Answer:
Division A is doing better and his more profitable because it has a higher ROI than Division B
Explanation:
Return on Investment is the proportion of operating assets that an investment center earned as as net operating income.
ROI is measure of the returned earned by a division relative to the amount invested in the assets used to generate the return.
It is calculated as follows
ROI = operating income/operating assets
Division A
Net operating income = Sales - expenses
Net operating income = 200,000 - 150,000 = 50,000
Operating assets = 950,000
ROI = 50,000/950,000× 100 = 5.26 %
Division B
Net operating income = 45,000 - 35,000 = 10,000
Operating assets = 200,000
ROI = 10,000/ 200,000 × 100 = 5 %
Division A is doing better and his more profitable because it has a higher ROI than Division B
Quick Company's lease payments are made at the end of each period. Quick's liability for a capital lease will be reduced periodically by the minimum lease payment, adjusted by:
Question:
Quick Company’s lease payments are made at the end of each period. Quick’s liability for a capital lease will be reduced periodically by the
A. Minimum lease payment.
B. Minimum lease payment plus the amortization of the related asset.
C. Minimum lease payment less the amortization of the related asset.
D. Minimum lease payment less the portion of the minimum lease payment allocable to interest.
Answer:
The correct choice is D.
Explanation:
The present value of the minimum lease payments is the lease payable. The total amount of lease payable is diminished by the percentage of the lease payment chargeable to the lease owed.
This amount is the lease payment minus the interest on the payment. Therefore, the liability is reduced by the minimum lease paid in each period minus the portion of the payment allocable to interest.
Cheers!
American corporations vary in numerous and varied degrees from corporations of other countries. For example, in Japan, the government limits the highest wages a corporate officer may receive based as a multiple of what the lowest wage earner in the corporation receives. At one point, the highest paid employee of a Japanese corporation could receive only sixty (60) times the wage of the lowest paid employee of the corporation. Is this a wise regulation, or does this somehow limit the competitiveness of Japanese corporations
Answer with Explanation:
The wage restrictions would limit the competition of Japanese firms as the Executive Directors will be under under-paid and they will looking for jobs else where. This demotivation due to low pays would affect the competition of Japanese firms as the employee's productivity will also be lowered. The employees rather they are of Executive Level or they belong to lower level, they must be paid according to their performance. Their might be a fixed portion and a performance based portion which would erge the employee to work hard.
A 12-year, 5% coupon bond pays interest annually. The bond has a face value of $1,000.__________ Fill in the blank, read surrounding text. % is the percentage change in the price of this bond if the yield to maturity rises to 6% from the current yield to maturity of 4.5%
Answer:
12.38% decrease
Explanation:
Given the following parameters
6%
Number of years = 12
Market yield I= 6 === 4.5
Present Value = 916.16 == 1045.59
PMT (annuity payment) = 50 (5%x1000)
Future value = 1000
Therefore, to solve for the percentage change, we have in the price of this bond in this situation, we have (916.16-1045.59) / 1045.59 = -0.1238
Hence, 12.38% decrease is the percentage change in the price of this bond if the market yield rises to 6% from the current yield of 4.5%,
The percentage change in the price of this bond will be -12.38%.
The price of the bond at 4.5% is calculated thus:
Yield to maturity = 4.50%Years left to maturity = 12Annual coupon rate = 5%Face value = $1000.Annual coupon payment = $50Price of the bond at 4.5% = $1045.59The price of the bond at 6.0% is calculated thus:
Yield to maturity = 6.00%Years left to maturity = 12Annual coupon rate = 5%Face value = $1000.Annual coupon payment = $50Price of the bond at 6.0% = $916.16The percentage change in price will be:
= (916.16 - 1045.59) / 1045.59
= -12.38%
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Bramble Corp. uses flexible budgets. At normal capacity of 19000 units, budgeted manufacturing overhead is: $57000 variable and $270000 fixed. If Stone had actual overhead costs of $328800 for 21000 units produced, what is the difference between actual and budgeted costs
Answer:
$4,200 Favorable
Explanation:
Given the above information,
Variable overhead rate
= $57,000 / 19,000 units
= $3 per unit
Overhead variance = Real - Allocated
= $328,800 - ($3 × 21,000 + $270,000)
= $328,800 - $333,000
= $4,200 Favorable
Rossdale Co. stock currently sells for $72.87 per share and has a beta of 1.22. The market risk premium is 7.10 percent and the risk-free rate is 2.90 percent annually. The company just paid a dividend of $4.29 per share, which it has pledged to increase at an annual rate of 3.45 percent indefinitely. What is your best estimate of the company's cost of equity?
Answer:
Cost of Equity =11.56%
Explanation:
The cost of equity can be determined using any of the following methods:
The Dividend Valuation Model(DVM)Capital Asset Pricing Model (CAPM)The Dividend Valuation Model(DVM) is a technique used to value the worth of an asset.
According to this model, the value of an asset is the sum of the present values of the future cash flows would that arise from the asset discounted at the required rate of return.
Price = D/Kp
D- Dividend payable
Kp- cost of preferred stock
The capital asset pricing model (CAPM): relates the price of a share to the market risk or systematic risk. The systematic risk is that which affects all the all the economic agents, e.g inflation, interest rate e.t.c
This CAPM is considered superior to DVM because it incorporates risk. Hence, we will use the CAPM
Using the CAPM , the expected return on a asset is given as follows:
E(r)= Rf +β(Rm-Rf)
E(r) =? , Rf- 2.90%, Rm-Rf- 7.10% β- 1.22
E(r) = 2.90% + 1.22×(7.10)% = 11.562 %
Cost of Equity =11.56%
Debt financing has one important advantage that the early Modigliani and Miller (MM) propositions ignored: the interest on business debt is tax deductible. This benefit means that the amount of taxes that a business is required to
pay will be reduced by a phenomenon called an interest tax shield, which is a function of the amount of debt in the firm's capital structure and its tax rate. In contrast, the dividends that a corporation pays on its common and
preferred shares are not tax deductible.
Consider the case of Green Llama Foodstuffs, Inc.:
At the beginning of the year, Blue Chipmunk Foodstuffs, Inc. had an unlevered value of $8,500,000. It pays federal and state taxes at the marginal rate of 40%, and currently has $2,500,000 in debt capital in its capital structure.
According to MM Proposition I with taxes, Green Llama Foodstuffs is allowed to recognize a tax shield of ___________, and the levered value of the firm is:
a. $7,100,000
b. $12,500,000
c. $9,900,000
d. $4,500,000
Answer:
c. $9,500,000
Explanation:
Un-levered value = $8,500,000
Tax= 40% = 0.4
Debt capital= $2,500,000
Tax shield = Debt capital * Tax
Tax shield = $2,500,000 * 0.4
Tax shield = $1,000,000
Levered value = Unlevered value + Tax shield
Levered value = $8,500,000 + $1,000,000
Levered value = $9,500,000
Jenny Corp. needs to raise $53 million to fund a new project. The company will sell shares at a price of $29.00 in a general cash offer and the company's underwriters will charge a spread of 7.5 percent. The direct flotation costs associated with the issue are $925,000. How many shares need to be sold?
Answer:
2,010,252 Shares
Explanation:
The funds that are to be raised = $53,000,000
Spread = 7.5%
Share price = $29.00
Flotation cost with issue = 925,000
We have that:
(53000000+925000)/92.5 * 100
(539,250,000/92.5)x100
= $58297.973 x 100
= $58297297.3
The offer per share is placed at $29.00
So to get the number of shares sold:
$58297297.3 / $29.00
= 2,010,252 shares are to be sold.
Prior to setting pricing options for its products to maximize profit, a company must: a. determine whether it should use horizontal or vertical integration. b. select appropriate corporate-level strategies. c. perform value-chain functional activities.
Answer: b. select appropriate corporate-level strategies
Explanation:
Prior to setting pricing options for its products to maximize profit, a company must select appropriate corporate-level strategies.
This is necessary in order to ensure that the strategies aligns with what the organization is willing to do in order to achieve its profit maximization goal.
Suppose the exchange rate is 90 yen per U.S. dollar and the United States wants to keep the exchange rate at a target rate of 90 yen per U.S. dollar. If the demand for U.S. dollars decrease, the Fed ______
A. buys dollars to raise the exchange rate
B. sells dollars to raise the exchange rate
C. sells dollars to lower the exchange rate
D. buys dollars to lower the exchange rate
Answer:
Option A, buys dollars to raise the exchange rate, is the right answer.
Explanation:
Option A is correct because when the Fed will buy the dollars then only the demand for dollars will shift rightwards. Consequently, the dollar price or exchange rate will go up. Therefore, the Fed will buy the dollars to increase the exchange rate. In another case, if the Fed wants to decrease the exchange rate then it will sell the dollars, and selling of dollars will shift the supply rightwards. Thus, the exchange rate will fall.
The value of the currency of a country as contrasted to the other country or the economic region is called an exchange rate.
The correct answer is:
Option A. buys dollars to raise the exchange rate.
This can be explained as:
When Fed will purchase a dollar then, there will be shifts towards the right.The transfer rate or the dollar price will rise.So to enhance the economic measure dollar should be purchased.To reduce the exchange rate dollar should be sold.Therefore, Fed should buy dollars.
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Presented below is the partial bond discount amortization schedule for Cullumber Corp. Cullumber uses the effective-interest method of amortization.
Interest Periods Interest to Be Paid Interest Expense to Be Recorded Discount Amortization Unamortized Discount Bond Carrying Value
Issue date $31,273 $778,727
1 $36,450 $38,936 $2,486 28,787 781,213
2 36,450 39,061 2,611 26,176 783,824
Required:
Prepare the journal entry to record the payment of interest and the discount amortization at the end of period 1
Answer:
Journal entry is given below
Explanation:
To record the payment of interest and the discount amortization at the end of period 1 we should debit the Interest expense and credit cash and discount
DATA
Interest expense in year 1 = $38,936
Interest to be paid = $36,450
Discount amortization = $2,486
Entry DEBIT CREDIT
Bond interest expense $38,936
Cash $36,450
Discount on bonds $2,486
Jack's gross pay for the week is . His yeartodate pay is under the limit for OASDI. Assume that the rate for state and federal unemployment compensation taxes is % and that Jack's yeartodate pay has previously exceeded the cap. What is the total amount of payroll taxes that Jack's employer must record as payroll tax expenses? (Do not round your intermediate calculations. Assume a FICAOASDI Tax of % and FICAMedicare Tax of %.)
Answer: $122.40
Explanation:
Jack's year to date pay has already exceeded the $7,000 limit on which State and Federal Unemployment taxes can be charged on his pay.
The amount the employer will pay is;
= FICA OASI Tax + FICA Medicare tax
= (1,600 * 6.2%) + (1,600 * 1.45%)
= 99.20 + 23.20
= $122.40
Two investment advisers are comparing performance. Adviser A averaged a 20% return with a portfolio beta of 1.5, and adviser 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 adviser was the better stock picker
Answer:
Based on the results, Adviser A's choice of stocks yielded a greater excess return. Thus, he was a better stock picker.
Adviser A's excess return = 3%
Adviser B's excess return = 0.04%
Explanation:
To compare the performance of the two stock advisers, we first need to determine the required or expected rate of return of both the portfolios.
Using the CAPM, we can calculate the expected rate of return for each portfolio.
The equation for CAPM is,
r = rRF + Beta * (rM - rRF)
Where,
rRF is the risk free raterM is the return on marketAdviser A
r = 0.05 + 1.5 * (0.13 - 0.05)
r = 0.17 or 17%
The required rate of return of Adviser A's portfolio was 17% while his portfolio yielded a return of 20% on average. The excess return on the portfolio was 20 - 17 = 3%
Adviser B
r = 0.05 + 1.2 * (0.13 - 0.05)
r = 0.146 or 14.6%
The required rate of return of Adviser B's portfolio was 14.6% while his portfolio yielded a return of 15% on average. The excess return on the portfolio was 15 - 14.6 = 0.04%
Based on the results, Adviser A's choice of stocks yielded a greater excess return. Thus, he was a better stock picker.
Patterson Co.’s Depreciation Expense is $20,200 and the beginning and ending accumulated depreciation balances are $150,100 and $155,100, respectively. What is the cash paid for depreciation?
Answer: $0
Explanation:
Fron the question, we are informed that Patterson Co.’s Depreciation Expense is $20,200 and the beginning and ending accumulated depreciation balances are $150,100 and $155,100, respectively.
The cash paid for depreciation will be $0. It should be noted that depreciation has to do with the ear and tear of an asset because its usage therefore no cash will be paid for depreciation.
Danny owns two companies where he has recently made changes. The margin of safety ratio for Company X is 42% and the margin of safety ratio for Company Y is 25%. What does this imply about the two companies?
Answer: Company X could lose more business before it will begin experiencing financial difficulties when it is being compared to company Y
Explanation:
Margin of safety ratio simply helps to understand the extent to which there'll be drop in sales before a company will begins to make a loss.
Since the margin of safety ratio for Company X is 42% and the margin of safety ratio for Company Y is 25%, it means that Company X could lose more business before it begins experiencing financial difficulties when it is compared to company Y.
You have gathered the following information on your investments. What is the expected return on the portfolio? Stock Number of Shares Price per Share Expected Return F 310 $ 40 13.32 % G 315 $ 26 10.05 % H 255 $ 52 10.59 %
Answer:
Expected return on the portfolio = $3,879.00
Explanation:
a) Data and Calculations:
Stock Number of Shares Price per Share Expected Return Expected
Value
F 310 $ 40 13.32 % $1,651.68
G 315 $ 26 10.05 % $823.09
H 255 $ 52 10.59 % $1,404.23
Total 880 $3,879.00
b) The expected return on the portfolio is the addition of the expected returns of each class of shares. This is obtained by multiplying the number of shares in each class with the price and the expected return in percentage. This gives a weighted value for the class of shares, which are then added to obtain the expected return on the portfolio.
Auto Body Repair Shop (ABRS) promises to pay Ben $1,000 a week to work for ABRS. Ben accepts and quits his job with Car Care Service. ABRS fails to provide a job for Ben. Ben has a cause of action based on
Answer:
Breach of Contract
Explanation:
If a contract was signed that promised a job/salary, then rescinding the job by the prospective employer is grounds for a "Breach of Contract" lawsuit.
If the poverty trap were made even more difficult to overcome because a working mother will have extra expenses like transportation and child care that a non-working mother will not face, then:_______.
a. she will have a powerful incentive to work more than job.
b. the family better off than if she did not work at all.
c. her economic grains from working will be even smaller.
The question is incomplete:
If the poverty trap were made even more difficult to overcome because a working mother will have extra expenses like transportation and child care that a non-working mother will not face, then:_______.
a. she will have a powerful incentive to work more than one job.
b. the family better off than if she did not work at all.
c. her economic grains from working will be even smaller.
d. The future is even more attractive.
Answer:
c. her economic grains from working will be even smaller.
Explanation:
The poverty trap is a situation in which having more income results on losing benefits. In this case, the poverty trap is more difficult to overcome because a working mother will have a salary but this results on her having additional expenses that she would not have if she was not working and this decreases the benefits she gets by having a job. Because of that, the answer is that her economic grains from working will be even smaller.
The other options are not right because she won't have an incentive to work more than one job because that would increase expenses like child care, the family won't be better as a result of the additional expenses and because of that, the future won't be more attractive.
Answer:
c. her economic grains from working will be even smaller.
Explanation:
In economics, the poverty trap refers to certain circumstances that make it very difficult for a poor person to become middle or upper class, or increase their income even if they continue to fall under the poverty line.
Imagine a situation where you work for a very low salary, and besides that, you must spend a large portion of your salary paying for transportation and childcare costs. The gains resulting from your work will decrease compared to a situation where you worked in a business that was located at a walking distance and childcare services were provided for free. The economic equation is simple, the higher the costs, the less the profit.
A written statement of what a job holder does, how it is done, under what conditions it is done, and why it is done is
Answer: Job description
Explanation:
A job description is a written statement that shows the responsibility of a worker in a particular organization. A job description can also include the details about the company such as the mission and vision of the company and its culture.
The job description is a written statement of what a job holder does, how it is done, under what conditions it is done, and why it is done.
HighLife Corporation has the following information: Average demand = 30 units per day Average lead time = 40 days Item unit cost = $45 for orders of less than 400 units Item unit cost = $40 for orders of 400 units or more Ordering cost = $50 Inventory carrying cost = 15 percent The business year is 300 days. Standard deviation of demand during lead time = 90 Desired service level = 95 percent What is the EOQ if HighLife pays $45/unit? Due to possible differences in rounding, choose the closest answer.\
Answer:
365.15 units
Explanation:
The computation of the economic order quantity is shown below:
[tex]= \sqrt{\frac{2\times \text{Annual demand}\times \text{Ordering cost}}{\text{Carrying cost}}}[/tex]
where,
Annual demand is
= 30 units × 300 days
= 90,000 units
ordering cost is $50
Carrying cost is
= $45 × 15%
= $6.75
Now placing these values to the above formula
So, the economic order quantity is
[tex]= \sqrt{\frac{2\times \text{90,000}\times \text{\$50}}{\text{\$6.75}}}[/tex]
= 365.15 units
We simply applied the above formula so that the EOQ could come
You purchased a share of stock for $120. One year later you received $1.82 as a dividend and sold the share for $136. What was your holding-period return
Answer:
Holding period return =14.85 %
Explanation:
The return on stock is the sum of the dividends earned and capital gains made during the holding period of the investment.
Dividend is the proportion of the profit made by a company which is paid to shareholders.
Capital gains is another type of the return made on an equity investment as a result of increase in the value of the shares. It is difference between the cost of the share and the value at the time of disposal.
Therefore, we can can compute the return on the investment as follows:
Holding period return = (Dividend + capital gain)/Begin Price of stock × 100
Dividend = $1.82
Capital gains= 136 - 120 = 16
Total dollar return on Investment = 1.82 + 16= $ 17.82
= 17.82/120 × 100 = 14.85 %
Holding period return =14.85 %
The accounting principle that requires important noncash financing and investing activities be reported on the statement of cash flows or in a footnote is the:\
Answer: Full Disclosure Principle
Explanation:
The Full Disclosure Principle is a principle in Accounting that aims to be keep the relevant business information as transparent as possible. The principle therefore requires that all information relating to the business be disclosed so that the stakeholders in the business will be able to reasonably understand the operations of the business.
As only financial data can be reported in financial statements such as cash related activities in the Cashflow Statement, the principle requires that important noncash financing and investing activities be reported on the statement of cash flows or in a footnote so that the readers of the statement will not have any missing information.
Which of these inventory changes would be accounted for prospectively? Select one: a. FIFO to LIFO, but not LIFO to FIFO b. LIFO to FIFO, but not FIFO to LIFO c. Both FIFO to LIFO and LIFO to FIFO d. Neither FIFO to LIFO nor LIFO to FIFO
Answer: a. FIFO to LIFO, but not LIFO to FIFO
Explanation:
Well the inventory changes which would likely be accounted for is the FIFO ( first in first out system ) to LIFO ( last in first out system ). But not the LIFO ( last in first out ) to FIFO ( first in first out ). This system are mostly used in sales where for FIFO the first goods to arrive leaves first and for LIFO the opposite of FIFO
12-8. Dealerships for Subaru and other automobile manufacturers keep records of the mileage of cars they sell and service. Mileage data are used to remind customers of when they need to schedule service appointments, but they are used for other purposes as well. What kinds of decisions does this piece of data support at the local level and at the corporate level
Answer:
The Dealerships for Sabaru and other automobile manufacturers keeps records of the mileage of cars they sell and service due to various reasons. At the local level, it afford them the opportunity to know the car brand with the highest mileage being used by their customers.
Also, the ability to know the brand of car with least requirement for servicing. On the other-hand, at the corporate level, the records afford them the opportunity to know the automobile manufacturers which they will keep on trading with under dealership due to feedback from their customers.
Explanation:
The decisions that this piece of data supports at the local level and at the corporate level include the car that requires the least servicing.
From the complete information, it should be noted that the dealerships for Sabaru and other automobile manufacturers keep records of the mileage of cars they sell and service.
This can be pivotal in order to know the car brand with the highest mileage being used by their customers. Also, it's important to know the brand of car with the least requirement for servicing. At the corporate level, it's vital to know the automobile manufacturers that they'll continue trading with.
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You haven't been able to spend much time talking with your team lately, but your workload should be back to normal soon. When you checked in with your team today, several associates joked about being surprised to see you.
Assuming all option are possible, what would you be most and least likely to do?
Answer and Explanation:
I would most likely do this:
Explain the issue to the team and praise them for their work in my absence. I would let them know there would be more time soon. It is very essential to praise and appreciate these efforts by the associates since I have been absent for a while and do not know what efforts they have been putting in.
I would be least likely to:
Talk to the manager to explain this situation or propose that my some of my commitments are eased for me to have more time with my team
On January 1, Power House Co. prepaid the annual rent of $10,140. Prepare the journal entry to record this transaction.
Answer and Explanation:
The journal entry to record the given transaction is shown below:
Prepaid rent Dr $10,140
To Cash $10,140
(Being the prepaid annual rent paid in cash is recorded)
For recording this we debited the prepaid rent as it increased the assets and credited the cash as it reduced the cash so that the proper posting could be done
Cadiz Co. uses flexible budgets to control its selling expenses. Monthly sales are expected to be from $300,000 to $360,000. Variable costs and their percentage relationships to sales are: Sales commissions 5% Advertising 4% Traveling 7% Delivery 1% Fixed selling expenses consist of sales salaries $40,000 and depreciation on delivery equipment $10,000. The actual selling expenses incurred in February, 2019, by Cadiz are as follows: Sales commissions $17,200 Advertising 12,000 Traveling 23,700 Delivery 2,400 Fixed selling expenses consist of sales salaries $41,500 and depreciation on delivery equipment $10,000. Prepare a flexible budget performance report, assuming that February sales were $330,000.
Answer:
Cadiz Co.
Flexible Budget Performance Report:
Budget
Flexible Actual Variance
Sales $330,000 $330,000 $0
Variable costs:
Sales commissions 16,500 17,200 700 U
Advertising 13,200 12,000 1,200 F
Traveling 23,100 23,700 600 U
Delivery 3,300 2,400 900 F
Fixed selling expenses:
Sales Salaries 40,000 41,500 1,500 U
Depreciation: delivery 10,000 10,000 0 None
Total 700 U
Explanation:
a) Data:
Budget
Static Actual Variance
Sales $360,000 $330,000 $30,000 U
Variable costs:
Sales commissions 18,500 17,200 1,300 F
Advertising 14,400 12,000 2,400 F
Traveling 25,200 23,700 1,500 F
Delivery 3,600 2,400 1,200 F
Fixed selling expenses:
Sales Salaries 40,000 41,500 1,500 U
Depreciation: delivery 10,000 10,000 0 None
b) Flexible Variable Expenses:
Sales commission = 5% of $330,000 = $16,500
Advertising = 4% of $330,000 = $13,200
Traveling = 7% of $330,000 = $23,100
Delivery = 1% of $330,000 = $3,300
c) Cadiz Co.'s flexible budget changes with respect to the volume of sales. Since some percentages of the sales are given for Sales commission, advertising, traveling, and delivery, these change as the volume of sales changes. This flexible budget forms the basis for the management of Cadiz Co. to judge the actual performance with the budget, which enables control to be instituted.
The interest income received from older Industrial revenue bonds may be taxable to the holder at regular income tax rates if the holder is:
Answer:
the "substantial user" of the facility built with the proceeds of the issue.
Explanation:
An Industrial revenue bond (IRB) can be defined as any municipal debt security issued by a local or state government agency with respect to a private firm which intend to undergo a particular project such as building facilities, purchasing heavy machinery or equipments.
The interest income received from older Industrial revenue bonds (IRB) may be taxable to the holder at regular income tax rates if the holder is the "substantial user" of the facility built with the proceeds of the issue because in the true sense it is only beneficial to the holder and not the larger community.
During the current year, Chudrick Corporation expects to produce 10,000 units and has budgeted the following: net income $300,000, variable costs $1,100,000, and fixed costs $100,000. It has invested assets of $1,500,000. The company’s budgeted ROI was 20%. What was its budgeted markup percentage using a full-cost approach?
Answer:
25%
Explanation:
For the computation of budgeted markup percentage using a full-cost approach first we need to find out the profit expected and total cost which is shown below:-
Profit Expected = $1,500,000 × 20%
= $300,000
Total cost = Variable cost + Fixed cost
= $1,100,000 + $100,000
= $12,00,000
Budgeted Markup Percentage = Profit ÷ Total Cost
= $300,000 ÷ $12,00,000
= 25%
What is the expected yield on the market portfolio at a time when Treasury bills are yielding 6%, and a stock with a beta of 1.5 is expected to yield 18%
Answer:
8%
Explanation:
According to CAPM :
expected stock yield =risk free rate + (beta x market yield)
6% + 1.5 x market yield = 18%
18% - 6% = 1.5market yield
solving for market yield gives
market yield = 8%
June finds an ad on Craigslist for a used car at a price she is willing to pay in cash. She emails the seller and offers to pay $200 extra more the asking price. She asks the seller to call her immediately to work out a deal. The seller calls June and they orally agree that June will pay $5200 for the car. June is to drop by sellers house in two days with cash in hand. They do not sign a formal agreement or otherwise follow-up by email or any other writing. The next day, another buyer offers seller $5500 for the car. Seller calls June to tell her that he will sell the car to the other buyer unless she can match the price. She tells him that they already have an agreement, and refuses. June receives an email from seller later that day. The email states:
Hey:
I spoke with my cousin, who is an attorney. He stated that I do not have to sell you my car because we didn’t sign anything, so it is not enforceable. Sorry our deal did not work out.
Cheers!
Required:
Can June still enforce the agreement, or is it unenforceable under the Statute of Frauds? Discuss.
Answer:
The Statute of Frauds requires that any contract involving the sale of goods worth more than $500 must be in writing and signed by all the participating parties.
In this case, the seller is right. Since there is no written and signed contract, then there is no contract at all. All that June has is an oral contract that cannot be enforced.
