The feature that would decrease the value of a corporate bond is c.) when the borrower has the option to repay the loan before maturity.
The answer is c.) because the value of a corporate bond is influenced by various features and characteristics. Among the options provided, the feature that would decrease the value of a corporate bond is when the borrower has the option to repay the loan before maturity. This option is commonly referred to as a call feature or call provision. When the borrower has the ability to repay the bond early, it introduces the risk of early redemption for bondholders. If interest rates decline, the borrower may choose to refinance the bond at a lower interest rate, leaving bondholders with lower future coupon payments. This uncertainty and potential loss of future interest income decrease the value of the bond.
On the other hand, the other options mentioned can have positive effects on the value of a corporate bond. When a bond is secured by a mortgage on real estate, it provides additional collateral for bondholders, increasing the security of the investment and potentially enhancing the value of the bond. A convertible bond gives bondholders the option to convert their bond holdings into shares, which can be advantageous if the value of the underlying stock rises, providing potential capital appreciation. Lastly, being a senior debt obligation means that the bond has a higher priority in receiving repayment in case of default, which increases the bond's value compared to subordinate debt.
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Canine Gourmet Super Breath dog treats are sold in boxes labeled with a net weight of 15 ounces (425 grams) per box. Each box contains 10 individual 1.5-ounce packets. To reduce the chances of shorting the customer, product design specifications call for the packet-filling process average to be set at 43.0 grams so that the average net weight per box of 10 packets will be 430 grams. Tolerances are set for the box to weigh 430±14 grams. The standard deviation for the packet-filling process is 1.03 grams. The target process capability ratio is 1.67. One day, the packet-filling process average weight drifts down to 42.0 grams. Is the packaging process capable? Is an adjustment needed?
The packaging process is not capable based on the given information. An adjustment is needed to bring the process average weight back to the target of 43.0 grams in order to meet the product design specifications and maintain the desired average net weight per box.
In this scenario, the packaging process for Canine Gourmet Super Breath dog treats is evaluated based on the target process capability ratio. The target process capability ratio is the ratio of the tolerance width to six times the standard deviation. If the process capability ratio is less than 1, it indicates that the process is not capable of meeting the desired specifications.
Here, the target process capability ratio is 1.67, which suggests that the process should be capable of producing within the specified tolerance range. However, on a particular day, the packet-filling process's average weight drifts down to 42.0 grams, which is lower than the target of 43.0 grams.
To assess the process capability, we need to calculate the actual process capability ratio. The process capability ratio is determined by dividing the tolerance width by six times the standard deviation. In this case, the tolerance width is 14 grams (430 - 416) and the standard deviation is 1.03 grams.
Process Capability Ratio = Tolerance Width / (6 * Standard Deviation)
Substituting the values, we get:
Process Capability Ratio = 14 / (6 * 1.03) ≈ 2.28
Since the actual process capability ratio is greater than the target of 1.67, it indicates that the packaging process is not capable of meeting the desired specifications. An adjustment is needed to bring the process average weight back to the target of 43.0 grams in order to ensure that the average net weight per box aligns with the product design specifications.
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Suppose the demand and supply functions are: Q x
d
=15−5P x
Q x
s
=3+3P x
What is the equilibrium quantity for the competitive market? 7.5 1.5 4.5 2.5
The equilibrium quantity for the competitive market is 7.5. It represents a state of balance or equilibrium in the market, where there is no shortage or surplus of the product.
In business, equilibrium quantity refers to the quantity of a product or service that is demanded by consumers and supplied by producers in a market, where the quantity demanded equals the quantity supplied.
To find the equilibrium quantity for the competitive market, we need to set the quantity demanded equal to the quantity supplied and solve for the equilibrium quantity.
Given the demand function is Qd = 15 - 5Px and the supply function is Qs = 3 + 3Px.
Setting Qd equal to Qs:
15 - 5Px = 3 + 3Px
Simplifying the equation:
15 - 3 = 5Px + 3Px
12 = 8Px
Px = 12/8
Px = 1.5
Substituting the value of Px we get,
Qd = 15 - 5(1.5)
Qd = 15 - 7.5
Qd = 7.5
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Your uncle has $2,000,000 and wants to retire. He expects to live for another 40 years and to earn 5% on his invested funds. How much could he withdraw at the end of each of the next 40 years and end up with zero in the account?
The uncle could withdraw approximately $102,733.95 at the end of each of the next 40 years in order to end up with zero in the account.
To calculate this, we can use the concept of an annuity, which is a series of equal periodic payments. In this case, the uncle wants to withdraw a fixed amount at the end of each year. The future value of an annuity formula can be used to determine the withdrawal amount. Using the future value of an annuity formula: FV = P * ((1 + r)^n - 1) / r
Where:
FV is the future value (which we want to be zero),
P is the withdrawal amount at the end of each year,
r is the interest rate (5% in this case),
n is the number of periods (40 years).
Rearranging the formula to solve for P:
P = FV * r / ((1 + r)^n - 1)
Substituting the given values:
P = 2,000,000 * 0.05 / ((1 + 0.05)^40 - 1) ≈ $102,733.95
Therefore, the uncle could withdraw approximately $102,733.95 at the end of each of the next 40 years and end up with zero in the account.
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"
1.
Which attribute of own-wage elasticity of labour supply is best
supported by the U.S. data in Elder, Haider, and Orr (2020)?
A.The elasticity has increased over time.
B.Men have a higher elasticity
"
Elasticity is the percentage change in the quantity of goods demanded or supplied in response to a change in the price of that good. Men have a higher price elasticity of demand because they are more responsive to price changes than women. Men are also less likely to switch to substitute products when prices rise than women are.
The elasticity of demand varies from person to person. Some men have a higher income, allowing them to purchase more luxury items and participate in high-end activities such as dining out or going to the theater.
These people are less likely to change their buying habits due to changes in prices since they are not as affected by the changes as those with lower income levels. Men are more likely to be the primary breadwinners in households, which means they are more likely to have more income to spend.
Because of this, they are less likely to switch to alternative goods in response to price changes. Therefore, men have a higher elasticity of demand than women.
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Torre Corporation incurred the following transactions. 1. Purchased raw materials on account $46,300. 2. Raw materials of $36,000 were requisitioned to the factory. An analysis of the materials requisition slips indicated that $6,800 was classified as indirect materials. 3. Factory labor costs incurred were $55,900, of which $51,000 pertained to factory wages payable and $4,900 pertained to employer payroll taxes payable. 4. Time tickets indicated that $50,000 was direct labor and $5,900 was indirect labor. 5. Manufacturing overhead costs incurred on account were $80,500. 6. Depreciation on the company's office building was $8,100. 7. Manufacturing overhead was applied at the rate of 150% of direct labor cost. 8. Goods costing $88,000 were completed and transferred to finished goods. 9. Finished goods costing $75,000 to manufacture were sold on account for $103,000. Instructions Journalize the transactions. (Omit explanations.)
Torre Corporation's transactions include purchases of raw materials, labor costs, overhead expenses, depreciation, completion of goods, and the sale of finished goods, which need to be journalized accordingly
1. Purchased raw materials on account $46,300.
Raw Materials Inventory (debit) - $46,300
Accounts Payable (credit) - $46,300
2. Raw materials of $36,000 were requisitioned to the factory.
Work in Process Inventory (debit) - $36,000
Raw Materials Inventory (credit) - $36,000
3. Factory labor costs incurred were $55,900, including wages payable and employer payroll taxes payable.
Factory Wages Payable (debit) - $51,000
Employer Payroll Taxes Payable (debit) - $4,900
Factory Labor (credit) - $55,900
4. Time tickets indicated that $50,000 was direct labor and $5,900 was indirect labor.
Work in Process Inventory (debit) - $50,000
Manufacturing Overhead (debit) - $5,900
Factory Labor (credit) - $55,900
5. Manufacturing overhead costs incurred on account were $80,500.
Manufacturing Overhead (debit) - $80,500
Accounts Payable (credit) - $80,500
6. Depreciation on the company's office building was $8,100.
Depreciation Expense (debit) - $8,100
Accumulated Depreciation - Office Building (credit) - $8,100
7. Manufacturing overhead was applied at 150% of direct labor cost.
Work in Process Inventory (debit) - $75,000
Manufacturing Overhead (debit) - $75,000
Factory Labor (credit) - $50,000
8. Goods costing $88,000 were completed and transferred to finished goods.
Finished Goods Inventory (debit) - $88,000
Work in Process Inventory (credit) - $88,000
9. Finished goods costing $75,000 were sold on account for $103,000.
Accounts Receivable (debit) - $103,000
Sales (credit) - $103,000
Cost of Goods Sold (debit) - $75,000
Finished Goods Inventory (credit) - $75,000
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The current stock price for "Caterpillar Inc. (CAT)" is $170. To
purchase a call with an expiration date 1 months ahead and a strike
price of $170 would cost (bid price) $7.00. To purchase a put w
The current stock price for Caterpillar Inc. (CAT) is $170. To purchase a call option with an expiration date 1 month ahead and a strike price of $170, the bid price is $7.00. The cost of purchasing a put option is not provided in the given information.
Options are financial derivatives that provide the buyer with the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a predetermined price (strike price) within a specified time period (expiration date). The cost of an option is determined by several factors, including the current stock price, strike price, time to expiration, market conditions, and implied volatility.
In the given scenario, the call option with a strike price of $170 is priced at $7.00. This means that to purchase this call option, the investor would need to pay $7.00 per share. The cost of purchasing a put option is not provided, so we cannot determine its price or compare it to the call option cost.
It's important to note that options trading involves risks, including the potential loss of the premium paid for the options. Investors should carefully consider their investment objectives, risk tolerance, and seek professional advice before engaging in options trading.
Note: Please note that the bid price mentioned in the question is for illustrative purposes only and actual prices may vary depending on market conditions and other factors. It's advisable to check real-time market data for accurate pricing information.
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Wind dartage occurs to your car costing $1.800 to repair, if you have a $280 deductible for collsion and full coverage for comprehensive, What portion of the cloim wit the insurance company pay? Mupie cheice 51.520 52080 5900 51.800
If the wind damage to your car costs $1,800 to repair and you have a $280 deductible for collision coverage with full coverage for comprehensive, the portion of the claim that the insurance company will pay can be calculated as follows:
The amount the insurance company will pay is the total cost of the repair minus the deductible. Therefore, the insurance company will pay $1,800 - $280 = $1,520.
Hence, the insurance company will pay $1,520 towards the claim, and you will be responsible for paying the deductible amount of $280.
It's important to note that specific insurance policies and coverage may vary, and deductible amounts can differ. It is advisable to review your insurance policy or consult with your insurance provider for accurate information regarding deductibles and claim coverage.
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Which one of the cash flows below represents non-conventional cash flows?
a.
-100, -50, +80, +150
b.
-100, +50, -80, +150
c.
-100, +50, +80, +150
d.
-100, -50, -80, +150
-100, +50, -80, +150 represents non-conventional cash flows because it includes cash flows that change direction more than once. The correct answer is option b.
The cash flows in option b start with a negative cash flow of -100, then change to a positive cash flow of +50, then change back to a negative cash flow of -80, and finally end with a positive cash flow of +150.
This alternating pattern of positive and negative cash flows makes it non-conventional.
In contrast, options a, c, and d have cash flows that follow a more conventional pattern, either consistently positive or consistently negative without changing direction multiple times.
The correct answer is option b.
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TB MC Qu. 5-87 (Algo) What is the value today of receiving... What is the value today of receiving $6,500 at the end of each year for the next 2 years, assuming an interest rate of 10% compounded annually? Note: Use tables, Excel, or a financial calculator. Round your final answer to the nearest whole dollar. (FV of $1,PV of $1. FVA of $1, and PVA of $1). Multiple Choice $11,281 $12,155 $13,650 $58,387
The value today of receiving $6,500 at the end of each year for the next 2 years, assuming an interest rate of 10% compounded annually is $12,155 (rounded to the nearest whole dollar).
Explanation Given, Amount (Annuity) = $6,500Number of years (n) = 2Interest rate (r) = 10% per annum Compounding annually, Future Value of $1 = FVIF r% ,n year s= FVIF 10%,2= 1.21Present Value of $1 = PVIF r%, n year s= PVIF 10%,2= 0.83Future Value of an Annuity of $1
= FVAIF r%, n year s
= 1 + FVIF r%, n year s - 1r
=10%, n= 2, FVAIF
= 1 + FVIF 10%, 2 - 1
= 1 + 1.21 - 1
= 1.21Present Value.
An Annuity of $1 = PVAIF r%, n year s= PVAIF 10%, 2= [1 - 1 / (1 + r)ⁿ] / r= [1 - 1 / (1 + 10%)²] / 10%= [1 - 1 / 1.1²] / 10%= [1 - 1 / 1.21] / 0.1= [1 - 0.8264] / 0.1= 0.1736 / 0.1= 1.736Thus, the present value of annuity is $11,900Now, the value today of receiving $6,500 at the end of each year for the next 2 years.
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Bob sold at $62.94 per share, PEP stocks who were purchased a year ago at $55. During the year the stock paid dividends of $.80 per share. If tax rate on capital gains is 17% and marginal tax rate is 30%, how much is the after tax total return?
The after-tax total return is $6.35. This is calculated by subtracting the capital gains tax of $1.35 and the dividend tax of $0.24 from the selling price of $62.94, taking into account the purchase price and dividends received.
To calculate the after-tax total return, we need to consider the capital gains tax and the dividend tax. Here's how to calculate it:
Calculate the capital gains:
Capital gains = Selling price - Purchase price
Capital gains = $62.94 - $55 = $7.94
Calculate the capital gains tax:
Capital gains tax = Capital gains * Capital gains tax rate
Capital gains tax = $7.94 * 0.17 = $1.35
Calculate the dividend tax:
Dividend tax = Dividends per share * Number of shares * Dividend tax rate
Dividend tax = $0.80 * 1 * 0.30 = $0.24
Calculate the after-tax total return:
After-tax total return = Selling price - Purchase price - Capital gains tax - Dividend tax
After-tax total return = $62.94 - $55 - $1.35 - $0.24 = $6.35.
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Which of the following statements is true about the liquidity management and the liability management performed by bank managers? a. Liquidity management is a long-run problem whereas liability management is a short-run problem. b. Liquidity management is a short-run problem whereas liability management is a long-run problem. c. One aspect of liability management is to decide how much reserves to hold on Fed accounts. d. One aspect of liquidity management is to decide how much checking deposits to have in the long run. e. Liability management is about how much cash the bank should hold on hand for unexpected deposit outflo
The correct statement is:
c. One aspect of liability management is to decide how much reserves to hold on Fed accounts.
Liquidity management and liability management are two key responsibilities of bank managers, but they differ in terms of focus and time horizon.
Liquidity management primarily deals with the bank's ability to meet its short-term obligations and maintain sufficient cash or liquid assets to cover unexpected deposit outflows or loan demand. It involves managing day-to-day cash flows and ensuring the availability of funds in the short run.
Liability management, on the other hand, focuses on the composition and structure of the bank's liabilities. It involves making decisions about the bank's sources of funds, such as deposits, borrowings, and other liabilities, to optimize the bank's funding and financial stability in the long run.
Regarding the specific options:
a. This statement is incorrect because liquidity management is generally associated with short-run concerns, while liability management involves long-run considerations.
b. This statement is incorrect for the same reason mentioned above. Liquidity management is more commonly associated with short-term issues.
c. This statement is correct. One aspect of liability management is deciding how much reserves to hold on Federal Reserve (Fed) accounts. Banks are required to maintain a certain level of reserves with the central bank, and determining the appropriate amount of reserves is an important aspect of liability management.
d. This statement is incorrect. Deciding how much checking deposits to have in the long run is related to liability management rather than liquidity management.
e. This statement is incorrect. While holding cash on hand for unexpected deposit outflows is a component of liquidity management, it does not encompass the entirety of liability management. Liability management involves a broader range of decisions related to the bank's funding sources and structure.
Therefore, the correct statement is c. One aspect of liability management is to decide how much reserves to hold on Fed accounts.
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A company’s division has sales of $4,000,000, income of $160,000, and average assets of $3,200,000. The division’s investment turnover is 1.25.
O True
O False
The option A is Correct, that is true
The formula for calculating the investment turnover ratio is given below: Investment Turnover Ratio = Sales / Average Invested Assets Where, Sales = $4,000,000 Average Invested Assets =$3,200,000Investment Turnover Ratio = $4,000,000 / $3,200,000= 1.25Since the investment turnover ratio for the given division is 1.25, it means that the division is generating $1.25 in sales for every $1 of investment in assets.
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The AICPA Code of Professional Conduct states that a CPA shall not disclose any confidential information obtained in the course of a professional engagement except with the consent of the client. This rule may preclude a CPA from responding to an inquiry made by:
(1)An investigative body of a state CPA society.
(2)The trial board of the AICPA.
(3)A CPA-shareholder of the client corporation.
(4)An AICPA quality review body
According to the AICPA Code of Professional Conduct, a CPA is generally prohibited from disclosing any confidential information obtained during a professional engagement without the client's consent.
This rule aims to maintain the confidentiality and trust between the CPA and the client. Based on this, the CPA may be precluded from responding to inquiries made by certain parties.
Among the given options: (1) An investigative body of a state CPA society and (4) an AICPA quality review body are both professional bodies related to the CPA profession. It is likely that the CPA would be allowed to disclose confidential information to these bodies in certain circumstances, such as during an investigation or quality review process, as long as appropriate safeguards for confidentiality are in place.
(2) The trial board of the AICPA is an internal disciplinary body of the AICPA. In such cases, the CPA may be required to comply with the rules and procedures of the trial board, which could involve the disclosure of confidential information under specific circumstances.
(3) A CPA-shareholder of the client corporation does not fall under the exceptions for disclosure provided in the AICPA Code of Professional Conduct. Therefore, the CPA would likely be precluded from disclosing confidential information to a CPA-shareholder without the client's consent.
It is important to note that the specific circumstances and applicable laws or regulations may affect the CPA's obligations regarding confidentiality. Consulting with legal counsel or referring to specific professional standards would provide more accurate guidance in determining disclosure requirements.
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Select a company and interview the owner/manager regarding their pricing strategies and methods. Report on your findings. Ideally, this will be your current company, but you may need to be resourceful and find a business owner or manager from another company who is willing to visit with you. Your goal is to discover the following:
What is the company's pricing objective? For this question, it would helpful to show the interviewee a list of the pricing objectives on page 489 with very brief descriptions.(I suggest that you either highlight the first 1-3 sentences under each objective and then show the interviewee the highlighted descriptions in your text OR simply retype them on another sheet of paper for use in the interview).
Do they have some target segments that are less price sensitive than others?
How much consideration does the company give to competitors' prices when setting their own?
What method of pricing do they use to arrive at the final price for the customer? For this question, you should be very familiar with the methods found under "Step 5" on pages 475-480 before the interview, but do not ask the interviewee to select from among them. Instead, simply listen to the description of their pricing method(s) and process. Then, after the interview, try to determine which of the textbook's methods the company uses. You do not need to request or report exact markups or profit margins! You should make this clear when requesting the interview! We are looking for methods of pricing, not exact figures.
Important note: This is your chance to do some "primary research." I understand that it may be difficult to find a willing interviewee, but I expect you to try earnestly. If you fail to find a willing owner/manager after at least 7 attempts at different companies, then please email me and I will assist you. Don't overlook companies owned by friends, people at your church, and those in your old hometown. In your post, you do not need to reveal the name of the company you interviewed or its location. You should, however, reveal the industry, the nature of the business (deli, grocery store, gift shop, nursery, barber, etc), and a rough idea of the size (single mom and pop or multi-location). If the business owner/manager is hesitant about what you may write, offer to submit your post to them for review before posting it.
I can provide you with some guidance on how to approach the assignment and gather information for your report.
Selecting a Company: Choose a company for the interview. It can be your current company, a local business in your area, or a business owned by someone you know. Consider businesses that are willing to share information about their pricing strategies and methods.
Contacting the Owner/Manager: Reach out to the owner or manager of the selected company and request an interview. Explain the purpose of the interview, assure them that the information will be kept confidential if needed, and offer to submit the post for review before publishing if they have any concerns.
Conducting the Interview: During the interview, focus on the following key questions:
a. Pricing Objective: Ask the interviewee about the company's pricing objective and provide them with a list of pricing objectives from your textbook. Listen to their response and note which objective(s) align with their approach.
b. Price Sensitivity: Inquire if the company has identified target segments that are less price sensitive than others. This will give you insights into their pricing strategies for different customer groups.
c. Consideration of Competitors' Prices: Ask how much consideration the company gives to competitors' prices when setting their own. This will help you understand the extent to which competitive pricing influences their decisions.
d. Pricing Methods: Discuss the company's approach to pricing and their process for arriving at the final price for customers. Listen to their description and try to match it with the pricing methods outlined in your textbook.
Analyzing the Information: After the interview, analyze the information gathered and identify the pricing objectives, target segments, consideration of competitors' prices, and the pricing methods used by the company. Compare their approach with the ones discussed in your textbook and draw conclusions based on the similarities and differences.
Reporting Your Findings: Write a report summarizing your findings without revealing the specific company's name or location. Instead, describe the industry, nature of the business, and approximate size of the company (e.g., small local grocery store, medium-sized clothing retailer, etc.).
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Determine the effective annual rate for an account paying 2.75% quarterly. A) 8.48% B) 2.78% C) 8% D) 11.46%
The effective annual rate for the account is approximately 2.8061%, which corresponds to option B) 2.78%.
To determine the effective annual rate for an account with a quarterly interest rate of 2.75%, we can use the formula for calculating the effective annual rate (EAR):
EAR = (1 + r/n)^n - 1
Where:
r is the nominal interest rate
n is the number of compounding periods per year
In this case, the nominal interest rate is 2.75% and it is compounded quarterly, so n = 4.
Plugging in the values into the formula, we have:
EAR = (1 + 0.0275/4)^4 - 1
Calculating this expression gives us an approximate value of 0.028061 or 2.8061%.
Therefore, the effective annual rate for the account is approximately 2.8061%, which corresponds to option B) 2.78%.
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For 2005, Miami Metals reported $10,000 of sales, $6,000 of operating costs other than depreciation, and $1,500 of depreciation. The company had no amortization charges, it had $4,000 of bonds that carry a 10% interest rate, and its federal-plusstate income tax rate was 40%. 2006 data are expected to remain unchanged except for two items: depreciation, which is expected to increase by $900 and sales, which are expected to increase by 2,900. By how much will the net income change as a result of the change in depreciation and sales? The company uses the same depreciation calculations for tax and stockholder reporting. Write your answer as positive (regardless of sign) and in dollar terms Your Answer:
The Miami Metals reported $10,000 in sales, $6,000 in operating costs other than depreciation, and $1,500 in depreciation. The company had no amortization charges, it had $4,000 of bonds that carry a 10% interest rate, and its federal-plus-state income tax rate was 40%.
Therefore, the net income for Miami Metals for 2005 can be calculated as follows:
Revenue $10,000
Operating cost (excluding depreciation) $6,000
Depreciation $1,500
Earnings before interest and tax (EBIT) $2,500
Less: Interest ($4,000 × 10%) $400
Earnings before tax (EBT) $2,100
Less: Federal-plus-state income tax rate ($2,100 × 40%) $840
Net Income $1,260
For 2006 data, Miami Metals had expected that the sales would increase by $2,900 and that depreciation would increase by $900.
The calculation for net income for 2006 will be as follows:
Revenue $12,900 ($10,000 + $2,900)
Operating cost (excluding depreciation) $6,000
Depreciation $2,400 ($1,500 + $900)
Earnings before interest and tax (EBIT) $4,500
Less: Interest ($4,000 × 10%) $400
Earnings before tax (EBT) $4,100
Less: Federal-plus-state income tax rate ($4,100 × 40%) $1,640
Net Income $2,460
Now, calculating the difference in net income between 2006 and 2005:
Net income change = Net Income (2006) – Net Income (2005)= $2,460 – $1,260= $1,200
Therefore, the net income for Miami Metals would increase by $1,200 as a result of the change in depreciation and sales.
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Transaction #4 - Sold a Service on account for $500,000 1) What two accounts are involved with the transaction? 2) Where do those accounts belong? (e.g. Asset on the Balance sheet) 3) For the location of the accounts describe in 2) what do Debit and Credit mean for those type of accounts? 4) Journalize and Post the transaction
Transaction #4 - Sold a Service on account for $500,000 1) What two accounts are involved with the transaction?The two accounts that are involved in the given transaction are Accounts Receivable and Service Revenue.
2) Where do those accounts belong? (e.g. Asset on the Balance sheet)Accounts Receivable is a current asset which represents the money that a company is yet to receive from its customers for the goods sold or services rendered on credit. Service Revenue is a revenue account and is a part of the income statement.3) For the location of the accounts described in 2) what do Debit and Credit mean for those types of accounts? Debit represents the increase in the asset account. Therefore, it will increase the balance of Accounts Receivable. Credit represents an increase in revenue. Therefore, it will increase the balance of Service Revenue.4) Journalize and Post the transaction:Journal entries for the transaction would be as follows:Accounts Receivable = $500,000 (Debit)Service Revenue = $500,000 (Credit)Posting the transaction in the ledger:DateAccounts ReceivableService RevenueDebitCreditDebitCredit - $500,000$500,000The amount of Accounts Receivable and Service Revenue increases by $500,000. Hence, the balance of both the accounts is $500,000. Hence, this is the journalizing and posting of transaction #4.
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Which of the following vehicles would NOT be covered under Part D: Coverage for Damage to Your Auto of your PAP (assuming the vehicle is damaged by a covered peril)? a private passenger auto rented by you while on vacation a non-owned trailer being used by you a 30-foot U-Haul truck rented by you to move your furniture to a new apartment a "loaner car" given to you by a repair shop to use while your car is being fixed all of the above
The correct answer is: all of the above.
Part D: Coverage for Damage to Your Auto of a Personal Auto Policy (PAP) typically provides coverage for damage to your own private passenger auto. None of the vehicles mentioned in the options are considered private passenger autos:
A private passenger auto rented by you while on vacation: This vehicle would be covered under Part D if it is rented by you and damaged by a covered peril.
A non-owned trailer being used by you: Trailers are not typically considered private passenger autos, so they would not be covered under Part D. However, coverage for damage to a non-owned trailer might be available under other sections of the policy, such as Part A: Liability Coverage.
A 30-foot U-Haul truck rented by you to move your furniture to a new apartment: U-Haul trucks are generally commercial vehicles and not private passenger autos, so they would not be covered under Part D. Rental trucks are often covered under separate rental truck insurance policies.
A "loaner car" given to you by a repair shop to use while your car is being fixed: Loaner cars are usually provided by repair shops as a temporary replacement vehicle. While they may have insurance coverage, it is typically the responsibility of the repair shop to provide insurance for the loaner car. Therefore, it would not be covered under Part D of your PAP.
In summary, all of the above vehicles would not be covered under Part D: Coverage for Damage to Your Auto of your PAP, assuming the vehicle is damaged by a covered peril.
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An annuity-immediate makes payments of $10 per year for 10 years. An annuity-due that makes 12 annual payments of X has the same present value as the annuity-immediate. The annual effective interest rate is 8%. Calculate X. A 7.07 B 7.63 C 8.24 D 8.90 E 9.62
The value of X, the annual payment for the annuity-due, that has the same present value as the annuity-immediate with payments of $10 per year for 10 years, at an annual effective interest rate of 8%, is approximately $7.63.
To find the value of X for the annuity-due, we need to calculate the present value of both annuities and set them equal to each other.
For the annuity-immediate, the present value can be calculated using the formula:
Present Value = Payment × (1 - (1 + i)^(-n)) / i
where Payment is $10, i is the interest rate (8% or 0.08), and n is the number of years (10).
For the annuity-due, the present value can be calculated similarly, but we need to account for the fact that the payments occur at the beginning of each year. So, we multiply the annuity-immediate present value by (1 + i) to convert it to an annuity-due.
Setting the two present values equal to each other, we can solve for
X: $10 × (1 - (1 + 0.08)^(-10)) / 0.08 = X × (1 + 0.08) × (1 - (1 + 0.08)^(-12)) / 0.08
Solving this equation, we find that X is approximately $7.63.
Therefore, the correct answer is B: $7.63.
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6. What are key differences between passive and active investment selection? 7. Assume that you invest $400 at the beginning of the year and get back $520 at the end of the year. What are the HPR and HPY from your investment?
Key differences between passive and active investment selection . Passive Investment Selection: Passive investing involves constructing a portfolio that mirrors the performance of a specific market index or benchmark. The goal is to achieve returns that closely match the overall market performance rather than outperforming it. Passive investors typically use index funds or exchange-traded funds (ETFs) to gain exposure to a broad market index. The main characteristics of passive investment selection are:
. Lower costs: Passive investments tend to have lower management fees and expenses compared to actively managed funds.
. Lower turnover: Passive investors generally have a buy-and-hold strategy, resulting in lower portfolio turnover and associated transaction costs.
. Systematic approach: The investment decisions are rules-based, following the composition and weightings of a specific market index.
Active Investment Selection: Active investing involves actively managing a portfolio with the goal of outperforming the market or a specific benchmark. Active investors analyze market trends, economic data, and individual securities to make investment decisions. The main characteristics of active investment selection are:
. Higher costs: Active management often incurs higher fees and expenses due to the research and analysis involved.
. Higher turnover: Active investors frequently buy and sell securities based on their analysis, leading to higher portfolio turnover and transaction costs.
To calculate the Holding Period Return (HPR) and Holding Period Yield (HPY) from your investment, we need the following information:
Initial investment: $400
Final investment value: $520
Holding Period Return (HPR) is calculated as the percentage change in the investment value over the holding period:
HPR = (Final value - Initial value) / Initial value
HPR = ($520 - $400) / $400 = $120 / $400 = 0.3 or 30%
Holding Period Yield (HPY) represents the return on the investment on an annual basis:
HPY = HPR / Holding period in years
Assuming the holding period is one year:
HPY = 0.3 / 1 = 0.3 or 30%
Therefore, the HPR and HPY from your investment are both 30%.
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Key differences between passive and active investment selection . Passive Investment Selection: Passive investing involves constructing a portfolio that mirrors the performance of a specific market index or benchmark. The goal is to achieve returns that closely match the overall market performance rather than outperforming it. Passive investors typically use index funds or exchange-traded funds (ETFs) to gain exposure to a broad market index. The main characteristics of passive investment selection are:
. Lower costs: Passive investments tend to have lower management fees and expenses compared to actively managed funds.
. Lower turnover: Passive investors generally have a buy-and-hold strategy, resulting in lower portfolio turnover and associated transaction costs.
. Systematic approach: The investment decisions are rules-based, following the composition and weightings of a specific market index.
Active Investment Selection: Active investing involves actively managing a portfolio with the goal of outperforming the market or a specific benchmark. Active investors analyze market trends, economic data, and individual securities to make investment decisions. The main characteristics of active investment selection are:
. Higher costs: Active management often incurs higher fees and expenses due to the research and analysis involved.
. Higher turnover: Active investors frequently buy and sell securities based on their analysis, leading to higher portfolio turnover and transaction costs.
To calculate the Holding Period Return (HPR) and Holding Period Yield (HPY) from your investment, we need the following information:
Initial investment: $400
Final investment value: $520
Holding Period Return (HPR) is calculated as the percentage change in the investment value over the holding period:
HPR = (Final value - Initial value) / Initial value
HPR = ($520 - $400) / $400 = $120 / $400 = 0.3 or 30%
Holding Period Yield (HPY) represents the return on the investment on an annual basis:
HPY = HPR / Holding period in years
Assuming the holding period is one year:
HPY = 0.3 / 1 = 0.3 or 30%
Therefore, the HPR and HPY from your investment are both 30%.
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Frankie is struggling to pay his monthly rent and he goes to PayDay Loan down the street to take out a 2-week loan in order to get through the next several weeks before his May 15 th paycheck. Identify the APR on the loan. a. Frankie is offered a $800 two-week loan at . 45% interest. Identify the APR on this loan and what will Frankie have to pay back on May 16 th?
To calculate the Annual Percentage Rate (APR) on the loan, we need to consider the interest rate, loan amount, and loan term. In this case, Frankie is offered an $800 two-week loan at a 45% interest rate.
To find the APR, we can use the following formula:
APR = (Interest / Loan Amount) * (365 / Loan Term)
Let's calculate the APR:
APR = (45% / $800) * (365 / 14)
APR = (0.45 / $800) * 26.0714
APR = 0.0005625 * 26.0714
APR = 0.014637075
APR ≈ 0.0146 (or 1.46%)
Therefore, the APR on this loan is approximately 1.46%.
To calculate how much Frankie will have to pay back on May 16th, we need to consider the loan amount and the interest. In this case, Frankie borrowed $800.
Interest = Loan Amount * Interest Rate
Interest = $800 * 0.45
Interest = $360
Therefore, on May 16th, Frankie will have to pay back the loan amount of $800 plus the interest of $360, resulting in a total repayment of $1,160.
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Fields & Co. expects its EBIT to be $125,000 every year for forever. The firm can borrow at 7 percent. The company currently has no debt, and its cost of equity is 12 percent. If the tax rate is 24 percent, what is the value of the company? what will the value be if the company borrows $205,000 and uses the proceeds to repurchase shares?
1. in the problem above, what is the cost of equity after recapitalization? what is the wacc?
1. Cost of equity after recapitalization: After recapitalization, the cost of equity is calculated as follows:
Cost of equity after recapitalization = Risk-free rate + Beta (market risk premium)Cost of equity after recapitalization
= 3.5% + 1.25 (7.5%) Cost of equity after recapitalization
= 12.38%2.
Weighted Average Cost of Capital (WACC)The WACC formula is given by:
WACC = E/V × Re + D/V × Rd × (1 - Tc)
Where, E is market value of the firm's equity V is firm's total value of debt and equity D is market value of firm's debt Tc is corporate tax rate Rd is pre-tax cost of debt Re is pre-tax cost of equity After recapitalization, the value of the company and WACC will be: Value of the company: By using perpetuity formula, the value of the firm can be calculated:
PV = EBIT ÷ WACC (1 - Tc)PV = 125,000 ÷ 0.1168PV
= $1,069,672.13
Value of the company if the company borrows $205,000 and uses the proceeds to repurchase shares:
New debt = $205,000 + $0 = $205,000
New equity = $500,000 - $205,000 = $295,000
New V = $205,000 + $295,000 = $500,000
WACC = (0.295/0.5) × 12.38% + (0.205/0.5) × 9.88% × (1 - 0.24)
WACC = 8.08%
The value of the firm after recapitalization is:
PV = EBIT ÷ WACC (1 - Tc)PV = $125,000 ÷ 0.0808PV = $1,544,554.46
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Given Data:EBIT = $125,000Cost of Equity = 12%Cost of Debt = 7%Tax rate = 24%Unlevered Firm Value (VU) can be calculated as:VU = EBIT / KeWhere,Ke = Cost of EquityTherefore,VU = $125,000 / 0.12= $1,041,667After recapitalization, we will have Levered Firm Value (VL),VL = VU + PV (Interest Tax Shield)Where,PV (Interest Tax Shield) = (Corporate Tax Rate) * (Interest Paid on Debt)PV (Interest Tax Shield) = 0.24 * $205,000 = $49,200VL = $1,041,667 + $49,200VL = $1,090,867After the repurchase of shares, the new value of the company will be the value of the equity. Therefore, we will have,Value of Equity = VL - Value of DebtWe are given that the company has borrowed $205,000. Therefore, the value of the debt will be $205,000. Thus,Value of Equity = $1,090,867 - $205,000 = $885,867Cost of Equity After Recapitalization will be calculated as follows:Cost of Equity After Recapitalization = Risk-Free Rate + Beta * (Market Risk Premium) * (1 + Debt / Equity)Where,Beta = Asset Beta / [1 + (1 - Tax Rate) * (Debt / Equity)]Given Data:Asset Beta = 1Debt = $205,000Equity = ?Debt / Equity Ratio = Debt / EquityDebt / Equity Ratio = $205,000 / EquityDebt / Equity Ratio = 0.26Substitute the given values in the formula and solve for the Cost of Equity After Recapitalization:Cost of Equity After Recapitalization = 2% + 1 * 6% * (1 + 0.26)Cost of Equity After Recapitalization = 2% + 1 * 6% * (1.26)Cost of Equity After Recapitalization = 9.56%WACC can be calculated as:WACC = [Cost of Equity After Recapitalization * (Equity / (Equity + Debt))] + [Cost of Debt * (1 - Tax Rate) * (Debt / (Equity + Debt))]Substitute the given values in the formula and solve for WACC:WACC = [9.56% * (Equity / (Equity + $205,000))] + [7% * (1 - 0.24) * ($205,000 / (Equity + $205,000))]WACC = [9.56% * (Equity / (Equity + $205,000))] + [5.32% * ($205,000 / (Equity + $205,000))]WACC = [9.56% * (Equity / (Equity + $205,000))] + [0.0532] - [0.0532 * (Equity / (Equity + $205,000))]WACC = [0.096 * (Equity / (Equity + $205,000))] + [0.0532] - [0.0532 * (Equity / (Equity + $205,000))]WACC = 0.0532 + [0.096 - 0.0532] * (Equity / (Equity + $205,000))WACC = 0.0532 + [0.0428 * (Equity / (Equity + $205,000))]WACC = 0.0532 + 0.0428 / [1 + ($205,000 / Equity)]The value of Equity can be calculated as follows:Value of Equity = VL - Value of Debt = $1,090,867 - $205,000 = $885,867Substitute this value in the above formula to find WACC:WACC = 0.0532 + 0.0428 / [1 + ($205,000 / $885,867)]WACC = 9.34%Therefore, the Cost of Equity After Recapitalization is 9.56%, and the WACC is 9.34%.
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Information for two alternative projects involving machinery investments follows. Project 1 requires an initial investment of $135,000. Project 2 requires an initial investment of $98,000. Project 1 100,000 Project 2 80,000 Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciationachinery Selling, general, and administrative expenses Income 65,000 20,000 8,000 $ 7,000 32,000 18,000 20,000 10,000 (a) Compute each project's annual net cash flow. (b) Compute payback period for each investment. Complete this question by entering your answers in the tabs below. Required ARequired B Compute each project's annual net cash flow. Project 1Project 2 Annual Amounts Income Cash Flow Income Cash Flow Sales of new product $ 100,000 80,000 Expenses Materials, labor, and overhead (except depreciation) 65,000 32,000 Depreciation Machinery 20,00018,000
a. The annual net cash flow for both projects can be calculated using the given data. Annual net cash flow is the difference between cash inflows and cash outflows in a year.
Project 1 Project 2 Annual Amounts Income Cash Flow Income Cash Flow Sales of new product $ 100,000 $ 80,000 Expenses Materials, labor, and overhead (except depreciation) 65,000 $ 35,000 32,000 $ 48,000 Depreciation Machinery 20,000 18,000 Selling, general, and administrative expenses 10,000 14,000 Total expenses (95,000) (64,000) Annual net cash flow $ 5,000 $ 16,000
b. The payback period is the time required to recover the initial investment. This can be calculated by dividing the initial investment by annual net cash flow.Project 1:Payback period = $135,000 ÷ $5,000 = 27 yearsProject 2:Payback period = $98,000 ÷ $16,000 = 6.125 yearsTherefore, the answers for the given problem are: a. Annual net cash flow for Project 1 is $5,000 and for Project 2 it is $16,000.b. Payback period for Project 1 is 27 years and for Project 2 it is 6.125 years.
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People who seldom trust coworkers and tend to use cruder influence tactics have:
A) strong Machiavellian values.
B) a high level of organizational citizenship.
C) excellent skills for working in teams.
D) more expert power than most people in organizations.
E) strong work ethics.
A) strong Machiavellian values.
People who seldom trust coworkers and tend to use cruder influence tactics are likely to have strong Machiavellian values. Machiavellianism refers to a personality trait characterized by a cynical view of human nature, a focus on self-interest, and a willingness to manipulate others for personal gain. Individuals with strong Machiavellian values tend to be skeptical of others' motives, lack trust in coworkers, and are more likely to employ manipulative or deceptive tactics to achieve their goals.
Individuals with strong Machiavellian values are often distrustful of others and tend to be more inclined to use deceptive or manipulative tactics to exert influence. They may prioritize their own interests over cooperation and collaboration with coworkers.
Options B, C, D, and E do not align with the described behavior. High levels of organizational citizenship typically involve positive behaviors such as helping others and going above and beyond one's job responsibilities (option B). Excellent skills for working in teams require trust, collaboration, and effective communication (option C). Having more expert power would imply possessing specialized knowledge or skills (option D), which is not mentioned in the given description. Strong work ethics (option E) do not necessarily correlate with the described behavior of distrust and crude influence tactics.
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What is the role of budgets in preparing pro-forma statements?
How can positive profits still result in a negative cash-flow?
Budgets are essential for the preparation of pro-forma statements because they provide the basis for projecting the financial results of a company. A budget is a plan that outlines the financial goals of a company for a particular period of time.
Pro-forma statements are a tool that is used to project future results of a company's performance. Budgets play an important role in preparing pro-forma statements. They provide a framework for companies to manage their finances and make informed business decisions.
Budget is based on expected revenues, expenses, and cash flows for the upcoming period. By using budgets as a starting point, pro-forma statements can be prepared that project future financial results. Positive profits can result in a negative cash flow if a company's expenses exceed its revenues. In other words, a company can have positive profits on paper, but if it does not have enough cash to pay its bills, it will have negative cash-flow. This can happen if a company has too much debt or if it has invested too much in non-liquid assets, such as property or equipment. Additionally, if a company has customers who pay slowly, this can also contribute to negative cash-flow, even if the company is profitable.
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Derek will deposit $3,429.00 per year for 22.00 years into an account that earns 6.00%, The first deposit is made next year. How much will be in the account 39.00 years from today?
Derek will deposit $2,671.00 per year for 11.00 years into an account that earns 9.00%, The first deposit is made next year. He has $12,916.00 in his account today. How much will be in the account 35.00 years from today?
The amount in the account 35.00 years from today will be $428,155.74.
In the first scenario, we are told that Derek will deposit $3,429.00 per year for 22.00 years into an account that earns 6.00%, and that the first deposit is made next year. We are asked to calculate how much will be in the account 39.00 years from today.
To solve this problem, we can use the formula for the future value of an annuity:
FV = PMT × ((1 + r)n - 1) / rwhere:FV is the future value of the annuity
PMT is the regular paymentr is the annual interest raten is the number of payments
Here, PMT = $3,429.00, r = 6%, and n = 22. However, we want to find the future value in 39 years, not 22. To do this, we first need to calculate the future value in 22 years and then use this as the present value for another 17 years.
Using the formula, the future value in 22 years is:
FV = $3,429.00 × ((1 + 0.06)22 - 1) / 0.06 = $104,174.14
This is the present value after 22 years, so we can use this as the starting amount for another 17 years. Using the same formula but with n = 17, we can find the future value in 39 years:
FV = $104,174.14 × ((1 + 0.06)17 - 1) / 0.06 = $532,276.98
Therefore, the amount in the account 39.00 years from today will be $532,276.98.In the second scenario, we are told that Derek will deposit $2,671.00 per year for 11.00 years into an account that earns 9.00%, and that the first deposit is made next year.
We are asked to calculate how much will be in the account 35.00 years from today.
To solve this problem, we can again use the formula for the future value of an annuity, but this time we also need to add in the starting amount of $12,916.00. Using the formula, the future value in 35 years is:
FV = $12,916.00 × (1 + 0.09)35 + $2,671.00 × ((1 + 0.09)35 - (1 + 0.09)11) / 0.09 = $428,155.74
Therefore, the amount in the account 35.00 years from today will be $428,155.74.
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The diagram below illustrates the case of a good that is partly home [1] produced and partly imported. The world price is Pw. After a tariff is imposed by the govemment the price is Pw+t. The area that represents dead weight loss when the tariff is applied is: A 2 and 4 B 1 and 5 C 5 only D 2,3 and 4
The diagram illustrates a situation where a tariff is imposed on a good that is partly produced domestically and partly imported. The world price of the good is denoted as Pw, and after the tariff is imposed, the price increases to Pw+t. Option D, which includes points 2, 3, and 4, correctly identifies the area representing deadweight loss.
To determine the area representing deadweight loss, we need to analyze the effects of the tariff on consumer surplus and producer surplus. The deadweight loss occurs due to the reduction in total surplus resulting from the tariff. In this case, the deadweight loss area can be identified as the triangular region that lies between points 2, 3, and 4 on the diagram. This area represents the loss of welfare to both consumers and producers that arises from the tariff.
Option D, which includes points 2, 3, and 4, correctly identifies the area representing deadweight loss. Options A, B, and C do not fully capture the entire deadweight loss area. The deadweight loss arises due to the inefficiency introduced by the tariff, reducing the gains from trade and distorting the allocation of resources.
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You are trying to decide how much to save for retirement. Assume you plan to save $5,000 per year with the first investment made one year from now. You think you can earn 6.5% per year on your investments and you plan to retire in 33 years, immediately after making your last $5,000 investment. a. How much will you have in your retirement account on the day you retire? b. If, instead of investing $5,000 per year, you wanted to make one lump-sum investment today for your retirement that will result in the same retirement saving, how much would that lump sum need to be? c. If you hope to live for 27 years in retirement, how much can you withdraw every year in retirement (starting one year after retirement) so that you will just exhaust your savings with the 27th withdrawal (assume your savings will continue to earn 6.5% in retirement)? d. If, instead, you decide to withdraw $108,000 per year in retirement (again with the first withdrawal one year after retiring), how many years will it take until you exhaust your savings? (Use trial-and-error, a financial calculator: solve for "N", or Excel: function NPER) e. Assuming the most you can afford to save is $1,000 per year, but you want to retire with $1,000,000 in your investment account, how high of a return do you need to earn on your investments? (Use trial-and-error, a financial a. How much will you have in your retirement account on the day you retire? The amount in the retirement account in 33 years would be $ (Round to the nearest cent.)
a. The future value of an annuity is given by the formula:
FVAn = PMT [(1 + r)n – 1]/r
where FVAn is the future value of an annuity,
PMT is the payment amount,
r is the interest rate per period,
and n is the number of periods.
Using the formula:
We have,
FVAn = $5,000 [(1 + 0.065)33 – 1]/0.065 = $636,685.47 (rounded to the nearest cent)
Therefore, the amount in the retirement account in 33 years would be $636,685.47 (rounded to the nearest cent).
b. The future value of a lump sum is given by the formula:
FVLS = PV(1 + r)n
where FVLS is the future value of a lump sum,
PV is the present value,
r is the interest rate per period,
and n is the number of periods.
Using the formula:
We have, PV = $5,000 [(1 – (1 + 0.065)-33)/0.065] = $82,566.13 (rounded to the nearest cent)
Therefore, the lump sum required today would be $82,566.13 (rounded to the nearest cent).
c. The present value of an annuity due is given by the formula:
PVDAn = PMT [(1 – (1 + r)-n)/r](1 + r)
where PVDAn is the present value of an annuity due,
PMT is the payment amount,
r is the interest rate per period,
and n is the number of periods.
Using the formula:
We have, PVDAn = $ X [(1 – (1 + 0.065)-27)/0.065](1 + 0.065) = $ X [18.1268](1.065) = $ X 19.3299
Therefore, $636,685.47/19.3299 = $32,965.92
Therefore, you can withdraw $32,965.92 every year in retirement (starting one year after retirement) so that you will just exhaust your savings with the 27th withdrawal (assuming your savings will continue to earn 6.5% in retirement).
d. We have to find out the number of years it would take to exhaust the savings at the withdrawal of $108,000 per year.
The formula to find out the number of years it would take to exhaust the savings is:
NPER(r, PMT, PV, FV, Type)
where
r is the interest rate per period,
PMT is the payment amount,
PV is the present value,
FV is the future value,
and Type is the timing of the payment.
Using the formula:
NPER(0.065, -108000, 636685.47, 0, 1) = 17.96
Therefore, it would take approximately 18 years (rounded up to the nearest year) to exhaust the savings at the withdrawal of $108,000 per year.
e. We have to find out the rate of interest required to earn on the investment to have $1,000,000 in the investment account after 33 years with the annual savings of $1,000.
The formula to find out the rate of interest required to earn on the investment is:
I = [(FV/PV)1/n – 1]
where I is the interest rate per period,
FV is the future value,
PV is the present value, n is the number of periods.
Using the formula:
We have, I = [(1000000/1000)1/33 – 1] = 0.1642 = 16.42%
Therefore, you need to earn a rate of interest of 16.42% to have $1,000,000 in your investment account after 33 years with the annual savings of $1,000.
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The following information pertains to a company at the end of December: Credit Sales $ 20,000 Accounts Payable 10,000 Accounts Receivable 10,200 Allowance for Uncollectible Accounts 400 credit Cash Sales 20,000 The company uses the aging method and estimates it will not collect 7% of accounts receivable not yet due, 11% of receivables up to 30 days past due, and 46% of receivables greater than 30 days past due. The accounts receivable balance of $10,200 consists of $7,000 not yet due, $2,000 up to 30 days past due, and $1,200 greater than 30 days past due. What is the appropriate amount of Bad Debt Expense? a) $663 b) $862 c) $400 d) $220
The appropriate amount of Bad Debt Expense is option (b) $862.
To calculate the Bad Debt Expense using the aging method, we apply the respective percentage of uncollectibility to each category of accounts receivable.
For accounts not yet due ($7,000), we estimate 7% will not be collected, resulting in an uncollectible amount of $7,000 * 7% = $490.
For accounts up to 30 days past due ($2,000), we estimate 11% will not be collected, resulting in an uncollectible amount of $2,000 * 11% = $220.
For accounts greater than 30 days past due ($1,200), we estimate 46% will not be collected, resulting in an uncollectible amount of $1,200 * 46% = $552.
The total Bad Debt Expense is the sum of these uncollectible amounts: $490 + $220 + $552 = $1,262.
However, the existing Allowance for Uncollectible Accounts has a balance of $400. To adjust for this, we subtract the existing allowance from the total Bad Debt Expense: $1,262 - $400 = $862.
Therefore, the appropriate amount of Bad Debt Expense is $862 (option b).
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Explain the impact on reported profits and asset values in the statement of
financial position of using the FIFO, as opposed to the LIFO method of
inventory valuation, in times of positive inflation.
During inflationary periods, using FIFO will generally result in higher reported profits and higher asset values compared to using LIFO. However, it is important to note that the choice of inventory valuation method should be consistent over time to ensure meaningful comparisons between financial periods.
When using the FIFO (First-In, First-Out) method of inventory valuation in times of positive inflation, the impact on reported profits and asset values is generally higher compared to using the LIFO (Last-In, First-Out) method.
Under FIFO, the assumption is that the items purchased or produced first are sold or used first. In a period of inflation, the older, lower-cost inventory is sold first, while the newer, higher-cost inventory remains in stock. As a result, the cost of goods sold (COGS) is lower, leading to higher reported profits. The value of the ending inventory is higher, as it reflects the current higher prices of goods.
In contrast, under LIFO, the assumption is that the items purchased or produced last are sold or used first. In a period of inflation, the newer, higher-cost inventory is sold first, while the older, lower-cost inventory remains in stock. This results in a higher COGS, reducing reported profits. The value of the ending inventory is lower since it reflects the lower costs of the older inventory.
Therefore, during inflationary periods, using FIFO will generally result in higher reported profits and higher asset values compared to using LIFO. However, it is important to note that the choice of inventory valuation method should be consistent over time to ensure meaningful comparisons between financial periods.
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