Answer: $917.54
Explanation:
The current value of the debt of Big Ed's Electrical will be calculated thus:
First, we will calculate the present value which will be:
= $800 / (1 + 4%)
= $800 / ( 1 + 0.04)
= 800 / 1.04
= $769.23
The number of options that are needed
will be:
= (1300 - 800) / ( 300 - 0)
= 500 / 300
= 1.6667
Therefore,
1140 = ( number of option needed × Co) + Present value
1140 = (1.6667 × Co ) + 769.23
Co = (1140 - 769.23 ) / 1.6667
Co = 370.77 / 1.6667
Co = $222.46
Value of debt will now be:
= Current worth of assets - Co
= 1140 - 222.46
= 917.54
Therefore, the answer is $917.54
Early colonists came to America:_________.
a. for a wide range of economic and political agendas as well as for religious and philosophical reasons.
b. to set up a democratic political system.
c. to avoid the widespread poverty and economic depression that was sweeping Europe.
d. solely to obtain land. solely to escape religious persecution.
Answer: a. for a wide range of economic and political agendas as well as for religious and philosophical reasons.
Explanation:
There were various reasons the early colonists came to Northern America to found the colonies such as for economic and political reasons and others for religious reasons.
William Bradford for instance, helped found the Plymouth Colony as a haven for Puritan separatists like himself to escape persecution in England. John Smith on the other hand, came more for economic reasons.
Then there was James Oglethorpe of Georgia who wanted to found a home for the "worthy poor" of England so that they would have a chance to make something of themselves.
River co. just paid a dividend of $2 per share out of earnings of $4 per share. If its book value per share is $25 and its stock is currently selling for $40 per share, calculate the required rate of return on the stock.
Answer:
13.4%
Explanation:
Calculation to determine the required rate of return on the stock.
First step
g = (1 - 0.5)(4/25)
g = 0.08*100
g = 8%
Now let determine the required rate of return
r = [(2 * 1.08)/40] + 0.08
r= 13.4%
Therefore the required rate of return on the stock is 13.4%
Classify each of the following items as a final good or an intermediate good, and classify the expenditure on each final good as consumption expenditure or investment:
a. Fertilizer bought by a Florida tomato grower.
b. A haircut bought by a student.
c. New cars bought by Hertz comma the car rental firm.
d.. A new bridge across the creek in the Augusta National Golf Club.
Answer:
Classification of Goods
a. Intermediate good; Investment
b. Final Good = Consumption
c. Intermediate good; Investment
d. Intermediate good = Investment
Explanation:
An intermediate good produces a final good for consumption. Intermediate goods are used for investment to generate more resources that can be consumed in the future. A final good, in most cases, does not require further processing. It is consumed immediately by the buyer.
Most labor economists believe that the supply of labor is a. less elastic than the demand, and, therefore, firms bear most of the burden of the payroll tax. b. more elastic than the demand, and, therefore, firms bear most of the burden of the payroll tax. c. more elastic than the demand, and, therefore, workers bear most of the burden of the payroll tax. d. less elastic than the demand, and, therefore, workers bear most of the burden of the payroll tax.
Answer:
d
Explanation:
Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good.
Price elasticity of demand = percentage change in quantity demanded / percentage change in price
If the absolute value of price elasticity is greater than one, it means demand is elastic. Elastic demand means that quantity demanded is sensitive to price changes.
Demand is inelastic if a small change in price has little or no effect on quantity demanded. The absolute value of elasticity would be less than one
Demand is unit elastic if a small change in price has an equal and proportionate effect on quantity demanded.
Infinitely elastic demand is perfectly elastic demand. Demand falls to zero when price increases
Perfectly inelastic demand is demand where there is no change in the quantity demanded regardless of changes in price.
The supply of labour usually exceeds the demand for labour. So, the supply of labour is less elastic. as a result workers bear the burden of tax
Economists in general believe that supply of labor is a. less elastic than the demand, and, therefore, firms bear most of the burden of the payroll tax.
Why is the supply of labor less elastic?Even when employees change the amount they pay people, there will still be others who don't mind working at the new rate.
Supply of labor therefore doesn't change much when rates are changed. This allows employers to pass on payroll tax easily to workers.
In conclusion, option A is correct.
Find out more on labor elasticity at https://brainly.com/question/7432811.
During the month of March, Harley's Computer Services made purchases on account totaling $43,500. Also during the month of March, Harley was paid $8,000 by a customer for services to be provided in the future and paid $36,900 of cash on its accounts payable balance. If the balance in the accounts payable account at the beginning of March was $77,300, what is the balance in accounts payable at the end of March?
a. $6,600
b. $75,900
c. $83,900
d. $91,900
Answer:
c. $83,900
Explanation:
The computation of the balance in accounts payable at the end of March is given below;
Opening Balance $77,300
Add: Purchases made $43,500
Less: Cash Paid $(36,900)
Closing Balance $83,900
hence, the balance in accounts payable at the end of March is $83,900
Therefore the option c is correct
Highsmith Rental Company purchased an apartment building early in 2021. There are 20 apartments in the building and each is furnished with major kitchen appliances. The company has decided to use the group depreciation method for the appliances. The following data are available:
Appliance Cost Residual Value Service Life (in Years)
Stoves $15,000 $3,000 6
Refrigerators 10,000 1,000 5
Dishwashers 8,000 500 4
In 2019, three new refrigerators costing $2,700 were purchased for cash. The old refrigerators, which originally cost $1,500, were sold for $200.
Requried:
a. Calculate the group depreciation rate, group life, and depreciation for 2016.
b. Prepare the journal entries to record the purchase of the new refrigerators and the sale of the old refrigerators.
Answer:
A. Group depreciation rate 17.197%
Group life 5.02 years
Depreciation for 2016 $5,675
B. 2019
Dr Stove, refrigerator and dishwasher $2,700
Cr Cash $2,700
2019
Dr Accumulated Depreciation $1,300
Dr Cash $200
Cr Stove, refrigerator and dishwasher $1,500
Explanation:
A. Calculation to determine the group depreciation rate, group life, and depreciation for 2016.
First step is the Computation of Group depreciation rate, group life and depreciation for 2016
Assets Original Residual Depreciation Estimated Depreciation
Cost Value Cost Life-Years per year-SLM
Stoves $15,000-$3,000= $12,000 6 $2,000 ($12,000/6=$2,000)
Refrigerators $10,000-$1,000=$9,000 5 $1,800 ($9,000/5=$1,800)
Dishwashers $8,000-$500=$7,500 4 $1,875
($7,500/4=$1,875)
Total $33,000 $4,500 $28,500 $5,675
Now let determine the group depreciation rate, group life, and depreciation for 2016.
Calculation for group depreciation rate using this formula
Group Depreciation Rate = Total depreciation per year ÷ Total original cost
Let plug in the formula
Group depreciation rate = $5,675 ÷ $33,000*100
Group depreciation rate= 17.197%
Calculation for Group life using this formula
Group life = Total depreciation cost ÷ Total depreciation per year
Let plug in the formula
Group life = $28,500 ÷ $5,675
Group life = 5.02 years
Calculation for Depreciation for 2016 using this formula
Depreciation for 2016= Original Cost × Group Depreciation Rate
Let plug in the formula
Depreciation for 2016 = $33,000 × 0.17197
Depreciation for 2016= $5,675
Therefore the group depreciation rate is 17.197%, group life is 5.02 years, and depreciation for 2016 is $5,675
B. Preparation of the journal entries to record the purchase of the new refrigerators and the sale of the old refrigerators.
2019
Dr Stove, refrigerator and dishwasher $2,700
Cr Cash $2,700
(To record purchase of new refrigerator)
2019
Dr Accumulated Depreciation $1,300
($1,500-$200)
Dr Cash $200
Cr Stove, refrigerator and dishwasher $1,500
(To record sale of old refrigerator)
It has been said that Earned Value Management (EVM) came about because the Federal Government often used "Cost-plus" contractors with project organizations. Cost-plus contracting allows the contractor to recover full project development costs plus accumulate profit from these contracts. Why would requiring contractor firms to employ earned value management help the government hold the line against project cost overruns?
Answer:
Earned Value Management (EVM)
The Federal Government requires contractor firms to employ earned value management because it enables it to assess the work that has been completed against an established baseline plan in terms of technical, time, and cost performance.
Armed with this information, it is in a better position to make important project decisions and help to control over-spending.
Explanation:
Earned value management (EVM) as a integrated project management methodology details the project time schedule, costs, and scope to ensure correct measurement of project performance. Using planned and actual values, EVM enables future predictions, improving the ability of project managers to adjust according to requirements.
Renee paid $4,000 in mortgage interest on a $110,000 mortgage that was taken out when she bought her home several years ago. She also has a home equity loan of $130,000 that she used to pay for a cruise around the world. The interest on the home equity loan was $8,000. What amount is deductible as interest expense for Renee in 2021
Answer:
The amount that is deductible as interest expense for Renee in 2021 is:
= $4,000.
Explanation:
a) Data:
Home mortgage - $110,000
Interest on home mortgage = $4,000
Home equity loan for a cruise around the world = $130,000
Interest on the home equity loan = $8,000
Deductible interest expense for Renee in 2021 is $4,000
b) Usually, the interest expenses that a taxpayer pays on her home equity loan to enjoy a cruise around the world, on personal credit card, on automobile loan, and on other types of personal consumer finance interests are not tax-deductible.
Jiminy’s Cricket Farm issued a bond with 25 years to maturity and a semiannual coupon rate of 4 percent 3 years ago. The bond currently sells for 108 percent of its face value. The company’s tax rate is 22 percent.
Answer:
Pretax cost of debt = 3.48%
Aftertax cost of debt = 2.71%
Explanation:
Missing word "What is the pretax cost of debt and aftertax cost of debt"
Coupon rate = 4%
YTM = 22
Nper = YTM*2 = 44
PMT = 1000*4%/2 = 20
FV = 1000
PV = 1080
Rate = rate(nper, pmt, -pv, fv)
Rate = rate(44, 20, -1080, 1000)
Rate = 0.0174
Rate = 1.74%
Pretax cost of debt = Rate * 2
Pretax cost of debt = 1.74% * 2
Pretax cost of debt = 3.48%
Aftertax cost of debt = [3.48% * (1 - 0.22)]
Aftertax cost of debt = 3.48% * 0.78
Aftertax cost of debt = 0.0348 * 0.78
Aftertax cost of debt = 0.027144
Aftertax cost of debt = 2.71%
From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that Group of answer choices bond interest is deductible for tax purposes. interest must be paid on a periodic basis regardless of earnings. income to stockholders may increase as a result of trading on the equity. the bondholders do not have voting rights.
Answer:
interest must be paid on a periodic basis regardless of earnings.
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 can decrease a person's return on equity.
2. Bonds require a payment of the principal amount.
3. Bonds typically require a payment of periodic interest.
Generally, most bonds with shorter maturity time respond less dramatically to changes in interest rates when compared to bonds having longer maturity. Thus, the risk associated with short bonds isn't really significant because their interest rates are less likely to change substantially within that short period of time unlike bonds with longer maturity.
Hence, regardless of the earnings by bondholders, interest must be paid on a periodic basis on a long-term bond.
On January 1, Year 1, Frost Co. entered into a 2-year lease agreement with Ananz Co. to lease a new computer. The lease term begins on January 1, Year 1, and ends on December 31, Year 2. The lease agreement requires Frost to pay Ananz two annual lease payments of $8,000. The present value of the minimum lease payments is $13,000. Which of the following circumstances would require Frost to classify and account for the arrangement as a finance lease?
a. Frost does not have the option of purchasing the computers at the end of the lease term.
b. The fair value of the computers on January 1, year 1 is $14,000.
c. The economic life of the computers is three years.
d. Ownership of the computers remains with Ananz throughout the lease term and after the lease ends.
Answer:
Frost (Lessee) and Ananz (Lessor)
The circumstance that would require Frost to classify and account for the arrangement as a finance lease is:
c. The economic life of the computers is three years.
Explanation:
a) Data:
Annual lease payments = $8,000
Present value of the minimum lease payments = $13,000
Fair value of the computer = $14,000
The economic life of the computers = 3 years
The lease period = 2 years
b) One of the conditions for classifying the lease arrangement as a finance lease is that the lease term of 2 years forms a significant part of the asset's useful life of 3 years. Other conditions include:
Firstly, ownership of the asset is transferred to the lessee at the end of the lease term. The second condition is that the lessee can purchase the asset below its fair value.
explain why it is important for marketers to be able to measure the effectiveness of marketing activities.
A company's Office Supplies account shows a beginning balance of $710 and an ending balance of $620. If office supplies expense for the year is $3,650, what amount of office supplies was purchased during the period?
Answer:
the amount of office supplies was purchased during the period is $3,560
Explanation:
The computation of the office supplies purchased is shown below:
office supplies expense for the period $3,650
add: ending balance of supplies $620
less: opening stock of supplies availed - $710
Office supplies purchased $3,560
Therefore the amount of office supplies was purchased during the period is $3,560
At an activity level of 6,000 units the cost for maintenance is $7,200 and at 10,000 units the cost for maintenance is $11,600. Using the high-low method, the cost formula for maintenance is: Group of answer choices
Answer:
y = $1.10x + $600
Explanation:
Step 1 : Variable Cost calculation
Variable Cost = ($11,600 - $7,200) ÷ (10,000 - 6,000)
= $1.10
Step 2 : Fixed Cost calculation
Total cost = Variable Cost + Fixed Cost
hence,
Fixed Cost = Total Cost - Variable Cost
= $11,600 - (10,000 x $1.10)
= $600
Step 3 : Cost formula for maintenance
Total cost = Variable Cost + Fixed Cost
therefore,
y = $1.10x + $600
where,
y = Total cost
x = Activity level
Using the high-low method, the cost formula for maintenance is : y = $1.10x + $600
Several years ago, Castles in the Sand Inc. issued bonds at face value of $1,000 at a yield to maturity of 8%. Now, with 7 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 12%. What is the price of the bond now
Answer:
$814.10
Explanation:
Calculation to determine what the price of the bond now
Using this formula
Bond price = PV of coupon payments + PV of face value
Bond price= C×((1 / r) – {1 / [r(1 + r)t]}) + FV / (1 + r)t
Let plug in the formula
Bond price= [(.080 ×$1,000) / 2] ×[[1 / (.12 / 2)] – (1 / {(.12 / 2)[1 + (.12 / 2)](7 ×2)})] + $1,000 / [1 + (.12 / 2)](7 ×2)
Bond price= $814.10
Therefore the price of the bond now is $814.10
Sturbridge Company manufactures fine furniture and grandfather clocks. Sturbridge has an excellent reputation, and each grandfather clock sells for several thousand dollars. Which of the following should not be treated as direct costs, assuming the cost object is individual clocks?
a. The clock face
b. The timing mechanism for each clock
c. Wood
d. Depreciation on dock-making equipment
Answer:
D)depreciation on clock making equipment
Explanation:
From the question we are informed about Sturbridge Company manufactures who fine furniture and grandfather clocks. Sturbridge has an excellent reputation, and each grandfather clock sells for several thousand dollars. In this case, all the following should be treated as direct costs, assuming the cost object is individual clocks;
✓ The clock face
✓The timing mechanism for each clock
✓Wood
A direct cost can be regarded as price which can be tied directly to manufacture of particular goods or services. Direct and indirect costs can be regarded as two major types of costs that can be incurred by companies. Direct costs are been regarded as variable costs often, i.e this cost could fluctuate as q result of production levels like inventory.
Assume that the CAPM is a good description of stock price returns. The market expected return is 8% with 12% volatility and the risk-free rate is 3%. New news arrives that does not change any of these numbers, but it does change the expected returns of the following stocks:
Stock Expected Return Volatility Beta
Taggart Transcontinental 8% 28% 1.2
Rearden Metal 13% 40% 1.7
Wyatt Oil 7% 20% 0.8
Nielson Motors 10% 32% 1.3
The expected alpha for Taggart Transcontinental is closest to:_______
A) -3%
B) -1%
C) 1%
D) 3%
E) 0%
Answer:
b. -1%
Explanation:
Expected Alpha = E[rs] - [rf+ B(rm- rf)]. Where rf+ B(rm- rf) is the CAPM return, rf= risk free return, B = Beta of security, rm= return of market, E[rs]= Expected return of security
Expected Alpha = 8% - [3%+1.2*(8%-3%)
Expected Alpha = 8% - 9%
Expected Alpha = -1%
So, the expected alpha for Taggart Transcontinental is closest to -1%.
Holtzman Clothiers's stock currently sells for $38 a share. It just paid a dividend of $1.5 a share (i.e., D0 = $1.5). The dividend is expected to grow at a constant rate of 4% a year.
Required:
a. What stock price is expected 1 year from now?
b. What is the required rate of return?
Answer:
b 6.87%
a 56.53
Explanation:
according to the constant dividend growth model
price = d1 / (r - g)
d1 = next dividend to be paid
r = cost of equity
g = growth rate
38 = (1.5 x 1.04) / (r - 0.04)
38 (r - 0.04) = 1.092
r - 0,04 = 0.0287
r = 6.87%
1.5 x (1.04^2) / 6.87 - 4 = 56.53
Mới ra trường nên làm công ty nhỏ của người quen lương 8 triệu, hay công ty lớn lương 7 triệu
Answer:
small company
Explanation:
As the company grows, I also have the experience of being an important part of the company, that's my opinion
Say that investment increases by $60 for each interest rate drop of 1 percent. Say also that the expenditures multiplier is 4. If the money multiplier is 5, and each 5-unit change in the money supply changes the interest rate by 1 percent, what open market policy would you recommend to increase income by $240
The following transactions are for Splish Brothers Company.
1. On December 3, Splish Brothers Company sold $515,600 of merchandise to Sunland Co., on account, terms 3/10, n/30. The cost of the merchandise sold was $320,500.
2. On December 8, Sunland Co. was granted an allowance of $24,000 for merchandise purchased on December 3.
3. On December 13, Splish Brothers Company received the balance due from Sunland Co.
Required:
Prepare the journal entries to record these transactions on the books of Splish Brothers.
Answer and Explanation:
The journal entries are shown below:
On Dec 3
Account receivable $515,600
To Sales revenue $515,600
(Being the sale of merchandise on account is recorded)
Cost of goods sold $320,500
To Inventory $320,500
(Being the cost of merchandise sold on account)
On Dec 8
Sales allowance $24,000
To Account receivable $24,000
On Dec 13
Cash (491600 × 97%) $476,852
Sales discount $14,748
To Account receivable ($515,600 - $24,000) $491,600
(Being the cash received is recorded)
Red Co. recorded a right-of-use asset of $140,000 in a 10-year finance lease. Payments of $22,784 are made annually at the end of each year. The interest rate charged by the lessor and known by Red was 10%. The balance in the lease payable after two years will be: (Round your final answer to the nearest whole dollar.)
Answer: $121554
Explanation:
Lease liability = $140,000
Less: Lease liability in 1st year= $8784
Lease payable after one year = $131216
Less: Lease liability in 2nd year = $9662.40
Lease payable after 2nd year = $121553.60 = $121554
Note:
Lease liability in 1st year:
= $22,784 - (10% × $140000)
= $22784 - $14000
= $8784
Lease liability in 2nd year:
= $22784 - (10% × $131216)
= $22784 - $13121.60
= $9662.40
THE IMPORTANCE OF INFORMATION IN MARKETING
Answer:
u r answer
Explanation:
Marketing information and research address the need for quicker, yet more accurate, decision making by the marketer. These tools put marketers close to their customers to help them understand who they customers are, what they want, and what competitors are doing.
Vandelay Industries stock has a 50% chance of producing a 20% return, a 30% chance of producing a 8% return, and a 20% chance of producing a -21% return. What is Vandelay expected rate of return?
Answer:
8.2%
Explanation:
Calculation to determine the expected rate of return
Expected rate of return= (.50 (.20)) +(.30(.08)) + (.20*(-.21)
Expected rate of return=0.1+0.024+(0.042)
Expected rate of return=.082*100
Expected rate of return=8.2%
Therefore the expected rate of return is 8.2%
The city of williamsburg decided to defease old 6% bonds carried in its electric enterprise fund with new 4.5% bonds. As a result of the defeasance, the city incurred an accounting loss. This loss should be recognized:_______
a. As an adjustment to retained earnings since it is applicable to prior periods.
b. In the year of the defeasance.
c. Over the remaining life of the old bonds or the new bonds whichever is shorter
d. It should not be recognized
Answer: It should not be recognized
Explanation:
Based on the information given, it should be noted that the accounting loss that was incurred as a result of the defeasance should not be recognized.
Since the city of Williamsburg decided to defease old 6% bonds carried in its electric enterprise fund with new 4.5% bonds, then it should be noted that it was only the interest rate that changed, but there wasn't any bonds that were sold. Therefore, the loss should not be recognized.
1.6 Read the scenario below and answer the questions that follow:
Pearl inherited hudred thousand rands from her late uncle. She choose an investment which is managed by a fund manager who buys shares on the stock exchange/JSE
1.6.1 Name the form of investment chosen by Pearl.
1.6.2 Discuss the disadvantages of the form of investment mentioned in QUESTION 1.6.1
Answer:
1.6.1 unit trusts
1.6.2 -share price may fluctuate
-unit trusts are not allowed to borrow,
therefore reducing potential returns
-not good for people who want to invest for
a short period.
-Not good for people who want avoid risks at
all costs
The Murdock Corporation reported the following balance sheet data for 2021 and 2020:
2021 2020
Cash $97,355 $33,755
Available-for-sale debt securities (not cash equivalents) 24,500 103,000
Accounts receivable 98,000 84,450
Inventory 183,000 161,200
Prepaid insurance 3,120 3,800
Land, buildings, and equipment 1,286,000 1,143,000
Accumulated depreciation (628,000) (590,000)
Total assets $1,063,975 $939,205
Accounts payable $92,540 $166,670
Salaries payable 27,200 33,500
Notes payable (current) 41,200 93,000
Bonds payable 218,000 0
Common stock 300,000 300,000
Retained earnings 385,035 346,035
Total liabilities and shareholders' equity $1,063,975 $939,205
Additional information for 2021:
(1) Sold available-for-sale debt securities costing $78,500 for $84,800.
(2) Equipment costing $20,000 with a book value of $6,800 was sold for $8,700.
(3) Issued 6% bonds payable at face value, $218,000.
(4) Purchased new equipment for $163,000 cash.
(5) Paid cash dividends of $29,000.
(6) Net income was $68,000.
Required:
Prepare a statement of cash flows for 2016 in good form using the indirect method for cash flows from operating activities.
Answer:
The Murdock Corporation
Statement of Cash Flows
For the year ended December 31, 2016
Operating Activities:
Net income $68,000
Less:
Gain from sale of available-for-sale 6,300
Gain from sale of equipment 1,900
Operating cash $59,800
Working capital changes:
Accounts receivable -13,550
Inventory -21,800
Prepaid insurance 680
Accounts payable -$74,130
Salaries payable -6,300
Notes payable (current) -51,800
Net operating cash flows ($107,100)
Investing Activities:
Sale of Available-for-sale securities $84,800
Sale of Equipment 8,700
Purchase of new equipment -163,000
Net investing cash flows ($69,500)
Financing Activities:
Issue of 6% bonds payable $218,000
Payment of cash dividends -29,000
Net financing cash flows $189,000
Net cash flows $12,400
Explanation:
a) Data and Calculations:
2021 2020 Change
Cash $97,355 $33,755 +$63,600
Available-for-sale debt securities
(not cash equivalents) 24,500 103,000 -78,500
Accounts receivable 98,000 84,450 +13,550
Inventory 183,000 161,200 +21,800
Prepaid insurance 3,120 3,800 -680
Land, buildings, and equipment 1,286,000 1,143,000 +143,000
Accumulated depreciation (628,000) (590,000)
Total assets $1,063,975 $939,205
Accounts payable $92,540 $166,670 -$74,130
Salaries payable 27,200 33,500 -6,300
Notes payable (current) 41,200 93,000 -51,800
Bonds payable 218,000 0 +218,000
Common stock 300,000 300,000 0
Retained earnings 385,035 346,035
Total liabilities and
shareholders' equity $1,063,975 $939,205
Additional Data:
1. Sale of Available-for-sale securities $84,800
Gain from sale of available-for-sale $6,300
2. Sale of Equipment $8,700
Gain from sale of equipment $1,900
3. Issue of 6% bonds payable $218,000
4. Purchase of new equipment $163,000
5. Payment of cash dividends $29,000
6. Net income $68,000
Fort Thomas Living is a small publishing company located in the Northern Kentucky. Recently, Fort Thomas Living has contracted with several different local writers to publish various magazines and short-story books. Once such transaction involves an exchange of $10,200. Another transaction involves an exchange of $9,600? Are both of these exchanges of money subject to the disclosure requirements of the Money Laundering Control Act?
Answer: No
Explanation:
The Money Laundering Control Act of 1986 which was passed to curb the effects of large scale money laundering at the federal level, only requires that transactions above $10,000 be disclosed.
There is a transaction here that is only to the tune of $9,600 so this will not be disclosed as it is less than the $10,000 threshold. The other transaction of $10,200 will however, be disclosed.
Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry. PCC owes Mitsubishi Heavy Industry 500 million yen in one year. The current spot rate is 124 yen per dollar and the one-year forward rate is 110 yen per dollar. The annual interest rate is 5% in Japan and 8% in the U.S. PCC can also buy a one-year call option on yen at the strike price of $.0081 per yen for a premium of .014 cents per yen.
Required:
a. Compute the future dollar costs of meeting this obligation using the money market and forward hedges.
b. Assuming that the forward exchange rate is the best predictor of the future spot rate, compute the expected future dollar cost of meeting this obligation when the option hedge is used.
c. At what future spot rate do you think PCC may be indifferent between the option and forward hedge?
Answer:
Explanation:
a)
In the case of forwarding hedge:
The future dollar cost will be = FX receiveable ÷ Foward exchange rate
= 500 million yen ÷ 110 yen/dollar
= $4.55 million
For money market hedge:
Present value of yen payable = [tex]500 \ yen \div (1+ \dfrac{5}{100})[/tex]
[tex]= \dfrac{500 \ yen }{1.06}[/tex]
= 476.20 million yen
PCC would convert dollars to yens at the spot market rate and borrow yen such that it would get 500 million yen at maturity(i.e after one year) for Mitsubishi to receive it.
Dollars needed to get these yen = 476.30 yen ÷ 124 yen/dollar
= $3.84 million
Future Value of these dollars (for comparison with the foward market hedge) = $3.84 × (1 + 0.08)
= $4.15 million
Hence, the money market hedge is better as the dollar cost is lower than the forward market hedge to meet the obligation.
b)
On the maturity date, the spot rate is 110 yen/dollar
Ad the strike price = 0.0081 /dollar
It is better for the company to go for the strike price due to the fact that it has a lower rate than the spot rate.
Now;
The premium amount = 500000000 yen × 0.014 dollar / yen
= 70000 dollars
However; the Future dollar-cost payable = 500000000 yen × 0.0081 dollar /yen
= 4050000 dollars
By applying option hedge, the total dollar cost required to meet the obligation = (4050000 + 70000) dollars
= 4120000 dollars
c)
The dollar cost needed from the option hedge required to matching the forward hedge is determined by subtracting it from the premium amount:
Thus;
for option hedge, dollar cost needed = (4550000 - 70000) dollars
= 4480000 dollars
The required future spot rate = 500000000/4480000
= 111.61 yen/dollar
As a result, at the future spot rate of 111.61 yen/dollar, PCC will be unconcerned about and indifferent about the option or forward hedge because the future dollar cost of meeting the obligation will be the same.
On March 15, 2017, Gilbert Construction contracted to build a shopping center at a contract price of $220 million. The schedule of expected (which equals actual) cash collections and contract costs follows:
Year Cash Collections Cost Incurred
2017 55 million $36 million
2018 88 million 81 million
2019 77 million 63 million
Total $220 million $180 million
Required:
a. Calculate the amount of revenue, expense, and net income for each of the three years 2017 through 2019, and for all three years combined, using the cost-to-cost revenue recognition method.
b. Discuss whether or not the cost-to-cost method provides a good measure of this construction com- pany's performance under the contract.
Answer:
a. 2017 2018 2019
Expenses incurred for the year A 36 million 81 million 63 million
Estimated total cost B 180 million 180 million 180 million
% Completion (A/B) C 20% 45% 35%
Revenue recognized for the D 44 million 99 million 77 million
period (220 million * C)
Gross profit (D-A) $8 million $18 million $14 million
b. Yes, the cost-to-cost method provides a good measure of this construction company's performance under the contract.
