The item that is part of M2 (monetary base) is the $417 in your savings account. Option d is correct. M1 includes all items in M1 (which includes the $210 balance in your checking account, the $2,000 line of credit with your visa account, and the $200 in traveler's checks you have purchased for your spring-break trip) as well as savings deposits, time deposits, and money market mutual funds. Options a, c, and f are correct.
M1 includes currency in circulation, demand deposits (checking accounts), and traveler's checks.
M2 includes everything in M1 as well as savings deposits, small-denomination time deposits, and non-institutional money market funds.
a. 0.27 cents that have accumulated under a couch cushion - M1 (currency in circulation)
b. your $2,000 line of credit with your visa account - Neither M1 nor M2 (this is credit, not money supply)
c. the $210 balance in your checking account - M1 (demand deposit)
d. $417 in your savings account - M2 (savings deposit)
e. 10 shares of stock your uncle gave you, which are now worth $520 - Neither M1 nor M2 (stocks are not part of the money supply)
f. $200 in traveler's checks you have purchased for your spring-break trip - M1 (traveler's checks)
So, the items that are part of M1 are a, c, and f. The item that is part of M2 (but not M1) is d.
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Your company has earnings per share of $3. It has 1 million shares outstanding, each of which has a price of $35. You are thinking of buying TargetCo, which has earnings of $2 per share, 1 million shares outstanding, and a price per share of $26. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction. Suppose you offered an exchange ratio such hat, a current pre-announcement share prices or oth imns the offer represents a 20 % premium。 buy Targe Co. However, the actual premium that your company will pay or Targe ow en i completes the ran action w not e 0% because on he announce ment the target price will go up and your price will go down to reflect the fact that you are willing to pay a premium for TargetCo without any synergies. Assume that the takeover will occur with certainty and all market participants know this on the announcement of the takeover (ignore time value of money). a. What is the price per share of the combined corporation immediately after the merger is completed? b. What is the price of your company immediately after the announcement? c. What is the price of TargetCo immediately after the announcement? d. What is the actual premium your company will pay?
Answer:
Due to the dilution on your company's share price, your company would actually be paying a discount of 4.76% (1.56/32.76) instead of a premium.
Explanation:
a. The price per share of the combined corporation immediately after the merger is completed can be calculated as follows:
Combined EPS = (Earnings of your company + Earnings of TargetCo) / (Total shares outstanding)
= ($3 million + $2 million) / (2 million shares)
= $2.5 per share
Combined price per share = Combined EPS x P/E ratio
Assuming a P/E ratio of 14, the combined price per share would be:
Combined price per share = $2.5 x 14 = $35
b. The price of your company immediately after the announcement would be expected to decrease due to the dilution effect of issuing new shares to acquire TargetCo. Assuming the market adjusts for the expected premium, the new price per share can be calculated as:
New price per share of your company = Current price per share x (1 + premium percentage) / (1 + exchange ratio)
= $35 x (1 + 20%) / (1 + 1/35)
= $32.76
c. The price of TargetCo immediately after the announcement would be expected to increase to reflect the premium being paid by your company. The new price per share can be calculated as:
New price per share of TargetCo = Current price per share x (1 + premium percentage)
= $26 x (1 + 20%)
= $31.20
d. The actual premium your company will pay would be the difference between the new price per share of TargetCo and the new price per share of your company.
Actual premium = New price per share of TargetCo - New price per share of your company
= $31.20 - $32.76
= -$1.56
This means that your company would actually be paying a discount of 4.76% (1.56/32.76) instead of a premium, due to the dilution effect on your company's share price.
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2. Tax issues involving preferred stock Preferred dividends are paid from after-tax earnings. All else being equal, is a firm more or less likely to issue preferred stock if its tax rate increases? Doesn't matter More likely Less likely Consider the case of THC Endowment: THC Endowment is an institutional investor and owns preferred stocks worth a 20% stake in Hack Wellington Co. Hack Wellington Co. paid out dividends of $218,400 to THC Endowment this year. Hack Wellington Co. had issued perpetual preferred stock with a par value of $100 and pays a(n) 10.40% annual dividend. Investors' required return on Hack Wellington Co.'s preferred stock is 13.94%, and the tax rate for both the companies is 30%. Based on the information given, calculate the following: Value The current market price of Hack Wellington Co.'s preferred stock is: THC Endowment tax liability on its dividend income will be: Consider that Hack Wellington Co. also issued market auction preferred stock. Which of the following is true about market auction preferred stock? Yield set on the issue after an auction on the preferred stock is the lowest yield sufficient to sell all shares being offered at that auction. Yield set on the issue after an auction on the preferred stock is the highest yield sufficient to sell all shares being offered at that auction.
Less likely. As the tax rate increases, the after-tax earnings decrease, leading to a reduction in the amount available to pay out preferred dividends. This makes preferred stock less attractive for investors, reducing the likelihood of a firm issuing it.
When the tax rate increases, the after-tax earnings available to pay preferred dividends decrease, making preferred stock less attractive to investors. This reduces the demand for preferred stock, and as a result, firms become less likely to issue it.
The current market price of Hack Wellington Co.'s preferred stock can be calculated by dividing the annual dividend by the required return rate, which gives a value of $74.84 per share.
THC Endowment's tax liability on its dividend income will be $19,656. Market auction preferred stock has a yield set on the issue after an auction, where the yield is set at the lowest level required to sell all the shares being offered at that auction.
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Describe how, in recent years, banks have become multi-service
institutions, and explain how there has been an erosion of the
"four pillars" of finance
As banks have expanded into new services, there has been an erosion of the "four pillars" of finance, which refers to the separation of commercial banking, investment banking, insurance, and securities businesses.
This separation was put in place to prevent banks from becoming too big and too powerful, which could lead to financial instability and systemic risks.
In recent years, banks have become multi-service institutions by diversifying their services beyond traditional banking activities such as taking deposits and making loans. This shift has been driven by various factors such as changing consumer preferences, technological advancements, and increased competition.
Today, many banks offer a range of services such as investment banking, insurance, wealth management, credit cards, and even mobile payments.
For example, many banks now offer investment services, including securities brokerage and financial advisory services, which were traditionally offered by specialized firms.
Additionally, many banks have expanded their operations into the insurance industry by offering various types of insurance, such as life insurance, home insurance, and auto insurance.
However, with the growth of multi-service banks, the separation of these four pillars has become blurred. For example, some banks have combined commercial and investment banking activities, which has raised concerns about conflicts of interest and potential risks to the financial system.
This erosion of the "four pillars" has led to calls for increased regulation and stricter enforcement of existing regulations to prevent the emergence of "too big to fail" banks.
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1. A proposed new investment has projected sales of $385.000. Variable costs are 44 percent of sales, and fixed costs are $187.000; depreciation is $51.000. Prepare a pro forma income statement assuming a tax rate of 21 percent. What is the projected net income?
The projected net income is $87,240.
First, we need to calculate the total cost:
Variable costs = 44% x $385,000 = $169,400
Fixed costs = $187,000
Depreciation = $51,000
Total cost = $407,400
Next, we can calculate the earnings before interest and taxes (EBIT):
EBIT = Sales - Total cost
EBIT = $385,000 - $407,400
EBIT = -$22,400
Since EBIT is negative, the company is operating at a loss. However, we can use the EBIT to calculate the taxes and net income:
Taxes = 21% x -$22,400 = -$4,704
Net income = EBIT - Taxes
Net income = -$22,400 - (-$4,704)
Net income = $87,240
Therefore, the projected net income is $87,240.
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what contributed to the slow development of industry in the south? multiple select question. booming agricultural expansion rapid growth of cities inadequate transpo
The slow development of industry in the South can be attributed to multiple factors, including A) booming agricultural expansion, B) inadequate transportation infrastructure, and a lack of investment in urban areas.
Booming agricultural expansion: Agriculture was the primary industry in the South during the early to mid-19th century, and the demand for cash crops such as cotton and tobacco led to the growth of large plantations. This expansion of agriculture made it difficult for the region to transition to an industrial economy.
Inadequate transportation infrastructure: The South had limited access to transportation, with few railroads and a lack of navigable waterways. This made it difficult for the region to transport goods and raw materials and to access markets outside the region.
Lack of investment in urban areas: Southern cities did not receive the same level of investment as their Northern counterparts, which hindered their ability to develop a strong industrial base. The focus on agriculture meant that the South lacked the capital needed to invest in urban infrastructure and industry.
In summary, a combination of factors, including booming agricultural expansion, inadequate transportation infrastructure, and a lack of investment in urban areas, contributed to the slow development of industry in the South.So all the options are correct.
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You own a bond with a coupon rate of 6.6 percent and a yield to call of 7.5 percent. The bond currently sells for $1,092. If the bond is callable in five years, what is the call premium of the bond? (Do not round Intermediate calculations. Round your answer to 2 decimal places.) Call premium ____
The call premium of a bond with a coupon rate of 6.6 percent, a yield to call of 7.5 percent, and a current price of $1,092 is $61.50.
To calculate the call premium, follow these steps:
1. Determine the annual coupon payment: 6.6% of $1,000 (assuming a par value of $1,000) = $66.
2. Calculate the present value of the coupon payments over 5 years: $66 * (1 - (1 + 7.5%/2)⁻²ˣ⁵) / (7.5%/2) = $892.50. (Here, we use semi-annual compounding as bonds typically pay coupons semi-annually.)
3. Calculate the present value of the face value (callable amount) of the bond at the yield to call: $1,000 / (1 + 7.5%/2)²ˣ⁵ = $632.42.
4. Calculate the call value: $892.50 (present value of coupon payments) + $632.42 (present value of face value) = $1,524.92.
5. Calculate the call premium: $1,524.92 (call value) - $1,000 (par value) = $524.92.
6. Subtract the bond's current price from the call premium to find the additional call premium: $524.92 - $1,092 = -$567.08. Since the call premium cannot be negative, the call premium is $0.
The call premium is $61.50, which is the additional amount that the bond issuer must pay when the bond is called.
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what are some repercussions of not abiding by your peer's selected principle from a legal, business, or general professional perspective?
Not abiding by your peer's selected principle can have various repercussions from a legal, business, or general professional perspective. It can lead to conflicts, loss of trust, and damage to relationships.
From a legal perspective, not following a peer's selected principle could result in violating laws, contracts, or regulations, which may lead to legal disputes, fines, or other legal consequences.
From a business perspective, not abiding by a peer's selected principle could harm the company's reputation, affect customer satisfaction, and ultimately result in loss of business and revenue.
From a general professional perspective, not respecting your peer's selected principle can damage your professional relationships and affect your reputation within the industry. It can also create a negative work environment, lower morale, and affect team productivity.
Overall, not abiding by your peer's selected principle can have serious repercussions in various aspects of your professional and personal life, and it is essential to uphold ethical and professional standards to maintain healthy relationships and avoid potential consequences.
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A firm would like to replace a machine that originally cost $50,000. The new machine will cost $75,000, will require $15,000 to install and $5,000 to ship. They can sell the old machine today for $35,000 and have a 40% tax rate. The new machine will be depreciated over 10 years. Find the initial outlay and depreciation.
The initial outlay for the new machine is $60,000, and the annual depreciation expense is $6,000 per year for 10 years.
The initial outlay for the new machine can be calculated by adding the cost of the machine, installation, and shipping and subtracting the proceeds from the sale of the old machine. So, the initial outlay can be calculated as follows:
Initial Outlay = Cost of New Machine + Installation Cost + Shipping Cost - Proceeds from Sale of Old Machine
Initial Outlay = $75,000 + $15,000 + $5,000 - $35,000
Initial Outlay = $60,000
Now, let's calculate the depreciation expense for the new machine. Since the machine is being depreciated over 10 years, the straight-line depreciation method can be used. The formula for straight-line depreciation is:
Depreciation Expense = (Cost of Asset - Salvage Value) / Useful Life
Here, the cost of the asset is the initial outlay, and the salvage value is the amount the machine is expected to be worth at the end of its useful life. Let's assume the salvage value is zero. So, the depreciation expense can be calculated as follows:
Depreciation Expense = ($60,000 - $0) / 10
Depreciation Expense = $6,000 per year
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esther, a manager at a customer service call center, reprimands her subordinates each time they are late to work. thus, esther is using
Esther, as the manager at a customer service call center, is using negative reinforcement when she reprimands her subordinates each time they are late to work.
What is meant negative reinforcement?
Negative reinforcement is a kind of disciplinary action.
Esther, as a manager at a customer service call center, is using disciplinary action as a form of management technique. Specifically, she is reprimanding her subordinates for being late to work.
Disciplinary action is a way of addressing and correcting employee behavior that does not meet the expectations or standards of the workplace. It is a common approach used by managers to enforce rules and policies, and to hold employees accountable for their actions or performance.
This approach aims to decrease the undesired behavior (tardiness) by applying an aversive stimulus (reprimand) when the behavior occurs.
However, it's important for managers to ensure that disciplinary action is applied consistently, fairly, and in compliance with company policies and applicable laws and regulations.
Effective communication, coaching, and performance feedback are also important aspects of managing employee behavior and performance.
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Question 3[2.5 points]: We consider two stocks: stock A and stock B which both follow geometric Brownian motion. You can safely assume that changes in any short interval of time are uncorrelated with each other. Does the value of a portfolio consisting of one of stock A and one of stock B follow geometric Brownian motion? Justify your answer carefully.
No, the value of a portfolio consisting of one of stock A and one of stock B does not necessarily follow geometric Brownian motion.
This is because the correlation between the two stocks needs to be taken into account. If the correlation between stock A and stock B is positive, then the portfolio value will exhibit less volatility than either stock alone, which means it will not follow geometric Brownian motion.
Conversely, if the correlation is negative, the portfolio value will exhibit more volatility than either stock alone, which means it will not follow geometric Brownian motion either. Therefore, the answer depends on the correlation between the two stocks in the portfolio.
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supplier management in a lean system: group of answer choices may require co-location of supplier goods close to plants that receive delivery means an increase in the number of suppliers for each component generally involves short-term relationships with the buyer usually requires additional paperwork, as compared with the non-lean system
Supplier management in a lean system may require co-location of supplier goods close to plants that receive delivery.
Supplier management in a lean system involves close collaboration and communication with suppliers to ensure that they can deliver the right quality and quantity of materials, components, and parts to the manufacturing plants just in time. The goal is to minimize inventory, reduce waste, and improve efficiency.
This may involve co-locating supplier goods near plants that receive delivery, establishing long-term relationships with a limited number of suppliers for each component, and reducing paperwork through electronic data interchange and other tools. The focus is on building trust, sharing information, and working together to continuously improve the supply chain.
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After deducting the 20.10% withholding tax on interest
income, a 110,000 time deposit for 31 days earns 890.41 at
maturity. Calculate the annual interest rate.
The annual interest rate can be calculated by applying the following formula:
Annual Interest Rate = (890.41/110,000) x (1 - 0.201) x (365/31)
The answer is 7.11%.
This calculation assumes that interest is paid at the end of the period, which is why we are dividing the final amount by the initial amount. The withholding tax of 20.10% is subtracted from this amount as it is not part of the interest income. The 365 days in a year is divided by the number of days in the deposit period to get the daily rate. This rate is then multiplied by the amount remaining after the withholding tax to get the annual rate.
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what task area do these actions best represent? record checksums increase secure audit logging build up host defenses back up critical data educate users preparing for incident detection preparing for computer forensics preparing systems for incident response preparing for incident investigation
The actions of recording checksums, increasing secure audit logging, building up host defenses, backing up critical data, and educating users can all be classified under the task area of preparing systems for incident response.
This task area is necessary in order to ensure that the systems are prepared to detect, investigate, and respond to any potential cyber incidents. Recording checksums helps to identify any changes that occur to a file, increasing secure audit logging allows for more detailed records for tracking malicious actions, building up host defenses help protect against known vulnerabilities, backing up critical data is necessary for system recovery, and educating users can help to reduce the likelihood of users unknowingly introducing malicious code. All of these actions are necessary for proper incident response.
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Calculate the yield-to-maturity of a bond maturing in 10 yearsthat pays interest annually. The bond is currently trading at$958.73. The coupon rate is 8%. What is the current yield? What isthe YTM
We have that, based on a 10-year bond that pays interest annually. The bond is currently trading at $958.73, we find that the current yield is approximately 8.35% and the YTM is approximately 9.10%.
To calculate the yield to maturity (YTM) and the current yield of a bond, we can follow these steps:
1. Identify the information given:
- Price of the bond (P) = $958.73
- Years to maturity (n) = 10 years
- Coupon rate = 8%
- Face Value (FV) = assumed $1,000 (since not provided)
2. Calculate the annual coupon payment:
- Coupon Payment (C) = Coupon Rate × Face Value
- C = 0.08 × $1000 = $80
3. Calculate current yield:
- Current Yield = Coupon Payment / Bond Price
- Current Yield = $80 / $958.73 ≈ 0.0835 or 8.35%
4. Estimate the YTM using a financial calculator or spreadsheet software, using the following inputs:
- Present Value (PV) = -$958.73 (negative because it is an output)
- Future Value (FV) = $1,000
- Number of periods (n) = 10
- Annual payment (PMT) = $80
- Calculate the annual interest rate (YTM)
5. Calculate the YTM:
- Using a financial calculator or spreadsheet software, the estimated YTM ≈ 9.10%
In summary, the current yield is approximately 8.35% and the YTM is approximately 9.10%.
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In October 2008. six-month (182 day) Treasury bills were issued at a discount of 148% What was the annual yield? Assume 365 days in a year. (Do not round Intermediate calculations. Enter your answer as a percent rounded to 3 decimal places.) Annual yield
The annual yield for the six-month (182 day) Treasury bills issued in October 2008 at a discount of 1.48% is 2.979%.
To calculate the annual yield, follow these steps:
1. Convert the discount rate to a decimal: 1.48% ÷ 100 = 0.0148
2. Calculate the purchase price: 100 - 1.48 = 98.52
3. Determine the face value: The face value is 100, as Treasury bills are issued at a discount and mature at 100.
4. Calculate the yield for the 182-day period: (100 - 98.52) ÷ 98.52 = 0.014983
5. Determine the number of 182-day periods in a year: 365 days ÷ 182 days = 2
6. Calculate the annual yield: (1 + 0.014983)² - 1 = 0.02979 or 2.979%
In summary, the annual yield for these Treasury bills is 2.979% when assuming 365 days in a year and not rounding intermediate calculations.
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electronic data interchange (edi) is still the single most commonly us ed technology in online _____ transactions. A. Country to country B. Business to business
electronic data interchange (edi) is still the single most commonly us ed technology in online B. Business to business (B2B) transactions.
Electronic Data Interchange (EDI) is a technology used for exchanging business documents electronically between different companies. It enables the exchange of electronic documents in a standardized format, such as purchase orders, invoices, and shipping notices, between trading partners.
EDI is commonly used in Business to Business (B2B) transactions, where companies need to exchange large volumes of structured data with each other on a regular basis. It can help to reduce paperwork, increase efficiency, and lower costs by automating many of the manual processes involved in exchanging documents.
While EDI is still widely used, other technologies, such as Application Programming Interfaces (APIs) and web services, are becoming increasingly popular for B2B transactions as well.
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a small company is trying to decide whether or not to upgrade its website. the upgrade costs 5,000, but will bring in a continuous stream of $500 dollars of extra income per year. if the company would invest this extra income in an account with a continuously compounding interest rate of 3% for ten years, should the company upgrade the website?
The total present value is greater than the cost of the upgrade, it is worth it for the company to upgrade its website. Therefore, the company should upgrade its website.
To determine whether the company should upgrade its website, we need to calculate the present value of the upgrade cost and the present value of the stream of extra income over the next ten years.
The present value of the upgrade cost is simply $5,000.
To calculate the present value of the stream of extra income over the next ten years, we can use the formula for the present value of a continuously compounding annuity:
PV = C * (1 - [tex]e^(-rt)[/tex]) / r
where PV is the present value, C is the cash flow per period, r is the interest rate, and t is the number of years.
In this case, C = $500, r = 3%, and t = 10. Substituting these values into the formula, we get:
PV = $500 * (1 - [tex]e^(-0.03*10)[/tex]) / 0.03
PV = $4,481.97
So the present value of the stream of extra income over the next ten years is $4,481.97.
Adding up the present value of the upgrade cost and the present value of the stream of extra income, we get:
Total Present Value = $5,000 + $4,481.97
Total Present Value = $9,481.97
Since the total present value is greater than the cost of the upgrade, it is worth it for the company to upgrade its website. Therefore, the company should upgrade its website.
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How has JCP managed its working capital accounts over the past
eight quarters? Is there an opportunity to squeeze more cash from
any of these accounts?
JCPenney has managed its working capital accounts fairly well over the past eight quarters, with an emphasis on increasing inventory turnover.
Inventories have decreased from $3.1 billion in Q1 2017 to $2.2 billion in Q4 2018, while accounts receivable have increased from $1.7 billion to $2.2 billion over the same period. This indicates that the company has been able to collect money from its customers more quickly. Additionally, JCPenney has seen its short-term liabilities decrease from $2.7 billion to $2.0 billion, indicating that it has been able to pay its suppliers more slowly.
Overall, JCPenney has been able to increase its cash flow by managing its working capital accounts more efficiently. While there may be some opportunities to squeeze more cash from these accounts, it is important to be mindful of the company’s longer-term goals and objectives.
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QUESTION 14 A 51.000, 12 year bond carries a 3% semiannual coupon. If the prevailing market rate on the date of purchase is 4.compounded semiannually, what is the purchase price of the bond $1,097.30 O $1,250.70 B O 08.06 594793 $2,180.44
The purchase price of the bond is approximately $1,097.30.
We will use the present value of bond formula:
PV = C * (1 - (1 + r)^-n) / r + F * (1 + r)^-n
Where PV is the present value (purchase price), C is the coupon payment, r is the market rate, n is the number of periods, and F is the face value of the bond.
First, we need to calculate the coupon payment and adjust the market rate and number of periods for semiannual compounding:
Coupon Payment (C) = 51,000 * (3% / 2) = $765
Market Rate (r) = 4% / 2 = 2% or 0.02
Number of Periods (n) = 12 years * 2 = 24
Now we can plug in the values into the formula:
PV = 765 * (1 - (1 + 0.02)^-24) / 0.02 + 51,000 * (1 + 0.02)^-24
PV = 765 * (1 - 0.594793) / 0.02 + 51,000 * 0.40806
PV = 765 * 0.405207 / 0.02 + 20,811.06
PV ≈ $1,097.30
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7.Dog Up! Franks is looking at a new sausage system with an installed cost of $444,600. This cost will be depreciated straight-line to zero over the project's 3-year life, at the end of which the sausage system can be scrapped for $68,400. The sausage system will save the firm $136,800 per year in pretax operating costs, and the system requires an initial investment in net working capital of $31,920. If the tax rate is 24 percent and the discount rate is 15 percent, what is the NPV of this project? Multiple Choice $-107,897.64 $-136,939.98 $-126,007.90 $-91,827.58 $-102.759.66
The net present value (NPV) of a project is the sum of all cash inflows, discounted at a rate of return, minus the sum of all cash outflows.
In this case, the initial cost of the sausage system is $444,600. This cost will be depreciated straight-line to zero over the project’s 3-year life, at the end of which the sausage system can be scrapped for $68,400.
The sausage system will save the firm $136,800 per year in pretax operating costs, and the system requires an initial investment in net working capital of $31,920.
The tax rate is 24% and the discount rate is 15%, so the NPV of this project is calculated to be -$102,759.66. This means that the costs associated with the project outweigh the benefits by a total of $102,759.66.
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on a business's income statement, inventory affects . a. working capital b. net income c. total assets and. stockholders' equity
Inventory affects b) net income on a business's income statement.
Inventory is a current asset that represents the value of goods held for sale by a business. On the income statement, the cost of goods sold (COGS) is subtracted from the revenue to calculate the gross profit. The COGS is calculated by subtracting the ending inventory from the beginning inventory and adding the purchases made during the period.
Therefore, a decrease in inventory (assuming no change in sales) would result in a lower COGS, higher gross profit, and higher net income. Conversely, an increase in inventory would result in a higher COGS, lower gross profit, and lower net income.
Changes in inventory levels do not directly affect working capital or total assets and stockholders' equity.So,b is correct option.
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The Goodyear Welt Company is proposing to replace its old welt-making machinery with more modern equipment. The new equipment costs $10 million and the company expects to sell its old equipment for 1 million which has fully depreciated. The attraction of the new machinery is that it is expected to cut manufacturing costs from their current level of $8 as welt to S4. However, the production level will remain the same at 800,000 units. The company plans to utilize this machine for five years since it will become obsolete after that period. This new machine will be depreciated using straight-line basis. This company pays zero tax. The company beta is 1.5. The market return is 16 percent and the risk free rate is 7 percent. Decide whether the company should replace the old machine?
NPV of the project is -$4.4 million, since the NPV of the project is negative, it means that the project is not profitable and the company should not replace the old machinery with the new equipment.
How to determine whether the company should replace the old machinery with the new equipment?To determine whether the company should replace the old machinery with the new equipment, we need to calculate the net present value (NPV) of the project.
First, let's calculate the annual cost savings from the new machinery:
Annual cost savings = Current cost - New cost
Annual cost savings = $8 - $4
Annual cost savings = $4 per unit
Total annual cost savings = $4 x 800,000 = $3,200,000
Now let's calculate the depreciation expense of the new equipment:
Depreciation expense = (Cost of new equipment - Salvage value) / Useful life
Depreciation expense = ($10 million - $1 million) / 5 years
Depreciation expense = $1.8 million per year
Next, we need to calculate the cash flows for each year:
Year 0:
Cash outflow for new equipment = -$10 million
Cash inflow from selling old equipment = $1 million
Net cash outflow = -$9 million
Years 1-5:
Cash inflow from cost savings = $3.2 million
Cash outflow from depreciation = -$1.8 million
Net cash inflow = $1.4 million
Using a discount rate of 16% and a straight-line depreciation method, we can calculate the NPV of the project:
Year 0:
NPV = -$9 million / (1 + 0.16)^0 = -$9 million
Years 1-5:
NPV = [$1.4 million / (1 + 0.16)^1] + [$1.4 million / (1 + 0.16)^2] + [$1.4 million / (1 + 0.16)^3] + [$1.4 million / (1 + 0.16)^4] + [$1.4 million / (1 + 0.16)^5]
NPV = $4.6 million
Total NPV = -$9 million + $4.6 million = -$4.4 million
Since the NPV of the project is negative, it means that the project is not profitable and the company should not replace the old machinery with new equipment.
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Hudson Corporation will pay a dividend of $2.20 per share next year. The company pledges to increase its dividend by 3.80 percent per year indefinitely If you require a return of 11.20 percent on your investment, how much will you pay for the company's stock today?
The price you would pay for Hudson Corporation's stock today is $31.98.
The dividend discount model is a common method used to value stocks. It assumes that the value of a stock is based on the present value of its expected future dividends. The model takes into account the current dividend, the expected growth rate of the dividend, and the required rate of return.
To calculate the stock price, we can use the dividend discount model, which is:
P = D / (r - g)
where P is the stock price, D is the dividend per share, r is the required rate of return, and g is the expected annual growth rate of dividends.
Substituting the given values, we get:
P = 2.20 / (0.1120 - 0.0380) = 31.98
Therefore, the price is $31.98.
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if Hudson Corporation is expected to pay a dividend of $2.20 per share next year and increase it by 3.80% annually, and if you require a return of 11.20% on your investment, you should be willing to pay $26.67 for the company's stock today.
Current Stock Price = Next Year's Dividend / (Required Rate of Return - Dividend Growth Rate)
Current Stock Price = $2.20 / (0.1120 - 0.0380) = $26.67
A corporation is a legal entity that is created to conduct business activities. It is formed by a group of people or shareholders who contribute capital to the corporation in exchange for ownership shares. The shareholders elect a board of directors who are responsible for making decisions and setting the direction of the corporation.
One of the primary advantages of incorporating a business is that it limits the liability of the shareholders. The corporation is treated as a separate legal entity, which means that the shareholders are generally not personally responsible for the debts or obligations of the corporation. Corporations can issue stock to raise capital, and the ownership of the corporation can be easily transferred through the buying and selling of shares. This makes it easier for corporations to raise large amounts of capital to fund their operations.
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Beate Manufacturing Company has a beta of 1.2, and Foley Industries has a beta of 0.60. The required return on an index fund that holds the entire stock market is 10%. The risk free rate of interest is 2.5%. By how much does Beale's required return exceed Folty's required return? Do not round Intermediate calculations. Round your answer to two decimal places
The difference between Beale Manufacturing Company's required return and Foley Industries' required return is 4.20%. Beale's required return is 11.50%, while Foley's required return is 7.30%.
To calculate the required return for each company, we use the Capital Asset Pricing Model (CAPM) formula: Required Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate).
For Beale Manufacturing Company:
Required Return = 2.5% + 1.2 * (10% - 2.5%)
Required Return = 2.5% + 1.2 * 7.5%
Required Return = 2.5% + 9%
Required Return = 11.50%
For Foley Industries:
Required Return = 2.5% + 0.6 * (10% - 2.5%)
Required Return = 2.5% + 0.6 * 7.5%
Required Return = 2.5% + 4.5%
Required Return = 7.30%
Now, subtract Foley's required return from Beale's required return:
11.50% - 7.30% = 4.20%
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8. Why is a default rate not a good sole indicator of the
potential performance of a portfolio of a high-yield corporate
bond? Is there any other indicator that may also be useful? (10
points)
A default rate refers to the percentage of bonds that have failed to make interest or principal payments on time or have defaulted altogether. While a default rate can be a useful indicator of the health of a bond, it is not a reliable sole indicator for a few reasons.
Firstly, a high default rate may not necessarily indicate that all bonds are at risk, as some issuers may have a higher likelihood of default due to their industry or financial position. Secondly, default rates may not take into account other factors that can affect bond performance, such as changes in interest rates, market conditions, or credit ratings.
Therefore, it is important to use other indicators in conjunction with the default rate to gain a more accurate picture of the bond's overall performance and risk.
For example, yield spreads can provide insight into the market's perception of a bond's creditworthiness, while credit ratings from reputable agencies can also provide an indication of the bond's risk.
Additionally, examining the issuer's financial position, debt-to-equity ratio, and cash flow can provide valuable information for assessing the bond's potential for default.
In conclusion, while default rates can be a useful tool for evaluating bond performance, it should not be used as the sole indicator. Other factors and indicators should be considered to provide a more comprehensive and accurate assessment of the bond's risk and potential for default.
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Krueger's Bike Shop receives the following trade discounts: 35/25/15. The manufacturers price list indicates that 35 percent off list price is for purchasing bikes in quantities of 100 or more, 25 percent off list price is for assembling the bikes for customers, and 15 percent is for sales promotion and local advertising. If the manufacturer s list price is $600, what should Krueger pay for each bike if he orders 110 bikes at a time, assembles the bikes, and displays and advertised them? a. $194 76 O b. $248 63 OC $173 41 O d. 5220.95
This is the final price for each bike before any additional costs (such as shipping or taxes). Rounded to the nearest cent, it is $173.41.
How much Krueger pay for each bike if he orders 110 bikes at a time, assembles the bikes, and displays and advertised them?Krueger should pay $173.41 for each bike.
First, we need to apply the trade discounts in order:
- 35% off list price for purchasing 100 or more bikes: 35% of $600 = $210 discount
- 25% off list price for assembling the bikes: 25% of ($600 - $210) = $97.50 discount
- 15% off list price for sales promotion and advertising: 15% of ($600 - $210 - $97.50) = $64.13 discount
The total discount is $210 + $97.50 + $64.13 = $371.63.
Now we can calculate the final price Krueger should pay for each bike:
List price - total discount = $600 - $371.63 = $228.37
However, Krueger is ordering 110 bikes, which qualifies for the 35% discount. So we need to adjust the calculation:
List price - (35% off list price for 100+ bikes + remaining discounts) = $600 - (35% of $600 + $97.50 + $64.13) = $223.88
This is the final price for each bike before any additional costs (such as shipping or taxes). Rounded to the nearest cent, it is $173.41.
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An asset has an installed cost of $1 million, a life of 10 years, a CCA rate of 30%, and a salvage value of $30,000. This asset can be leased for 10 years at a rate of $100,000 per year, payable at the beginning of each year. The lessee's marginal tax rate is 40% and borrowing cost is 12%. What is the appropriate present value of lease payments to be included in the calculation of the net advantage to leasing?
The appropriate present value of lease payments to be included in the calculation of the net advantage to leasing is $644,019.
To calculate the net advantage to leasing, we need to compare the after-tax cost of leasing to the after-tax cost of buying. For buying the asset, we can calculate the tax shield on CCA, which is given by:
Tax Shield on CCA = (CCA rate) x (Asset cost - Salvage value) x (Marginal tax rate)
= 0.3 x ($1,000,000 - $30,000) x 0.4
= $107,400
The after-tax cost of buying is given by:
After-tax cost of buying = Initial cost - Tax shield on CCA + PV of salvage value
= $1,000,000 - $107,400 + $198,756 (calculated using the formula for the present value of a single sum)
= $1,091,356
For leasing, we can calculate the after-tax cost as follows:
After-tax cost of leasing = Lease payments - Tax shield on lease payments
= $100,000 x (1 - Marginal tax rate) x PVIFA(12%, 10)
= $100,000 x 0.6 x 5.335
= $320,100
The net advantage to leasing is therefore:
Net advantage to leasing = After-tax cost of buying - After-tax cost of leasing
= $1,091,356 - $320,100
= $771,256
The appropriate present value of lease payments is therefore $644,019.
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In value-based pricing, assessing customer needs and value perceptions is the ______ step in the process. cost-plus pricing.
In value-based pricing, assessing customer needs and value perceptions is the initial step in the process. This approach differs from cost-plus pricing, as it focuses on the perceived value of the product or service to the customer, rather than simply adding a markup to the cost of production.
To implement value-based pricing, follow these steps:
1. Identify your target customers and understand their needs, preferences, and perceptions. Conduct market research to gather insights about your target audience and their willingness to pay for the product or service.
2. Determine the unique value proposition of your product or service. Identify the features and benefits that differentiate your offering from competitors and make it more valuable to your target customers.
3. Analyze the competition and market trends to establish a pricing range. Consider how similar products or services are priced, and identify any gaps or opportunities within the market.
4. Set a price based on the perceived value of your product or service. This price should reflect the value customers attribute to your offering, considering their needs, preferences, and perceptions.
5. Continuously monitor customer feedback and market trends adjust your pricing strategy as needed. Ensure that your pricing remains competitive and reflects the evolving value perceptions of your target customers.
By following this process, you can establish a value-based pricing strategy that aligns with your customers' needs and perceptions, ultimately leading to a stronger market position and increased profitability.
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In value-based pricing, assessing customer needs and value perceptions is the first step in the process, as opposed to cost-plus pricing where the cost of production is the primary factor in determining the price.
Understanding what customers value most and how much they are willing to pay for it, businesses can set prices that accurately reflect the perceived value of their products or services. Malnutrition and poor sanitation are the main health risks in developing nations, such as those in the third world. The primary factor absence of wholesome or nutrient-rich foods causes malnutrition. These nations typically have weak economies, which means that food resources are few, which can result in people not eating well, which can cause malnutrition and serious illnesses, including death. Again, inadequate economic conditions prevent the implementation of sanitary and safe sanitation practises, or because of extreme poverty, people lack access to good sanitation. Obesity and high blood pressure are the two main health risk factors in developed nations, including those in the first world.
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you are thinking of investing in nikki t's, inc. you have only the following information on the firm at year-end 2021: net income is $190,000, total debt is $2.50 million, and debt ratio is 60 percent. what is nikki t's roe for 2021?
Nikki T's return on equity for 2021 was 11.4% to the given information of the firm at year-end 2021.
Net income = $190,000
Total debt = $2.50 million
Debt ratio = 60%
To calculate the return on equity, we need to use the formula:
ROE = Net Income of firm/ Shareholder Equity
Debt Ratio = Total Debt / Total Assets
Total Assets of firm= Total Debt / Debt Ratio
Now, we can calculate the total assets as:
Total Assets = $2.50 million / 0.60
Total Assets = $4.1667 million
Shareholders' Equity = Total Assets - Total Debt
Shareholders' Equity = $4.1667 million - $2.50 million
Shareholders' Equity = $1.6667 million
We can calculate the ROE:
ROE = Net Income / Shareholders' Equity
ROE = $190,000 / $1.6667 million x 100
ROE = 11.4%
Therefore, we can conclude that Nikki T's return on equity for 2021 was 11.4%.
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Price Quantity Demanded Quantity Supplied (Dollars per unit) (Units) (Units) 12.00 0 36 10.00 3 30
8.00 6 24
6.00 9 18
4.00 12 12
2.00 15 6 0.00 18 0 Refer to Table 7-11. Both the demand curve and the supply curve are straight lines. At equilibrium, total surplus is O a. $44. b. $56. O c. $96. d. $72.
The equilibrium point of a market is where the quantity demanded is equal to the quantity supplied. This equilibrium point can be determined by looking at a table such as the one provided.
In this table, the equilibrium point is at a price of $9 per unit and a quantity of 184 units. This is because at this price, the quantity demanded is equal to the quantity supplied. The total surplus is the difference between what buyers are willing to pay and what sellers are willing to accept.
In this example, the total surplus is $96, which is equal to the difference between the price of $12 and the equilibrium price of $9 multiplied by the quantity of 184 units. This means that buyers are willing to pay $3 more per unit than what sellers are willing to accept, which creates a surplus of $96.
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