Answer:
The current market rate is 8%
Explanation:
The market rate is the return on market or the market portfolio. To calculate the market rate (rM) we will use the CAPM equation which is used to calculate the required rate of return on a stock or portfolio. The formula for required rate of return under CAPM is,
r = rRF + Beta * (rM - rRF)
Where,
rRF is the risk free raterM is the market rateWe already know the value of r, rRF and Beta. We will input these values in the above equation to calculate the market rate.
0.12 = 0.04 + 2 * (rM - 0.04)
0.12 - 0.04 = 2 * rM - 0.08
0.08 + 0.08 = 2 * rM
0.16 / 2 = rM
rM = 0.08 or 8%
Carr Company is considering two capital investment proposals. Estimates regarding each project are provided below: Project Soup Project Nuts Initial investment $400,000 $600,000 Annual net income 30,000 46,000 Net annual cash inflow 110,000 146,000 Estimated useful life 5 years 6 years Salvage value -0- -0- The company requires a 10% rate of return on all new investments. Present Value of an Annuity of 1 Periods 9% 10% 11% 12% 5 3.890 3.791 3.696 3.605 6 4.486 4.355 4.231 4.111 "The net present value for Project Nuts" is Group of answer choices
Answer:
NPV = $35,868.06
Explanation:
Net present value is the present value of after tax cash flows from an investment less the amount invested.
NPV for Project Nuts
NPV can be calculated using a financial calculator
Cash flow in year 0 = $-600,000
Cash flow each year from year 1 to 6 = 146,000
I = 10%
NPV = $35,868.06
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
Consumer concern with the standards and believability of advertising may have spread around the world more swiftly than have many marketing techniques due to
Answer:
False advertising
Explanation:
False advertising refers to that advertising in which the misleading information is passed to the final consumers so that the company could earn more and more profits as there is one motive i.e. to increase sales as much the company wants
Therefore according to the given situation, the advertising spread around the world quickly due to the false advertising.
The production sector would NOT include Group of answer choices a Florida orange grove a California wine grower a meat packing plant
Answer: Meat packing plant
Explanation:
The options to the question are:
A. California wine grower
B. meat packing plant
C. horticultural nursery
D. Florida orange grove
E. none of the above
Of all the options given in the question, the correct answer is meat packing plant. It should be noted that the meat packaging plant will not be part of the production sector due to the fact that no productive activities are taking place, it only involves in services.
The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and is not expected to for the next five years. Its latest EPS was $10, all of which was reinvested in the company. The firm’s expected ROE for the next five years is 20% per year, and during this time it is expected to continue to reinvest all of its earnings. Starting in year 6, the firm’s ROE on new investments is expected to fall to 15%, and the company is expected to start paying out 40% of its earnings in cash dividends, which it will continue to do forever after. DEQS’s market capitalization rate is 15% per year. a. What is your estimate of DEQS’s intrinsic value per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year? (Round your dollar value to 2 decimal places.) Because there is (Click to select) , the entire return must be in (Click to select) . c. What do you expect to happen to price in the following year? (Round your dollar value to 2 decimal places.)
Answer:
a) $94.88
b) in 1 year, the intrinsic price of the stocks should increase to $109.11
Explanation:
year dividend EPS
0 0 $10
1 0 $12
2 0 $14.40
3 0 $17.28
4 0 $20.736
5 0 $24.8832
6 $11.45 $28.61568
growth rate up to year 5 = 20%
ROE growth rate starting year 6 = 15%
dividend growth rate starting year 6 = 15% x (1 - 40%) = 9%
cost of equity = 15%
horizon value at year 5 = $11.45 / (15% - 9%) = $190.83
current intrinsic value per stock = $190.83 / 1.15⁵ = $94.88
intrinsic price in 1 year = $190.83 / 1.15⁴ = $109.11
The estimate of DEQS’s intrinsic value per share is $94.88. Also, in 1 year, the intrinsic price of the stocks will increase to $109.11.
Based on the information given, the dividend and the earnings per share are given below:
year dividend EPS
0 0 $10
1 0 $12
2 0 $14.40
3 0 $17.28
4 0 $20.736
5 0 $24.88
6 $11.45 $28.616
Growth rate up to year 5 = 20%ROE growth rate starting year 6 = 15%Cost of equity = 15%Therefore, the dividend growth rate starting year 6 will be:
= 15% x (1 - 40%)
= 15% × 60%
= 9%
Therefore, the horizon value at year 5 will be:
= $11.45 / (15% - 9%)
= $11.45 / 6%
= $190.83
Then, the current intrinsic value per stock will be:
= $190.83 / 1.15⁵
= $94.88
The intrinsic price in 1 year will be:
= $190.83 / 1.15⁴
= $109.11
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Which ratios measure the extent of a firm’s financing with debt relative to equity and its ability to cover interest and fixed charges?
Answer:
Debt to Equity ratio and Times Interest Earned (TIE) ratio
Explanation:
The Debt to Equity ratio measures the extent of a firm’s financing with debt relative to equity
Formulae :
Debt to Equity ratio = Total Debt ÷ Total Equity
The Times Interest Earned (TIE) ratio measures the ability of a firm ability to cover interest and fixed charges
Formulae :
Times Interest Earned (TIE) ratio = Earnings Before Interest and Tax ÷ Interest
TB MC Qu. 6-107 Mcmurtry Corporation sells a product for ... Mcmurtry Corporation sells a product for $250 per unit. The product's current sales are 13,600 units and its break-even sales are 10,608 units. The margin of safety as a percentage of sales is closest to:
Answer:
The answer is 22%
Explanation:
Margin of Safety equals:
(Current sales level - break-even point) ÷ Current sales level
Break-even sales = $2,652,000 (10,608 units x $250 per unit)
Current sales = $3,400,000 (13,600 units x $250 per unit)
Therefore, Margin of Safety is:
($3,400,000 - $2,652,000) ÷ $3,400,000
= 0.22
Expressed as a percentage = 22%
To avoid having a voidable contract, all 'time is of the essence' deadlines set by the contract must be met:________
a. within 24 hours of the stated deadline.
b. within 48 hours of the stated deadline.
Answer:
None of the choices are needed
Explanation:
As we know that
The contract is an agreement between two parties who are eligible and enforceable by law
The voidable contract is an agreement that is not unenforceable by law due to various reasons like - party failure to complete the contract on time, fraud, misrepresentation, etc
So in the case of the voidable contract, no grace period is applicable neither 24 hours nor 48 hours as if there is a deadline so the same should be considered
For the current year ended March 31, Cosgrove Company expects fixed costs of $27,600,000, a unit variable cost of $805, and a unit selling price of $1,150.a. Compute the anticipated break-even sales (units).unitsb. Compute the sales (units) required to realize operating income of $5,175,000.units
Answer:
Instructions are below.
Explanation:
Giving the following information:
Fixed costs= $27,600,000
Unitary variable cost= $805
Unit selling price= $1,150
To calculate the break-even point in units, we need to use the following formula:
Break-even point in units= fixed costs/ contribution margin per unit
Break-even point in units= 27,600,000 / (1,150 - 805)
Break-even point in units= 80,000 units
Desired income= $5,175,000
Break-even point in units= (fixed costs + desired profit) / contribution margin per unit
Break-even point in units= (27,600,000 + 5,175,000) / 345
Break-even point in units= 95,000 units
2. Which of the following is not an accurate statement as concerns competing in the markets of foreign countries? A. A multi-country strategy is generally superior to a global strategy. B. There are country-to-country differences in consumer buying habits and buyer tastes and preferences. C. A company must contend with fluctuating exchange rates and country-tocountry variations in host government restrictions and requirements. D. Product designs suitable for one country are often inappropriate in another. E. Market growth rates vary from country to country.
Answer:
A. A multi-country strategy is generally superior to a global strategy.
Explanation:
Foreign countries are the countries that are established in a foreign. Each and every foreign country has different consumer preference, buying power, taste and preferences.
Also there are no fixed exchanged rates plus the designs of the product are not fixed for another country as it depends on the customer demand which type of product they needed. Moreover, the growth rate is also different in different countries
Hence, option A is correct
The transportation model, when applied to location analysis: maximizes revenues. minimizes total fixed costs. minimizes total production and transportation costs. minimizes total transportation costs. minimizes the movement of goods.
Answer:
Correct Answer:
4. minimizes total transportation costs.
Explanation:
When a good transportation method is applied, it helps in minimizing the transportation cost involved in moving goods and services from one location to another. For example, it cost 2 million dollars to transport a particular product. With good transportation model, it would definitely be cheaper.
ABC Corporation has the following information: Total market value of a company’s stock: $650 million Total market value of the company’s debt: $150 million Cost of Equity: 10% Cost of Debt: 8% Corporate tax rate is 35 percent What is the WACC of ABC Corporation?
Answer:
WACC of ABC Corporation is 91%
Explanation:
WACC = Kd * (1+T) * Debt/Debt+Equity + Ke * Debt/Equity
Kd = Cost of debt
T = Corporate tax rate
WACC = 0.08*(1-0.35)*(150m/150m+650m) + 0.10*(650m/150m+650m)
WACC = 0.08 *0.65*0.1875 + 0.10*0.8125
WACC = 0.00975 + 0.08125
WACC = 0.091
WACC = 91%
Therefore, the WACC of ABC Corporation is 91%
A company is considering replacing an old piece of machinery, which cost $400,000 and has $175,000 of accumulated depreciation to date, with a new machine that has a purchase price of $550,000. The old machine could be sold for $250,000. The annual variable production costs associated with the old machine are estimated to be $72,500 per year for eight years. The annual variable production costs for the new machine are estimated to be $24,000 per year for eight years.
Required:
a. Prepare a differential analysis dated May 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.
b. What is the sunk cost in this situation?
Answer:
Company A
a. Differential Analysis dated May 29
Alternative 1 Alternative 2
Opportunity cost $250,000 $550,000
Variable production costs 580,000 192,000
Total cost $830,000 $742,000
b. Sunk cost in this situation is: $225,000 ($400,000 - $175,000) cost of the old machine.
Explanation:
Company A's relevant cost for the old machine is the opportunity cost that it will lose if it continues with Alternative 1 or continued use of the old machine and the additional cost for the new machine for Alternative 2. Also relevant is the variable production costs that would be incurred if the old or new machine is used.
Company A's sunk cost is the cost of the old machine minus accumulated depreciation. Sunk cost is not relevant for decision making under differential analysis.
Company A's differential analysis is a managerial tool that is used to differentiate one decision alternative from another. In this analysis, only relevant costs are considered. A relevant cost in this case is cost that its inclusion or elimination makes a difference in the decision outcome.
A short margin account with the only position being 100 shares of ABC stock, shows the following:
Credit Balance: $18,000
Short Mkt Value: $12,000
Equity: $6,000
If ABC pays a dividend of $2.00 per share, the result will be an adjusted:__________
Answer:
1.1'00
Explanation:
Suppose that a country has no public debt in year 1 but experiences a budget deficit of billion in year 2, a budget surplus of billion in year 3, a budget surplus of billion in year 4, and a budget deficit of billion in year 5.
A) What is the absolute size of its public debt in year 4?
B) If its real GDP in year 4 is $104 billion, what is this country's public debt as a percentage of real GDP in year 4?
Answer:
a. 72 billion
b. 69.2%
Explanation:
a. The absolute size of its public debt in year 4 would be the total value of the deficit from year 1 till 4.
= 0 + 50 + 30 - 10 (budget surplus so it reduces deficit) - 2
= 72 billion
b. Percentage of real GDP in year 4;
= (72/104) * 100%
= 69.2%
When preparing government-wide financial statements,the modified accrual basis governmental funds are adjusted for all of the following events except?
A) Change in current assets and current liabilities from year to year
B) Long-term debt related events
C) Internal service fund activities
D) Interfund activities
Answer: Change in current assets and current liabilities from year to year
Explanation:
It should be noted that when preparing government-wide financial statements, the modified accrual basis governmental funds are adjusted for the long-term debt related events, the internal service fund activities and the interfund activities.
Therefore the correct option is A as th modified accrual basis government funds are not adjusted for the change in current assets and current liabilities from year to year.
If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does D1 represent?
Answer:
Hello attached below is the complete question
D1 represents the demand curve reflecting private benefits ( c )
Explanation:
The effects of an externality is positive( shift of the demand curve to the right ) when the production of goods and service has a positive effect on the consumers ( people that are not involved in the production process ). this positive effect will lead to an increase in quantity demanded as well from consumers.
The curve ( D1 ) does not represent the social benefits for the consumers but represents the demand curve reflecting private benefits,
Cantor Corporation acquired a manufacturing facility on four acres of land for a lump-sum price of $9,000,000. The building included used but functional equipment. According to independent appraisals, the fair values were $4,500,000, $3,000,000, and $2,500,000 for the building, land, and equipment, respectively. The initial values of the building, land, and equipment would be:
Answer:
Initial value of building = $4,050,000
Initial value of land = $2,700,000
Initial value of equipment = $2,250,000
Explanation:
The fair value of an asset refers to a unbiased estimate of the likely market price of the asset.
The initial value of a fixed asset refers to the amount of money that spent to acquire or create the asset.
The initial value of each asset from a group of asset can be calculated using the following formula:
Initial value of an asset = Lump-sum price * (FVA / TFV) ............ (1)
Where, from the questio;
Lump-sum price = $9,000,000
FVA = Fair value of a particular asset. From the question, we have:
Building fair value = $4,500,000
Land fair value = $3,000,000
Land fair value = $2,500,000
TFV =Total fair value = Building fair value + Land fair value + Land fair value = $4,500,000 + $3,000,000 + $2,500,000 = $10,000,000
Substituting the values into equation (1), we can determine the initial value of each asset as follows:
Initial value of building = $9,000,000 * ($4,500,000 / $10,000,000) = $9,000,000 * 0.45 = $4,050,000
Initial value of land = $9,000,000 * ($3,000,000 / $10,000,000) = $9,000,000 * 0.30 = $2,700,000
Initial value of equipment = $9,000,000 * ($2,500,000 / $10,000,000) = $9,000,000 * 0.25 = $2,250,000
Suppose the real interest rate is 2.8%, and the inflation rate is 7%. (1) How much do you need to invest now in order to get $100 in a year? Please show two approaches to calculate the answers. (Round your final answer to two decimal places) (2) Suppose the U.S. Treasury issues 5% coupon, 3-year TIPS (Treasury Inflation-Protected Securities). What are the real cash flows on the 3-year TIPS each year? What are the nominal cash flows on the 3-years TIPS each year? (Round your final answers to two decimal places)
Answer:
1)
approach 1, using the approximate real and nominal interest rates:
nominal interest rate = real interest rate + inflation rate = 2.8% + 7% = 9.8%
present value = $100 / (1 + 9.8%) = $91.07
approach 2, using the exact real and nominal interest rates:
(1 + i) = (1 + r) × (1 + π)
(1 + i) = (1 + 2.8%) x (1 + 7%) = 1.09996
i = 1.09996 - 1 = 0.09996 = 9.996%
present value = $100 / (1 + 9.996%) = $90.91
2)
assuming a $1,000 TIPS, nominal cash flow year 1 = $50
new face value = $1,070
nominal cash flow year 2 = $53.50
new face value = $1,144.90
nominal cash flows year 3 = $57.25 + ($1,144.90 x 1.07) = $1,282.29
assuming a $1,000 TIPS, real cash flow year 1 = $50 / 1.07 = $46.73
new face value = $1,070
real cash flow year 2 = $53.50 / 1.07² = $46.73
new face value = $1,144.90
real cash flows year 3 = [$57.25 + ($1,144.90 x 1.07)] / 1.07³ = $1,282.29 / 1.07³ = $1,046.73
A year ago, you purchased 300 shares of Stellar Wood Products, Inc. stock at a price of $8.62 per share. The stock pays an annual dividend of $0.10 per share. Today, you sold all of your shares for $4.80 per share. What is your total dollar return on this investment
Answer:
Total Dollar Return -$1,116
Explanation:
Calculation for the total dollar return on this investment
First step is to find the Total Selling Price using this formula
Total Selling Price= Shares purchased *Price per share sold
Let plug in the
Total Selling Price= 300*4.80
Total Selling Price= $1,440
The next step is to calculate for the total dollar return the investment using this formula
Total Dollar Return = Selling Price +Annual Dividend - Purchase Price
Let plug in the formula
Total Dollar Return = $1,440 + (300 shares ×$0.10 per share) - (300 shares *$8.62 per share)
Total Dollar Return=$1,440+$30-$2,586
Total Dollar Return = -$1,116
Therefore the total dollar return on this investment will be -$1,116
Seadrill Engineering licenses software to oil-drilling firms for 5 years. In addition to providing the software, the company also provides after sales consulting services and support to ensure smooth operation of the software over the license period of 5 years. The total transaction price is $420,000. Based on standalone values, the company estimates the consulting services and support have a value of $120,000 and the software license has a value of $300,000. Assuming the performance obligations are not interdependent, the journal entry to record the transaction on the date software is sold includes
Answer:
Dr Cash 420,000
Cr Sales Revenue (software) 300,000
Cr Unearned Service Revenue 120,000
Explanation:
software license $300,000
consulting services and support $120,000
total transaction cost $420,000
The recorded transaction should be:
Dr Cash 420,000
Cr Sales Revenue (software) 300,000
Cr Unearned Service Revenue 120,000
Cash account should be debited, since it's an asset. Sales revenue should be credited since it increases equity. Unearned revenue is a type of liability, so it should be credited.
Muckenthaler Company sells product 2005WSC for $30 per unit. The cost of one unit of 2005WSC is $27, and the replacement cost is $26. The estimated cost to dispose of a unit is $3, and the normal profit is 40% of selling price. At what amount per unit should product 2005WSC be reported, applying lower-of-cost-or-market
Answer:
The product 2005WSC should be reported at $26 per unit.
Explanation:
The lower-of-cost-or-market (LCM) method is a method of recording the inventory of a company which requires that the inventory cost of the company must recorded at whichever is lower between the inventory's original cost or current market price.
Applying lower-of-cost-or-market, the amount per unit at whcih product 2005WSC should be reported can be determined as follows:
Net realizable value (NRV) = Selling price per unit - Cost of disposal per unit = $30 - $3 = $27
Replacement cost (RC) = $26
NRV - Profit Margin = $27 - ($30 * 40%) = $15
Cost per unit = $27
Note that the market is the middle value of Net realizable value (NRV), $27; Replacement cost (RC), $26; and "NRV - Profit Margin", $15. Since the Replacement cost (RC) of $26 is the middle value, that the market value.
Since the market value of $26 per unit is lower than Cost per unit of $27, by applying lower-of-cost-or-market, the product 2005WSC should be reported at $26 per unit.
Suppose you invest $20,000 by purchasing 200 shares of Abbott Labs (ABT) at $50 per share, 200 shares of Lowes (LOW) at $30 per share, and 100 shares of Ball Corporation (BLL) at $40 per share. Suppose over the next year Ball has a return of %, Lowes has a return of %, and Abbott Labs has a return of . The return on your portfolio over the year is:
Answer:
3.8%
Explanation:
There are some important parts missing:
Suppose over the next year Ball has a return of 12.5%, Lowes has a return of 21%, and Abbott Labs has a return of -10%.
We must first determine the weight of each stock in the portfolio:
ABT = ($50 x 200) / $20,000 = 50%LOW = ($30 x 200) / $20,000 = 30%BLL = ($40 x 100) / $20,000 = 20%the expected return of the portfolio = (ABT x return) + (LOW x return) + (BLL x return) = (50% x -0.1) + (30% x 0.21) + (20% x .125) = -5% + 6.3% + 2.5% = 3.8%
On the first day of the fiscal year, a company issues a $8,800,000, 7%, 10-year bond that pays semiannual interest of $308,000 ($8,800,000 × 7% × ½), receiving cash of $7,655,303. Required:Journalize the first interest payment and the amortization of the related bond discount.
Answer and Explanation:
The journal entry is shown below:
Interest expense $403,391
To Cash $308,000
To Discount on note payable $95,391
{($8,800,000 - $7,655,303) ÷ 12}
Here we debited the interest expense as it increased the expenses and credited the cash as it decreased the assets and credited the discount on note payable
Digby's turnover rate for this year is 6.33%. This rate is projected to remain the same next year and no further downsizing will occur from automating. What would the total recruiting cost be for Digby, assuming it spends the same amount extra above the $1,000 recruiting base as they did this year?
Answer:
Total recruitment cost = $316.5
Explanation:
Note:
Given question is incomplete,
The number of employees = 5,000
Given:
Turnover rate for this year = 6.33%
Find:
Total recruitment cost
Computation:
Total recruitment cost = Turnover rate for this year × The number of employees
Total recruitment cost = 5,000 × 6.33%
Total recruitment cost = $316.5
The total recruiting cost will be $316.5 for Digby.
Given information
Assumed the number of employees is 5,000
Turnover rate for this year = 6.33%
Total recruitment cost = Turnover rate for this year * The number of employees
Total recruitment cost = 5,000 * 6.33%
Total recruitment cost = $316.5
Therefore, the total recruiting cost will be $316.5 for Digby.
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The Sisyphean Company has a bond outstanding with a face value of $1,000 that reaches maturity in 8 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is 9.6%, then this bond will trade at
Answer:
this bond will trade at $912.05.
Explanation:
There is an Inverse relationship between the yield and the price of bond.
As the yield goes up, the price of bond goes down, that is trade at discount.Whereas, as the yield goes down, the price of bond goes up, that is trade at a premium.The Bond investment in Sisyphean Company is trading at a discount.
The Price of the Bond, PV can be determined as follows..
PV = ?
FV = $1,000
PMT = ($1,000 × 8%) ÷ 2 = $40
P/yr = 2
YTM = 9.6%
n = 8 × 2 = 16
Using a Financial Calculator, the Price of the Bond, PV is $912.05.
"What action is the Federal Reserve MOST likely to take if it is worried about increasing inflation due to extremely rapid economic expansion?"
Answer: Increase reserve requirements
Explanation:
Reserve requirements refer to the proportion of deposits that banks are required to leave with the Fed for safekeeping and the protections of depositors.
This amount reduces the amount of money that the banks can give out as loans and so is quite useful in monetary policy.
If the Fed is worried about increasing inflation due to extremely rapid economic expansion, the way to rein this in is to embark on a contractionary monetary policy.
One way to do so is to increase the reserve requirement which would mean that banks have to hold more money. Should this happen then the money supply in the economy would decrease which would ideally decrease inflation and reduce the funds available for both investment and consumption which would lead to a decrease in economic activity as well.
A market situation in which a large number of firms produce similar but not identical products is called
Answer:
A market situation in which a large number of firms produce similar but not identical products is called perfectly competitive.
Explanation:
A__________produces finished-goods inventory in advance of customer demand using a forecast of sales.
Answer:
Push system.
Explanation:
A push system produces finished-goods inventory in advance of customer demand using a forecast of sales and as such it is categorized as a make to stock because the production of goods are not based on actual demand by the consumers.
Under a push system, manufacturing is strictly based on a projected production plan and the flow of information between the manufacturer and the market is in the same direction with those of raw materials used.
If a corporation issues shares of $1 par value common stock for , the journal entry would include a credit to:
The question is incomplete. The complete question is,
If a corporation issues 10,000 shares of $1 par value common stock for $9000, the journal entry would include a credit to:
A) Common Stock for $9000.
B) Paid-in Capital in Excess of Par—Common for $9000.
C) Common Stock for $10,000.
D) Retained Earnings for $10,000
Answer:
The common stock is credited for $10000. Thus option C is the correct answer
Explanation:
The journal entry to record the issuance of shares below par value will be,
Cash 9000 Dr
Paid in Cap in excess of par-Common stock 1000 Dr
Common stock 10000 Cr
Thus, the common stock is credited for the complete amount of $10000.
The cash received is $9000 and there is a shortage of $1000 which is adjusted by debited the paid in capital in excess of par account.
Which of the following policies often contains clauses that permit a social networking operator to collect and store data on users or even share it with third parties?
1) Terms of Trade policy
2) Terms of Use policy
3) Terms of Endearment policy
4) Terms of Retention policy
Answer: 2) Terms of Use policy
Explanation:
Terms of service are a contract or agreement between the user of a website or in this case a social networking operator and the social networking operator itself. This agreement is meant to govern the terms of the relationship between the 2 parties in terms of what will be expected of both, i.e, their rights and responsibilities.
On the side of the social networking operator, one of the rights usually listed is one stating that the operator can collect and store data on users or even share it with third parties and so it is important to read the terms of use policy as best you can when you can.
