Answer:
A. the company has ample time and adequate resources to launch the new internal startup business from. the ground up
Explanation:
Businesses consider factors like time and available resources to pursue projects. This is in an effort to ensure continuous flow of profit.
When a company wants to enter into a new industry it has the option of either buying an existing firm in that industry or developing a firm internally to break into the new industry.
Buying an existing company will save time and profits can start flowing immediately. It can also be a cheaper option.
Internal development of a firm to enter the industry will take more time to establish, and also more resources to build from the ground up.
is considering an investment with an initial cost of $236,000. In Year 4, the project will require an additional investment and finally, the project will be shut down in Year 7. The annual cash flows for Years 1 to 7, respectively, are projected as $64,000, $87,000, $91,000, −$48,000, $122,000, $154,000, and −$30,000. If all negative cash flows are moved to Time 0 using a discount rate of 13 percent, what is the project's modified IRR?
Answer:
18.54%
Explanation:
The computation of the project modified IRR is shown below:
Here we use the spreadsheet for determining the IRR
but before that we need to find out the cash inflows
Years Amount (in dollars)
Year 0: = - $278,191.12
($236,000 - $48,000 ÷ 1.13^4 -$30,000 ÷ 1.13^7)
Year 1: 64000
Year 2: 87000
Year 3: 91000
Year 4: 0
Year 5: 122000
Year 6: 154000
Year 7: 0
Now we use the excel
=IRR({-$278,191.12,$64,000,$87,000,$91,000,$0,$122,000,$154,000,0})
= 18.54%
Which is most likely a violation of the AICPA Code of Professional Conduct? A member firm buys computer time at wholesale prices from another CPA firm and sells it at retail prices to clients. A member firm’s name is imprinted on a tax booklet prepared by an outside author who is clearly identified. A member forms a partnership for the practice of public accounting with non-CPAs. A member begins a public accounting firm with the trade name "Pay Less Tax Service."
Answer:
A member begin a public accounting services with the trade name "Pay less tax "services"
Explanation:
The AICPA code of professional conduct is a set of mandatory rules describing the minimum level of conduct a member must maintain in order to earn public trust as this is of utmost priority to the professional body.
The code of conduct requires that no member should undergo any activity that undermines the services of the professional body . As a result , no member should charge a fee that that is believed to be be low and he should not mislead the public into believing such as a matter of integrity.
The business name "PAYLESS" appears to have violated this rule.
Suppose that the four firms are colluding by acting like a monopolist, with each firm producing one-fourth of the market output. If one of the firms cheats on the cartel agreement and produces an additional unit of output, the profits of each of the compliant firms go from:
Complete Question
The complete question is shown on the first uploaded image
Answer:
the correct answer is (b) decrease from $16 to $14
Explanation:
In order for profit to be maximized by a monopolist quantity produce will be MR = MC
from above graph MR = MC when Quantity = 8. As they are all producing equal portion of market output Hence Each firm will produce Q = 8/4 = 2 units.
When Market quantity = 8 then price they are getting = 12 per unit (From demand curve)
As there is no fixed cost and MC is constant => Total variable cost = MC*Q = 4Q
=> Total cost(TC) = Total fixed cost + total Variable cost = 0 + 4Q = 4Q
Total revenue = Price * quantity = PQ = 12Q
Hence Profit = 12Q - 4Q = 8Q and as Q = quantity per firm = 2
=> Profit they are earning = 8*2 = 16.
Now Suppose one firm cheats and hence now total quantity produces and sold = 2*3 + 3 + 9.
When Market quantity = 9 then price they are getting = 11 per unit (From demand curve).
Now, Profit = TR - TC = 11Q - 4Q = 7Q and Q remains same for those firms who didn't cheat.
So, Now profit = 7Q = 7*2 = 14.
Thus, If one of the firms cheats on the cartel agreement and produces an additional unit of output, the profits of each of the non cheating firms will decrease from $16 to $14.
The absolute value of the price elasticity of demand for gasoline in the long run has been estimated to be 1.5. If an extended war in the Middle East caused the price of oil (from which gasoline is made) to increase and remain high for a decade, how would that affect total expenditures on gasoline in the long run, all other things equal? (Hint: Consider the change in gasoline prices.)
Answer:
The demand for gasoline is elastic
As a result of the extended war which raises the price of oil, the price of gasoline would rise as a result. the rise in price would lead to a greater change in the quantity demanded. In the long run, consumers would have enough time to search for suitable substitutes so total expenditures on gasoline would fall more in the long run
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.
Suppose a firm has two types of customers but cannot tell which type of buyer the customer is before a purchase is made. If the firm wanted to use quantity discounting, it should charge _____ per unit for any quantity purchased or _____.
Complete Question:
Suppose a firm has two types of customers but cannot tell which type of buyer a customer is before a purchase is made. One group of customers has an inverse demand of P = 100 – 10Q, while another group of customers has an inverse demand curve of P = 110 – 22.5Q. If the firm wanted to use a quantity discount pricing scheme, what prices should it set? Assume that the marginal cost of production is constant at $20.
A) The firm could charge $65 per unit for any quantity purchased or $60 per unit if buying 4 or more units.
B) The firm could charge $50 per unit for any quantity purchased or $40 per unit if buying 8 or more units.
C) The firm could charge $25 per unit for any quantity purchased or $20 per unit if buying 2 or more units.
D) The firm could charge $85 per unit for any quantity purchased or $75 per unit if buying 6 or more units.
Answer:
Option A. The firm could charge $65 per unit for any quantity purchased or $60 per unit if buying 4 or more units.
Explanation:
Group One Customers:
We will find the price and quantity by using the following relationship:
Marginal Revenue = Marginal Cost
But the first step would be to calculate marginal revenue.
Step1: Calculate Marginal Revenue
The price and quantity relation of group one customers is given as under:
P = 100 - 10Q
Now we will use total revenue equation which is given as under:
Revenue = Price * Quantity
Here
Price = 100 - 10Q
By putting this in the above equation, we have:
Revenue = (100 - 10Q) * Q
Revenue = 100Q - 10Q^2
Taking derivative on both sides we have:
Marginal Revenue = 100 - 2*10*Q = 100 - 20Q
Now as we know that:
Marginal Revenue = Marginal Cost
Here
Marginal Revenue = 100 - 20Q
Marginal Cost = $20
By putting values, we have:
$100 - 20Q = $20
$100 - $20 = 20Q
Q = $80 / $20 = 4 Units
Now putting this value in the price equation we have:
Price = $100 - 10*4 = $60
Group Two Customers:
We will find the price and quantity by using the following relationship:
Marginal Revenue = Marginal Cost
But the first step would be to calculate marginal revenue.
Step1: Calculate Marginal Revenue
The price and quantity relation of group one customers is given as under:
P = 110 – 22.5Q
Now we will use total revenue equation which is given as under:
Revenue = Price * Quantity
Here
Price = 110 - 22.5Q
By putting this in the above equation, we have:
Revenue = (110 - 22.5Q) * Q
Revenue = 110Q - 22.5Q^2
Taking derivative on both sides we have:
Marginal Revenue = 110 - 2*22.5*Q
Marginal Revenue = 110 - 45Q
Now as we know that:
Marginal Revenue = Marginal Cost
Here
Marginal Revenue = 110 - 45Q
Marginal Cost = $20
By putting values, we have:
$110 - 45Q = $20
$110 - $20 = 45Q
Q = $90 / $45 = 2 Units
Now putting this value in the price equation we have:
Price = $110 - 22.5*2 = $65
The data extracted from the above two scenario is as under:For Group 1, Price is $60 and Quantity is 4 UnitsFor Group 2, Price is $65 and Quantity is 2 UnitsHence the option A is correct.
Select all businesses directly involved in marketing.
Bank
Marketing research form
medical center
government agency
car dealership
advertising agency
Answer:
The correct options are;
Marketing research firm
Advertising agency
Explanation:
Marketing research firms are firms that undertake field data sourcing and assessment with regards to goods and services consumers, local and international competitors, market distribution networks as forces and participants as well as other factors that determine a market place. Market research firms usually work in behalf of other organisations
An advertising, creative, or ad agency are establishment that plan, handle and develop advertising, sales promotions and marketing campaign for their business customers.
The term "debenture" is used to describe: Group of answer choices bonds that are below investment grade. bonds that are secured by a lien on real property. bonds that do not make coupon interest payments. an unsecured long-term debt. a complete set of removable, artificial teeth. Next
Answer:
The answer is D. an unsecured long-term debt
Explanation:
Debenture is a bond because it is a long-term loan and debenture is not secured (unsecured). It is unsecured in the sense that there is no collaterals but relies on the creditworthiness of the issuers.
Option A is incorrect becausebond is usually not bonds below Investment grade.
Option B is incorrect because debenture are nor secured by any properties.
Option C is incorrect because debenture makes coupon interest payment.
Racquel deposited $40,000 in an account paying 4.8% annual interest in 2009. She now wants to make four equal annual withdrawals from the account starting with the first withdrawal in 2021. Racquel also wants to have exactly $60,000 left in the account in 2026. How large can each of the annual withdrawals be?
Answer:
the annual withdrawals must be $2,006.49.
Explanation:
First determine how much the $40,000 would be at the end of 2020 that is 7 years following the investment as follows :
PV = - $40,000
r = 4.8%
Pmt = $0
P/yr = 1
n = 7
Fv = ?
Using a Financial Calculator, the $40,000 will be $55,537.84 in 7 years time.
The next step is to determine the annual withdrawals that will result in $60,000 left in 6 years.
PV = - $55,537.84
r = 4.8%
P/yr = 1
n = 6
Fv = $60,000
Pmt = ?
Using a financial calculator, the annual withdrawals must be $2,006.49 for Racquel to achieve her goals.
As defined in the Uniform Securities Act, an investment adviser is all of the following except:_______. 1. a broker-dealer who charges for investment advice 2. a publisher of a financial newspaper 3. a person who sells security analysis 4. a CPA who, as an incidental part of his practice, suggests certain tax-sheltered investments to his affluent clients
Answer:
A publisher of financial newspaper
A CPA who as an incidental part of his practice , suggests certain tax sheltered investment to his affluent client
Explanation:
An investment adviser is a firm that is registered for the business of making investment recommendations or conduct securities analysis by managing clients assets and advising on potential investment in securities.
A publisher of financial newspaper and a CPA who as an incidental part of his practice , suggests certain tax sheltered investment to clients are not qualified as investment advisers under the uniform securities act.
when convicts are released from prison, they have no money, and there is a high rate of recidivism the released prisoners return to crime and are arrested again. Would providing income support to ex-convicts during the first months after their release from prison reduces recidivism
Answer:
Yes
Explanation:
Recidivism can be defined as seen in the question as the tendency of an ex-convict to return to crime.
When a person returns from a sentence, he has nothing. No income, no job, etc. As a result of this, some ex-convicts are tempted into returning to the lifestyle that got them imprisoned in the first instance. Without a job,which is as a result of stigmatization of ex-convicts as never-do-well, there can't be income.
For this reason, the government should endeavor to give ex-convicts income support for a few months after their release from the prison. This will go a long way in helping the ex-convicts stay of crime and also help them plan towards a better life.
Cheers.
Two years ago, a customer purchased 1,000 shares of ABC stock at $45 per share. The stock has appreciated in value and is currently worth $60,000. The company announces that it is spinning off a subsidiary, DEF, to its shareholders. The value of the new company being spun off equals 5% of the old company. The customer will have:___________
Answer:
Explanation:
Spin off can be defined as the splitting of the shares of an existing company in order to form an independent new entities as part of larger business.
In calculating the spill off value of a business ,the aggregate cost of the business is used and not the aggregate cost.
Workings
Shares stock acquired = 1,000
initial share price = $45
Total share value = 45*1000=45,000
Percentage split off to DEF= 5%
Value split off = 5%*45,000 =2,250
Percentage retained in ABC = 95%*5,000
=42,750
Fifty years ago, a high school diploma was the minimum requirement for entry to the paid labor force in the US. Today a college degree is virtually the bare minimum. This change reflects the process of
Answer: Credentialism
Explanation:
Credentialism is when credentials that are given by professional bodies, educational institutions etc are being relied upon and used as qualifications to know if someone can do a particular job or not.
Fifty years ago, a high school diploma was the minimum requirement for entry to the paid labor force in the US. Today a college degree is virtually the bare minimum. This change reflects the process of credentialism.
For February, the cost components of a picture frame include $0.45 for the glass, $0.68 for the wooden frame, and $0.95 for assembly. The assembly desk and tools cost $500. Two hundred fifty frames are expected to be produced in the coming year. What cost function best represents these costs?
Answer: C(x) = 2.08 + 500x
Explanation:
Given the following :
Cost component of picture frame :
Glass = $0.45
Wooden frame = $0.68
Assembly = $0.95
Assembly desk and tools = $500
Using the linear cost function :
C(x) = mx + b
C(x) = total cost
b = fixed cost
mx = variable cost
b = cost of glass + wooden frame + assembly
b = $(0.45 + 0.68 + 0.95) =$2.08
mx = (cost of assembly desk and tools * number produced) = 500x
C(x) = 2.08 + 500x
A property sold for $198,000 with a listing commission of 8%. The selling office is to receive 40% of the total commission. How much will the listing salesperson receive if she is paid 60% of the amount retained by the listing broker?
Answer:
$5,702.4
Explanation:
A property is sold for $198,000 with a listing commission of 8%
The selling office is to receive 40%
The first step is to calculate the total commission
= $198,00×8/100
= $198,000×0.08
= $15,840
Listing brokers commission
=$15,840×60/100
= $15,840×0.6
= 9,504
Therefore, the amount of listing that will be received by the sales person can be calculated as follows
= 9,504×60/100
= 9,504×0.6
= $5,702.4
Hence the salesperson will receive a listing of $5,702.4
The approach to measuring GDP that adds together compensation to employees, rents, interest income, dividends, undistributed corporate profits, proprietors' income, indirect business taxes, the consumption of fixed capital, and net foreign factor income earned in the United States is the:
Answer:
Income approach
Explanation:
This approach of calculating GDP is called income approach. In income approach of GDP calculation we add compensation to employees, rents, interest income, dividends, undistributed corporate profits, proprietors' income, indirect business taxes, the consumption of fixed capital, and net foreign factor income earned.
If the Central Bank of Macroland puts an additional 1,000 dollars of currency into the economy, the public deposits all currency into the banking system, and banks have a desired reserve/deposit ratio of 0.10, then the banks will eventually make new loans totaling ______ and the money supply will increase by _______.
a. 9,000; 10,000
b. 9,000; 9,000
c. 10,000; 9,000
d. 10,000; 10,000
Answer:
a. 9,000; 10,000
Explanation:
The computation is shown below:
The money multiplier is
= 1 ÷ 0.10
= 10
Now If $1,000 are deposited in banks and the expected reserve ratio is 0.10 ration so the lending amount is $900.
And now if we considered the money multiplier, so it would be increased by
= $900 × $10
= $9,000
And, the increase in money supply is
= $9,000 + $1,000
= $10,000
Hence, the correct option is a.
Which of the following is NOT a factor to consider when examining extrinsic job satisfaction?
a. pay
b. coworkers
c. job tasks
d. supervisors
Answer:
The answer is C) Job tasks
Answer:
c
Explanation:
Ken, whose primary job is supervising a small production group, is not getting cooperation from all members on the cross-functional team he leads. In particular, Bethany, a senior marketing manager, seems to resist his direction and tries to influence team members to go in another direction. The source of conflict in this case may be
Answer:
Status differences.
Explanation:
Since Ken, whose primary job is supervising a small production group, isn't getting cooperation from all members on the cross-functional team he leads. In particular, Bethany, a senior marketing manager, seems to resist his direction and tries to influence team members to go in another direction. The source of conflict in this case may be status differences.
A status difference in workplaces occurs between various workers or employees as a result of perceived thought of being higher than the other employees because of factors such as educational background, qualifications, age, intelligence, gender etc.
Basically, the top executives or human resources managers in organizations should strive really hard to reduce status differences at workplace through counseling, because it inhibits growth and development.
To spur trade, Cormoran, Brithea, and Asmakush decided on economic integration where there were no barriers to trade between the three countries, they agreed on a common external trade policy, and allowed factors of production to move freely between the three countries. In short, the three countries formed a Group of answer choices
Answer:
Common market.
Explanation:
In order to spur trade, Cormoran, Brithea, and Asmakush decided on economic integration where there were no barriers to trade between the three countries, they agreed on a common external trade policy, and allowed factors of production to move freely between the three countries. In short, the three countries formed a common market.
A common market can be defined as a formal agreement between a group of countries in which they adopt a common external tariff on products imported from countries outside the union. It is simply a type of market involving the formal organization of countries who have collectively agree to trade freely with one another with eliminated internal tariffs but imposes a common external tariff on trade with other countries.
Common market was founded in 1958 and was made up of countries like Luxembourg, France, Belgium, Netherlands, West Germany and Italy.
The main purpose and advantage of the common market is that, it avails member countries the opportunity to move goods, people, services and capital freely.
"Jan is most efficient at making braided bracelets, Martin is most efficient at making clay pots, and Marcus is most efficient at making beaded necklaces. Martin likes all three items. Which good should Martin specialize in making
Answer: clay pots
Explanation:
From the question, we are informed that Jan is most efficient at making braided bracelets, Martin is most efficient at making clay pots, and Marcus is most efficient at making beaded necklaces and that Martin likes all three items.
The good that Martin should specialize in making is cost pots. This is because he is most efficient at producing that.
A company is considering purchasing a machine that costs $280,000 and is estimated to have no salvage value at the end of its 8-year useful life. If the machine is purchased, annual revenues are expected to be $100,000 and annual operating expenses exclusive of depreciation expense are expected to be $38,000. The straight-line method of depreciation would be used. If the machine is purchased, the annual rate of return expected on this machine is:__________.
Answer:
19.29%
Explanation:
We can calculate Annual Rate of Return by using the following formula:
ARR = Net Income / Average Investment
Here
Net Income $27,000 Step1
Average Investment $140,000 Step2
By putting values, we have:
ARR = $27,000 / $140,000 = 19.29%
Step1: Net Income
Net Income = Annual Revenue - Depreciation - Operating Expenses
Here
Annual Revenue = $100,000 - $280,000/8 - $38,000
= $100,000 - $35,000 - $38,000
= $27,000
Step2: Average Investment
Average Investment = (Initial Investment + Scrap Value)/ 2
Average Investment = ($280,000 + 0)/2 = $140,000
The manager of a bulk foods establishment sells a trail mix for $5 per pound and premium cashews for $15 per pound. The manager wishes to make a 75-pound mixture of both that will sell for $13 per pound. How many pounds of each should be used
Answer:
15 pounds of trail mix60 pounds of premium cashewsExplanation;
75 pounds of the mixture should be made so assuming the trail mix is x and the premium cashew is y, the following expression is formed;
x + y = 75
The selling price per pound is $13 so in total, sales should be;
= 75 * 13
= $975
5x + 15y = 975
Substitution can then be used;
x + y = 75
y = 75 - x
Then;
5x + 15y = 975
5x + 15 ( 75 - x ) = 975
5x + 1,125 - 15x = 975
-10x = -150
x = 15
y = 75 - 15
= 60
15 pounds of trail mix
60 pounds of premium cashews
The buyers purchased a residence for $195,000. They made a down payment of $25,000 and agreed to assume the seller's existing mortgage, which had a current balance of $123,000. The buyers financed the remaining $47,000 of the purchase price by executing a mortgage and note to the seller. This type of loan, by which the seller becomes a mortgagee, is called a
Answer:
purchase-money mortgage
Explanation:
This type of loan, by which the seller becomes a mortgagee, is called a purchase-money mortgage. As described, this is a mortgage issued to the borrower by the current seller of the home as part of the purchase transaction. This usually tends to occur when the buyer cannot qualify for a traditional lending channel mortgage, and in this scenario the buyer can instead become a mortgagee through a simple buying and selling transaction.
Multiple Choice Question Milky Company reports sales revenue of $200, an increase in deferred revenue of $2, and an increase in accounts receivable of $1. Using a journal entry to determine cash collected from customers, accounts receivable should be ____ and deferred revenue ___.
Answer: b. debited; credited
Explanation:
Deferred revenue has been paid to the company but the company does not recognize it as revenue yet because the goods or services it was paid for have not been delivered yet. It will therefore be classified as a liability until the goods or services are delivered. It will therefore be credited because increases in liabilities are credited.
Accounts Receivable is an asset account and as such any increase in it will be debited.
The decision to take less salary in a year when the company was less profitable and employees' pay was cut is an example of Nishimatsu's:
Answer: commitment
Explanation:
The Chief Executive Officer of Japan Airlines, who was Haruka Nishimatsu, was an example of a strategic leader who had a high performance.
The The decision to take less salary in a year when the company was less profitable and employees' pay was cut is an example of Nishimatsu commitment to the company.
Suppose you manage a delivery company and you must choose between two transportation methods: (a) truck or (b) train. (a)Trucks: Costs U$ 26,000 upfront. For each mile it runs it costs U$ 2.00 in gas. Maintenance costs U$ 4,000 per year and additional U$ 1.00 per mile run. (b)Train: To lease a container that carries the same volume of orders as the truck it costs U$ 10.000 per year. In addition it costs U$ 4.00 per mile to move orders around. Which method has the lowest cost
Answer:
Which method has the lowest cost: Train.
Explanation:
From the scenario given between using the truck or train for transportation, the option with the lowest cost happens to be by train despite having high cost per mile for moving the goods.
For example, if the goods is to be moved over 1000 miles, it would cost the truck higher than when the train was used.
For Truck:
Cost of Truck: $26,000
Gas: $2 × 1000 = $2000
Extra: $1 × 1000 = $1000
Total: $29,000
For Train:
Cost: $10,000
Mile cost: $4 × 1000 = $4000
Total: $14,000
Therefore, for every 1000 miles covered, it was cheaper to use the train (lease a container carrier in train) than to use the Truck.
If a manager is called upon to hire a new vendor and negotiate the best services for the best price, which type of role is required?
Answer:
decision making role
Explanation:
Management roles vary depending on which type of manager we are talking about: upper, middle or lower management. Management roles include:
Leadership and Interpersonal RolesInformational RolesDecision Making Roles: are themselves divided into 4 categories (entrepreneur, disturbance handler, resource allocator, negotiator). In this case, the manager is allocating resources since labor is a resource.Hawkins Poultry Farms is considering the purchase of feeding equipment that costs $139,000 and will produce annual cash flows of approximately $36,000 for five years. The equipment is expected to be sold at the end of five years for $40,000. What is the net present value of the proposed investment
Answer:
NPV = $1,564.65
Explanation:
Here is the full question :
Hawkins Poultry Farms is considering the purchase of feeding equipment that costs $139,000 and will produce annual cash flows of approximately $36,000 for five years. The equipment is expected to be sold at the end of five years for $40,000.
What is the net present value of the proposed investment? Hawkins requires a 15 percent return on all capital investments
Net present value is the present value of after tax cash flows from an investment less the amount invested.
NPV can be calculated using a financial calculator
Cash flow in year 0 = $-139,000
Cash flow each year from year 1 to 4 = $36,000
Cash flow in year 5 = $36,000 + $40,000 = $76,000.
i = 15%
NPV = $1,564.65
To find the NPV using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
Starbucks entered a partnership with Keurig Green Mountain to sell K-Cup single-serving coffee packs. Because Starbucks __________, it was prepared for this shift in its marketing environment.
Answer:
tracked, as part of its ongoing environmental scanning activities, the percentage of households with single cup brewers
Explanation:
Starbucks entered a partnership with Keurig Green Mountain to sell K-Cup single-serving coffee packs. Because Starbucks tracked, it was prepared for this shift in its marketing environment.
What is a partnership?The partnership is referred to as the alliance formed between two or more two people with share capital as well as profit and loss of the business and achieve the common objective of the organization.
A shift in the marketing environment can lead to both profit and loss for an organization. Every organization needs to plan in advance to cope with the rising challenges and utilize them as opportunities for the business.
The change in the marketing environment is caused by political, social, economic, and cultural factors which affect the sales of any product.
Learn more about the partnership here:
brainly.com/question/25012970
#SPJ6
The XYZ Corporation's A-rated convertible debenture is currently selling for 90. If the bond's conversion price is $40, what is the parity price of the stock
Answer:
$36
Explanation:
Step 1
We find the number of shares the bond is convertible into. This means we find the conversion ratio.
Conversion ratio formula =
Par value/ Bond conversion price
Par value = $1,000
Bond conversion price = 25
Conversion ratio = $1,000/25
= 40 shares.
Step 2
The parity price of the stock is calculated as:
Rate of the convertible debenture (in dollars/ Conversion ratio
In the above question, rate of convertible debenture = 90
converting to dollars = 90 × $10
= $900
Conversion ratio = 40 shares
Parity price of stock = $900/40 shares
= $36
