Answer:
financial disadvantage = $435,000 - $525,000 = ($90,000)
Explanation:
outside vendor offer: cost per unit $35 x 15,000 = $525,000
production costs:
direct materials $14 x 15,000 = $210,000 direct labor $10 x 15,000 = $150,000 variable manufacturing overhead $3 x 15,000 = $45,000 fixed manufacturing overhead, traceable $6 x 15,000 = $90,000 ($60,000 are non-avoidable) fixed manufacturing overhead, allocated $9 x 15,000 = $135,000 (all are non-avoidable) total cost $42 x 15,000 = $630,000avoidable production costs = $435,000
financial disadvantage = avoidable costs - cost to purchase carburetors from outside vendor = $435,000 - $525,000 = ($90,000)
In October, Novak Company reports 20,100 actual direct labor hours, and it incurs $198,000 of manufacturing overhead costs. Standard hours allowed for the work done is 22,000 hours. The predetermined overhead rate is $9.10 per direct labor hour. In addition, the flexible manufacturing overhead budget shows that budgeted costs are $7.40 variable per direct labor hour and $42,400 fixed. Compute the overhead controllable variance.
Answer:
The answer is $7,200U
Explanation:
The formula for computing the overhead controllable variance is:
Actual overhead - budgeted overhead
We need to first calculate the budgeted overhead from the question.
Budgeted overhead = (budgeted cost x standard hours) + fixed labor cost
($7.40 x 22,000 hours) + $42,400
= $205,200
Actual overhead incurred is $198,000
Therefore we have:
$198,000 - $205,200
= $7,200U
The U means unfavorable, meaning actual overhead incurred is less than budgeted overhead
Emeril is the owner of a restaurant. He decides to raise the wages of his workers even though he faces an excess supply of labor. His decision:__________
Complete Question:
Emeril is the owner of a restaurant. He decides to raise the wages of his workers even though he faces an excess supply of labor. His decision:
Group of answer choices.
a. might increase profits if it attracts a better pool of workers to apply for jobs at his restaurant.
b. will reduce the excess supply of labor.
c. is an example of the benefits of a minimum-wage law.
d. All of the above are correct.
Answer:
a. might increase profits if it attracts a better pool of workers to apply for jobs.
Explanation:
Emeril is the owner of a restaurant. He decides to raise the wages of his workers even though he faces an excess supply of labor. His decision might increase profits if it attracts a better pool of workers to apply for jobs.
An excess supply of labor refers to the situation where there are too many number of people working in an organization at a particular period of time.
However, Emeril's decision to raise the wages of his workers might increase profits if he's able to recruit better pool of workers who will be willing and able to work more hours effectively and efficiently. As a result, this would help to boost the level of production and increase the rate at which the consumer's needs or wants are meet.
TB MC Qu. 9-336 Puvo, Inc., manufactures a single product in which ...
Puvo, Inc., manufactures a single product in which variable manufacturing overhead is assigned on the basis of standard direct labor-hours. The company uses a standard cost system and has established the following standards for one unit of product:
Standard Quantity Standard Price or Rate Standard Cost
Direct materials 6.10 pounds $0.90 per pound $5.49
Direct labor 0.50 hours $36.50 per hour $18.25
Variable manufacturing
overhead 0.50 hours $8.80 per hour $4.40
During March, the following activity was recorded by the company:
• The company produced 3,500 units during the month.
• A total of 20,500 pounds of material were purchased at a cost of $14,680.
• There was no beginning inventory of materials on hand to start the month; at the end of the month, 4,720 pounds of material remained in the warehouse.
• During March, 1,200 direct labor-hours were worked at a rate of $41.50 per hour.
• Variable manufacturing overhead costs during March totaled $15,161.
The direct materials purchases variance is computed when the materials are purchased. The variable overhead rate variance for March is:_______.
a. $3,641 F.
b. $4,355 U.
c. $4,355 F.
d. $3,641 U.
Answer:
Variable manufacturing overhead rate variance= $4,596 unfavorable
Explanation:
Giving the following information:
Variable manufacturing overhead 0.50 hours $8.80 per hour $4.40
Actual direct labor hours= 1,200
Variable manufacturing overhead costs during March totaled $15,161.
To calculate the variable overhead rate variance, we need to use the following formula:
Variable manufacturing overhead rate variance= (standard rate - actual rate)* actual quantity
Actual rate= 15,161/1,200= $12.63
Variable manufacturing overhead rate variance= (8.8 - 12.63)*1,200
Variable manufacturing overhead rate variance= $4,596 unfavorable
According to the World Banks's world development indicators, real gross domestic product (GDP) in sub-Saharan Africa in 2015 was about $1.65 trillion . What percentage of sub-Saharan Africa's real GDP is the E.U. emergency trust fund
Answer:
0.12%
Explanation:
According to the given situation, the computation of E.U. emergency trust fund as a percentage of sub-Saharan GDP is shown below:-
E.U. emergency trust fund as a percentage of sub-Saharan GDP is
= (Amount of Plans ÷ Real gross domestic product) × 100
= (2 billion ÷ 1.65 trillion) × 100
= 0.12%
Therefore for computing the E.U. emergency trust fund as a percentage of sub-Saharan GDP we simply applied the above formula.
Corporation has found that % of its sales in any given month are credit sales, while the remainder are cash sales. Of the credit sales, Corporation has experienced the following collection pattern: 20% received in the month of the sale 40% received in the month after the sale 24% received two months after the sale 16% of the credit sales are never received November sales for last year were , while December sales were . Projected sales for the next three months are as follows: January sales. . . . . . . . . . . . . . . . $150,000 February sales. . . . . . . . . . . . . . . $130,000 March sales. . . . . . . . . . . . . . . . . $175,000 Requirement Prepare a cash collections budget for the first quarter, with a column for each month and for the quarter. (Round your answers to the nearest whole dollar.) Sweeney Corporation Cash Collections Budget For the Months of January through March January Cash sales Collections on credit sales: 20% Month of sale 40% Month after 24% Two months after Total cash collections Enter any number in the edit fields and then click Check An
Answer:
Some information is missing, specifically the % of credit sales. Similar questions use 80%, so I will use that %. Also, November sales were $85,000 and December sales were $115,000.
Cash collections budgetJanuary February March
Cash sales $30,000 $26,000 $35,000
Collection from Nov. sales $16,320
Collection from Dec. sales $36,800 $22,080
Collection from Jan. sales $24,000 $48,000 $28,800
Collection from Feb. sales $20,800 $41,600
Collection from March sales $28,000
Total cash collections $107,120 $116,880 $133,400
It is January 2nd and senior management of Digby meets to determine their investment plan for the year. They decide to fully fund a plant and equipment purchase by issuing $10,000,000 in bonds. Assume the bonds are issued at face value and leverage changes to 2.7. Which of the following statements are true? Select all that apply.a. Working capital will remain the same at $18,964,118b.Total Assets will rise to $235,535,291c. Chesters' long-term debt will rise by $9,000,000d.The total investment for Chester will be $217,192,866e.Total liabilities will be $139,957,573
Answer:
Statements (b) and (e) are true.
Explanation:
According to the above, computation of the data given are shown below;
According to the statement (b), Total assets will rise to = $235,535,291
According to the statement (e) , Total liabilities will be $139,957,573
Also, according to the question, new liability amounts to = $10,000,000
Therefore,
Total Stockholder's Equity = Total assets - Total Liabilities
= $235,535,291 - $139,957,573 - $10,000,000
= $85,577,718
Leverage = Total Assets ÷ Total Stockholder's Equity
= $235,535,291 ÷ $85,577,718
= 2.7
According to the above analysis, statements (b) and (e) are true.
Answer :
b.Total Assets will rise to $235,535,291.
e.Total liabilities will be $139,957,573.
Explanation:
The following statements are true :
Working notes :
Total Assets = $235,535,291 Total Liabilities =$139,957,573 New Liability = $10,000,000Formula:
Total Stockholder's Equity = Total assets - Total Liabilities
Total Stockholder's Equity = $235,535,291 - $139,957,573 - $10,000,000
Total Stockholder's Equity = $85,577,718
Leverage = Total Assets ÷ Total Stockholder's Equity Leverage= $235,535,291 ÷ $85,577,718 Leverage= 2.7
According to the above scenario the correct answer is B and E.
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if N lekin's beginning capital balance shown on a statement of owner's equity is 100,000. net income for the period is
Answer:
$125,000
Explanation:
The computation of the owner's capital balance at the end of the period is shown below:-
Owner's Capital balance at the end = Capital balance in the beginning + Additional investments + Net Income - Withdrawals
= $100,000 + 0 + $50,000 - $25,000
= $125,000
Therefore for computing the owner's capital balance at the end we simply applied the above formula.
Between 1953 and 2015, rising labor productivity contributed more to U.S. economic growth than did increases in inputs.
A. True
B. False
Answer: True
Explanation:
Labor productivity has to do with the amount of products and services which are produce at a particular time by the workers.
It should be noted that between 1953 and 2015, rising labor productivity contributed more to U.S. economic growth than did increases in inputs. This brought about increase in the available goods and services in the country.
World Class Rings produces class rings. Its best-selling model has a direct materials standard of 16 grams of a special alloy per ring. This special alloy has a standard cost of $63.30 per gram. In the past month, the company purchased 16,800 grams of this alloy at a total cost of $1,061,760. A total of 16,300 grams were used last month to produce 1,000 rings.
Requirements:
1. What is the actual cost per gram of the special alloy that World Class Rings purchased last month? (Round your answer to the nearest cent.) The actual cost per gram of the special alloy that World Class Rings purchased last month is $_____.
2. What is the direct material price variance? (Abbreviations used: DM = Direct materials) Begin by determining the formula for the price variance, then compute the price variance for direct materials.
3.·What is the direct material quantity variance? (Abbreviations used: DM = Direct materials) Determine the formula for the quantity variance, then compute the quantity variance for direct materials.
4. How might the direct material price variance for the company last month be causing the direct material quantity variance?
The_____direct material price variance might mean that World Class Rings purchased a______. As a result, the company______quantity (efficiency) variance alloy than the standard allows. This accounts for the_____quantity (efficiency) variance.
Answer:
1. What is the actual cost per gram of the special alloy that World Class Rings purchased last month? (Round your answer to the nearest cent.) The actual cost per gram of the special alloy that World Class Rings purchased last month is $_____.
= $1,061,760 / 16,800 grams = $63.20 per gram
2. What is the direct material price variance? (Abbreviations used: DM = Direct materials) Begin by determining the formula for the price variance, then compute the price variance for direct materials.
direct materials price variance = (AP - SP) x AQ = ($63.20 - $63.30) x 16,300 = -$1,630 favorable variance
3.·What is the direct material quantity variance? (Abbreviations used: DM = Direct materials) Determine the formula for the quantity variance, then compute the quantity variance for direct materials.
direct materials quantity variance = SP x (AQ - SQ) = $63.30 x (16,300 - 16,000) = $18,990 unfavorable variance
4. How might the direct material price variance for the company last month be causing the direct material quantity variance?
The FAVORABLE direct material price variance might mean that World Class Rings purchased a LOWER QUALITY MATERIAL. As a result, the company USED MORE ALLOW THAN STANDARD quantity (efficiency) variance alloy than the standard allows. This accounts for the UNFAVORABLE quantity (efficiency) variance.
Nature's Garden, a new restaurant situated on a busy highway in Pomona, California, specializes in a chef's salad selling for $7. Daily fixed costs are $1,710, and variable costs are $4 per meal. With a capacity of 950 meals per day, the restaurant serves an average of 900 meals each day.Requried:a. Determine the current average cost per meal.b. A busload of 30 Girl Scouts stops on its way home from the San Bernardino National Forest. The leader offers to bring them in if the scouts can all be served a meal for a total of $150. The owner refuses, saying he would lose $0.60 per meal if he accepted this offer. How do you think the owner arrived at the $0.60 figure? Comment on the owner's reasoning.c. A local businessman on a break overhears the conversation with the leader and offers the owner a one-year contract to feed 300 of the businessman's employees one meal each day at a special price of $4.50 per meal. Should the restaurant owner accept this offer? Why or why not?
Answer:
Nature's Garden
a. Determination of the current average cost per meal:
Variable cost per meal = $3,800 ($4 x 950) based on full capacity
Fixed costs per day = $1,710
Total costs = $5,510
Average cost per meal = $5,510/950 = $5.80
b. Girl Scouts' offer of $150 for 30 girls:
Offered price per person = $5 ($150/30)
Projecting a loss of $0.60 per meal, this gives a total loss of $18 ($0.60 x 30)
Projected revenue from the offer = $150 + $18 = $168
Projected revenue per meal = $168/30 = $5.60
Actual revenue to be received per meal = $5.00
Loss of $0.60
The owner arrived at the $0.60 loss because his total costs per meal was $5.60.
c. Since the variable cost per meal is $4, the restaurant owner could accept the offer if the additional 300 meals will not increase his daily fixed costs due to lack of capacity. If the fixed costs increase with this addition, then it may not be reasonable to accept the offer. Based on this offer, the contribution to defraying fixed costs, given present capacity, is only $0.50 ($4.50 - $4) per meal.
Explanation:
Selling price of chef's salad = $7
Daily fixed costs = $1,710
Variable costs per meal = $4
Meals capacity per day = 950
Average meals = 900
Nature's Garden has a fixed cost of $1,710 based on current capacity of 950 meals per day. The fixed cost may increase with increasing capacity. This fact must be borne in mind when making decisions.
Quantitative Problem 2: Carlysle Corporation has perpetual preferred stock outstanding that pays a constant annual dividend of $1.90 at the end of each year. If investors require an 7% return on the preferred stock, what is the price of the firm's perpetual preferred stock? Do not round intermediate calculations. Round your answer to the nearest cent. $ per share
Answer:
$27.14
Explanation:
Calculation for the price of the firm's perpetual preferred stock
Using this formula
Price of the firm perpetual preferred stock = Annual dividend / Required return
Where,
Annual dividend =$1.90
Required return=7% or 0.07
Let plug in the formula
Price of the firm perpetual preferred stock = $1.90 / 0.07
Price of the firm perpetual preferred stock=$27.14
Therefore the Price of the firm perpetual preferred stock will be $27.14
assume that autonomous consumption is $1610 billion and disposable income is $11,200 billion. Using the consumption function, calculate consumption expenditure
Answer: $9,226
Explanation;
The consumption function is;
Consumption = Autonomous consumption + (Marginal Propensity to consume * Disposable income)
Marginal Propensity to Consume;
=Increase in consumption expenditure/ Increase in Disposable income
= 680/1,000
= 0.68
Consumption = Autonomous consumption + (Marginal Propensity to consume * Disposable income)
= 1,610 + ( 0.68 * 11,200)
= $9,226
An agent who accepts a bribe to purchase goods for a principal from a seller who is a personal friend breaches his ________ duty by taking the money, since it is the agent's duty to work only for the best interests of the principal. Group of answer choices
Answer: fiduciary
Explanation:
An agent who accepts a bribe to purchase goods for a principal from a seller who is a personal friend breaches his fiduciary duty by taking the money, since it is the agent's duty to work only for the best interests of the principal.
Fiduciary has to do with trust which exists between a beneficiary and a trustee or an agent and the principal.
Which strategy is considered a timeout? captive company rebirth pause/proceed-with-caution contraction concentration
Answer: Pause/Proceed-with-caution
Explanation:
A timeout strategy refers to when a company decides to scale down a certain or certain operations for a time to effectively rest. The Pause/Proceed with caution strategy is a timeout strategy because it involves the company pausing operations to enable it assess the market before it can launch a bigger grand strategy.
This strategy is also employed when a company has gone through changes such as a serious expansion. They take a pause to enable the changes brought by the expansion to seep through the organization to give employees the chance to get acquainted with the changes so that moving forward, everyone is more or less on the same page.
Penne Pharmaceuticals sold 2 million shares of its $5 par common stock to provide funds for research and development. If the issue price is $16 per share, what is the journal entry to record the sale of the shares
Answer:
Please see the journal entry below.
Explanation:
Cash account Dr
(2m shares × $16 per share) $32,000,000
Common stock account Cr
(2m shares × $5 per common stock) $10,000,000
APIC - Common stock account Cr
[($16 - $5) × 2m shares]
$22,000,000
Trevor Company discloses supplementary operating segment information for its three reportable segments. Data for 20X8 are available as follows:
Segment A Segment B Segment C
Sales $500,000 $300,000 $200,000
Traceable operating expenses 250,000 120,000 90,000
Allocable costs for the year was $180,000. Allocable costs are assigned based on the ratio of a segment's income before allocable costs to total income before allocable costs. The 20X8 operating profit for Segment B was:
a. $180,000
b. $120,000
c. $126,000
d. $110,000
Answer:
Operating profit of segment B = $180,000
Explanation:
The allowable cost to any of the segment would be equal to the proportion that the segment income bears to the overall total income multiplied by the allocable cost.
Mathematically, we can use the realationship below:
Allocable cost to Segment B = Sales of segment B/Total sales × Alllocable cost
Allowable cost = 180,000
Total sales = 250,000+ 120,000 + 90,000 = 460,000
Allocable cost to B = (120,000/460,000) × 180,000 = 46,956.52
Allocable cost to segment B =$46,956.52
However,the question required us to determine operation profit.
Operating profit is the excess of sales revenue over operating expenses
Operating profit of segment B-= 200,000 - 90,000 = 180,000
Operating profit of segment B = $180,000
The standard deviation of a portfolio: Multiple Choice is a measure of that portfolio's systematic risk. is a weighted average of the standard deviations of the individual securities held in that portfolio. measures the amount of diversifiable risk inherent in the portfolio. serves as the basis for computing the appropriate risk premium for that portfolio. can be less than the weighted average of the standard deviations of the individual securities held in that portfolio.
Answer:
sorry i forgot
Explanation:
Sanders, a 62-year-old single individual, sold his principal residence for the net amount of $500,000 after all selling expenses. Sanders bought the house 15 years ago and has occupied it until it sold. On the date of sale, the house had a cost basis of $200,000. Within six months, Sanders purchased a new house for $600,000. What amount of gain should Sanders recognize from the sale of the residence g
Answer:
$50,000
Explanation:
Recognized gain can be calculated by deducting the exclusion available from the realized gain. To qualify for exclusion from the realized gain Sanders has met all the requirements of exclusion.
NOTE: Requirments for exclusion are given at the end of solution
DATA
Sale proceeds = $500,000
Cost basis = $200,000
exclusion available for single person = $250,000
Gain =?
Calculation
Realized gain on sale of home = Sale proceeds – Cost basis
Realized gain on sale of home = $500,000 - $200,000
Realized gain on sale of home = $300,000
Recognized gain = Realized gain - exclusion available
Recognized gain = $300,000 - $250,000
Recognized gain = $50,000
Requirements for exclusion
1. You've owned the home for two of the last five years.
2. You used the home as your principal residence for two of the last five years.
3. You haven't used the exclusion on another property sale within the last two years.
You are considering buying a perpetuity contract from your insurance company that will pay you $500 annually where the payment will grow by 3% each year. Using a discount rate of 9%, the most you should be willing to pay for this contract is closest to:
Answer:
Maximum Amount Payable = $8333.33
Explanation:
Perpetual Annuity Payment = $500
Growth Rate = 3%
Discount Rate = 9%
Maximum Amount Payable = Present Value of Perpetual Annuity
Present Value of Perpetual Annuity = Perpetual Annuity Payment / (Discount rate - Growth rate)
Maximum Amount Payable = $500 / (0.09 - 0.03)
Maximum Amount Payable = $500 / 0.06
Maximum Amount Payable = $8333.33
Puget Sound Divers is a company that provides diving services such as underwater ship repairs to clients in the Puget Sound area. The company’s planning budget for May appears below:
Puget Sound Divers
Planning Budget
For the Month Ended May 31
Budgeted diving-hours (q) 300
Revenue ($440.00q) $ 132,000
Expenses:
Wages and salaries ($11,400 + $128.00q) 49,800
Supplies ($5.00q) 1,500
Equipment rental ($2,400 + $25.00q) 9,900
Insurance ($3,800) 3,800
Miscellaneous ($510 + $1.48q) 954
Total expense 65,954
Net operating income $ 66,046
During May, the company’s actual activity was 290 diving-hours.
prepare a flexible budget for May.
Answer:
$63,240.8
Explanation:
Preparation for a flexible budget for May
Actual diving hours 290
Revenue (290*$440) $127,600
Expenses:
Wages and salaries 48,520
(11,400+290*128)
Supplies 1,450
(290*5)
Equipment rental 9,650
(2400+290*25)
Insurance 3,800
Miscellaneous 939.2
(510+290*1.48)
Total expense $64,359.2
Net Operating income $63,240.8
($127,600-$64,359.2)
Therefore the Net Operating income for the flexible budget for May will be $63,240.8.
During the year, TRC Corporation has the following inventory transactions.
Date Transaction Number of Units Unit Cost Total Cost
Jan. 1 Beginning inventory 41 $ 33 $ 1,353
Apr. 7 Purchase 121 35 4,235
Jul. 16 Purchase 191 38 7,258
Oct. 6 Purchase 101 39 3,939
454 $16,785
For the entire year, the company sells 410 units of inventory for $51 each.
Exercise 6-4A Part 2
2. Using LIFO, calculate ending inventory, cost of goods sold, sales revenue, and gross profit.
Answer:
Ending Inventory = $1,716.00
Cost of Sales = $15,069.00
Sales Revenue = $20,910.00
Gross Profit = $5,841.00
Explanation:
FIFO Method assumes that the first goods received by the busines will be the first ones to be delivered to the final customer.
Ending Inventory :
Under FIFO, any remaining inventory will be valued as if they were the latest goods purchased.
Ending Inventory : 44 units × $39.00 = $1,716.00
Cost of Goods Sold Calculation :
Cost of Sales : 41 units × $33.00 = $1,353.00
121 units × $35.00 = $4,235.00
191 units × $38.00 = $7,258.00
57 units × $39.00 = $2,223.00
Total = $15,069.00
Sales Revenue Calculation ;
Sales Revenue = Units Sold × Selling Price
= 410 units × $51
= $20,910.00
Gross Profit Calculation :
Sales $20,910.00
Less Cost of Goods Sold ($15,069.00)
Gross Profit $5,841.00
Tasty Doughnuts has computed the net present value for capital expenditure at two locations. Relevant data related to the computation are as follows: Des Moines Cedar Rapids Total present value of net cash flow $712,500 $848,000 Amount to be invested (750,000) (800,000) Net present value $(37,500) $ 48,000 a. Determine the present value index for each proposal. Round your answers for the present value index to two decimal places.
Answer:
0.95 and 1.06
Explanation:
The computation of the present value index is shown below:
Present value index = Present Value of net cash Flow ÷ Amount invested
So for each projects, it would be
Particulars Des Moines Cedar Rapids
Total present value of
net cash flow (A) $712,500 $848,000
Amount invested (B) $750,000 $800,000
Present value index (A ÷ B) 0.95 1.06
Parilo Company acquired $170,000 of Makofske Co., 5% bonds on May 1, 2016, at their face amount. Interest is paid semiannually on May 1 and November 1. On November 1, 2016, Parilo Company sold $50,000 of the bonds for 96.
Journalize entries to record the following (refer to the Chart of Accounts for exact wording of account titles):
May 1 Initial acquisition of the bonds
Nov. 1 Semiannual interest received
1 Sale of the bonds
Dec. 31 Accrual of $1,000 interest
Answer:
May 1, 2016
DR Investments Bonds.................................$170,000
CR Cash ...........................................................................$170,000
(To record acquisition of bonds)
Nov 1, 2016
DR Cash............................................................$4,250
CR Interest Revenue......................................................$4,250
(To record interest received)
Working
Cash = $170,000*5%*6/12
= $4,250
Nov 1, 2016
DR Cash........................................................... $48,000
DR Loss on sale of investment...................... $2,000
CR Investment Bonds .....................................................$50,000
(To record sales of bonds)
Working
Cash = $50,000*0.96
= $48,000
Loss on investment = 50,000 - 48,000
= $2,000
Dec 31, 2016
DR Interest receivable........................................$1,000
CR Interest revenue...........................................................$1,000
Shoe stores A and B are considering selling two new styles of designer shoes resulting in the values below. A moves first and selects which style to sell first, and then B makes its selection (the payoffs at the bottom represent (Payoff A , Payoff B).
What is the equilibrium path of this game?
A. A will choose Black and B will choose Pink
B. A will choose Pink and B will choose Pink
C. A will choose Black and B will choose Black
D. A will choose Pink and B will choose Black
Answer:
B. A will choose Pink and B will choose Pink
Explanation:
Answer: it is b because of
Explanation:
Suppose the tax rate on nominal interest income is 20% and does not change over time. Also assume the real interest rate remains constant. In year 1, the inflation rate is 4% and the nominal interest rate is 10%. In year 2, the inflation rate is 14% The real interest rate in both years is 16 The nominal interest rate in year 2 is 20 The after-tax nominal interest rate in year 1 is 7.
a. The after-tax nominal interest rate in year 2 is __________
b. The after-tax real interest rate in year 1 is ______________
c. The after-tax real interest rate in year 2 is ______________
Answer:
a. The after-tax nominal interest rate in year 2 is __________
after tax nominal interest rate = 20% x (1 - tax rate ) = 20% x 0.8 = 16%
b. The after-tax real interest rate in year 1 is ______________
after tax real interest rate = [(1 + after tax nominal interest rate) / (1 + inflation rate)] - 1
after tax nominal interest rate yer 1 = 10% x 0.8 = 8%
inflation rate = 4%
after tax real interest rate = [1.08 / 1.04] - 1 = 3.85%
c. The after-tax real interest rate in year 2 is ______________
after tax real interest rate = [(1 + after tax nominal interest rate) / (1 + inflation rate)] - 1
after tax nominal interest rate yer 1 = 16%
inflation rate = 4%
after tax real interest rate = [1.16 / 1.14] - 1 = 1.75%
Explanation:
year 1
inflation rate 4%
nominal interest rate 10%
real interest rate 6%
year 2
inflation rate 14%
nominal interest rate 20%
real interest rate 6%
"In using the net present value approach, a project is acceptable if the project's net present value is ____________ or_______________."
Answer:
Zero or Positive.
Explanation:
The project should be accepted if the NPV (net present value) is “zero” or “positive” because the zero value means that the project will not be in loss. However, the positive value shows that the project will give profit. But if there is a negative value of net present value then it reflects that the project is giving a loss. Therefore, the project with negative NPV must be rejected. And the project that has zero net present value or positive net present value should be accepted.
Hunt Inc. intends to invest in one of two competing types of computer-aided manufacturing equipment: CAM X and CAM Y. Both CAM X and CAM Y models have a project life of 10 years. The purchase price of the CAM X model is $3,600,000, and it has a net annual after-tax cash inflow of $900,000. The CAM Y model is more expensive, selling for $4,200,000, but it will produce a net annual after-tax cash inflow of $1,050,000. The cost of capital for the company is 10%.
Required:
Calculate the NPV for each project.
Answer:
NPV of CAM X = $1,930,110.40
NPV of CAM Y = $2,251,795.46
Explanation:
The NPV for each project can be calculated using the following steps:
Step 1: Calculation of present value (PV) for each project
The PV for each project can be calculated using the formula for calculating the present value of an ordinary annuity as follows:
PV of a project = P * [{1 - [1 / (1 + r)]^n} / r] …………………………………. (1)
Where;
For CAM X
P = Net annual after-tax cash inflow = $900,000
r = Cost of capital or interest rate = 10%, or 0.10
n = number of project life = 10
Substitute the values into equation (1) to have:
PV of CAM X = $900,000 * [{1 - [1 / (1 + 0.10)]^10} / 0.10]
PV of CAM X = $900,000 * 6.14456710570468
PV of CAM X = $5,530,110.40
For CAM Y
P = Net annual after-tax cash inflow = $1,050,000
r = Cost of capital or interest rate = 10%, or 0.10
n = number of project life = 10
Substitute the values into equation (1) to have:
PV of CAM Y = $1,050,000 * [{1 - [1 / (1 + 0.10)]^10} / 0.10]
PV of CAM Y = $1,050,000 * 6.14456710570468
PV of CAM Y = $6,451,795.46
Step 2: Calculation of net present value (NPV) for each project
The NPV for each project can be calculated using the following formula:
NPV of each project = PV of each equipment - Purchase price of each equipment ........ (2)
Using equation (2), we have:
NPV of CAM X = PV of CAM X - Purchase price of CAM X = $5,530,110.40 - $3,600,000 = $1,930,110.40
NPV of CAM Y = PV of CAM Y - Purchase price of CAM Y = $6,451,795.46 - $4,200,000 = $2,251,795.46
Additional Note:
Although this not part of the requirement of the question, but note that the final decision is that since the positive NPV of $2,251,795.46 for CAM Y is gereater than the positive NPV of $1,930,110.40 for CAM X, Hunt Inc. will choose to invest in CAM Y.
You have $. You put % of your money in a stock with an expected return of %, $ in a stock with an expected return of %, and the rest in a stock with an expected return of %. What is the expected return of your portfolio?
Answer: 16.26%
Explanation:
The expected return is the weighted average of the returns of the constituent stocks in the portfolio.
Weights.
Stock A = 20%
Stock B
= 30,000/70,000
= 0.4286
Stock C
= 70,000 - 30,000 - (20% * 70,000)
= 70,000 - 30,000 - 14,000
= $26,000
= 26,000/70,000
= 0.3714
Expected return = ( 0.2 * 12%) + ( 0.4286* 15%) + ( 0.3714 * 20%)
= 0.024 + 0.06429 + 0.07428
= 0.16257
= 16.26%
Consider a situation where a firm owned by you is competing against an identical rival firm. You are able to choose how much of your good (quantity) to supply to the market. You are given the option to set your quantity first, wait and let your rival set their quantity, or have both you and your rival set their quantities at the same time. What should you do
Available Options Are:
A. Set your quantity first.
B. Set your quantity second.
C. Set your quantity at the same time.
D. It doesn't matter.
Answer:
Option A. Set your quantity first.
Explanation:
The Cournot Equilibrium says that the decisions are made simultaneously and this simultaneous decision is that each firm will choose its own quantity, given what quantity of output its rival has set. Every firm will be producing a quantity that maximizes its profits and this approach will lower the profits because of Cournot Equilibrium.
The firm that sets its quantity first is at better position because the other firms might think about the worse market condition taking Cournot effect into account.
The optimal choice would be to set our quantity first, hence the option A is the right option.
The profit-maximizing monopolist produces _____________ units and charges a price of _____________.
Answer: Q0; P3
Explanation:
The profit-maximizing monopolist produces Q0 units and charges a price of P3.
According to the exhibit graph, the monopolist will produce Q0 units. This is because a monopoly maximises profit at the point where Marginal Revenue equals Marginal Cost. Looking at the chart, the quantity of output where this happens is Q0.
The Monopolist will then charge a price of P3. After the profit-maximising output is realized, the way to find out the price the monopolist will sell at is the point where the output produced intersects with the Demand curve. At this point, the price listed is what people are willing to buy that amount of quantity for and so the Monopoly will sell at that price.
