Answer:Indirect Expenses
Explanation: Indirect Expenses are those expenses which are not directly related to the product manufactured or service rendered by a company but are generally incurred in the operating and running of a business and cannot be traced to a particular department because the benefits are enjoyed collectively-The reason why its expenses are usually shared among departments or sectors.
Examples of indirect expenses include Rent, salaries to employees, legal charges, insurance of building, depreciation, printing charges, office expenses, telephone bills, advertising, marketing, stationery etc.
Consider two bonds, a 3-year bond paying an annual coupon of 5%, and a 20-year bond, also with an annual coupon of 5%. Both bonds currently sell at par value. Now suppose that interest rates rise and the yield to maturity of the two bonds increases to 8%. a. What is the new price of the 3-year bond?
Answer:
$922.69
Explanation:
The price of the 3-year bond can be computed using the below bond price formula:
Price=face value/(1+r)^n+coupon*(1-(1+r)^-n)/r
face value is $1000
r is the new interest rate of 8%
n is the number of annual coupons the bond would pay which is 3
coupon=face value*coupon rate=$1000*5%=$50
price=1000/(1+8%)^3+50*(1-(1+8%)^-3)/8%
price of 3-year bond=$922.69
Eliminating the queue of work dramatically quickens the time it takes apart to flow through the system. What are the disadvantages of removing those queues?
Answer:
quality may sufferexcess output mayExplanation:
Note that quality does not necessarily come quickly, and so even though eliminating the queue of work dramatically quickens the time it takes apart to flow through the system, it may result in excess output and poor quality.
Take for a stadium that has no entrance way (or doors) that is hosting an event, evidently it is less likely there will be a queue, as everyone would be rushing in quickly, but with possible consequences of overpopulation etc.
At the beginning of the school year, Craig Kovar decided to prepare a cash budget for the months of September, October, November, and December. The budget must plan for enough cash on December 31 to pay the spring semester tuition, which is the same as the fall tuition. The following information relates to the budget: Cash balance, September 1 (from a summer job) $9,250 Purchase season football tickets in September 160 Additional entertainment for each month 250 Pay fall semester tuition in September 4,800 Pay rent at the beginning of each month 600 Pay for food each month 550 Pay apartment deposit on September 2 (to be returned December 15) 600 Part-time job earnings each month (net of taxes) 950Required:a. Prepare a cash budget for September, October, November, and December. b. Are the four monthly budgets that are presented prepared as static budgets or flexible budgets?c. What are the budget implications for Craig Kovar?
Answer:
a) Craig Novar's
Cash budget
Months
Sept. Oct. Nov. Dec.
beginning balance 9,250 2,640 2,190 1,740
football tickets -160
other entertainment -250 -250 -250 -250
semester tuition -4,800
rent -600 -600 -600 -600
food -550 -550 -550 -550
apartment deposit -600 600
part time jobs earnings 950 950 950 950
ending balance 2,640 2,190 1,740 1,890
b) This is a static budget because it is being prepared in advance. A flexible budget adjusts a static budget to the real cash outflows and inflows.
c) Since Craig is spending more money than what he earns, his cash balance is decreasing month by month. This tendency changes in December because Craig gets his apartment's deposit back, but he still will not have enough money to pay for Spring tuition.
The Federal Reserve has been aggressively expanding the money supply by using repurchase agreements in its open market operations. Ignoring other factors, this is likely to result in:
Answer: decrease in interest rates and an increase in inflation
Explanation:
From the question, we are informed that The Federal Reserve has been aggressively expanding the money supply by using repurchase agreements in its open market operations.
This will result in a reduction in the interest rate and since there's more money in circulation, it will bring about an increase in the prices of goods.
Consider a 10 year bond with a face value of $1000 that has a coupon rate of 5.3%, with semiannual payments. What is the coupon payment for this bond?
Answer:
$26.5
Explanation:
the question says that the bond has a face value equal to 1000 dollars
coupon rate = 5.3%
and that the bond pays semiannually. semiannually means that it pays after 6 months.
semi annual coupon payment formula is given by = coupon rate/2 multiplied by face value
= 5.3%/2 multiplied by 1000
= 0.0265 x 1000
= $26.5
therefore from this calculation, the coupon payment on the bond is $26.5 dollars in every six months or semiannually.
Which of the following is a plausible explanation for the difference between the net change in fund balances of governmental funds (fund-level statement of revenues, expenditures, and changes in fund balances) and the change in net position of governmental activities (government-wide statement of activities)?
a. Some expenses reported in the statement of activities do not require the use of current financial resources and are not reported as expenditures in the fund-level statements.
b. Amounts reported as expenditures in the statement of activities are reported as capital assets in the fund-level statements.
c. Debt proceeds provide current financial resources in the statement of activities, but are reported as long-term liabilities in the fund-level statements
d. Depreciation of general fixed assets is not reported as an expense in the statement of activities, but it is reported as an expense in the fund-level
Answer:
a. Some expenses reported in the statement of activities do not require the use of current financial resources and are not reported as expenditures in the fund-level statements.
Explanation:
Governments maintain a statement of activities that are carried out, and fund-level statements are also maintained to track expenses of government.
When there is a disparity between the two, a plausible explanation will be that some expenses reported in the statement of activities do not require the use of current financial resources and are not reported as expenditures in the fund-level statements.
For example some long term project that is carried out by the government may be treated by creating a budget. These expenses will not be recognized in the current expenses that make up fund-level expenses.
Storm in Bowl is a noodle manufacturer in Texas. It advertises the ingredients used for its product to convince customers that it is safe for consumption. The company has also slashed its prices to ensure affordability for low-income consumers. According to the VALS™ framework, Storm in Bowl is most likely targeting
Answer: Survivors
Explanation:
From the question, we are informed that Storm in Bowl is a noodle manufacturer in Texas and that it advertises the ingredients used for its product to convince customers that it is safe for consumption.
We are further told that the company has also slashed its prices to ensure affordability for low-income consumers. According to the VALS™ framework, Storm in Bowl is most likely targeting survivors.
The survivors are those with low income and have very few resources and are also loyal to a particular brand.
New Morning Bakery is in the process of closing its operations. It sold its two-year-old bakery ovens to Great Harvest Bakery for $580,000. The ovens originally cost $778,000, had an estimated service life of 10 years, and an estimated residual value of $48,000. New Morning Bakery uses the straight-line depreciation method for all equipment. Required: 1. Calculate the balance in the accumulated depreciation account at the end of the second year.
Answer:
The balance in the accumulated depreciation account at the end of the second year is $146,000.
Explanation:
Straight line method charges a fixed depreciation charge on the asset during its period of use.
Depreciation Expense (Straight line) = Cost - Residual Amount ÷ Estimated Useful life
= $778,000 - $48,000 ÷ 10
= $73,000
Therefore, for each year, a depreciation expense of $73,000 is charged to profit an loss.
Accumulated Depreciation Calculation :
Depreciation Expense : Year 1 $73,000
Depreciation Expense : Year 2 $73,000
Total Expense $146,000
Viral marketing describes everything from paying people to say positive things online to schemes where consumers get commissions for directing friends to specific websites.a. Trueb. False
Answer:
True
Explanation:
Viral marketing is a strategy in which companies use online networks to promote a product or service providing information to many people. This works by creating content like videos that are published on the internet and shared with a lot of people. According to that, the statement is true because viral marketing involves generating different types of online content like messages from influencers to promote your product on social media and reach a big audience.
The ratio of sales to invested assets, which is also a factor in the DuPont formula for determining the rate of return on investment, is called
Answer:
Investment turnover
Explanation:
Investment turnover is used to compare the revenue earned by a business to the invested assets (equity or debt). It measures how effectively the business is using investment to generate profit.
The number of times investment is converted to revenue is calculated using this method (that is the turnover).
This metric is used in the Dupont formula.
Dupont formula is a financial ratio that evaluates a company's ability to increase return on equity.
Three main components of the Dupont formula are: profit margin, total asset turnover, and financial leverage.
A common stock pays an annual dividend per share of $1.80. The risk-free rate is 5%, and the risk premium for this stock is 4%. If the annual dividend is expected to remain at $1.80 per share, what is the value of the stock
Answer:
The value of the stock today is $20
Explanation:
Using the CAPM equation, we first calculate the required rate of retunr on the stock.
The equation for CAPM is,
r = rRF + Beta * rpM
Where,
rRF is the risk free raterpM is the risk premium on marketBeta * rpM is the risk premium on stockr = 0.05 + 0.04
r = 0.09 or 9%
The value of the stock can be calculated using the zero growth model of DDM. The DDM values the stock based on the present value of the expected future dividends from the stock. As the dividend from the stock is expected to remain constant through out to an indefinite period, the value of the stock today is,
P0 = Dividend / r
P0 = 1.8 / 0.09
P0 = $20
Refer to the following scenario to answer the following questions.
Five fishermen live in a village and have no other employment or income-earning possibilities besides fishing. They each own a boat that is suitable for fishing but does not have any resale value. Fish are worth $5 per pound, and the marginal cost of operating the boat is $500 per month. They all fish a river next to the village. According to the following schedule, they have determined that when there are more of them out on the river fishing, they each catch fewer fish per month.
Boats Fish Caught per
Boat (pounds)
1 200
2 190
3 175
4 155
5 130
How many fishermen will choose to operate their boats?
Answer:
5 fishermen will choose to operate their boats as each of them will earn a profit of $150
Explanation:
Per boat operating cost = $500 per month.
Price of fish = $5 per pound.
There are 5 fishermen and each fishermen has 1 boat.
For 1 boat
Total revenue = Price * quantity = $5 * 200 = $1,000
Cost = $500
Profit = Total revenue - Cost = 1000 - 500
Profit = $500.
For 2 boats
Total Revenue of each boat = $5 * 190 = $950
Cost of each boat = $500
Profit of each boat = Total revenue - Cost = 950 - 500
Profit of each boat = $450.
For 3 boats
Total Revenue of each boat = 5 * 175 = $875
Cost of each boat = $500
Profit of each boat = TR - Cost = 875 - 500
Profit of each boat = $375
For 4 boats
Total Revenue of each boat = 5 * 155 = $775
Cost of each boat = $500
Profit of each boat = TR - Cost = 775 - 500
Profit of each boat = $275
For 5 boats
Total Revenue of each boat = 5 * 130 = $650
Cost of each boat = $500
Profit of each boat = TR - Cost = 650 - 500
Profit of each boat = $150.
Conclusion: As there are 5 fishermen and if all of them out on the river at the same time then each fisherman earns profit of $150. As all fishermen earns profit hence all of them will choose to operate their boats. Therefore, 5 fishermen will be ready to operate their boats.
Additional business in the form of a special order of goods or services should be accepted when the incremental revenue equals the incremental costs.
A. True
B. False
Answer: False
Explanation:
The aim of the business is to ideally make a profit. As a result, Additional business should only be accepted if the incremental cost of doing so is less than the incremental revenue accrued from doing so.
If incremental revenue equals incremental cost, there is no point in engaging in the additional business as it brings no extra value to the business.
On January 1, 2018, Waller Sales issued in bonds for . These are eightyear bonds with a stated rate of %, and pay semiannual interest. Waller Sales uses the straightline method to amortize the bond discount. After the second interest payment on December 31, 2018, what is the bond carrying amount? (Round your intermediate answers to the nearest cent, and your final answer to the nearest dollar.)
Answer:
Carrying value December 31, 2018 = $24,137.50
Explanation:
the numbers are missing, so I looked for a similar question to fill in the blanks:
Waller Sales issued $30,000 in bonds for $23,300. These are eight-year bonds with a stated rate of 11%The journal entry to record the issuance of the bonds:
January 1, 2018, bonds are issued at a discount:
Dr Cash 23,300
Dr Discount on bonds payable 6,700
Cr Bonds payable 30,000
discount amortization = $6,700 / 16 coupons = $418.75 per coupon payment
First and second coupon payments:
June 30 (or December 31), 2018, coupon payments
Dr Interest expense 3,718.75
Cr Cash 3,300
Cr Discount on bonds payable 418.75
Carrying value June 30, 2018 = $23,300 + $418.75 = $23,718.75
Carrying value December 31, 2018 = $23,300 + $418.75 = $24,137.50
Joe must pay liabilities of 1,000 due 6 months from now and another 1,000 due one year from now. There are two available investments: \,1. Bond I: a 6-month bond with face amount of 1,000, a 8% nominal annual coupon rate convertible semiannually, and a 6% nominal annual yield rate convertible semiannually; and \,2. Bond II: a one year bond with face amount of 1,000, a 5% nominal annual coupon rate convertible semiannually, and a 7% nominal annual yield rate convertible semiannually Calculate the amount of each bond Joe should purchase in order to exactly match the liabilities.
Answer:
future liabilities:
$1,000 in 6 months
$1,000 in 1 year
Present value of bond I (due in 6 months):
PV = $1,000 / (1 + 3%) = $970.87
Present value of bond II (due in 1 year):
PV = $1,000 / (1 + 3.5%)² = $933.51
The price of the bonds is determined by the annual yield rate (YTM), not the coupon rate. Joe will pay $970.87 for bond I and $933.51 for bond II.
Sheffield Corp. determines that 53000 pounds of direct materials are needed for production in July. There are 3100 pounds of direct materials on hand at July 1 and the desired ending inventory is 2700 pounds. If the cost per unit of direct materials is $3, what is the budgeted total cost of direct materials purchases
Answer:
Budgeted total cost of Direct Material purchases ($) =$ 157,800
Explanation:
Raw material purchase budget is determined by adjusting the raw material usage budget for opening and closing inventory of materials.
Purchase budget = usage budgeted + closing inventory - Opening inventory
Material purchase budget = 53,000 + 2,700 - 3,100= 52,600 pounds
Note the closing inventory represents the stock of materials needed to be kept, hence it will increase the purchase budget. So we added.
On the other hand hands, the opening inventory represented what already existed , hence we subtracted it as it will reduce what will be required.
Material purchase budget ($) = purchase budget in quantity × standard price per quantity
Material purchase budget = 52,600 × $3 = $ 157,800
Budgeted total cost of Direct Material purchases ($) =$ 157,800
Pretzelmania, Inc., issues 6%, 10-year bonds with a face amount of $63,000 for $58,523 on January 1, 2018. The market interest rate for bonds of similar risk and maturity is 7%. Interest is paid semiannually on June 30 and December 31.
Record the bond issue and first interest payment on June 30, 2018.
Answer:
Please refer to the below for Journal entries
Explanation:
The journal entries are seen below
1. Cash A/c Dr $58,523
Discount on bond payable A/c Cr $4,477
To bonds payable A/c Cr $63,000
(Being the issuance of bond that is recorded)
2. Interest expense A/c Dr $2,048
To discount payable A/c Cr $158
To cash A/c Cr $1,890
(Being the first interest payment that is recorded)
Note:
Interest expense
= $58,523 × 7% × 6 months ÷ 12
= $2,048
Cash
= $63,000 × 6% × 6 months ÷ 12
= $1,890
In the short run, increasing marginal costs always imply increasing average total costs. a. Trueb. False
Answer:
The answer is A. True.
Explanation:
Marginal Cost is the cost of producing one more product unit.
Marginal Cost = Average Total Cost / Average Goods Output
Therefore, in the short run, an increase in Marginal Cost implies a similar increase in Average Total Cost.
Blossom, Inc., manufactures golf clubs in three models. For the year, the Big Bart line has a net loss of $4,700 from sales $201,000, variable costs $175,000, and fixed costs $30,700. If the Big Bart line is eliminated, $19,800 of fixed costs will remain. Prepare an analysis showing whether the Big Bart line should be eliminated. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) g
Answer:
Analysis of the Big Bart line discontinuity
Opportunity Costs :
Sales ($201,000)
Savings :
Variable Costs $175,000
Fixed Costs ($30,700 - $19,800) $10,900
Financial Advantage / (Disadvantage) ($15,100)
Conclusion :
Do not eliminate / discontinue Big Bart line.
Explanation:
The results show that closing Big Bart line results in a contribution towards fixed cost being lost to the amount of $15,100. Therefore leaving the entire company in a worse off position.
Vijay Inc. purchased a 3-acre tract of land for a building site for $420,000. On the land was a building with an appraised value of $120,000. The company demolished the old building at a cost of $12,000, but was able to sell scrap from the building for $1,500. The cost of title insurance was $900 and attorney fees for reviewing the contract was $500. Property taxes paid were $3,000, of which $500 covered the period subsequent to the purchase date. The capitalized cost of the land is:
Answer:
$433,900
Explanation:
The computation of the capitalized cost of the land is shown below:-
Capitalized cost of the land = Purchase price + Demolition of building + Title insurance + Attorney fee + Property taxes covered during the period - Scrap value from the building
= $420,000 + $12,000 + $900 + ($3,000 - $500) - $1,500
= $420,000 + $12,000 + $900 + $2,500 - $1,500
= $435,400 - $1,500
= $433,900
richard has two investment opportunities. He can invest in the sunglasses company or the umbrella company. if he diversifies his investment by putting 50% of his money into each company, what is the expected return and standard deviation of his portfolio
Answer:
Some information was missing, so i looked it up:
State of Prob. of the state Sunglasses Umbrella
the economy of the economy Company Corporation
Sunny .50 25% 0%
Rainy .50 0% 25%
expected returns:
Sunglasses Company = 0.5 x 25% = 12.5%
Umbrella Corporation = 0.5 x 25% = 12.5%,
so the expected return of the portfolio = (12.5% x 0.50) + (12.5% x 0.50) = 12.5%
standard deviation:
Sunglasses Company = √{[(0% - 12.5%)² + (25% - 12.5%)²] / 2} = √156.25 = 12.5%
Umbrella Corporation = √{[(0% - 12.5%)² + (25% - 12.5%)²] / 2} = √156.25 = 12.5%
so the standard deviation of the portfolio = 12.5%
dazzle, inc. produces beads for jewelry making use the journal entry to record production activities for direct labor usage is
Answer:
Debit Work in Process Inventory $180,000; credit Factory Wages Payable $180,000.
Explanation:
The journal entry to record the direct labor usage is shown belwo:
Work in process inventory Dr
To factory wages payable
(Being the direct labor usage is recorded)
For recording this we debited the work in process as it increased the assets and credited the factory wages payable as it also increased the liabilities
Moreover, when the wages is applied in the production level so the respective account is debited and credited
Steelcase Inc. (SCS) is one of the largest manufacturers of office furniture in the United States. In Grand Rapids, Michigan, it assembles filing cabinets in an Assembly Department. Assume the following information for the Assembly Department: Direct labor per filing cabinet 18 minutes Supervisor salaries $250,000 per month Depreciation $18,500 per month Direct labor rate $28 per hourRequired:Prepare a flexible budget for 70,000, 80,000, and 90,000 filing cabinets for the month ending February 28 in the Assembly Department.
Answer:
Total department cost of 70,000 units = $856,500
Total department cost of 80,000 units = $940,000
Total department cost of 90,000 units = $1,024,500
Explanation:
Note: See the attached excel file for the flexible budget.
A flexible budget is a budget that changes, flexes or adjusts as the volume, activity or unit of production changes.
For this question, the direct labor cost for each unit can be calculated as follows:
Direct labor time per filing cabinet in minutes = 18
Number of minutes in one hour = 60
Direct labor rate per minute = Direct labor rate per hour / Number minutes in one hour = $28 / 60 = $0.466666666666667
Direct labor cost per filing cabinet = Direct labor time per filing cabinet in minutes * Direct labor rate per minute = 18 * $0.466666666666667 = $8.40
Direct labor cost of a particular units of production = Direct labor cost per filing cabinet * Number of units of production ................... (1)
Using equation (1), the Direct labor cost of different units of production used in the attached excel file is calculated as follows:
Direct labor cost of 70,000 units = $8.40 * 70,000 = $588,000
Direct labor cost of 80,000 units = $8.40 * 80,000 = $672,000
Direct labor cost of 90,000 units = $8.40 * 90,000 = $756,000
Ahmed Company purchases all merchandise on credit. It recently budgeted the month-end accounts payable balances and merchandise inventory balances below. Cash payments on accounts payable during each month are expected to be May, $1,400,000; June, $1,550,000; July, $1,400,000; and August, $1,500,000
Accounts Payable Merchandise Inventory
31-May 150,000 260,000
30-Jun 130,000 500,000
31-Jul 300,000 300,000
31-Aug 120,000 330,000
Required:
a. Compute the budgeted amounts of merchandise purchases.
b. Compute the budgeted amounts of cost of goods sold.
Answer:
Ahmed Company
a. Computation of the budgeted merchandise purchases:
May June July August
Cash payments $1,400,000 1,550,000 1,400,000 1,500,000
Ending balance 150,000 130,000 300,000 120,000
Total $1,550,000 $1,680,000 $1,700,000 $1,620,000
less:
Beginning balance 150,000 130,000 300,000
Purchases $1,550,000 $1,530,000 $1,570,000 $1,320,000
b. Computation of the budgeted cost of goods sold:
May June July August
Beginning Inventory 260,000 500,000 300,000
Purchases 1,550,000 1,530,000 1,570,000 1,320,000
Goods available for sale 1,550,000 1,790,000 2,070,000 1,620,000
Ending Inventory 260,000 500,000 300,000 330,000
Cost of goods sold $1,290,000 $1,290,000 $1,770,000 $1,290,000
Explanation:
a) Data and Calculations:
Accounts Payable Merchandise Inventory
31-May 150,000 260,000
30-Jun 130,000 500,000
31-Jul 300,000 300,000
31-Aug 120,000 330,000
b) Ahmed Company's purchases of merchandise can be obtained by reviewing the Accounts Payable beginning and ending balances and the cash payments made during the months. Alternatively, monthly Accounts Payable can be prepared and the differences in the debit and credit side will be the purchases as the missing figure.
c) Once the purchases of merchandise have been computed, to compute the cost of goods sold becomes easier. The cost of goods sold for Ahmed Company is the difference between the cost of goods available for sale and the ending inventories of merchandise.
What is the annual real estate tax on a property valued at $135,000 and assessed for tax purposes at $47,250, with an equalization factor of 125%, when the tax rate is 25 mills
Answer:
$1,477
Explanation:
The annual real estate tax = assessed tax × equalization factor × tax rate
= $47,250 × 125% × 25 mills
= $47,250 × 125% × 2.5%(25 mills)
= $47,250 × 1.25 × 0.025
= $1,477
Amos Manufacturing has two major departments. Management wants to compare their relative performance. Information related to the two departments is as follows:Division 1:Sales: $200,000Expenses: $150,000Asset investment: $950,000Division 2:Sales: $45,000Expenses: $35,000Asset investment: $200,000Based on ROI, which division is more profitable?a. Division 1b. Both divisions have the same ROI ratioc. Division 2
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
A product's ________ identifies the product or brand, describes several things about the product, and promotes the brand.
Answer: label
Explanation:
Product labels are the piece of material
that are being attached to a product in order for easy identification by consumers in order to know the brand and also to know the contents.
A product's label identifies the product or brand, describes several things about the product, and promotes the brand.
A product label identifies the product or brand, describes various things about the product, and promotes the brand. Developing product labeling is therefore a strategic task that can help identify the brand and position it in the market.
An example of how labeling can provide extra benefits for companies is through environmental certifications, which can come as a seal on labels and promote the company's environmental responsibility in a widespread and fast way.
Therefore, the labeling must have the design, layout and information aligned with the company's values so that there is promotion of its products and assist in consumer choice.
Find out more information about labeling here:
https://brainly.com/question/7744386
In a concentrated network configuration:
a. firms perform a supply chain activity in one location and serve foreign locations from it
b. firms allow each site on the network to operate with full autonomy
c. firms tightly link operations and supply chain activities to one another
d. firms perform a supply chain activity in various countries
Answer:
B
Explanation:
Here, in this question, we are to select which of the options is best.
The correct answer to this question is that in a concentrated network configuration, firms allow each site on the network to operate with full autonomy.
What this means is that each site in the network operate independently of the other sites.
A site is thus an autonomous entity but still part of the concentrated network
People decide to save 20 percent of their incomes. The value of the marginal propensity to consume is ________ and the value of the spending multiplier is ________.
Answer: 0.8; 5
Explanation:
From the question, we are informed that people decide to save 20 percent of their incomes. We should note that the addition of the marginal prospensity to consume(MPC) and the marginal prospensity to save(MPS) will be equal to 1.
Therefore, the value of the marginal propensity to consume will be:
= 1 - 20%
= 1 - 0.2
= 0.8
The value of the spending multiplier will be calculated as:
= 1/MPS
= 1/0.2
= 5
The cash flows associated with each expansion site are summarized below. The expansion is planned for 5 years, and the interest rate is 12% per year. Use the B/C method to determine which site, if any, is the most acceptable. The monetary unit is $ million.
Site A B C
Initial cost, $ 55 70 200
M&O Cost, $/year 3 4 6
Benefits, $/year 20 29 55
Disbenefits, $/year 0.5 2 2.1
A. Site A
B. Site C
C. Site B
D. None
Answer:
C. Site B
Explanation:
A benefit-cost (B/C) method is a decision making techi=niques that uses benefit-cost ratio (BCR) to give a summary of overall relationship between the relative benefits and costs and a project being proposed.
To calculated the present values (PV) of Maintenance and Operations (M&O) Cost, Benefits and Disbenefits, we use cumulative discounting factor (CDF) for calculating the present value (PV) of an ordinary annuity as follows:
CDF = [{1 - [1 / (1 + r)]^n} / r] …………………………………. (1)
Where;
r = interest rate = 12%, or 0.12
n = number of years = 5
Substitute the values into equation (1), we have:
CDF = [{1 - [1 / (1 + 0.12)]^5} / 0.12] = 3.60
We can now calculate the B?C of each Site as follows as follows:
a. Calculation of B/C ratio of Site A
Initial cost = $55
PV of M&O Cost = M&O Cost per year * CDF = $3 * 3.60 = $10.80
PV of Benefits = Benefits per year * CDF =$20 * 3.60 = $72.00
PV of Disbenefits = Disbenefits per year * CDF = $0.5 * 3.60 = $1.80
PV of Total Cost = Initial cost + PV of M&O cost + PV of Disbenefits = $55 + $10.80 + $1.80 = $67.60
B/C ratio of Site A = PV of Benefits / PV of tota cost = $72.00 / $67.60 = 1.07
b. Calculation of B/C ratio of Site B
Initial cost = $70
PV of M&O Cost = M&O Cost per year * CDF = $4 * 3.60 = $14.40
PV of Benefits = Benefits per year * CDF =$29 * 3.60 = $104.40
PV of Disbenefits = Disbenefits per year * CDF = $2 * 3.60 = $7.20
PV of Total Cost = Initial cost + PV of M&O cost + PV of Disbenefits = $70 + $14.40 + $7.20 = $91.60
B/C ratio of Site A = PV of Benefits / PV of tota cost = $104.40 / $91.60 = 1.14
b. Calculation of B/C ratio of Site B
Initial cost = $200
PV of M&O Cost = M&O Cost per year * CDF = $6 * 3.60 = $21.60
PV of Benefits = Benefits per year * CDF =$55 * 3.60 = $198.00
PV of Disbenefits = Disbenefits per year * CDF = $2.1 * 3.60 = $7.56
PV of Total Cost = Initial cost + PV of M&O cost + PV of Disbenefits = $200 + $21.60 + $7.56 = $229.16
B/C ratio of Site A = PV of Benefits / PV of tota cost = $198.00 / $229.16 = 0.86
Conclusion
1. Since the B/C ratio of only Site A and Site B are greater than 1, both are acceptable.
2. But since Site B's B/C ratio of 1.14 is greater Site A's B/C ratio of 1.07, Site B is the most acceptable. Therefore, the correct option is C. Site B.
