 of manufacturing overhead costs. Standard hours allowed for the work done is 23,300 hours. The predetermined overhead rate is $4.95 per direct labor hour. Compute the total overhead variance.
Answer:
The answer is $3,495F
Explanation:
The formula for computing total overhead variance is:
Actual overhead - overhead applied.
Overhead applied = overhead rate x standard hours allowed for the workdone.
$4.95 x 23,300 hours
=$115,335
Actual overhead is $118,830
Therefore, we have:
$118,830 - $115,335
= $3,495F
The F in the answer means favourable. The actual overhead incurred is greater than the overhead absorbed.
Instruments had retained earnings of at December 31, . Net income for totaled , and dividends declared for were . How much retained earnings should report at December 31, ?
Answer:
B. $ 490,000
Explanation:
According to the given situation, the computation of retained earning in the year end is shown below:-
Ending retained earning = Beginning Retained Earnings + Net Income for the year - Dividend
= $360,000 + $180,000 - $50,000
= $490,000
Therefore for computing the ending retained earning we simply applied the above formula.
On July 1, 20X1, James and Short formed a partnership. James contributed cash. Short, previously a sole proprietor, contributed property other than cash, including realty subject to a mortgage, which the partnership assumed. Short’s capital account on July 1, 20X1, should be recorded at
Answer:
James and Short LLC
Short's capital account on July 1, 20X1 should be recorded at the fair value of contributed property minus the mortgage liability, which the partnership assumed.
Explanation:
The fair value of contributed property is the current market value of the contributed property by Short. It is the market value that will determine how the contributed property can be valued. The market value assumes that the contributed property is being sold in pieces and not as a whole. This is why the value is considered a fair basis for recognizing the capital contribution of Short into the partnership.
United Apparel has the following balances in its stockholders’ equity accounts on December 31, 2018: Treasury Stock, $650,000; Common Stock, $400,000; Preferred Stock, $1,600,000; Retained Earnings, $1,200,000; and Additional Paid-in Capital, $6,800,000. Required: Prepare the stockholders’ equity section of the balance sheet for United Apparel as of December 31, 2018
Answer:
United Apparel Balance sheet as of December 31, 2018
Stockholders’ Equity section
Common Stock Capital ............................................$400,000
Preferred Stock Capital.............................................$1,600,000
Additional Paid-in Capital..........................................$6,800,000
Total Paid-in Capital....................................................$8,800,000
Retained Earnings.......................................................$1,200,000
Less: Treasury Stock...................................................($650,000)
Total Stockholders Equity..........................................$9,350,000
Link Co. purchased machinery that cost $3,000,000 on January 4, 2016. The entire cost was recorded as an expense. The machinery has a nine-year life and a $200,000 residual value. The error was discovered on December 20, 2018. Ignore income tax considerations. Before the correction was made, and before the books were closed on December 31, 2018, retained earnings was understated by:_________.a. $3,000,000.
b. $2,066,667.
c. $2,377,778
d. $2,333,333.
Answer:
c. $2,377,778
Explanation:
Recording the entire cost as expense would have understated Retained Earnings by $3,000,000
Annual Depreciation on machine = Purchase cost - Residual value / Useful life
= ($3,000,000 - $200,000) / 9
= $311,111
Depreciation would have been recorded for $622222 for 2 years had machinery been correctly recorded ($311,111 * 2) = $622,222
On December 20, 2018, the net understatement of Retained Earnings = $3,000,000 - $622,222
= $2,377,778
Conor Airlines Inc. recently issued $50 par value preferred stock that pays a 8.25% dividend rate per year. Yahoo.finance shows that the stock has a beta of 0.97. The current risk-free rate is 2.50% and the market return is 11%. Assuming that CAPM holds, what is the intrinsic value of this preferred stock?
Answer: $38.39
Explanation:
First calculate the required return according to CAPM;
Required return = Risk free rate + beta ( market return - risk free rate)
= 2.50% + 0.97 ( 11% - 2.50%)
= 10.745%
Then using the Dividend discount model and remembering that there is no growth rate;
Value = Next dividend / ( required return - growth rate)
= (50 * 8.25%) / ( 10.745% - 0)
= 4.125/10.745%
= $38.39
Answer:
$38.29
Explanation:
Ke = Rf+Beta*(Rm-Rf)
Ke=0.0250+0.97*(0.11+0.0250)
Ke=0.10745
Ke=10.75 appr.
Po= Dividend / (Ke-g)
Po= 50*0.0825 / (0.10745 - 0)
Po=4.125/0.10745
Po=38.3899
Po=38.29
Thus, the intrinsiv value of this preferred stock is $38.29
Sheffield Corporation purchased machinery on January 1, 2017, at a cost of $250,000. The estimated useful life of the machinery is 4 years, with an estimated salvage value at the end of that period of $24,000. The company is considering different depreciation methods that could be used for financial reporting purposes.Required:Prepare separate depreciation schedules for the machinery using the straight-line method, and the declining-balance method using double the straight-line rate.
Answer and Explanation:
(A) Depreciation Schedules Under Straight line method
Depreciation rate under straight line method = 1 ÷ Useful life of asset
= 1 ÷ 4
=25%
Depreciable cost = Cost of the Asset - Salvage value
= $250,000 - $24000
= $226,000
Year Depreciable Depreciation Annual Accumulated Book
cost rate Depreciation Depreciation Value
Expense
2017 $226,000 25% $565,00 56,500 $193,500
($250,000 - $56,500)
2018 $226,000 25% $565,00 $113,000 $137,000
($193,500 - $56,500)
2019 $226,000 25% $565,00 $169,500 $80,500
($137,000 - $56,500)
2020 $226,000 25% $565,00 $226,000 $24,000
($80,500 - $56,500)
For computing the annual depreciation we simply multiply the depreciable cost with depreciation rate.
(B) Depreciation Schedules Under Double declining balance method
Depreciation rate under Double declining Balance method
= 2 × Straight line method
= 2 × 25%
= 50%
Year Book value Depreciation Annual Accumulated Book
beginning rate Depreciation Depreciation Value
of the year Expense
2017 $250,000 50% $125,000 $125,000 $125,000 2018 $125,000 50% $62,500 $187,500 $62,500 2019 $62,500 50% $31,250 $218,750 $31,250
2020 $31,250 $7,250 $226,000 $24,000
For computing the annual depreciation expenses we simply multiply the book value beginning of the year with depreciation rate.
2020 Depreciation balance
= Book Value beginning 2020 - Salvage value
= $31,250 - $24,000
= $7,250
what is not a major benefit of co-locating team members from different cultures in one place instead of having a team
Incomplete question. Here are the options:
A. Short distance to the customer markets
B. Reduced burden from travelling and international meetings
C. Enhanced communications and a sense of community
D. Identical working hours without time zone difference
Answer:
A. Short distance to the customer markets
Explanation:
It is noteworthy to remember we are concerned about what is not a major benefit of co-locating team members from different cultures in one place instead of having a team.
The other benefits like; reduced burden from travelling and international meetings, enhanced communications and a sense of community and having Identical working hours without time zone difference are major in nature as they have a direct impact on cost savings and work efficiency.
Two investment advisors are comparing performance. Advisor A averaged a 20% return with a portfolio beta of 1.5 and Advisor B averaged a 15% return with a portfolio beta of 1.2. If the T-bill rate was 5% and the market return during the period was 13%, which advisor was the better stock picker?
Answer:
Advisor A
Explanation:
t bill rate = 0.05
market rate = 0.13
the beta of the market is always 1
the rate of return= 0.05 + (0.13 - 0.05) x 1
= 0.13
which is 13%
this is for advisor A.
with a return of 20% and 1.5 beta
0.05 + ( 0.20 - 0.05) x 1.5
= 27.5% for advisor b
when the return is 15% and beta is 1.2
0.05 + (0.15 - 0.05) x 1.2
= 17%
Therefore advisor a is better
A disadvantage of bonds is: Group of answer choices Bonds require payment of periodic interest Bonds require payment of principal Bonds can decrease return on equity Bond payments can be burdensome when income and cash flow are low All of the above
Answer:
All of the above.
Explanation:
A bond can be defined as a debt or fixed investment security, in which a bondholder (investor or creditor) loans an amount of money to the bond issuer (government or corporations) for a specific period of time. The bond issuer are expected to return the principal (face value) at maturity with an agreed upon interest (coupon), which are paid at fixed intervals.
The disadvantages of bonds are listed below as;
1. Bonds require payment of periodic interest.
2. Bonds require payment of principal.
3. Bonds can decrease return on equity.
4. Bond payments can be burdensome when income and cash flow are low.
Three months ago, you purchased a stock for $54.14. The stock is currently priced at $57.36. What is the EAR on your investment?
Answer:
The EAR on the investment is 23.79%
Explanation:
Here, we are concerned with calculating the EAR on the stock investment.
Firstly, we start with calculating the return on shares
Mathematically, that is; P1 - P0
From the question P1 = $57.36 while P0 = $54.14
So Return on shares = $57.36-$54.14 = $3.22
We proceed with calculating the Return on shares in percentage
Mathematically;
Return on shares in % = Return on shares/P0 * 100
= 3.22/54.14 * 100 = 5.95%
Lastly we calculate the effective annual interest;
The effective annual interest = 5.95%/3 * 12 = 23.79%
The EAR on the investment is 23.79%
Calculation of EAR:Since Three months ago, you purchased a stock for $54.14. The stock is currently priced at $57.36.
So, the difference of the price is
= $57.36-$54.14
= $3.22
Now return on shares should be
= 3.22/54.14 * 100
= 5.95%
Now EAR is
= 5.95%/3 * 12
= 23.79%
Learn more about rate here: https://brainly.com/question/19312178
All of the following actions by a custodian in an account opened under the Uniform Gifts to Minors Act are permitted except:_______.
A. donating funds to the account to make additional investments
B. withdrawing funds from the account for the custodian's use
C. managing the investments in the account with the objective of generating enough income for college tuition
D. selling securities in the account to generate proceeds for other investments
Answer: B. withdrawing funds from the account for the custodian's use
Explanation:
Under the Uniform Gifts to Minors Act, the Custodian's duty is to manage the account for the minor and allocate the assets within in such a way that it will bring about the best returns for the minor.
Custodians should not abuse this power for their own benefit or gain which is why the custodian withdrawing funds from the account for their own use is a violation of the act.
Sam has contracted with Dave to purchase Dave's racing bike, with payment and delivery of the bicycle to be made 10 days after the contract was made. Three days later Sam hears that Dave is going to sell the bike to Gene in three days at a higher price. If Sam really wants the bike, what should he do? Multiple Choice Immediately seek injunctive relief. Immediately sue for specific performance. Immediately sue for compensatory damages. Immediately sue for consequential damages.
Answer: Immediately seek injunctive relief.
Explanation:
An injunctive relief is an order by the court stopping an action from taking place. From the question, we are told that Sam has contracted with Dave to buy Dave's racing bike, with payment and delivery of the bicycle to be made 10 days after the contract was made.
We are further told that three days later Sam hears that Dave is going to sell the bike to Gene in three days at a higher price. If Sam really wants the bike, he should seek injunctive relief. By doing so, the court will stop Dave from selling the bike to Gene.
